Tag Archives: Private Exchanges

The Status Quo is “The Other Guy”

What is the status quo? In the benefits business, there are many who like to label the “other guy” as protecting the status quo. Yet, after I learn about what the person making the proclamation about his/her competitor is really doing, I conclude that they are protecting the status quo too. I know there is a desire to be different in business. Many books have been written about needing to be different. However, one is not different through a simple proclamation.

I hear new ideas every day. In the health insurance and health care businesses some of these proclaimed “new ideas” are really repackaged “old ideas”. Private Exchanges promoted as new in 2014 were recreations of cafeteria plans sold in 1986. Level-funded plans are similar to minimum premium plans sold in the early 90’s. GAP type plans were being administered in the late 80’s. On many occasions, these were promoted as new and if you didn’t sell these products, you were protecting the status quo.

Now we have an army of benefits advisors promoting things like direct provider contracting, direct primary care, referenced-based pricing, as the new savior of the health insurance system. Yet, according to one-person I quote and trust, Mark Bertolini, ex-CEO of Aetna, “direct contracting will be a failed model”. Those promoting these programs are claiming that those that don’t promote them are “protecting the status quo” while a respected insurance executive says they won’t work. Who is one to believe?

I am taking a different perspective. What if protecting employer-based insurance in general is protecting the status quo? There are brokers running around saying “Mr./Ms. Employer, you are in the health insurance business, get over it and take control”. Put in all these programs to micro-manage your claims. Well I am pretty sure employers don’t want to be in the health insurance business and be in the claim’s management business. (Though they don’t mind giving the employee some money.) If given the option to get out they would.

I am also pretty sure most employees would like more health insurance options versus having the limited options provided by employers. I know I would want more options. Yet I see no lobbying to get the employer out of the middle of health insurance, other than from the likes of Mark Bertolini and President Trump. So, if virtually everyone wants the employer out of the middle, then I would conclude that protecting employer-based insurance is protecting the status quo?

President Trump, through Executive Order, made the biggest change to our health insurance system in the last 60 years. However, rather than embrace it and deliver what most employers and employees want, the industry is somewhat ignoring it. I have some news though; this is not going away. The train has left the station. Employers and employees will eventually get what they want, and when they get it, they won’t go back.

So as one wanders through this health insurance maze, pause before you label “the other guy” as the one who is protecting the status quo. In some eyes, the one protecting the status quo may be the one in the mirror.

“Fire” – Obamacare is Not the Only Healthcare Plan That is Burning

I had a short conversation today with a woman that was somewhat surprising and maybe very telling. I was having a prescription filled and I spoke briefly with the women handling my order. I had to give her my new insurance card (third carrier in 3 years) and mentioned how I had to switch often because of price increases. She then told me that she had a $4000 deductible and close to $15,000 in debt from medical bills. I was shocked. Her employer is a major employer and more than likely a benefactor of Obamacare, yet her deductible is $4000 and she has medical bills causing financial duress. I would imagine this story plays out across America. It is a system that is more than broken. It is on FIRE!

In this political environment where Obamacare is in the news daily I think the problems with employer-based insurance gets lost in the discussion. It seems like people have created a one-to-one relationship between Obamacare and the Exchanges. It is the Exchanges getting huge increases. Insurance companies are leaving the Exchanges because of big losses. Many markets only have one option. And of course you won’t have to switch your doctor. All this noise may be hiding the fire that is also burning in the employer healthcare market.

On the employer side, some of the same dire stories are playing out except the press seems to be ignoring them. Sure, if you look for stories like I do you will find them, but they aren’t on the front page of the NY Times or the lead story on the Nightly News. Relative to the fire burning in the Exchanges the employer fire is smaller, but it is still a big fire. I am sure the woman at the pharmacy was much more concerned about her personal “fire” from her healthcare expenses than what is going on with the Exchanges.

If you have employer based insurance, then you more than likely have a single medical insurance option. Your contributions may have increased by 30% or more over the past few years. Your deductibles and coinsurance may have doubled. You don’t even know what coinsurance means. And the odds are greater than 50% that you don’t have enough money in a savings account to pay for your deductible if needed.

