The distribution model for employee benefits is changing. As employers move to a cost-sharing model, essentially asking employees to assume more financial responsibility for their benefits, channel options that allow deeper analysis, including private exchanges, have grown in popularity. There is little question that private exchanges ? stores where employees can purchase benefits ? are transforming the industry and providing new opportunities for employers and carriers alike. Adapting to this rapidly developing landscape, however, presents new questions and challenges for all players.
Multiple recent industry studies have indicated that over the next few years, private exchanges will become an increasingly popular channel for benefits sales. Conversations about the Affordable Care Act brought private exchanges into the public consciousness; the exchanges have continued to gain traction for their ability to make it easier for carriers and employers to offer a broad set of traditional and voluntary products while creating new ways to educate and engage participants on their benefits options. In an industry that doesn’t change rapidly, it is clear that this distribution channel offers unique opportunities to shift the status quo.
And this shift has the potential to be tectonic: according to the Private Exchange Evaluation Collaborative’s Private Exchange Employer Survey, 45% of employers have implemented, or plan to consider, using a private exchange for their full-time active employees before 2018. In response to this trend, many insurance carriers, broker and consultant groups and retail companies have formed private exchange platforms through which corporations will be able to make benefits available to their employees. Often these exchanges allow for a defined contribution model where the participant is given a set dollar amount with which to purchase benefits – yet another new concept in the employee benefits industry.
MetLife began working with private exchanges five years ago through its relationship with the Liazon Bright Choices Exchange. MetLife viewed this relationship as an opportunity to innovate as well as deliver the products and services its customers were seeking, in the channel that best suited their needs. In January 2013, we began offering our products through the Aon Active Health Exchange. To date, MetLife has integrated with more than 11 private exchanges and is actively working to identify additional opportunities.
Considerations for employers
Exchanges can help employers enhance the employee enrollment experience by providing powerful decision support tools and helping to either predict or lower costs. Employers may also find it easier to provide a wide range of traditional and voluntary products through exchanges, which in turn can help them meet employee demand for increased benefits choices. According to MetLife’s 12th annual U.S. Employee Benefit Trends Study, 78% of employees want a greater variety of benefits to choose from and 80% would value benefits customized to individual circumstances. Private exchanges can provide a path towards meeting those goals.
Exchanges can also ease administrative burdens, as they provide an outsourcing outlet for the employer. The outsourcing of benefits administration is an attractive alternative for employers; the 2014 Guardian Workplace Benefits Study found that 60% of employers outsource their benefits administration vs handle it in-house. According to that study, 40% of employers believe that administration becomes more consistent when handled by an external organization. And while it is still too soon to tell, early studies show that employers are expected to lower costs over time by working with private exchanges.
While exchanges offer many advantages for employers, they complement – not replace – more traditional distribution options. Employers should take a close look at their needs to determine if a private exchange is the best option for them; those who prefer customized plan designs and want to be heavily involved in benefits administration may not be top candidates for private exchanges and instead may wish to explore alternate distribution channels.
A key element of exchanges, for all involved, is education. Private exchanges can offer an enhanced enrollment experience, featuring tools and tips that will enable employees to make better benefits decisions. These educational tools can have a significant impact: the Liazon Corporation study, Shopping for Benefits on the Private Health Exchange: The Rise of a Smarter and More Empowered Health Care Consumer, found that 60% of employees who enrolled through a private exchange with educational tools said they were more engaged in decisions about their care.
While the full impact of private exchanges on the group benefits landscape is yet to be seen, this growing distribution channel offers a number of opportunities for employers, carriers and participants. By taking the time to further explore this channel, all involved can find new ways to meet employee benefits needs, reduce administrative burdens and provide choice, education and engagement.
Jessica Moser is vice president, channel development at MetLife.
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