Are Private Exchanges the Solution For Restaurant Healthcare Coverage?

There’s been a lot of uncertainty around the Affordable Care Act (ACA), what with shaky website rollouts and patchy state-led networks.  In an effort to be prepared for the upcoming healthcare coverage mandate, many restaurant businesses are looking into private exchange marketplaces as a viable alternative for healthcare insurance coverage. Some well known chains have already made the move. Here are the pros and cons for choosing private over public healthcare exchanges.

The Pros of Restaurants Using Private Exchanges for Healthcare Coverage

Private healthcare exchanges run independently from the federal government. In theory, they represent a way to decrease risk, improve predictability and save money when offering employees coverage. From the employer perspective, a private exchange is appealing because you can know exactly how much you are going to spend per employee. In addition, some employers feel that the design of many private exchanges is laid out in such a way as to make employees’ options very clear, thereby limiting confusion and facilitating clear communication between employee and employer. Early reports from restaurants who have switched to a private exchange are positive, encouraging others to consider the potential cost savings found there.

The Cons of Restaurants Using Private Exchanges for Healthcare Coverage

While private exchanges may help employers limit their costs, not all employees are convinced that the benefits are in their favor. There seems to be some confusion in the sentiment, with 50% of employees surveyed last fall saying that they thought a private exchange would “give them greater choice and flexibility to choose benefits” while the other half said that going to a private exchange is, “merely my employer trying to cut costs.”

Public appearances aside, the biggest downside for employees using a private healthcare exchange is that they will then be excluded from eligibility for an insurance subsidy on the federal public exchange. Since many restaurant employee incomes are low, they would likely pay less for subsidized healthcare coverage on the federal exchange than they would on a private exchange.

Last but not least, private exchanges are only a good method of lowering costs if premiums don’t go up and up each year. If that happens, the employer will still end up increasing their cost of subsidy in order to give their workers access to an equivalent out-of-pocket expense.

Restaurants Turn to Private Exchange in Preparation for the 2015 Mandate

Starting January 1^st, 2015, any company with 50 or more full-time-equivalent employees must offer their workers affordable healthcare insurance or else face penalties. There have already been a number of well known chains who have made the move, including Darden Restaurants, Inc. (Red Lobster, Olive Garden, Longhorn Steakhouse brands) and DineEquity, Inc. (Applebee’s, IHOP, Bob Evan’s Farms).

Theoretically, a private exchange should cut costs for restaurant owners, but how much it does is highly dependent on a number of variable factors. The whole system is still in its experimental stages, and only time will tell whether choosing a private exchange over the public exchange is truly the most beneficial choice for restaurant businesses to make.