If you are an employer, you are tired of the regular rate increases and delivering bad news to your employees. You have not been able to give employees raises. You may have tried PEO’s, captives, wellness programs, cost shifting, HSA’s, self-funding on smaller and smaller groups, or private exchanges, to try and control costs, but at best, are these are temporary fixes if they even work at all. I was once asked how can you reduce health care costs. I said don’t hire anyone old. Is that what this will come to?

While the focus of Obamacare has been on the Exchanges, Obamacare technically covers health insurance in its totality. Employer based insurance is a part of it and it is part of the problem. Fixing health care includes all of it, not just the Exchanges. It is all related. Government intervention putting the squeeze on individual policies, small group, Medicare and Medicaid only shifts the problem to employer plans. And when an employer with a younger population counters that action by going self-funded this results in the younger, healthier people, not contributing to the pool. We heard this before, you need the young to participate for this to work. The recent race to get younger groups self-insured impacts the entire system. The game goes on.

We can all speculate as to what Trump is going to do to try and fix the healthcare problem. Based on what I have been reading his focus is not limited to the Exchanges. He recognizes the problems span the entire healthcare industry and that includes the problems with employer-based health insurance.

For benefits brokers it would be naïve to think that the only change to employer-based insurance will be the elimination of the employer mandate. There is a fire burning at the employer level too and this fire is not unrelated to the other fires burning on the Exchanges. Most of the conversations I hear, or articles I have read, reference the Exchanges as something totally separate from employer-based insurance. I believe one can’t be solved without significant changes being made to the other. Anticipating what those changes will be and becoming part of the solution is a big opportunity. Stay tuned because we are about to see what the next administration has in store.

Consumerism in Healthcare is Not Practical

I read a lot of articles about consumerism and how employees need to be better consumers. And as one who implements technology I am very familiar with most of the decision support tools in the market and all the online symptom checkers. So let me make a bold statement. It is all garbage. I have always thought that individuals will never have enough knowledge to make educated health care decisions. Health care is too complex and always changing so how am I ever going to have the time to keep my knowledge current. I don’t want to, trust me. And the last time I needed health care I was driving very quickly to the emergency room. Not a lot of time the think there.

I recently listened to a presentation that Aetna CEO Mark Bertolini gave a few years ago at Stanford. (you can see it here) The final question asked of him was as follows: “How do you create a more educated consumer in a marketplace where they are being directing their own health care decisions?” What surprised me was his answer.

“Trying to educate to everybody on how the health care system works and the level of detail isn’t going to work. Sorry to say. And the reason is that unless the amount of information I can gather is immediately available and that when I act on it has an immediate response I am not going to pay attention to it.”

With all the articles out there about consumerism and directing one’s own health care I thought I was the only one that had such view.

Every time I have my car fixed I am wondering whether I am getting ripped off. I don’t know enough about cars to “shop the market” for service. I remember watching 60 minutes or one of those shows where they show auto mechanics taking advantage of everyday consumers by doing things people didn’t need. That’s me. I wish I had a trusted auto consultant who would tell me whether I really need the services some mechanic is saying I need. You get my point. If I don’t know whether my car is getting the proper treatment how the heck am I expected to figure out whether my doctor is doing the right thing.

Just last night my wife and I had a debate about the value of multivitamins and we couldn’t even agree on whether they worked or were a waste of money. So I Googled the topic, read a bunch of articles, and still don’t know whether multivitamins work.

Let’s not confuse choosing health care versus choosing health insurance. When choosing health insurance is one supposed to be predicting what their needs are going to be in the next 12 months to essentially “game the deductible”? Insurance is supposed to protect one from an unanticipated event that may cause financial duress if one were not insured. Anything that doesn’t fit into this category is simply a reimbursement plan. Dental insurance is almost not insurance. It is a prepaid reimbursement plan for most. There should be two types of insurance plans. One that runs like dental and is simply discounted reimbursements, and another that is real insurance. It is for this reason health savings accounts should rule the day.

So what is the solution? I don’t like when people run around talking about the problems without giving viable solutions so I won’t do that myself. I always say that stating the problem is easy, it is the solutions that are tough. Let me start with what I would want as a consumer. I would want someone who would give me sound advice as to what is proper treatment. I want someone who has an incentive to do the right thing for me. I want someone who would spend my money as if it were their own.

