Private exchanges are marketplaces created by private organizations offering health insurance and ancillary benefit products to employer groups and individuals. Employers purchase health insurance through the private exchange, and their employees can choose a health plan from participating carriers.

Private exchanges are not a result of the Affordable Care Act (ACA)—and they aren’t run by the state or federal government. They aren’t new. They are, however, part of a big change that employees nationwide experienced this year during open enrollment season. They are a model that employers can consider for offering health insurance to employees, however.

So how do you know if private exchanges are right for your business…and your groups?

You should consider the value they can bring to you and your groups. They may be attractive because they are flexible and can be customized. Also, they can offer a wide range of products, including ancillary, all of which are appealing to employees.

There are plusses for groups, too. They decrease benefits administration burdens that often plague traditional plans, such as group and plan management, billing, and open enrollment. They also offer:

• Less risk for the employer. Future increases in health care costs are transferred to the carrier.
• Simplified administration for employers/HR departments.
• More choices for employees, as well as greater cost awareness. This helps them better understand their benefits, increasing their satisfaction.
• Transition to a defined contribution model. This is an affordable alternative to employer-sponsored group health insurance plans.
• User-assistance tools to increase benefits and insurance transparency as well as health literacy.

Another upside? Employers can use the money they save via defined contribution plans to offer health and wellness coaching programs that are very popular with employees. These often fall by the wayside because employers struggle to fund them in addition to health insurance. Through these programs, employers can provide incentives to engage employees in health promotion and behavior change. And that’s good for employees and employers alike! Healthier employees equal a reduction in health care costs.

Private exchanges aren’t right for everyone—but they may work for you. Consider your own business needs, as well as those of your groups.