by Ryan Morrison
Online benefit exchanges let brokers offer their clients more choice, a consumer-friendly buying experience for employees, streamlined administration, and reduced costs. Over the past five years, the conversation about online benefit exchanges has shifted from if to when.
Exchanges have always been part of a larger conversation about the move from defined benefit to defined contribution. In 2008, when this conversation first started gaining traction, the economy was weak, and employer groups were looking to cut benefit costs through defined contribution models while still maintaining a competitive, robust benefit package. They were also losing headcount and looking to cut benefit administration costs. Exchange platforms seemed like a promising way to support those goals, but it was an open question if they would achieve mainstream adoption.
The question is no longer if but when, and California is leading the way. Exchanges like this are fast becoming a core strategic element for brokers to stay competitive post-health care reform, especially in California. They are the shape of things to come.
Two things changed the conversation around exchanges. The first was the enactment of the Affordable Care Act (ACA), with its all-access mandate and new reporting requirements. The second was the dramatic rise in consumerism. The Internet has changed the way companies interact with people. It used to be consumers only received whatever information companies decided to share. Now there’s an expectation that they’re going to have open and free access to information to be able to research and buy things more directly than before.
Employer groups still need to reduce the costs of benefits and benefit administration. They must also meet a host of new federally mandated reporting requirements while offering employees a wider variety of choice and control. It’s time for a marketplace approach to benefits, and we need technology to enable that.
So, we’ve reached the tipping point. The shift from defined benefit to defined contribution will unfold over the next two to three years, and exchange technology will play a critical role in supporting it. There’s no scalable way to move forward on this with paper processes. Although we’re still early in the evolution and adoption of this technology, almost everybody is now convinced that they have to have an exchange strategy of some sort.
The conversation is about now what that strategy should look like. This is a conversation that brokers and employers in California are very comfortable having. There are a lot of large brokerages here, and they are keenly interested in private exchanges. Many brokers have already rolled out benefit administration solutions to their clients, so they’re very savvy about what technology can do for them.
An end-to-end solution can combine a lot of options for the employee/consumer to get a complete healthcare and benefit package in one place, with robust back-end functionality for brokers and HR administrators. The front end provides a consumer shopping experience in a defined contribution environment. Employees can see how much their employer contribution is. They provide their personal information and are able to see pre-packaged benefit options from a wide array of providers, tailored to their location, age, health, risk tolerance, class of employment, etc. A rules-based engine ensures that each person only sees the plans they are eligible to buy. They can learn in detail about each package and click to enroll right on the platform.
Enrolling online sets the wheels in motion on the back end, linking enrollees directly to the selected carriers, getting evidence of insurability documents taken care of and making sure dependents get added. Payroll deduction reporting is automated, as is ACA reporting for hours worked, lookback and stability period tracking, and forms W2, 6055 and 6056. This type of exchange even handles California’s complicated age rating structure for both employees and dependents.
This takes a big burden off employers, relieving them of paperwork and manual reporting. And, they don’t have to spend a bunch of time and money building customized packages. A standardized approach will work for most people.
For brokers, everything packaged and pre-configured makes implementation a point and click process, simplifying and speeding up on-boarding and ongoing administration, which is important as more brokers are providing benefit administration as an add-on service.
Cross-sell and upsell opportunities will result from having everything in one marketplace, helping brokers stay relevant and retain share of wallet as people start looking beyond just core benefits to what else they can purchase within the exchange. The flexibility and extensibility of the underlying technology platform that runs the exchange is key to a broker’s ability to adapt as the market changes.
It’s an interesting time in the industry, and it really is just the beginning. We believe brokers are increasingly going to be implementing these types of solutions to be able to provide a superior level of service and cost effective benefits for their clients. And in time, these exchanges may become something more.
When you change the terminology, and the thinking, from employee to consumer, it opens up a lot more possibilities. Exchanges may eventually lend themselves to acquiring products besides just medical, dental, vision, and life plans. Some products will be employer-sponsored, and some won’t. They don’t have to be. This direction enables direct-to-consumer product availability as well.
Brokers have historically been quite creative about finding ways to compete by putting together groups and trusts and finding other unique solutions for their clients. Businesses here tend to be much further along with technology enabled processes, and we think the demands of this market will help set the bar for making exchange offerings better for all stakeholders in the industry. q