I think the solution requires properly placing incentives. I want to live a healthy, happy, long, and financially viable life. I want someone advising me who understands my goals which I will safely say that these goals are more than likely shared by many. I am all about incentives. It is funny how when you have the right incentives you get better outcomes. That requires having someone who wants me to be healthy and not just fix me when I am broke. This sounds like the things I would want from my car consultant who would advise me on how to take care of my car. I want my car to last long, be healthy, and financially viable. I am not sure what a happy car would look like.

There are emerging models out there that will provide this type of service. And making consumer based decisions around the small stuff may become common. But as a means of controlling healthcare costs, no way. We all know that the majority of health care costs come from few people with chronic conditions. If I need to have my oil changed maybe I can shop the market. But if I need a new engine I would hope to have a very educated mechanic at my side to help me make the best decisions.

Participate in our 2016 HR/Benefits/Payroll Technology and Services Survey

HR Technology Advisors is conducting our 2016 National HR Technology survey for the small to mid-sized employer market. We conducted this survey two years ago with great success and we are doing it again. Much has changed since then. This survey will help benefits brokers and employers gain an understanding of the following:

• What employers are using for technology (HR/Benefits/Payroll/Time and Attendance/ACA)
• Satisfaction levels with their vendor
• Who is looking for new solutions
• Who they are moving to and who they are moving from
• What employers are looking for from a capability standpoint
• Who is deploying employee self-service via web and mobile
• Vendors employers are using for ACA Tracking
• And more…..

With old brokers and new brokers leading with some technology solution, many giving solutions away for free, we think it would be important to:

• Know what your clients have
• Know what your clients want
• Know who is shopping
• Find out what vendors employers are really using versus listening to the sales pitches from the vendors.
• Provide your clients with valuable market information

If you are a broker and want to participate you can do so by clicking on this link. There is a fee to sponsor the survey and personalize it for your firm. Considering all the money and time brokers are spending on evaluating and paying for technology this is worth it.

If you are an employer and would like to participate send me an email or give me a call. Contact information is below. I will send you a link to take the survey. A summary of the results will be provided when we close the survey.

Participants will be eligible to win a $500 Gift Certificate.

Brokers Click HERE to Participate

Contact information: Joe Markland – 508-530-5043 jmarkland@hrtadvisors.com

The End of Employer-based HealthCare – An Update

In this blog I wrote one of my most controversial articles in December 2014 titled, “The Coming End to the Health Insurance Business as We Know It – And What Brokers Can Do About It.” I don’t know why it caused a bit of an uproar in the benefits broker community because, for the most part, I am just telling people what others are saying. I also conducted a webinar on this topic in July of 2013 titled, “The Next Big Change in the Benefits Market That Most Brokers Aren’t Prepared For” that can be viewed from the HR Technology Advisors website here.

My article and webinar references a presentation by Mark Bertolini, CEO of Aetna, who believes the end of employer based health insurance is coming soon. In fact, he is positioning Aetna for a world where the provider systems hold most of the risk and Aetna, is essentially, no longer an insurance company in the traditional sense. I found a presentation he did for the Mayo Clinic that validates Mark’s positon. You can see it here. Every benefits broker should watch it. What Mark is saying is that health insurance is going to become a direct to consumer retail purchase. The provider systems will be the risk takers not the insurance companies. And there is a movement in Washington to eliminate the health insurance deduction at the employer level in exchange for lowering the corporate tax rate. I believe this is something Republicans and Democrats agree on.

This did play out to a certain degree in my own business. We initially got a 16% increase in our health insurance premium for April 1 of this year. My broker gave us alternatives but none saved us any money. I had to ask them to quote the local hospital system based insurance plan. Their costs came in at 17% below all others. First, I am wondering why my broker did not quote this company in the first place. Second, I wonder how traditional fee for services insurance programs are going to compete with this.

It is almost 2 years since I did my first presentation on this topic. Since that time my partner Don and I have made many changes in our business to position our firm for this change. We have hired new staff and developed new consumer-centric solutions that we think will provide value in this new benefits world. We still have work to do and the market will continue to evolve. It is a bet we are making but I think not believing the CEO of Aetna, who is now merging with Humana, is a much riskier bet.

I am surprised that few, if any, brokers have made any changes to their businesses to prepare for this new health care market. Most are unaware of the magnitude of the potential changes. I don’t look at these changes as a business threat, but an opportunity. The opportunity could be huge for those that provide some value to support this change because there will be significantly fewer competitors in the new market. The value that can be brought to market and how we will get paid is certainly up for discussion. We have ideas.

