Public Exchanges, Private Exchanges – Friends? Enemies? Frenemies?

The growth of both public exchanges and private exchanges in the past few years has been quite remarkable.  For the sake of definitions, public exchanges include federal and state based exchanges established by the Affordable Care Act. Private exchanges, in this blog post, will be used to cover large, benefit consulting exchanges that serve the enterprise employer space (think 5000 employees and above).

While working at a state-based exchange, I recall attending an information session held by a large consultant private exchange organization.  The folks from the consulting firm seemed surprised by my attendance and asked why a fella from a public exchange was there.

Considering the fact that these public exchanges serve very large employers while public exchanges serve individuals and small businesses (currently defined as 50 Full Time Equivalents -FTEs- or less), I didn’t quite see why my attendance was being called into question. Can’t a health care geek get his geek on by attending an evening session to learn about private exchanges?

[The answer is yes, but you have to read to the bottom to find out why…]

Of course, that was more than a few years ago.  The landscape has changed. The view of both private and public exchanges has changed.  Private exchanges continue to grow leaps and bounds.  Public exchanges seem to be getting their legs under them after struggling mightily for a few years.  And you know what else has changed?  The ability for public and private partnerships to demonstrate that they can work.

Consider this – any benefits broker or consultant worth their salt knows that solutions for active, full time employees is good for their employer clients. But what about other employees like pre-65 retirees and part-time employees?  Hint: solutions that provide services for those “other” employees are ALSO good for employers.

It just so happens that private exchanges can fill a gap here.  Forward thinking folks identified this gap and have pursued collaboration and cooperation with both the federal public exchange and a number of state-based public exchanges. In fact, when I was working for a state-based exchange, I set up a collaboration with two of the large private exchanges that involved warm-transfers from their exchange to the state exchange to facilitate enrollment.

What does this mean?  For an employer with full time, part time, and pre-65 retirees, it means a one-stop shop for them.  These employers use the private exchange as a solution for all of their populations. Since the private exchange has a partnership – typically through a vendor partner – with the public exchange – voila.  One-stop shop.

Oh, and that private exchange story I shared above – the one that questioned my attendance because I was working for a public exchange?  I now work for them.

Can the SHOP Help Small Businesses and Brokers? Part 2 of 2

Recently I wrote a post about the Small business Health Options Program, or SHOP, which included information on its benefits as well as its shortcomings.

The picture painted was fairly bleak.  And if you can get access to SHOP enrollment numbers by state…well, then the picture I painted is a fairly accurate one.

So why is it that the SHOP isn’t attracting small businesses and brokers thus far?

There are a number of reasons:

1) Marketing and Engagement

2) Product Mix

3) IT Interface (front-end UI/UX)

4) Operations and Service (back-end)

5) Market Dynamic

Let’s tackle each topic individually.

Marketing and Engagement:  If there are any small business readers or brokers who read my blog – how many SHOP ads have you seen?  Probably very few, if any.  Now let me ask if you saw ads for individual open enrollment this past fall? Or last fall?  The answer is likely yes.  Much of the marketing budget (likely federally funded) was focused on getting the word out to the uninsured – which makes sense.  The focus was on getting insurance for the uninsured.  The SHOP took a back seat.  And since many states are still working through the kinks of their individual exchange, the SHOP sadly remains in the back seat.

What about brokers?  Many states have a high percentage of brokered small businesses, meaning brokers do most of the work related to shopping for insurance products such as health insurance.  These brokers work with a large number of small businesses to assure the broker can put food on the table. The SHOP is a new market entrant, which is different (read: scary) and relies on the back-end customer service of the SHOP exchange instead of the back-end customer service of the insurance carrier.  For the SHOP to catch on for brokers, the state and federal exchanges need to consider a much bigger marketing and engagement push than what’s been done to date.  The problem is that the budgets are likely spent so this may not be an option.  The engagement may have to be more of a grassroots approach – an effective approach, but time-consuming.

To be fair, I’ve spoken with a number of states who have done a fairly decent job of engaging brokers to let them know about what the SHOP has to offer. So let’s pretend that small businesses and brokers know what is available through the SHOP due to great marketing and engagement. Guess what? It still won’t work due to some of the other reasons I’ve stated.  Let’s explore more.

Product Mix: As described in Part 1, the SHOP, as defined by the ACA, is something called Employee Choice.  It is a very different product than what small businesses and brokers purchase today. It relies on the SHOP’s back-end customer service and it fragments the group into multiple insurance carriers.  This can be nightmarish to manage as a small business or broker.  Though there is a small business health insurance tax credit available for groups that qualify, it’s asking a lot for a small business or broker to abandon the product selections they’ve known for years and “trust” the SHOP to deliver.

Since benefits like health insurance have typically been used to attract and retain talent, trying something “new” like Employee Choice might actually have a negative effect on the group. If employees have problems, then they’ll be unhappy and may consider leaving. Many small businesses may struggle with retention already and likely don’t have much in the way of a new hire training budget. It is also likely that the small business owner and/or broker just wants to focus on their respective jobs and not on figuring out a new insurance product. So what does the SHOP need to do from a product perspective?

