In a private benefit exchange, what makes consumers buy?

In a multi-carrier private benefit exchange, if a carrier’s annual price is 1% higher than the average of all prices in the market for a similar plan, it can expect to lose 3.5% in market share, on average, according to a new analysis from Liazon.

The private exchange technology provider’s research further found that if prices were equal, an incumbent insurer would have a 37% market share advantage over a non-incumbent, on average. An advantage was expected, “but not at this level,” says Alan Cohen, Liazon’s co-founder and chief strategy officer.

Also see: "Private Benefit Exchange Index."

Since in Liazon’s comparison all the plans offered the same structural benefits with similar networks, “the significant incumbency buy we saw is surprising,” Cohen says. “It felt like if the plan design is the same and networks are pretty similar, it is just the name on the policy.”

“I think it is good news to incumbent carriers,” he adds. “It tells us something about fear of change in this area. It is the devil that you know.”

The analysis compared data from nine employers who have implemented a private exchange with group sizes from 3,000 to 16,000 and four carrier choices: Aetna, Anthem/Blue Cross Blue Shield, Cigna and UnitedHealthcare.

Also see: "Why the middle market will drive private exchange growth."

Carrier loyalty is often based on plan design. “Consumers will say, ‘This carrier is really great because I have good benefits,’” says Barbara Gniewek, a principal with PricewaterhouseCoopers in New York City. “It’s really [surprising] how people equate carriers with plan design rather than service, breadth of network, care management, etc.”

“The way carriers interact with members and dictate members care isn’t what dictates carrier loyalty,” she adds. 

However, Cohen notes that 37% loyalty to an incumbent also means 63% of consumers on a multi-carrier exchange are willing to leave — and price pays large a larger role.

Price

Price has a dramatic effect, Cohen says, despite insurers routinely saying price is not important and they can keep consumers even if they have higher prices because of potential costs of change.

Before a multi-carrier exchange, consumers did not have the opportunity to make choices like this. In an exchange, the cost of changing carriers is virtually zero, Cohen says, leading to large price elasticity. The idea that carriers can lose 3.5% in market share for every 1% higher in price is “really dramatic,” he adds.

It proves for multi-carrier exchanges getting the best discounts in an area is “really tremendous,” Gniewek says.

Also see: "Companies interested in benefit exchanges want insurer-led solutions."

For brokers, it gives them more protections, as they can offer multiple carriers in one environment. It prevents other brokers from calling and saying, ‘I have access to anyone,’ Cohen says, since any broker can now offer most of the carriers.

“It lets employers stop making a ‘Solomon’-like decision: ‘I will do what is right for the West Coast, but I know it’s not right for the East Coast,’” Cohen says. “Now, everyone can get what they want in carrier and plan design. It is the free market at work.”

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