I am writing this because we are looking for broker partners willing to think outside the box, and challenge the status-quo to help build and deliver a solution that can survive and thrive in the new health care world. The power of the group can be more powerful than us individually. We are not looking for people who want to fight the change and protect the status quo. And “hoping” the world doesn’t change is not a strategy. The time is now.

According to Bertolini the train has left the station. It is not if, it is when the market will change. The financial viability of America is dependent on radical changes to the delivery and cost of health care. This is not just one company, Aetna, trying to impose their view of the world on others. They are taking real action. There are a real lot of highly motivated people who are working to do the same. We can be part of the solution or hope this does not happen. Join us on this exciting journey to be part of something that will change health care in America forever.

Insurance Education is Poor and on the Wrong Path

I have 6 brothers so when I reference a brother in a blog it is not always the same one. A few weeks back one of my brothers was telling me how he thought his car insurance was a rip-off. He said he is always paying for it and never had a claim. So I said, “well, why don’t you take your car and drive it into a tree and then you will get your money’s worth”. Insurance gets a bad rap. However, I think it is the industry in general that does a poor job developing products, educating consumers, and clearly stating their value proposition.

One of the reasons insurance gets a bad rap is that nobody really understands it. Another is that while the majority pay the minority get some form of payment in excess of what they paid in. Insurance, for the most part, is about having peace of mind. I try to tell my brother, imagine driving a brand new car through Manhattan or in the snow with no insurance. You would be very cautious. If your car was very used then maybe you wouldn’t care, but with a new car it would be different. It is knowing you have insurance that makes it easier to navigate tough situations.

Insurance It is not intended to be perceived as some form of savings plan or reimbursement policy. Insurance is designed to protect someone from an unanticipated event that can cause significant financial loss and harm. This also has been lost on the market and in the narrative. Since when should an office visit be considered an insurable event? People spend more money on Starbucks in the morning or going to the movies or out to dinner on weekends than they do on health insurance out of pocket costs. And what is the average monthly cell phone bill for a family?

Most people also don’t understand how insurance is priced. In fact, one of the major problems with health insurance is that it is essentially a one-year term policy. Medical insurance should give people options like Life Insurance so they can see the costs over their lifetime. If I buy an annual renewable term policy I would see how the costs go up every year as I get older. However, if I bought a 30-year level term I would see that while I pay more when I am young relative to a one year -term, I am paying less as I get older. I understand rates would need to be adjusted for inflation. But people don’t understand this. They need to understand their costs over time to realize why you have to pay more when you are younger. I thought one of the biggest mistakes of Obamacare is the age rating. It is started this division between old and young. “Why should I pay for the old guys?”

People also think the government will take care of things if you don’t have insurance, or you can go to a hospital and get treatment without having to pay. With disability many think the government will step-in. That belief of a safety net makes it too easy to take chances. I know so many people on social security disability it is unbelievable. And I know they can work. It seems too easy.

So what are my solutions? First, make a law that says health care costs are not exempt from bankruptcy. If that is the case, then every parent will be telling their child to not take the chance of ruining their financial lives by not buying insurance. Every financial planner would make buying health insurance a priority. Second, health saving accounts should be available to everyone but, there should be no laws requiring the covering of expenses less than say $1000 or $2000. If ever person who turned 22 saved $50 every month for the rest of their working lives in a health savings account this would total $14,000 before any interest. Most would have enough money to cover those smaller expense for a lifetime. And don’t tell me they can’t save $50. As long as I see people walking around with cell phones I believe this can be done.

I know this blog is a little bit of a rant. I actually don’t think health insurance will be fixed without dramatic changes. I shared my opinions on how it will be fixed in other blogs. However, I also think the current narrative from the government, from insurance companies, from employers, and yes, from many brokers, is not contributing to the education of what insurance is really about. The system, in its current design, is not on a path to make things better. And I am not talking about costs. The current narrative is not educating people or giving them an understanding of what insurance is about or how much it costs. The current narrative says, don’t worry, we will take care of you.

Fidelity Enters the Benefits Business – Why Many Others Will Follow

You may have seen the press release announcing that Fidelity has entered the benefits business as a broker. According to the Boston Globe “Fidelity will act as a broker, selling the plans of traditional insurance providers and competing against hundreds of other agents and brokers for that business.” Fidelity has been in business since 1946. Most know them as an investment company and 401k administrator but fewer know that they are also a benefits outsourcing firm and even have payroll services. Yet, in spite of being in these businesses for years, they decided to get into the benefits business now. One has to wonder, why now? And after Fidelity, who is next?

