Will brokerages drop their private health care exchanges?

All of the changes that have taken place recently in the private health care exchange market — chief among them consolidation — have raised questions as to how dedicated brokerages are to their private exchange platforms and what happens downstream after an acquisition.

Lisa Feddema, executive director at Health Care Service Corp., which operates Blue Cross Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma and Texas, says acquisitions, such as Towers Watson buying Liazon and Aetna buying bswift, have these companies aligning with competing brokerages, “and that can make [brokers and consultants] feel quite vulnerable.”

Brokerage firms that originally partnered with certain technology providers may now feel hesitant if their partner has been purchased by a competing brokerage, she explains, and may drop their exchange and move to one operated by a carrier, such as HCSC.

“Sponsoring an exchange using that technology platform will generate revenue for a competitor, [which] isn't desirable,” she adds.

Taking advantage of the market opportunity, at a recent industry conference outside Washington, D.C., Feddema said her company is developing a strategy to sell its exchange platform, Blue Directions, and reaching out to brokers directly in the process.

Part of the strategy comes from what Feddema says may be a conflict of interest as insurance companies and technology companies team up. “The producer that owns the platform could have insight into the other's private exchange value prop, user interface, products and cost structure, which they could in turn use to their advantage,” she says. “This situation really isn't unique to producers though, but applies to carriers that have an ownership interest in a tech company as well. The world is changing quickly and the new ownership dynamics are giving impacted entities pause and making them consider their options.”

‘Core strategies’

It is a real issue, says Mike Sullivan, executive vice president and chief marketing officer at Atlanta-based brokerage Digital Insurance. “The unknown is how are these businesses going to function downstream? … You can’t deny there is a risk of [the exchange] getting rolled into their core business and all of a sudden not being a solution for you. … You are not privy to their core strategies,” he explains. 

Meanwhile, Alan Cohen, chief strategy officer and co-founder of Liazon, says rumors of any conflict of interest and brokers dropping their Liazon-powered exchanges are “wholly and completely untrue.”

Cohen explains Liazon has grown significantly since being acquired by Towers Watson in November 2013, and now works with more than 600 brokers. “We have policies, practices and contractual agreements in place to absolutely ensure competitors … never have access to, never see, never have any interaction with the information for another broker client or employer,” he says.

At the time of the Towers Watson acquisition, many of the brokerages that work with Liazon had a contractual right to terminate their agreements, Cohen says, but not one client left. “It is absolutely untrue with regards to Liazon that there is any competitive disadvantage for working with us as your exchange provider with Towers, and Towers pending merger with Willis,” he says. In late June 2015, Willis agreed to buy Towers Watson for $8.7 billion.

At Digital, Sullivan says there are constant discussions about what happens when their private exchange provider, PlanSource, gets acquired. “It’s an absolute event that is going to take place,” he says. “[PlanSource is] in it for the next liquidity event.”
If it is a carrier or another broker that acquires PlanSource, or any other private exchange operator, of course there is risk associated with that, he adds. “It’s a fundamental problem for all of us. That’s why you are going to find many companies like us and others trying to understand do we [white label] or do we invest in software where we can protect ourselves?”

Meanwhile, Barbara Gniewek, principal at consultancy PricewaterhouseCoopers — which does not operate or have an exchange — says she has not seen brokers switching as a result of industry consolidation. After the Towers and Willis acquisitions, for example, Gniewek questioned how brokers would feel, but nothing has changed.

“It’s about product and white label and private label,” she says. “I haven’t seen the … [acquisitions] result in more or less sales.”

Brokers reevaluating strategy

As Health Care Service Corp. reached out to brokerages, reactions varied based on strategy. Some brokerages that aligned with technology providers and white labeled an exchange solution are “starting to evaluate if the private exchange [market] is one they want to be in,” Feddema says. “Especially those that don’t have a ton of resources or homegrown benefit administration; they are starting to consider looking at other entities,” such as health plan exchanges.

Feddema adds that some brokers did not realize the costs and time involved in running a private exchange.

However, Cohen says the questions over costs are also not valid for Liazon, as it costs nothing for a broker to work with Liazon on a standard partnership. “Cost and time involved is something we play to our advantage,” he says. “It’s virtually cost-free.” The next level partnership, which includes some added features, Cohen says, has a minimal cost attached to it.

Mitchell Andrews, a partner at Chicago-based brokerage Plexus, agrees. He says his company white labels private exchange technology and there are no upfront costs involved. “We didn’t have to invest a bunch of money to have this in our pocket,” he says. “It only costs money if a customer decides to move forward with an exchange, and regardless of which exchange, there is a cost of technology.”

That cost, he explains, is relative to the desired utilization. Just as you can drive to work in a “Yugo or Rolls Royce” or take the bus, “you, as a customer, make all those decisions based on the experience you want,” he explains.

Perry Braun, executive director of the Benefit Advisor Network, a national network of independent benefit advisory and consulting companies, says that when brokerages make a commitment to a private exchange they make that commitment for a long time. Starting their own exchange, “is not a strategy, this is a tactic,” he says. “If problems [arise] and the tactic does not work, you will adjust tactics. If you go in the direction of a [private exchange], you are committed.” In August 2013, Benefit Advisor Network parented with Liazon to offer a private exchange to its clients.

At St. Louis brokerage MRCT, the private exchange so far has not had a return on its investment. But, Holly Maher, the firm’s principal, says they are not concerned about not making money. “We are committed. There is a huge market opportunity for exchanges,” she explains.

Private exchanges are a paradigm shift and it “takes time for those shifts to happen,” she adds.

Even so, Feddema says some smaller brokerages are dropping their own exchanges and moving to the Blue Directions platform. She says 30 brokers, whom she declined to name, have either switched to or started with Blue Directions.

Feddema calls the recruiting process an offensive measure. “Everyone wanted to have their own exchange, from their perspective as a defensive method, because the big [brokerages] had one and they thought they were at risk to lose clients,” she says. “Every time we put products on an exchange by a private [entity], we lose that Blue … [sale]. We rely on [brokers] to sell Blue Directions and know how much work it is to set up, manage and sell their own exchange.”

Carrier exchanges

HCSC has been “actively pushing their exchange solution, where other insurers are not as active,” PwC’s Gniewek says.

“Brokers haven’t been embracing exchanges uniformly, unilaterally,” Gniewek adds. “Some have been very skeptical, some against, some avoiding. I don’t see [brokers] joining carrier exchanges.”

Many carrier exchanges only offer products from the carrier that is providing the exchange.

The exchange marketplace is continuing to change, and no employers are ruling out making a switch, Plexus’ Andrews says. “Nobody says, ‘Nope, I’ll never do that,’” he says. “One of my favorite quotes [from a client is], ‘I’m not going to be one of the first, but I’m not going to be the last one.’”

“The advent of this technology has furthered the notion that this industry is not old and dead,” he adds. “It’s still been very creative to come up with solutions. This is one of them to help employers address affordability of health care to both employees and employers.”

The evolution of the market is a good thing, Gniewek says. “Taking the best of the best is going to result in better products,” she explains. “It is like a five year old playing soccer. Everyone chases the same ball. So if someone comes up with a unique value proposition, everyone chases it.”

“That’s good for us purchasers,” she adds. “It’s a natural evolution.”

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