It began as a slow trend for smaller businesses in response to rising healthcare insurance costs. But it looks like private insurance exchanges are here to stay. Many employers are taking a hard look at private exchanges particularly in light of the impending "Cadillac Tax" in 2018, a 40% excise tax on high-cost plans. It's estimated by the American Health Policy Institute that the tax could affect 38% of large employers (and 17% of all U.S. employers).
In essence, the private insurance exchanges allow employers to pay a defined contribution or a set fee per month for each employee, and provide the employee with the ability to select and design their own insurance plan from an array of options. The employer can increase the defined contribution by a set amount every year (for instance, 5%) rather than accepting the health plan's increase which could be significant. This varies from the traditional employer model in which employers self-insure directly with an insurance company. These private exchanges are similar in construct to the public exchanges (state and federal) that have developed by way of the Affordable Care Act.
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