If you are a benefits broker this is big news but should also be viewed as another “shot across the bow” sending a signal to the market that this is not business as usual. First we have Zenefits – now Fidelity. Though these companies are very different and entered the brokerage business from different market positions and with different value propositions, I believe the market conditions driving them into the business are somewhat similar. So what are these conditions.

Employer desire to simplify. Employers are getting overwhelmed with technology, new laws, new benefits, and a changing workforce. They are looking for simpler solutions from fewer vendors. Both Zenefits and Fidelity are promising simplicity by combining things that have been delivered in silos in the past.

Demand for more and better outsourced services. Employers will be looking to outsource more services, especially in the SMB market, as the HR world gets more complex. Zenefits says just enter your new employee data and “we will get them on benefits. We will get them on payroll.” Fidelity already provides a broad range of HR, Benefits, and Payroll services and is now adding more.

Advance of Defined Contribution Plans (aka Private Exchanges) –We have all seen the articles on Private Exchanges. Fidelity has already developed the service infrastructure to support employees who are already making financial decisions with more options (401K). If I am an employee and now have five medical options will I have a place to call if I need some help to decide which of the five I should pick? Fidelity has the tools and the call centers to provide these services.

Financial Wellness in the Workplace – According to some statistics up to 40% of employees lose productivity at work due to financial stress. With defined contribution plans employees are given even more options often creating more stress. And we all know there is a lot of cost shifting onto the employee going on. The problem with such plans is they are too narrow in their scope. Most decision support tools take into consideration employee benefit decisions but leave out other parts of an employee’s financial life. Isn’t there a relationship between the medical plan deductible I should choose and whether or not I maximized my 401K contribution? Should I buy more Life Insurance or should I have a 6-month cash reserve first? In most peoples lives the type of car they drive is somewhat related to how big their mortgage is. You get the picture. Things that should be related are presently disconnected in the typical benefits model. Fidelity, by combining financial counseling or decisions with other benefits decisions delivers a more holistic approach to the decision process thus creating a higher probability of a better outcome for the employee. For the employer this employee may be more productive. Joe Laurin, who runs the health marketplace business at Fidelity, said in a telephone interview. “The real distinguishing point is this ability to bring the health and financial wellness together.” (Bloomberg)

The Broker Commission is in Play

One of the problems in the market is the employers are looking for simpler solutions, better technology, with “white glove” outsourced services, but they often don’t have the budgets. Zenefits has shown that the market is willing to change their broker to get these products or services. The benefits commission is in play and the whole market knows it. You won’t read this in any press release and most likely not from any Fidelity representative but this is a market reality that few talk about. That is of course, other than Parker Conrad, CEO of Zenefits, that will talk about it all day.

So Zenefits, Namely, Gusto and now Fidelity enter benefits brokerage business. They are not alone. I know local payroll companies and HR consultants that have gotten into the business too without the fanfare of these bigger firms. Why? Because benefits brokers compensation ranges from $25 – $50 PEPM while Payroll companies get $7-$10 PEPM – HR Tech Companies $5 – $8 – Benefits outsourcing firms – $7 – $14 PEPM – and HR Consultants fight for $150 – $200 per hour. I hear employers, and many times their brokers, complain about the service from their payroll company. I can guarantee you this, if they made $35 PEPM versus $8 PEPM their service would be much better. The reality of the market is that many employers will see a reallocation of their HR spend from their benefits broker to other service providers as a way to fund the technology and white glove outsourced services they desire. And if they don’t know they can do this someone will point it out.

What can other brokers do?

I have read many articles about how brokers need to “sell their value”. Value is not only a function of the product/service that the broker is providing but also includes the price for that service. This is the elephant in the room that nobody wants to discuss. How can one discuss value without price? I like the kid who plows my driveway. He even gets out of his truck and snow-blows places his plow can’t get to. But I also like that he charges me $40. If he charged $100 he would still be a great snow-plower. He just wouldn’t be mine.

