Over the past 9 months I have been speaking at conferences or sitting on panel discussions where the topic was Private Exchanges. In some cases the audience consisted of employers and other times the audience was filled with benefits brokers. On each occasion I asked the audience the question, “What is a Private Exchange?” In all circumstances there was never any agreement on what a Private Exchange was. Yet in my presentation I highlight several studies one which says over 70% of employers would consider switching to a Private Exchange. I am wondering what these employers thought a Private Exchange was when they were answering the question. Seventy percent of employers want something that nobody can agree on what it is. And just the other day I was asked by a broker if I could help them respond to an RFP where the employer was asking if the broker (who is supposed to be an independent advisor) had a Private Exchange. I can’t imagine what response we would get if we asked the employer to define what they meant by a Private Exchange? I think if the broker asked she would not get the business so I did not advise she ask. What I do know, whatever a Private Exchange is, the broker needs to have one. Maybe she will have a better chance to get the business if she had 3 or 4 Private Exchanges. Who knows?
So I am going to define what a Private Exchange is and isn’t. Maybe it will start right here where we all will begin using the same language to describe what these new benefit offerings are or aren’t. One may ask who anointed me the king of defining this. My last name is not Webster (as in Merriam Webster Dictionary). Nobody anointed me. But if no one is going to take the lead why not me. I don’t have a horse in the race. I am not a broker, not an insurance company, and not a technology vendor wanting to promote my technology. I also don’t sell insurance to employers. So I have no vested interest in whatever Private Exchanges are. I will say that I do understand the technology as that is my business. And I know what Defined Contribution and Cafeteria plans are as I sold them in the late 80’s. So I do have some knowledge in the area.
I am going to keep this simple. To me a Private Exchange is intended to be a Private version of a Public Exchange. The entire US population is being educated by the government, media, and other interested parties about what an Insurance Exchange is. To take the word Exchange, and make it something different from what the populace is being told an exchange is, I will say is somewhat “deceptive”. In fact, when I do ask employers what a Private Health Exchange is they usually describe it as a marketplacewhere an individual can get access to a wide range of health insurance options from many insurance companies. In my personal life I think of an Exchange or Marketplace as someplace that has many options from many companies. I know the difference between an Apple Store and Best Buy. I know the difference between buying a product at the NIKE, SONY, or Apple website versus Amazon. And I know all you reading this do too.
So using this logic of the way the world understands the term Exchange or Marketplace then the majority of the Private Exchanges being promoted today by benefits consultants and brokers, insurance companies or technology vendors, are not Exchanges or Marketplaces. If there are not multiple products from multiple vendors available where the buyer is free to choose what they want from the menu then it is not an Exchange. Multiple products on a technology platform from the same company is not a Private Exchange. And I don’t want to hear the argument that they have Medical, Dental, and Life from different carriers. That is like saying you can buy a TV, stereo, and mobile phone from the same store but you only have one vendor option for each type of product. While there are some states where real Exchanges exist (CA and MD Small Group Markets) and they do exist for individual insurance, for the majority of the group market there are no Private Exchanges. You can offer more medical options and provide a different methodology to fund these options, aka Defined Contribution, but don’t call them Private Exchanges. You are confusing the buyers.
I’m pretty sure this article won’t stop those with agendas from calling these things Private Exchanges and I will have to advise my broker customers that they may have to play the game because they don’t make the rules, but hey, I tried.