Private Health Insurance Exchanges––Will They Save Money? Will the Idea Grow?

Private health insurance exchanges will save employers money but not make health insurance cheaper.

Because private health insurance will save employers money, they will grow.

Will Private Insurance Exchanges Reduce Health Insurance Costs?

There's lots of buzz these days about private insurance exchanges. The idea is to give employees more choice in purchasing their own individual coverage from a big menu of insurance companies and plan alternatives, and as a result, create more robust competition and thereby help control costs.

But I think private insurance exchanges will have just the opposite effect on the price of large employer health insurance plans.

Will Many of the Smallest Employers Circumvent the Affordable Care Act by Using Self-Insurance?

Not surprisingly, only about 10% of firms with fewer than 200 workers take advantage of self-insurance––and almost no very small groups (fewer than 50 workers) use the product. It just isn't worth it for these small employer groups to take the risk that they will either have too many claims or very big claims from their workers––that is what insurance companies are for.

Already, 96% of workers in firms with more than 5,000 employees are in self-insured health plans. For firms between 1,000 and 5,000 workers, 79% are in self-insured plans. For employers with 200 to 1,000 workers, the self-insured rate is 50%.

But with the bulk of the implementation of the Affordable Care Act (ACA) to begin in 2014, that may be about to change.