Private Insurance Exchanges in the Mainstream

Employer-sponsored health insurance exchanges are featured on the front page of the Wall Street Journal today, as Sears and Olive Garden’s parent start providing employees with benefits dollars to be used in a private health insurance marketplace. I published an interview about private exchanges earlier this week, so the topic is timely.

Whenever a company adopts this model, yellow flags go up. First, people worry that the shift to an exchange is a move by employers to shift costs to employees. Second, there’s a related worry that matters will get worse over time as company contributions fail to keep up with premium growth. I understand why these objections come up, but I don’t think there’s a lot of merit to the concerns.

There are a couple main reasons that people worry about cost shifting:

First, employers have been cost shifting for years, so the natural reaction is to assume that any change is just another cost shift. And yes, some companies do increase cost shifting when they move to an exchange –but they probably would have done so even if they hadn’t shifted
Second, the move to exchanges is often compared to the transition from defined benefit to defined contribution retirement plans. In the olden days retirees received pensions based on their final pay rates and number of years of service. When 401K’s came in, employers ended up contributing a lot less –sometimes nothing at all. It wasn’t until employees neared 65 that they figured out that they were in much worse shape for retirement under the new system than the old. Health insurance is purchased on an annual basis, so it will be much easier for employees to see how they’re making out. They won’t have to wait till age 65 to see the consequences. And companies competing for talent will still need to offer competitive benefits