“Let’s start at the very beginning – a very good place to start.”
While it may seem peculiar to juxtapose Rodgers & Hammerstein’s “The Sound of Music” with private insurance exchanges, bear with me for a moment. True, this comparison gives me the opportunity to revisit my favorite movie, but there is so much more to it. Think back to Maria and the von Trapp family frolicking around the Austrian countryside, singing the iconic song lyrics to “Do-Re-Mi.” The rapt children listened and followed as Maria described to them the importance of learning the individual notes that make up a song.
Let’s take the same approach to understand the popularity of private insurance exchanges, as employers seek to offer employees more coverage options while cutting costs and streamlining administrative tasks by moving systems online. First, we will look at each individual building block. By mastering the basics, we can better understand how these components can be assembled to create a customized exchange that meets the unique needs of each employer.
Online Portal – The common denominator of most private exchanges is that the primary method for enrollment is an online process. Certain exchanges do allow for telephonic enrollment support and options, but almost all exchanges are digitally based. Some are focused strictly on the enrollment event; some provide employers with back-end benefits administration options, while some exchanges offer both options. Exchanges that provide both options allow employers to retain their existing technology while benefitting from the online enrollment portal.
Standard Plan Designs – Most designers try to standardize private exchanges across employer groups. Eliminating the need to create and build new and customized plan designs for each employer results in increased operational efficiency. It also enables designers to use the same decision support systems and tools for many different platforms. The less customization involved, the easier it is to use the same technology for multiple employers. In some cases, especially for large employers with grandfathered medical coverage, decision support tools will be more customized for medical coverage, and less so for ancillary offerings.
Defined Contribution – Defined contribution means that employers contribute a set amount of money for coverage. In some instances, this contribution will fund 100 percent of the premium for a basic plan with the employee responsible for the difference. However, in many situations, an employer’s contribution does not fully cover any plan, so the employee is also responsible for contributing funds for the plan of their choosing.
In more robust exchanges, employers may fund products separately and at different levels – so there may be a bucket of dollars for medical, another for disability and possibly another for voluntary benefits.
It should be noted that “defined contribution” does not always mean that the employer fixes his or her contribution in the first year and never adjusts it. Rather, employers have indicated that they intend to continue to increase their contributions – but perhaps at a rate to be determined each year prior to the open enrollment period.
Decision Support – Most exchanges do not simply offer products on their “shelf” and allow employees to choose without some sort of guidance. Employers generally want to provide their employees with direction as to what plan or plans would best suit their needs. However, decision support takes many forms, from robust tools that walk employees through a series of questions and make a comprehensive recommendation based upon their answers, to more product-specific tools that educate employees on the features and benefits of one particular offering – sometimes paired with a needs calculator, brochure or video.
Health Engagement/Improvement – Health improvement is one of the more ambitious elements of exchanges and one that may take some time to yield results. The goal of this model is to engage employees in the plan selection process provide them with increased access to decision support tools and make them more financially responsible for their insurance decisions. In doing so, there is an expectation that overall health will be improved, thus controlling costs to the “system.” In some cases, incentives may be offered to employees that follow guidelines for maintaining a healthy lifestyle and track their activities online.
Putting the Pieces Together
“One word for every note.”
As Brigitta von Trapp aptly notes, the “Do-Re-Mi” exercise “doesn’t mean anything,” until Maria instructs the children to put the words in context by assigning a word to each note. As the notes come together, you hear a melody. Similarly, as we combine the fundamentals above, we start to see how these elements come together to create different exchange models.
Private insurance exchanges as they currently exist in the market are created in many different ways by many different parties. While some have similar features, there is no formal standard. Technology firms, consultants, brokers and others have each developed and implemented exchanges with different features, so trying to nail down the specific criteria that underpin an exchange is very difficult. The high-level descriptions of the models I have listed below should be read with the understanding that each exchange will fall somewhere within a wide spectrum, rather than within neatly organized categories.
Enrollment-Focused – Enrollment-focused exchanges are exactly that. They are focused purely on the enrollment event and do not generally offer ongoing benefits administration for employer groups. Some, though, are adding this element, allowing employers to both retain and continue to leverage their investment. Enrollment-focused exchanges have historically made significant investments in decision support that provide employees with guidance as they make medical, savings, spending account and voluntary benefit elections.
Enrollment-focused exchanges can offer products from a myriad of carriers or limit choices based upon an employer’s wishes. Employers also have the option to offer products from one or multiple carriers in different coverage categories. For instance, an employer may wish to offer several options for medical but only one for vision.
Enrollment and Administration – Full-service enrollment and administration carriers provide employers with both support for the initial enrollment period and for the ongoing administration of the employer’s benefits plan. These exchanges are a great option for employers looking for a “one-stop shop” for gathering enrollment information to send to carriers, as well as support for ongoing benefits administration.
These exchanges provide a broad, frequently integrated solution for employers and offer employees a variety of best-in-class products from established carriers. However, they typically rely on carriers to provide decision support to employees during the enrollment process.
Carrier-Driven – Carrier-driven exchanges provide employers with a way to access many elements of exchanges while partnering with a single medical carrier. This approach is ideal for employers in a market with a single dominant medical player or for those who typically work with a single medical carrier over the long term to manage employee health through wellness programs, etc. While these carrier-driven exchanges are often delivered through a single medical carrier, they can offer ancillary coverages such as dental, vision, disability, life, voluntary benefits, etc. through partner carriers or subsidiary companies of the medical carrier.
Technology -Driven – It goes without saying that each model of private exchange has a significant technological component. That being said, some exchanges were built, not from existing systems or insurance-centric backgrounds, but by implementing modern technology to create an entirely new marketplace for employees to research and select benefits. These exchanges tend to offer an array of medical carriers – sometimes limiting the choices for specific markets. This is not to say that they are carrier agnostic. Typically, carriers are vetted but can be switched on and off depending upon the need. These exchanges typically see a greater level of plan design standardization than some others do. This model can also be deployed through different channels – such as multiple brokerages – and can be privately labeled.
“When you know the notes to sing, you can sing most anything.”
Just as musical notes can be combined in a multitude of ways to create unlimited melodies that meet many tastes, exchange elements can be combined in a host of ways to create a private exchange that meets the unique needs of an employer. Because the private exchange market is still in its infancy, we will continue to see new entrants, new models, and new paradigms as creative people utilize cutting-edge technology and innovative thinking to help brokers, consultants and employers deliver true value to employees. Similar to the dramatic alpine scenery of Salzburg, the future for the evolving private insurance exchange landscape is quite compelling.