Brokers, initially worried that private exchanges would squeeze them out, are finding a place helping companies.
Adoption of private exchanges is on the rise, and that’s good news for brokers. From 2014 to 2015, the number of members enrolled in private exchanges more than doubled, to 6 million, according to Accenture. We anticipate this growth will continue over the next few years.
Private exchanges predated the Affordable Care Act but were not widely used before the ACA was enacted. Now employers are seeking more benefits choices for their employees, more employee engagement in benefits and a shift to a defined contribution strategy. As a result, they are seeing private exchanges as an attractive option.
As private exchanges began to take off, some brokers feared that their role would be diminished. In fact, the opposite has happened. With the growing complexity of the benefits marketplace and a shifting regulatory environment, employers are increasing their reliance on knowledgeable advisors.
Employers need brokers to do a number of things, from explaining how a private exchange could meet their specific needs to talking about how other companies have navigated the marketplace and implemented the new model.
Fortunately, this is much easier now than it was just five years ago, when the first wave of early adopters chose private exchanges. Now those early adopters can share their experiences of how private exchanges work in practice and what others can expect as they make the move.
LightSail Energy, a California-based company that develops innovative energy storage systems, was an early adopter, having moved to a private exchange in 2011. The company was grappling with common issues; health care costs were rising at the same time that LightSail wanted to rethink its benefits package and enhance it to attract and retain top talent. At the time it began evaluating new benefits offerings, LightSail had only one carrier offering only one health insurance plan.
Although a private exchange was a fairly new concept, the idea made sense. LightSail wanted to make its costs more predictable with a defined contribution funding rather than a defined benefit strategy. LightSail also was interested in making its benefits package as robust as possible by offering a wide range of health insurance and ancillary choices so employees could customize their benefit portfolio to meet their individual needs. Finally, LightSail was attracted to the online, guided shopping experience that some private exchanges offered.
LightSail didn’t use a broker because brokers played a far less visible role in the sale of exchanges at the time. But this has changed significantly in the past few years. Brokers now play an important role in this process. This is because they not only are a company’s trusted advisor, but they also have the insight to match the company’s needs with the offerings of a complementary exchange. In LightSail’s case, major stops on the journey where the broker could provide significant impact included becoming educated about private exchanges, choosing an exchange, selecting benefits, determining a funding strategy, internal change management, making adjustments to the offering over time and providing performance data.
Education first: The first task for LightSail was to obtain a thorough education about private exchanges. Although the number of enrollees in private exchanges is growing quickly, it still makes up only a small piece of the overall market. Employer-sponsored insurance covers about 147 million nonelderly people, according to the Kaiser Family Foundation, compared to only 6 million who are currently enrolled in private exchanges. For brokers, that means most clients and prospects will know little about private exchanges.
The switch to a private exchange allowed LightSail to rethink and redesign its entire benefit package, given that it had only one carrier at the time. So the company also needed to explore what benefits it wanted to offer beyond health insurance and how those benefits would be valued by its employees.
Choosing an exchange: As LightSail worked through its needs, it became clear that the company needed an exchange that had broad capabilities. This is a common situation, as reinforced in a 2015 employer survey conducted by the Private Exchange Evaluation Collaborative. The study found that employers are looking for private exchanges with comprehensive capabilities and services such as guidance, ease-of-use, communication and support.
At this stage, brokers can play a critical role in helping clients find the best exchange for them. Given the fast pace of change and the many new entrants in the field, brokers may want to consider exchanges with a broad base of existing customers and a proven track record of success. Brokers also will want to help their clients navigate the variety of offerings that are called private exchanges, as there are important differences between full-service private exchanges and benefits-administration-only systems.
Selecting plans: LightSail chose an exchange offered through Liazon, which gave the employees the opportunity to select from more than 20 product lines. This includes ancillary benefits ranging from dental, life and vision insurance to legal plans, identity theft protection and more.
For employers, having all their benefits on one centralized system frees them from administrative complexity. For LightSail, ensuring that all the plans and benefits were consolidated on the exchange was key, as having to research and choose multiple carriers and administer the plans would have been incredibly difficult otherwise.
The exchange model also makes it easier for brokers to sell ancillary products, since employers often wish to include diversified offerings to their workers.
And a recent study by Liazon found that each employee who purchases health insurance also buys an average of five ancillary benefits.
Determining an employer contribution funding strategy: One of the most important parts of launching an exchange is determining the most appropriate employer contribution. In the case of LightSail, funding was based on each employee’s marital/dependent status and age, resulting in eight different contribution levels. This was designed to cover health insurance premiums plus a small amount left over for a flexible spending account.
It was similar to the company’s previous system of covering 100 percent of health insurance premiums for single health plans plus a $1,000-per-year FSA contribution. By moving to defined contribution levels instead of paying premiums, LightSail was able to stop paying the most costly premiums and better manage costs year to year.
Brokers are an integral part of helping clients determine the most appropriate employer contribution strategy. By taking into consideration a client’s budget, long-term objectives and benefits philosophy, brokers can make recommendations on the contribution designs that meet client goals. Brokers help clients decide whether to use a self-insured or fully-insured strategy, identify how much defined contribution to provide each employee and determine variances by tier of coverage or employee group, as well as figure out whether to offer waiver credits and wellness funding.
Internal change management: To ensure all employee questions were appropriately answered, LightSail coupled pre-enrollment offline communications with the customer support that was part of the Liazon offering. By leveraging the exchange’s decision support feature, including tailored recommendations and plan comparisons, employees became adept at selecting their own benefits. Ongoing support is a key desire for many employers. Brokers should be ready to give advice on the types of support each exchange offers during open enrollment and throughout the longer term.
Making adjustments over time: Between years two and three on the private exchange, LightSail moved from small- group to large-group plans. Among other benefits, the shift changed the premium structure and made it possible to stop grouping employees by age. LightSail was able to take advantage of the new products that were added to the exchange and offer new benefits such as legal plans and identity theft protection to employees.
Providing performance data and metrics: Brokers should provide their clients with data on the performance of their exchange in meeting their goals. Were costs controlled? What plans are workers choosing? Are employees satisfied with their current benefits and engaged in their health care decisions?
Brokers who are helping clients navigate the private-exchange landscape are likely to field questions about many of the same issues LightSail faced. Given the relatively low levels of awareness and knowledge about private exchanges — and the fast-growing interest in them — current clients who are satisfied with a broker’s services are a great source of referrals. In addition, brokers who truly understand their client’s mentality and consider their long-term needs will be the most sought-after resource to help navigate the journey.
Rebecca Motola-Barnes is director of people operations at LightSail Energy. Rebecca may be contacted at [email protected].
Beth Raskin is vice president of operations at Liazon. Beth may be contacted at [email protected]