Getting Health Insurance on a Private Exchange

My employer is no longer going to provide health insurance and is having us buy coverage through a private exchange instead. What is a private exchange, and what does this mean for our coverage?

Find the Best Help on Health Exchanges

A private exchange is a health insurance marketplace, where employees can buy coverage from one of several insurers rather than getting coverage through their employer’s group policy. Instead of giving you a few policies to choose from during open enrollment, with prices based on the employer’s size and risk, some companies are opting to give employees a fixed amount of money to use on a private exchange, where they usually have more choices. About 5% of employers currently let employees purchase benefits through a private exchange, although many more are considering the option.

Each exchange is a bit different, but usually a number of employers participate. The largest exchange is administered by benefits consulting firm Aon Hewitt. More than 600,000 employees and their dependents in 18 companies participated in the exchange in 2014, including large national employers such as Walgreen’s, Sears and Darden Restaurants. Aon’s exchange divides the country into 21 regions with different insurers and costs. Each region has three to five insurers offering coverage. The insurers include big national companies, such as United Healthcare and Aetna, and regional insurers, such as HealthNet and Kaiser Permanente.

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Each insurer must offer plans for each of five levels of coverage (bronze, bronze plus, silver, gold and platinum). The requirements for the metal levels on the private exchanges are slightly different from the requirements on the public exchanges. And unlike the public exchanges, each level of Aon’s public exchange is standardized; every bronze policy must have the same co-payments and deductibles, for example, regardless of the insurer. The only differences can be the premiums and networks. “We have eliminated all that complexity and have standardized the benefits,” says Ken Sperling, national health exchange strategy leader for Aon Hewitt.

Walgreen’s was one of the largest companies to join Aon’s private exchange in 2014. Previously, the company was self-insured (paying claims from its own money, like many large companies do) and offered two coverage options. Now, Walgreen’s pays a fixed amount for employees (based on the cost of a silver policy in their region), so costs are more predictable.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.