These other vendors that provide products and services that are now in greater demand think what they offer is of great value too. Nobody is questioning whether the benefits broker delivers a valuable service. What is in play, and people are now challenging, is the price for that service. This is the real catalyst that will continue drive companies into the benefits business. To compete, traditional brokers will either need to sell their “value” with their price on the table relative to what these new entrants are providing, or start providing some of these new products and services that seem to be in greater demand. Think about a call center on nights and weekends. Brokers will want to silo off the benefits brokerage service but these other vendors are going to make every effort to no longer let that happen. The only thing that will slow this down would be a total market move to fee for service.

Fidelity is the tip of the iceberg. More press releases from companies that provide some solution in the HR, Benefits Payroll technology or services space will be coming in droves. Zenefits made noise. They are new and interesting. Fidelity is a whole new ballgame. All the comments about Zenefits can’t be applied to Fidelity. Zenefits was version 1. Most brokers are hoping they would go away. But what usually comes after version 1 is version 2. And version 2 is better. Now we have Fidelity – and things will get better.

False Perception of Private Exchanges Causing Problems for Brokers

Private Exchanges are still in the news with firms like Time and Walgreens  moving some employees or retirees to Private Exchanges. Some polls still claim that Private Exchanges will dominate the market in a few years. Yet I would contend that most people still don’t know what a Private Exchange is. I have written my perspective on this in previous articles on this blog. Regardless of what one would define as a Private Exchange what really matters is what employers think it is. While brokers may not believe Private Exchanges may take hold or they do need to compete with the idea or a Private Exchange and more important the employers’ perception of what a Private Exchange is./

I have given speeches about Private Exchanges at many employer conferences. One of the first slides I show is a study that claims that 70% of employers would be interested in a Private Exchange. Yet when I ask the audience what they think a Private Exchange is few know. What is more interesting is that when I sat with a group of employers they spoke about what they hoped it was. The most common answer was that they thought a Private Exchange would get them out of the health insurance risk business. Those employers with over 100 employees that are experience rated simply wanted out. They were hoping this is what a Private Exchange was. Some were disappointed when they found out that Private Exchanges did not deliver this.

These employers are more than willing to give employees money for health insurance. What they would prefer though is that they can just give them money and let them worry about things. They don’t want to worry about whether they just hired a person with a spouse or child that has some major medical condition. They don’t want to worry about helping manage catastrophic claims or running wellness programs. They don’t want to deliver the bad news once a year to employees that their costs are going up or their plan is changing.

So while brokers may or may not believe in the value of a Private Exchange, they do need to worry about other brokers who aggressively market Private Exchanges because employers who think they can get out of the medical insurance “risk” business will take the call and schedule a meeting. It is the employers’ perception that is the key.

Brokers need to engage their clients in a conversation and educate them as to what a Private Exchange is and isn’t. You don’t need to spend money with any vendor to be able to engage your clients in a conversation about Private Exchanges. In fact you don’t need to spend any money at all to offer one. What you should keep in mind though is what these employers may be looking for. I believe that the brokers or carriers that can deliver a solution for larger employers that can get employers out of the risk business will capture a market opportunity that few have yet to recognize. The opportunity is there. Who will act first?

An Alternative Approach to Private Exchanges

Note: This was published in December 2012 but never on this blog.

It seems like there is not a day that goes by where one does not see a press release about some broker, technology company, or carrier, launching their version of a Private Health Insurance Exchange. As someone who regularly speaks with staff from these companies any discussion inevitably turns to Private Exchanges. What I have learned from these conversations is that there really is no clear definition of what a Private Exchange is. The term Private Exchange is so loosely used in the market that it seems anyone can put out some press release about a Private Exchange with no need to define what it really is or even more so, why it is something that is good for the customer. These press releases have created such a buzz in the market that many brokers feel a need to respond quickly with their version of a Private Exchange regardless of what it is or if it has any value. This article will give another perspective and ask some very pointed questions that I think the reader should contemplate. In the end I will suggest new ideas that may give you a marketable alternative position on Private Exchanges. Lastly, this article is my perspective on Private Exchanges. This does not represent the position of my company, HR Technology Advisors, at this time.

Over the past 14 months I have attended two conferences where there have been panel discussions about Private Exchanges. On these panels were representatives of a carrier Private Exchange company, technology vendors, actuaries, brokers, and consultants. The audience consisted of close to 100 insurance brokers. The purpose of the panel was to discuss and conclude where we think the Private Exchange market was going. On both occasions one of the first questions asked was:

“Do you consider a single medical carrier with multiple options and Exchange?”

