Recently, I participated in a panel discussion entitled, Private Exchange Catalyst for Consumerism, where we discussed the way benefits are delivered and acquired by the employee/consumer and how they will be acquired in the future.
Locktons definition of private exchanges is pretty liberal in that most employers are acting as exchanges today, although in a less integrated fashion, and perhaps with limited plan choice.
In researching for the topic, I read several statements on the Internet, including the following:
"One universal benefit program can no longer do the job. The concepts include the establishment of a basic safety net of benefits to cover financial hazards associated with old age, death and disability, and catastrophic medical expenses, with supplementary benefits offered on a defined contribution basis.
This statement was written by Thomas E. Wood of Hewitt Associates in Business, Work, and Benefits: Adjusting to Change in 1989.
So I thought, rather cynically, are private exchanges just a reboot of the flex benefits concept of the 80s and 90s? Lets examine some of the differences between that environment and today.
U.S. health care costs have risen from $2,750 per capita at the time Wood wrote his statement to more than $9,000 per capita in 2013, according to the Kaiser Family Foundation. There is a buildup of corporate fatigue and frustration with existing cost management models.
As exchange growth accelerates, the platforms are aligning with HR strategies like the war for talent.
It is estimated that millennials will outnumber baby boomers in the workplace next year. The number of Gen Xers isnt large enough to fill the gap left by the exiting boomers. Employers are using a variety of strategies to recruit the millennials, retain the Gen Xers and are using innovative workforce management approaches to attracting baby boomers.
In general, millennials have come to expect choice. For instance, think about coffee. When I grew up, coffee options were black, cream only or regulaah (a Boston term meaning cream and two sugaahs). Meanwhile, at Starbucks, my teenage daughter likes to order double chocolaty chip macchiato with skim milk. How will they react to benefit programs with limited choice, as opposed to an exchange which allows the employee to select from a variety of plans based on their own needs?
Benefits regulation has also greatly increased since the late 80s. The Affordable Care Act created the framework of exchanges through the federal and state exchanges. These programs have extended into the private market for smaller employers, and larger employers will look to use them for active populations when allowed to do so starting in 2017. Many employers are already using these exchanges for their non-benefits eligible populations, as an alternative to COBRA and pre-65 retirees. Post-65 retirees have access to a different set of Medicare products through exchanges.
How about technology? When the term Cyber Monday originated in 2005, total online sales were about $600 million, as opposed to last year when sales totaled $1.75 billion. China recently celebrated Singles Day. It falls on 11/11 of each year, and also includes a tremendous focus on online purchases. Chinas Internet giant, Alibaba, reported more than $9 billion in sales, shipping and delivering 2.5 billion packages, through 2.85 million transactions. According to CNBC, Singles Day has gone global and has become the largest online shopping day in the world. Think about the ability to communicate choice and its effect on a benefits enrollment transaction using todays technology on the Internet versus pencil and paper in the 80s and 90s.
Lastly, lets review capital inflows to the exchange space. Wall Street and venture capital have awoken to the investment possibilities. In early November, bswift announced its acquisition by Aetna for $400 million. Last year, Towers Watson purchased Liazon for $215 million and TW also purchased Extend Health for $435 million. Atlanta-based broker Hodges-Mace purchased SmartBen and Continuous Health in the past two months. This capital infusion will accelerate needed capacity, innovation and development in the exchange space.
So are private exchanges just a flex benefits reboot? Given the factors discussed above (and many others), I dont think so. Their success and adoption will be dependent on positive implementations as well as bringing forward the experience of flex benefits from years ago.
Smith is director of exchange solutions at Lockton.
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