Private Exchange savings can be significant for employer and employee alike. States have set up Public Exchanges under the ACA, online marketplaces where people can select health insurance coverage, including subsidized plans that comply with the requirements of the ACA. Private Exchanges are similar, but can be made available by employers to employees.

Private Exchanges are proliferating, especially as the administrative complexity of the ACA grows. Some 6 million employees enrolled in Private Exchanges in 2015, double the number from the previous year, according to consulting firm Accenture. They also project there will be 40 million Private Exchange enrollees by 2018, driven by the increased administration requirements placed upon employers by the ACA and other health care-related laws.

Here are three important reasons organizations are shifting to Private Exchanges:

1. Employers May Find Private Exchange Savings

Private Exchanges enable employers to have more health care cost predictability by allowing them to shift to a defined contribution strategy. Employers can thus provide a fixed amount of money to an employee (for example, $350 per month to an individual for them to use when they select a health plan), who can then go to the Private Exchange and select the health plan they want. Many organizations are also looking to avoid the ACA's large "Cadillac tax," a tax on expensive employer-provided health care plans set to roll-out in 2020, and are using Private Exchanges to do so, according to HealthCare Finance News.

As a report from the Kaiser Family Foundation explains, "by facilitating a shift to a defined contribution through a fixed dollar benefit, Private Exchanges offer the potential for cost stability to employers, while giving greater choice to employees." Small and midsized firms, greatly concerned about the rising costs of health care, have viewed Private Exchanges as a way to better fix costs, rather than continuing to pay a percentage of an ever-increasing health insurance premium on behalf of employees, and large organizations may soon follow suit.

2. Supports Compliance Efforts

As the ACA has rolled out bit by bit, the complexity of its requirements has grown with it. The ACA has placed great stress on the ability of organizations to comply with its requirements. Private Exchanges offer employers the benefit of reducing their health care administration costs. Many of the administrative burdens of offering ACA-compliant health care plans can be shifted from the organization to the Private Exchange, allowing in-house resources to focus on employee wellness rather than red tape. Smaller and midsized firms have been especially stretched in administering health care benefits under the ACA and have viewed Private Exchanges as a solid option to better manage some of their compliance efforts.

According to an article from the Society of Human Resource Management (SHRM), employers aren't stepping away but are stepping back from compliance efforts: "Under the Private Exchange model, employers no longer manage plan design and insurer relationships, including claims appeals, as those matters are outsourced to the exchange. As with other outsourced vendors, however, HR remains responsible for overseeing the employer's ongoing relationship with the exchange provider." Employers should also consider that while a Private Exchange can address plan design and carrier interaction, approving the Private Exchange content is the employer's responsibility.

3. Saves Your Employees Money and Offers Enhanced Consumer Choice

As more employees enroll in Private Exchanges, economies of scale will increasingly help reduce the price of premiums that Private Exchanges are able to negotiate with the carriers. In addition, competition within Private Exchanges (among carriers) to attract and retain enrollees will help stimulate conditions for cost savings and increased choice for enrollees. As Private Exchanges grow, innovation will grow, too.

Employees also benefit from choice, as opposed to just accepting the organization's chosen health care provider. According to an NPR article, employees prefer to shop around in order to find the best fit for their particular needs and resources. Younger employees, for example, could choose lower premiums and higher deductibles, whereas older employees might choose lower deductables and pay higher premiums. As a result, organizations could put more focus on employee wellness initiatives or other benefits.

As the long rollout of the ACA continues, Private Exchanges will become an ever-more attractive option for organizations seeking to control their health care costs, comply with the health care reform and provide their employees with more choices in the important area of health care. Although a Private Exchange may not be the only solution for all organizations, it's an alternative worth exploring. View this infographic to see the breakdown of the costs and benefits of a Private Exchange.

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