My suggestion would be for the SHOP, whether state or federal, to put products on the shelf that actually sell in the small group market – sole source products and perhaps dual/triple option products to be precise..  Sole source products are when a small business or broker chooses one product from one carrier and the employees can take it or leave it.  Dual/triple option products are when 2 to 3 products from one insurance carrier are offered to the employees.  The larger the group gets, the more likely it is that some sort of choice be offered which is why dual/triple option makes sense. With these products, the SHOP has a better shot at attracting groups and brokers.

Now that brokers and small businesses are engaged and the right products are on the shelf – what does the SHOP need to do next?

IT Interface: I won’t bore folks with too much information about UI/UX and user experience. For those building the SHOP, here are a few thoughts to consider:

a) Who is your customer?  If you’re focused on small businesses only, it needs to be intuitive for small businesses to use – similar to the individual exchange user experience.  I’m pretty bullish on brokers, so I’d say focus on designing the product to support your primary customer – the broker.  Things like census upload, decision support tools, sorting/filtering options, and easy quoting all make a world of difference in the shopping experience.  There are many vendors who provide this sort of thing, so a well written RFP is a tool to use to find the best-in-class vendor.

b) Know how your customer shops and what your customer wants.  If you are thinking “if I build it, they will come”, you’re wrong.  This may be the case with an individual exchange where the only game in town for subsidies is you. But the small group market has likely existed for ages and the ecosystem is thriving. So the SHOP exchange is the newcomer.  Better know what your consumer wants BEFORE you build it.  And as I stated above, your consumer won’t want Employee Choice, they’ll want small group products that are known to them in the small group market today. Market research is a must.

Now the front end is slick, the products are popular, and the customer is buying SHOP products like hotcakes.  Success, right?  Wrong.  The single biggest challenge for exchanges, I’ll wager, is the back-end component – operations, enrollment, service, payment fulfillment, etc.  Let’s look at that.

Operations and Service:  As mentioned above, the small group market in most states is likely a mature ecosystem full of carriers, products, brokers and potentially intermediaries – organizations that sell to small businesses using an exchange-like approach.  Yes, you heard me – an online shopping experience for small businesses and brokers to select from a number of carrier products. Many states have had these entities for years. The operations and service that the broker and small business knows today is likely one they’ve known for a while. Introducing the SHOP with little to no marketing and planned engagement, unknown products, and untested UI/UX is a recipe for disaster.

NOW add the back-end problems.  And trust me when I say that most state and federal exchanges that are experiencing problems are experiencing it with the back-end – enrollment not passing from the exchange to the carrier, payments not being received, payments not being routed to the carriers.  For a SHOP exchange to tackle this along with everything else…well, it doesn’t take a rocket scientist to figure out that problems will occur.  And since small businesses and brokers already have options in small group due to a thriving small group ecosystem, the SHOP exchanges had better have an answer to this question: what problem are you trying to solve in small group?  If they can’t answer that question, the brokers and small businesses will simply continue shopping in the small group ecosystem that exists today.

I am a firm believer that the ACA was put here not to compete with carriers, brokers and intermediaries, but to offer what the small group market needs (noting that the needs in each market will differ).  Therefore, I advocate for back-end operations to be handled by either a seasoned and experienced vendor and/or by the intermediaries and the carriers.  In fact, I may lean more on allowing the carriers and intermediaries to handle this area of the SHOP exchange. They do it today, they do it well generally speaking.  So why try to re-create the wheel?  Offer great products using a slick user interface and then pass the complicated back-end operations to those who know how to do it. Then, add in the concept of a Web Broker Entity (WBE), which allows private entities to work with the federal and state exchanges to conduct enrollment activities for eligible consumers into qualified health plans – voila. Options exist to allow existing market entrants to conduct enrollment into state and federal SHOP exchanges.

There is one last area to consider for a SHOP exchange to have a strong chance at success – the market dynamic in each and every state.  In retrospect, perhaps I should have led with this…

Market Dynamic:  If you haven’t already noticed, I’ve been injecting the “market dynamic” argument in almost each one of the above topics. If a state has been tasked with building a SHOP, they need to approach it using a market dynamic.  Ask some of the following questions and note that these questions may be different from state to state.  They are key to understanding what it is your market needs and what you need to build to succeed:

a) Who are the current players? (carriers, brokers, intermediaries, etc.) How can you be a strategic distribution channel for these players?

b) Who is your targeted customer? How can you provide a robust shopping experience that allows small businesses and brokers to find the best insurance options available to them?

c) What are you building for your targeted customer that gives them something they don’t have today?

d) Is there a way to meet the requirements of the ACA while fitting into the existing small group market ecosystem and working with the existing entities rather than against them?

e) What products are in demand for small group today? Is there a way to get them on your shelf?

f) Have you done a good job promoting and marketing the products while engaging carriers and brokers and marketing to small businesses?

g) Is there a way to provide slick UI/UX shopping experience that allows a small group or broker to shop from a meaningful selection of carriers and products, then pass the enrollment, payment and customer service functions to the carriers and/or intermediaries that do it today?

