Consumer Driven Health Care 2.0: Are Private Health Insurance Exchanges the New ‘Killer App’?

Originally published in Tax Management Weekly Report on 11/05/2012.

In a September 27, 2012, front page article, the Wall Street Journal reported that Sears Holdings Corp. and Darden Restaurants, Inc., had adopted a consumer-driven health care arrangement under which each employer would provide its employees with a fixed sum of money with which to purchase medical coverage through an online marketplace—or ‘‘private health insurance exchange.’’ According to the report, the change ‘‘isn’t designed to make workers pay a higher share of health coverage costs.’’ Instead, the companies claim that the change will put more control over health benefits in the hands of employees.

While the Journal’s account may leave the reader with the impression that the approach that Sears Holdings and Darden Restaurants have adopted is something entirely new, this is not the case. Beginning in earnest with the technology boom in the 1990’s, employers routinely offered to pay premiums on all or at least a good portion of a basic level of group health coverage, either individual or individual and family, and also made available more generous coverage options that employees could elect and pay for. Even then, it was not uncommon for various coverage options to be provided by different carriers. What is new is not employee choice, nor is it the ability of employees to buy-up to increasingly generous coverage. Rather, the innovation resides in the enhanced flexibility introduced by the availability of private insurance exchanges. The number of available choices will be much greater under a private exchange.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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