HR Administration

Piquing Employers’ Interest in Private Exchanges

By Sarah Sipek

Dec. 22, 2014

Health care benefits providers believe in the private exchange. Just look at what they’ve been spending.

On Nov. 3, Aetna announced its acquisition of private exchange company bswift for $400 million. The move helped Aetna remain competitive against Aon Hewitt, Mercer and Towers Watson, companies that had already spent millions of dollars to build exchanges that allow employees to purchase their own health insurance.

But until this point, the effort hasn’t exactly proven worth the cost. According to the 2014 Kaiser Family Foundation study on employee health benefits, only 3 percent of the workforce currently receives health care benefits through a private exchange. 

However, a newly released survey from the Private Exchange Evaluation Collaborative suggests that previously hesitant employers may soon be ready to buy into the private exchange.

The collaborative is an initiative launched by PricewaterhouseCoopers and four nonprofit business coalitions to help employers assess potential private exchange strategies and the vendors they may use to implement these strategies. 

The group’s survey of 446 employers across 34 different industries found that while only 6.4 percent of companies have implemented a private exchange strategy to date, 41 percent are considering providing medical benefits through a private exchange by 2018.

According to Barbara Gniewek, a principal in the New York office of Pricewaterhouse, the 2018 implementation of the so-called “Cadillac” tax is a motivating factor for many employers to rid themselves of the burden of providing an employer-sponsored group health plan.

The Cadillac tax is a 40 percent tax on employers that provide high-cost health benefits to their employees. It is intended to encourage employers to provide cost-effective health care plans that engage employees in sharing the cost of care. It also hopes to generate $80 billion over the next 10 years to help finance the expansion of health coverage.

Aside from that looming consequence, Gniewek credits employers with becoming more educated as to the potential benefits of moving to the private exchange.

“Previously, they really didn’t understand the market,” she said. “Employers have matured a lot. They understand where the savings are coming from.”

Gniewek emphasized that it’s important for employers to realize that they may have to spend money on the technology upfront, but the reduced burden on the human resources department and the improved user experience for employees are an added value in addition to avoiding a tax hike.

Sarah Sipek is a Workforce associate editor.

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