The universal answer was No. One medical carrier with multiple options sold in conjunction with other coverages each with multiple options is what we called a cafeteria or flex plan in 1988. Such a plan would have a defined contribution from the employer in which the employee can spend as they wish to purchase various benefits. The difference between now and then is that technology is available today to help guide the employees through their decision process and enroll employees online.

From an underwriting standpoint giving people options to choose plans that fit them just invites the same problem it did in 1988, adverse selection. I remember back then we sometimes would worry about adverse selection when there were hired enrollers who could help the individual choose the best plans for them. Today, the online decision support tools provide the same assistance. The problem with both is that if everyone chose what was best for them there would be adverse selection which generally worked against the goal of the employer which was to reduce costs or keep them from growing too quickly. This is all assuming the client is experience rated.

Some Private Changes may be underwritten as multiple employer groups. If this is the case then it is the insurer that needs to worry more about adverse selection. Such pools would need to include large populations in order to spread the risk of adverse selection. In these types of insurance pools employers would not be able to self-insure. Ultimately the price of such plans will reflect the experience of the group preventing people from “gaming” the system for too long. In states like my home state of Massachusetts laws already exist that require insurers to pool their risks for the less than 100 employee marketplace. In these states Exchanges can be more easily created because the insurance products are already underwritten in bigger pools.

Other Private Exchnages are created for larger employers (2000+ employees). These Exchanges may have multiple medical carriers with multiple options each. In these situations employers are often self-insuring and therefore need to once again pay attention to the spread of the risk.

Regardless of how the risk pool is created there doesn’t appear to be any real cost savings from Private Exchanges other than cost shifting back to the employee. The idea being sold in this model is that the employer could pass on future insurance rate increases to the employee. From a pure insurance perspective the game of trying to find a better risk pool continues with Private Exchanges. In today’s market most Private Exchanges have only one medical carrier and most are underwritten on the single employer level or large pools for small group in existing small group reform markets.

Exchange Technology

Another conclusion from our two panel discussions was that for employer sponsored plans the technology used to purchase products from an insurance exchange should be viewed separately from the actual insurance products. Most of today’s Private Exchanges package the technology with the insurance products in advance. In my opinion this is not a good solution for the employer or the employee for several reasons. They are as follows:

  1. Current Private Exchanges appear to be charging excessive fees for the technology. While the average benefits enrollment system costs $2.00 – $4.00 PEPM Exchange technologies have been seen to charge $6 – $10 PEPM. In the short term these higher prices may be sustainable but I believe within the next 12 months these prices will come down substantially. Wouldn’t it be better if the employer could shop the insurance plans separate from the technology to keep them both competitive?
  2. This practice of packaging technology with the insurance products is also not “employer friendly” from an administrative standpoint. If I am an employer and I am already using some enrollment system or maybe even a more robust system that integrates HR, Benefits, and Payroll would I have to stop using my existing system to buy into one of these Exchanges? How would I now automate payroll deductions? As an employee would I now have to log into one system to see my payroll and request a vacation day and now another to enroll in benefits? From my perspective this would be moving employers in the exact opposite direction of where they are trying to go with their internal HR- Benefits – Payroll technologies.
  3. What happens if I want to switch my carriers? Do I lose my technology and therefore have to go through the whole process of setting up a new system. Employers change insurance more frequently than they change technology. Changing technology is a much more difficult process. To put the two together only creates more problems for the employer. Employers are already understaffed in their HR Departments. To add more of a burden administratively at this time is not a good idea.

One question I would ask any carrier that is offering products in a Private Exchange is whether they would offer the same products on some other technology platform. Are insurance companies going to limit their distribution to a single technology vendor? This may make sense for the less than 50 employee market but does not make sense for the 50+ market. Think of this for a moment. Two companies, ADP and Paychex, control close to 75% of the benefits enrollment technology market that integrates with their payroll. Are medical carriers going to ignore these companies when they have such a presence in the market? If I am ADP and you start replacing my benefits enrollment business I am going to take action.

As a broker do you think selling a Private Exchange to an employer and requiring they use the Exchanges technology is good advice? A unique position in the market would be to help employers use either existing technology or offer a more robust technology (with HR and maybe Payroll) rather than force them into either a new or limited capability system. This does not mean an employer will never purchase a Private Exchange with proprietary technology. If they want one, call then vendor up and see what they have. Employers simply should be aware of all the options and any implications resulting from their purchase.

