We are living in the era of the consumer. Advances in technology have given individuals more power than they have ever possessed to access products and services that best meet their needs. Price elasticity models are being reconfigured across our industry as well. These dynamics have changed the world of commerce, forcing manufacturers and service providers to innovate.
If we look outside the world of employee benefits, the transformation is epidemic. Customization has become “de rigueur.” There are pillow menus at hotels, myriad gluten-free, vegetarian and organic options at supermarkets, and we’ve morphed into a nation of connoisseurs who order venti, half-caf, non-fat lattes. Just as the travel industry did years ago, more sectors are changing their supply chain processes and converting their business models from business-to-business to business-to-consumer.
The advent of private exchanges will accelerate this consumer-centric shift in the employee benefits sector. Individuals and their family members can now select the combination of benefits that is right for their circumstances and budget. The days of one-size-fits-all are over.
1. Déjà vu: Haven’t We Seen This Before?
For those unfamiliar with private exchanges, the concept seems foreign. But the approach is almost identical to what happened in the 1980s with 401(k) plans. Once upon a time many employers provided pensions to select workers – a defined benefit. The company controlled the process and investment. The employee had no choice in the matter, yet received a check each month after retirement. With a 401(k), employees can contribute pre-tax earnings which are often matched by the employer – a defined contribution. How the funds are invested is determined by the individual, not the business. The system has shifted as companies have almost entirely migrated from an employer-based solution to one in which the employer frames the options and conducts due diligence, then turns the decision over to individuals who determine the outcome based on personal preferences.
Once employers feel there is a maturation of solutions in the private exchange market, the benefits industry will again reach a tipping point. While the rollout seems slow for those of us immersed in this every day, five years from now the way employers, employees, carriers and brokers operate will be completely different. And, 10 years from now, the system we’ve relied upon for the last 75 years will be unrecognizable.
At the moment, the vast majority of businesses still want to participate in the benefits process, but they no longer want to own every decision. This puts the consumer at center stage. It also shifts more risk to individuals, who may need information and education to properly direct their choices.
2. Look Beyond the Software
As employers sort through the confusion of a marketplace now teeming with private exchange options, consider that most – particularly those targeted to mid-sized and small businesses -- involve variations in software. In many cases, the need to educate employees has been overlooked. While there may be abundant information available online, is it wise to put vital decisions about benefits – particularly health insurance – in an individual’s jurisdiction without having a knowledgeable professional hold their hand through the process? They once relied on their employer for expertise. That transfer of knowledge does not occur overnight.
When exploring private exchanges, ensure the ones you consider have the manpower, bandwidth and resources to support a business-to-consumer relationship. At minimum, you should require call center support and online live chat capabilities.
3. Beware of Advisors Steering You Away from Exchanges
Is your company’s benefits advisor recommending that you NOT explore a private exchange? He or she may have some valid points. The market is new and it involves changing the way your business does things, which can be uncomfortable. However, if you are interested in the cost control this approach provides, it may be worth a deeper look. If you turn to a private exchange, how will this impact your advisor? There are few brokers serving mid-sized and small businesses that can sustain a profitable revenue stream if their clients use private exchanges. They are seldom big enough to offer a program with the robust services required for long-term success and customer satisfaction, so they may steer you to other solutions.
4. Keep an Eye on Carriers
Finally, here’s another thought: How will carriers be impacted by private exchanges? If they evolve as predicted, and consumers become more engaged, then carriers will be pulled into the dynamic that now impacts benefits advisors and employers. They will be forced to innovate. After years of operating with a model that targeted employers, carriers will have to compete on pricing at a consumer level. THAT could be interesting. Stay tuned. The only thing constant is change.