Private Exchanges: A Breeding Ground for Transformational Innovation

The following article was originally published on The Private Exchanges Blog at
By Mike Sullivan, Executive Vice President and Chief Marketing Officer, Digital Insurance

Private exchanges present significant gains to consumers by putting them squarely in the driver’s seat. Defined contribution and cost management dominate the discourse about private exchanges, but there are longer-term rewards that are absent from most current discussions.

Fixed expenses, reduced administration and greater choice for employees and their families provide distinct advantages. Yet futurists envision innovation that not only matches individual needs and incentives with the best solution but also creates marketplace transformation that generates even greater consumer advantage. When educated health care consumers begin to force market changes and private exchanges expose costs and create more competition, health systems will be compelled to compete on price. The effect can finally begin to lower the nation’s health care costs.

Traditional benefit programs are designed around group rather than individual needs. Current provider networks tend to be wide, and plan choice is usually modest. Many employers, if given the option, would rather not be solely responsible for choosing plans, provider networks and financing strategies that cannot possibly meet the various needs of a diverse employee population.

A private marketplace enables employees to purchase benefits that suit their lifestyle, financial and risk tolerance and changing needs. It shifts responsibility for product choice and financing from employers to employees. The problem is most people are unprepared and lack the knowledge to make these decisions. This is where innovation, education and engagement come into play. Employees, families and individuals must learn how to become better health care consumers. An educated consumer will ultimately compress margins for providers and carriers until they restructure.

Part of the equation is the ability to develop private exchanges that deliver the scale and scope to create operational efficiencies. Today, with a few exceptions, the sector serving mid-sized and small businesses lacks this infrastructure. At the same time, it is fascinating to note that no one is addressing the customer service experience.

While the federal exchange was justifiably publicly flogged for this oversight, criticism lodged at private exchanges may not be far behind. Call centers and online support for individuals and families are essential elements to this transitional process, yet few solutions targeted to mid-sized and small businesses offer these crucial services. Beyond this fundamental provision is a greater issue: consumers need access to quality data and cost transparency to make health care decisions that deliver low cost with quality outcomes.

Private exchanges provide an ideal gateway for this interplay. Today, it is difficult for an employer to drive its workforce toward low-cost, high quality providers because employees may fear they won’t attain the best quality care. However, if that decision lies with an individual, suddenly the dynamic changes. Informed consumers will make informed decisions to save money out of their own pockets. As market share shifts among providers based upon costs and quality, the system will evolve.

Many employers want to participate in an employee benefits solution that supports families but does not require ownership of every single decision along the way. By creating the connection through an employer to an informed consumer, decisions and behavior will change. New product innovation will harness consumer requirements for quality care at lower costs.


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