Third, an employer could opt to set up a “private exchange” and arrange
for its employees to get coverage through this mechanism. In many
respects, this is a half-step between the first two options, one that employers
are starting to explore, in large part because insurance brokers and HR
consultants are starting to market and aggressively promote private
exchange packages.180 Private exchanges offer some significant advantages.
Most importantly, employees receiving their coverage through a private
exchange can, if their purchase options are set up properly, continue to get
the tax shelter for the premium contribution by the employer and also for
any contribution the employee makes through a payroll deduction
arrangement.181 On the other hand, employees getting coverage on a private
exchange cannot receive federal tax subsidies as they can on public
exchanges.182 Since a tax shelter benefits higher-paid employees more than
lower-paid employees, and the tax-credit subsidy on the public exchange is
available only to lower-income employees,183 it is easy to see why higher-paid employees might favor the private exchange approach more than
lower-paid employees. Thus the composition of the employer’s workforce
and the “voice” (i.e., influence) that each segment of that workforce has
within the company can substantially affect the employer’s decision to use a
private exchange. Another important factor in that decision is the cost to
maintain a private exchange, which is mostly the fee paid to the entity
chosen to administer the exchange.184 Obviously, the calculations necessary
(explaining basic facts about the Cadillac tax).
180. See Akshay Kapur et al., The Emergence of Private Health Insurance Exchanges:
Fueling the “Consumerization” of Employer-Sponsored Health Insurance, BOOZ & CO. 1, 4-
5 (2012), http://www.strategyand.pwc.com/media/file/Strategyand-Emergence-Private-Health-Insurance-Exchanges.pdf.
181. See Nancy Duta and Christopher Calvert, Thinking of Joining a Private Health
Insurance Exchange? Look Before you Leap, 21( 1) PERSPECTIVES 2 (Sibson Consulting,
2013), available at http://www.sibson.com/publications/perspectives/volume_21_issue_1/
pdfs/printall.pdf (last visited 6/2/2015). See also Emanuel, supra note 173, at location 5494
of 7285 (Kindle reference).
182. See Health Care Reform: What is a Health Insurance Exchange, AETNA, http://
visited June 22, 2015) (“The Affordable Care Act provides tax credits and subsidies . . .
when [individuals] shop on a public exchange.”). See also Duta and Calvert, supra note 181,
at 2 (“***employees purchasing coverage on a private Exchange will not receive the
premium assistance subsidies for low-income employees. This difference between the
private and public Exchanges can be extremely significant for individuals in lower-paid
183. See Duta and Calvert, supra note 181, at 2 (discussing how subsidies are available
to qualifying individuals who do not have access to affordable insurance). See also
discussion at supra note 168. In absolute dollars a tax shelter is more valuable to higher-paid
employees who are in a higher income tax bracket. However, in relative terms the tax benefit
may be less critical to a wealthier employee’s ability to afford health insurance.
184. See Health Care Reform: Private Exchanges Considered, GATEWAY FIN. (June