The opportunity is huge for companies to serve employer groups much as the ACA's public healthcare exchanges are serving individuals.
As the various public healthcare exchanges have gained more publicity, employers are increasingly aware of the availability of their private sector counterpart. A legion of brokers, third party administrators and experienced legacy benefit administrators are striving to reconfigure and brand themselves as a private healthcare exchange (PHX), providing service to employer groups rather than individuals.
However, the genuine article is nearly nonexistent. Out of the nearly 100 companies that are identified as a PHX, only a few possess the technology, industry knowledge, backing and other necessary qualities to succeed over the long term.
How is the investor, carrier or broker able to evaluate a PHX for partnership and ensure he picks not only a survivor but a winner?
There are three essential capabilities any contender must possess.
- Intuitive shopping experience (i.e. Amazon)
- Multiple medical carrier and plan options
- Direct integration of consumer-directed account(s) in both the shopping and enrollment processes
Intuitive shopping
The PHX experience must model other consumer Internet shopping experiences in all aspects for universal adoption. If a PHX is unable to do this, brokers, HR administrators and other service providers will engender unsustainable, escalating costs while providing little service. A PHX must move to the self-service model of e-commerce.
It is unlikely that the insurance industry, so mired in its own protocols, can design such a system on its own. For the PHX industry to thrive, outside experts from e-commerce must be welcomed inside the business to effectively couple their expertise with that of individuals with deep knowledge of the employee benefits sector.
Multiple options
It would seem intuitive for an employer to offer employees a range of national and regional insurance carriers. Yet the health insurance industry has always gravitated to restricted choice. It is a golden scenario for a carrier to have enrollees choosing exclusively from its options in an electronic marketplace. This leaves brokers in a precarious position. Although they currently control the health insurance marketplace, brokers are vulnerable to the almost certain risk that the current carrier will raise rates; brokers may lose clients or have to abandon the platform and seek another carrier.
The problem is further complicated by several factors. Carriers require digitalization to facilitate rating, enrollment, eligibility and billing. Retroactive risk adjustment is often required to account for employee population variables. Finally, and perhaps most importantly, individual state “exchange shops” mandated for small groups under the Affordable Care Act all have multiple medical carrier options, raising the bar for private healthcare exchanges.
High-deductible health plans coupled with health savings accounts are now approaching 50% of plan populations after languishing for years with only 5% to 10% adoption rates. Although the reasons for this increase are not necessarily clear, the statistic is well-documented, as illustrated in the May 2014 joint study by John Young and Todd Berkley. It is clear employees making unfiltered decisions are voting with their feet. Consumer-directed accounts (read health savings accounts) can no longer be treated as just a minor option for early adopters.
Integration of accounts
While the consumer may choose a high-deductible plan, it is quite possible that when the first claim happens there will not be funds to pay it. It is imperative that the consumer bank account is enrolled concurrently with enrollment into the medical plan. This does not take place in most situations today. The importance of assessing other mechanisms of providing the consumer liquidity cannot be overstated as a means to ensure accounts are adequate to pay claims under deductible or co-pay responsibilities.
Conclusion
While there are stiff challenges, an incredible opportunity exists to offer a PHX that is an integrated, superior product that belies the complexity underlying the system it serves.