One final thought about this concept of a Private Exchange really has to do more with where the market is going. I would imagine every insurance company is in the process of developing their plans on how to participate in a Public Exchange. We are just months away from every company having to have some solution if they are going to participate in insuring this large number of new customers that President Obama has promised. Health Care Systems are also making plans for this new health care world. Would it be wise for a small to mid-sized employer to move into a Private Exchange at this time when within the next 6-12 months there may be a wide range of new products available? It will be interesting to see who is encouraging a move now versus waiting to see what the insurance world will bring.

In summary, while many in the business are running around creating Private Exchanges I suggest there may be a better alternative position. First, separate the technology from the products. Ask insurance companies if you can use their products on other technologies. Second, advise clients about what is really going on in the market. Do you advise an employer to make a change now? Do you understand the technology they are using to manage benefits today? Would a change be disruptive? Third, understand the technologies that have the capabilities to manage these exchange offerings. Can they manage a defined contribution plan? Do they have Decision Support tools? Do you know the capabilities of firms like ADP and Paychex? What other solutions are in the market and what do they cost? In the end a more educated approach to the market should make any broker a more valuable resource to their clients.

Aetna buys bswift: Why benefit brokers must pay attention

More news from the technology front: Aetna acquires bswift. Last year, it was Towers Watson buying Liazon, now Aetna and bswift, and next year it will be someone else. Under the radar a little bit was the Oct. 16 Hodges-Mace announcement of their SmartBen acquisition. It doesn’t carry the cache of Aetna or Towers Watson, but it was still a market move. Is this just beginning of the dance where everyone needs to choose a partner? And what does this mean for the benefits market and the benefits broker?

For some, this acquisition may be strange. Aetna buys a company that provides technology used by their competitors. The bswift enrollment platform handles enrollment for many employers that don’t have Aetna insurance. Towers Watson bought a company distributed by their competitors, other brokers. What most people aren’t realizing is that the world has changed. In many industries companies that compete in one market segment may be partners in another. If you view this acquisition in the old world where competitors don’t work together you may see it one way, but in a new world it may look a little different.

My message to brokers on this is to start thinking differently. Those who don’t will get left behind. The rules of the game are changing and you don’t get to make all the rules.

I have been fortunate to have worked in some capacity with Mark Bertolini, CEO of Aetna, and Rich Gallun, CEO of bswift. Both are outside-the-box thinkers. Aetna has invested billions in technology preparing for what they view as a consumer-centric health care model. They want to reinvent the patient experience. To quote Bertolini, “We’re going to begin to change the health care industry by giving people tools they can put in the palm of their hand.”

Here is another quote from Bertolini that would make brokers pause. When asked about the future of health care, Bertolini responded: “There wouldn’t be plan designs. You wouldn’t need them. What you would do is invest in all those things that are necessary to keep people healthy.” You can see a full overview of the Aetna model by viewing this presentation from their 2013 Investor Conference.

More than a business move

Some may think this is an acquisition of a benefits enrollment platform by Aetna. But I see this as another step by Aetna to execute on a plan to compete effectively in a new health care world. A world where consumers are in more control. Where provider systems are engaged in a patients wellness and not just proving treatment after the fact. A world where health information and communication is moved via Web and mobile.

In this case, bswift made a strategic move into the consumer centric world through their private exchange technology with individual rating and decision support tools. Now it has paid off. This made them attractive to Aetna. Congratulations to bswift for a job well done.

So what does this mean for benefits brokers? A few weeks ago I wrote an article titled “Does Apple’s HealthKit signal the end of employer-based insurance?” Some may not relate Apple’s investment to the Aetna acquisition of bswift; however, I think they are related.

Apple is clearly one of the top consumer technology vendors in the market. Aetna is driving consumer centric health care. They are pieces of the same puzzle. It is a puzzle benefits brokers need to pay attention to because the market is changing around them. A carrier buying an enrollment vendor says one thing, Aetna’s and Apple’s investments mean something different. In a not-so-obvious way the health care world is changing in a way that most brokers are not recognizing. Consumer-centric; mobile; doctors as wellness facilitators; employers out of the risk business? Maybe. So get ready.