Once the above questions can be answered fully, then those building the SHOP exchange should have a better sense as to what must be done to assure success of the SHOP.  One size does not fit all state-to-state and the SHOP must offer something meaningful to attract and retain small businesses, brokers, and carriers.

Can the SHOP Help Small Businesses and Brokers? Part 1 of 2

There is a lesser known part of the Affordable Care Act known as the Small business Health Options Program, or SHOP. It is designed to allow small businesses with 50 or fewer full-time equivalents (FTEs) to purchase health insurance online using a unique approach called Employee Choice.

How does Employee Choice work?

First, the employer (or broker acting on behalf of the employer) selects a benchmark plan from one of the metallic tiers – Platinum, Gold, Silver, or Bronze. Then, a contribution percentage is set – for example, 70% of the cost of the plan premium.

Normally, this is where things end. The employer offers the selected plan (or maybe the choice of 2 or 3 plans from a single insurance carrier) to his or her employees and the employees either take what the employer gives them or chooses among the 2 to 3 plans from the single insurance carrier.

Employee Choice is different. Once the benchmark plan is chosen (for example, from the Gold tier) and the contribution percentage is decided (again, 70% of the cost of the plan premium in this example), the employees are then invited to shop. They can choose the benchmark plan that their employer chose OR they can choose from any other plan from any other carrier on the exchange that is offered in that particular metallic tier.

For instance, if there are five insurance carriers on the shelf, each offering two plans in the Gold tier, the employee can choose from the following:

-Plan A (the benchmark plan) from carrier A

-Plan B from carrier A

-Plans A or B from carrier B

-Plans A or B from carrier C

-Plans A or B from carrier D


-Plans A or B from carrier E

That’s a total selection of 10 different plans (including the benchmark plan) from 5 different insurance carriers that employees can select.

Thus the name Employee Choice.

The beauty of this product approach can be summed up as follows:

1) Employers get to set a contribution percentage and that allows them to have  “budget” for health insurance.  It’s an approach known generally as defined contribution. Plus the employer sends one complete check to the SHOP exchange and the SHOP exchange handles the rest.

2) Employees get to choose from more options than they traditionally have had, making it easier to find the plan that’s “right” for them. Keep in mind that employers in the 50 or fewer employee space typically offer 1 to 2 plans from one carrier – if they offer insurance at all. With Employee Choice, the individual employee can buy up and pay the difference in premium or buy down and keep the difference in premium.

So the SHOP’s Employee Choice for employers is a pretty neat thing…on the surface. But there is a rather ugly underbelly…

Employers 50 or fewer employees may or may not have a human resources department or manager to handle things like employee benefits. More often than not, it is the president or the office manager who gets involved in decisions surrounding health insurance as employers this small don’t typically have an HR department. If that president or office manager selected one plan from one carrier, it’s a pretty straight forward thing if there are questions about benefits or drug coverage – simply call that one particular insurance carrier about that one particular plan.

With an Employee Choice set up…more choice = more complexity.  And since the person running HR may be the president or office manager – well, it doesn’t take a rocket scientist to figure out that this becomes administratively burdensome in a hurry.  If five employees come to the office manager with questions about their health coverage, each with a different plan from a different carrier, that office manager may as well flush the rest of his or her day down the toilet while chasing down 5 different insurance carriers.

Employee Choice is a challenge for insurance carriers as well.  I ask that you put on your health insurance carrier hat.  A health insurer would typically underwrite an entire group and count on getting the majority of that group’s membership.  For instance, if an employer with 25 employees selects plan A from carrier A, then the insurer will underwrite the 25 employees using the allowable rating factors under the ACA.  Under an Employee Choice model, the insurer underwrites the 25 employees, but may get only 5 of the 25 due to the amount of selection the employees now have.  This makes it a less-than-desirable product for health insurers.

There is also the challenge of the SHOP exchange collecting the enrollment and premium from one employer, then breaking up the enrollment and premium into the correct selections made by each employee.  It’s a more challenging endeavor than one might think – largely because it hasn’t been done on a wide spread basis before, therefore the kinks haven’t been worked out.

One last point – it is my humble opinion that the federal government isn’t doing a great job marketing this.  Let’s say that the administrative challenges are manageable and the carrier objections are overcome.  Do small businesses and brokers know what is available for them at a state or federal exchange? Are they aware of the choice selection through Employee Choice? Have brokers been engaged to help educate their employer clients on this new product offered through the SHOP?

Let’s say that there’s a way to go.

Not all is fire and brimstone, however.  If done thoughtfully and carefully while understanding and respecting each markets’ dynamics related to small businesses, carriers, and brokers, the state and federal SHOPs do stand a strong chance of success.

But that is a blog for another day – Part 2 of 2, to be more specific.  Until then, enjoy SHOPping around!