With an ambitious project to provide low-cost health insurance to more than 32 million hitherto uninsured Americans, the U.S government in 2010 revealed its plans to establish state- based health care marketplaces. The ideology behind these state exchanges was indeed groundbreaking and it soon caught the fancy of major healthcare giants, who professed their intentions to set up their own ‘private’ healthcare exchanges.

So what are Private Health Exchanges?

The private health exchanges are exchanges set up by a private sector company or a private non-profit organization.

For the uninformed, healthcare exchanges in general are online portals, where insurance buyers can view all available healthcare plans from several healthcare insurance providers/sellers. Buyers can search, compare and choose a healthcare plan based on his or her preference from any insurance provider listed on an exchange.

There are several private insurance exchanges currently operative in the US; notable among these are the eHealthInsurance.com and HSAinsurance.com. Extend Health Inc., founded in 2004, is a leading online Private Medicare Insurance Exchange in the US that offers individuals and employers the option to compare and shop for their preferred Medicare plans from Extendhealth.com.

Effecting change in the healthcare industry

Establishment of these private exchanges opened new vistas for other health players in the healthcare industry.

Small businesses

Unpredictable cost of health insurances and added stress of choosing a health plan for their employees impelled many small business employers, to consider Defined Healthcare Contribution Plans (DHCP) option. DHCP is an employee retirement plan wherein an employer contributes a fixed amount annually to an employee’s account.

With these private exchanges, instead of selecting health plans for his employees, an employer just needs to direct his employees to a private exchange and permit them to pick their own health insurances. Studies have shown that when given an option to choose their own health insurances, most individuals pick plans with lower premiums, which helps in further bringing down the overall insurance costs for an employer.

Further, the employer mandate of PPACA necessitates employers with 50 or more employees to provide health insurances to their employees. If an employer fails to do so, he may incur huge penalties or higher taxes. Private exchanges provide a cost effective alternative to avoid these penalties and provide insurance to employees.

Health IT solutions firms

As the idea of private health exchanges began doing the rounds, many healthcare IT companies started designing innovative technology solutions to aid healthcare giants in setting up their own private healthcare exchanges. Apart from providing customized solutions to health insurance providers, some technology firms also offer user-friendly tracking and management tools for employers, vendors and brokers to help them manage their customers’ records better.

Cashing in on the growing trend

Quite a few recognized names in the US healthcare sector recently revealed their plans to set up their own exchanges.

In September 2011, WellPoint, Blue Cross Blue Shield of Michigan and Health Care Service Corporation entered into a collaboration to offer defined contribution plans for employers and private exchanges services across America. A month earlier in August 2011, Walgreens, the leading drugstore chain in America, announced its plans to sell health insurances through a private health exchange.

On the outset it appears that Private Insurance Exchanges together with state health exchanges will revamp the way Americans buy and sell insurances in future. Well, it’s about time!