Not long ago, private exchanges were a relatively unknown corner of the benefits business that, despite having been around for years, were rarely used and certainly not the preferred method to get benefits, especially for employer-based coverage.
Now, just four years after the landmark Affordable Care Act introduced the benefits world to public exchanges and the promise of individuals buying health insurance in an open, transparent marketplace, private exchanges have sprung to life, causing more than one observer to tout them as the future of benefits.
Accenture projects that by 2018 the number of enrollees in private exchanges will surpass the number of enrollees through the ACA-mandated public exchanges. That’s 40 million total enrollments — roughly 25 percent of the commercial health insurance market or, visualized a different way, the equivalent of the entire populations of Texas and every state that borders it. A recent poll by the National Business Group on Health (NBGH) found that 35 percent of large employers plan to offer their employees coverage through private exchanges by 2016. The number from the Kaiser Family Foundation, while not as optimistic, still puts the number at one in five companies with 5,000 or more employees considering private exchanges.
A Strategic Imperative
All of this momentum would seem to beg the question, “What strategies can I execute if I join a private exchange?”
But maybe that’s the wrong question. Maybe, instead of letting the exchange tail wag the strategy dog, the question you should ask is, “How do potential private exchange solutions — or any solution — support my benefits strategy?”
The answer, we think, lies in a simple equation:
Marketplace + Administration + Informatics
This three-pronged approach does not explicitly answer the question of which exchange solution is right, but instead focuses on the fundamentals of achieving a successful benefits strategy.
Perhaps the most significant development attached to private exchanges is the notion of shopping for benefits. The past two decades have seen the Internet’s “great equalizer” effect lead to a multitude of industry transformations — from retail to travel, life insurance to real estate. Yet the employer benefits space, and health insurance in particular, has remained relatively sheltered and unchanged. That is, until the Affordable Care Act.
The lightning rod of change mandated by the ACA set off a flurry of activity in the private sector as well, and finally the industry push for consumerism caught up with its rhetoric. The result is that many view “private exchanges” as a proxy for a consumer shopping experience. Indeed, a shopping experience that is rich with options – and the support tools that help guide a user through those options –is a cornerstone of private exchanges of virtually all permutations.
But simply having a focus on the look and feel isn’t enough. You need to truly understand the user experience — from the usability patterns, to the content and support tools, to the data infrastructure. That is what it means to be a marketplace for benefits. It’s not just a showroom; it’s the whole supply chain and infrastructure supporting it.
That “supply chain” analogy leads to the next piece of the equation. While some private exchange solutions seem to stop at the front-end user experience, over time it stands to reason that a marketplace without administration is more damaging to a benefits strategy than no marketplace at all. Why? Simply put, the benefits business is not getting less complex because of consumerism. If anything, the promise of offering more plans, more decision support and more total benefits can quickly mushroom into an administrative nightmare with an incomplete solution. The blocking and tackling of the ecosystem surrounding the marketplace needs to be administratively seamless. Among other things, you are attempting to unify – or pay the consequences for not unifying – disparate data and systems such as insurance carrier interfaces, payroll deductions, reconciliation, TPA services and much more. Companies can’t afford to address that burden, and immature exchanges, or exchanges that aren’t technology-centric, don’t truly address it. They just plug the holes in automation with people-heavy manual processes.
Here is where the private exchange conversation has rarely advanced to at this point. The “new way” is to be very heavy on providing analytics that make the case for the strategy of the exchange, not the employer’s strategy. The “old way” is to simply push users and administrators alike through workflows focused on transaction execution, which again fails to address a specific strategy.
The new way — and in our view the only way — is to capitalize on personalized data to accelerate the effectiveness and value of your benefits strategy. For consumers, that means real transparency of their claims data and recommendation engines that meet their needs, no matter their profile. For administrators, it means real-time access to open enrollment analytics and ongoing access to cost and risk data so they can constantly improve without waiting on others to make decisions for them.
Lead with Insight, Follow with Consumerism
There’s little reason to question the forward march to a true marketplace orientation for employer benefits. The polls and reports are all unified on this point. But what matters most is not which private exchange will win the horse race, but rather which go-forward model, exchange or otherwise, will unlock the strategic and financial potential most efficiently and effectively. By starting with the right equation, your answer could be surprisingly simple.
Shandon Fowler, our Director of Product Management, Marketplaces, will be speaking on this topic at the 2014 HR Technology Conference in Las Vegas, NV, October 7-10.