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2015
Health Check:
Examining the Business
Impact of Private Health
Insurance Exchanges
Executive Summary
Today’s health insurance landscape is more complex than ever, mirroring widespread changes in
health care. The Affordable Care Act and the rise in health care costs, coupled with the emergence
of the health care consumer, have yielded a plethora of health insurance innovations including
public and private exchanges. New consumer engagement models are altering the ways in which
businesses interact with people, creating new consumer e-commerce expectations. The benefits
private exchanges can bring to consumers through simplifying and streamlining shopping and
enrollment are now well documented.
What this study uncovers is the business value private exchanges
bring to insurers – through a reduction in administrative burden and
an increase in market share - as well as the role that ancillary products
play in increasing consumer satisfaction.
Array Health’s 2014 study on private exchanges showed that insurer and employer adoption of
the private exchange model was on the rise. A year later, this third-annual study examines a
more mature market, one in which insurers are beginning to experience true business benefits
through implementation of private exchanges. This year’s data shows that private health insurance
exchanges are still central in helping resolve turmoil by offering decision support tools and familiar
e-commerce experiences that make it easier for consumers to shop and enroll in the coverage
that best meets their needs.
While this report provides only a snapshot of industry sentiment around private exchanges,
it does support analyst findings that private exchange adoption will continue to grow, while
demonstrating the need for brokers to embrace single-insurer exchanges. It also touches on
key industry issues, including how ancillary offerings will propel these industry projections and
the need for more education in employer settings around private exchanges’ ability to support
multiple funding models, including defined benefit and defined contribution. Most importantly,
the data underscores the strategic advantages experienced by insurers that currently offer private
exchanges in an increasingly competitive and crowded market.
Health Check: Examining the Business Impact of Private Health Insurance Exchanges | 2015
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Survey Key Findings
1
Insurers that offer single-insurer private
exchanges are experiencing significant
business benefits.
2
Ancillary products are seen as key to a
compelling private exchange experience for
consumers, yet exchanges are slow to adopt
beyond only the most common products.
3
Private exchanges are on their way to
becoming the de facto model for employersponsored health insurance.
4
Defined contribution has a PR problem.
5
Brokered sales continue to remain a strong
channel despite widespread access to
exchanges and online tools.
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INSIGHT 1
Insurers that offer single-insurer private exchanges are
experiencing significant business benefits.
More than half (52 percent) have seen a reduction in administrative costs, while
48 percent have increased their market share. Of those that plan to offer singleinsurer private exchanges, more than half (55 percent) expect that a reduction
in administrative costs will be among the benefits, followed closely by increased
revenue (45 percent) and increased market share (43 percent). While singleinsurer private exchanges have been touted as solutions that offer employers and
employees flexible options and cost control for employers, the business case for
these exchanges is talked about less. Reduced administrative costs, specifically, can
offer extensive cost savings to employers, brokers and insurers by eliminating paperbased waste, errors and process inefficiencies. More exciting, perhaps, is the future
outlook around business savings as single-insurer private exchanges start to move
with consumers – from group settings to individual plans – keeping loyal consumers
tied to particular insurance brands through the exchange model.
If you currently
use a single-insurer
private exchange to sell
to groups and individuals,
what areas of your
business have been
most impacted by the
implementation
of the exchange?
If you are planning
to use a single-insurer
private exchange to sell
to groups and individuals,
what value do you expect
to realize through the
implementation of the
exchange?
% of respondents
50
40%
40
36%
31%
30
26%
25%
20
18%
15%
9%
10
0
Increased
revenue
Improved
margins
Health Check: Examining the Business Impact of Private Health Insurance Exchanges | 2015
Reduced
administrative
costs
Increased
market share
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INSIGHT 2
Ancillary products are seen as key to a compelling private
exchange experience for consumers, yet exchanges are
slow to adopt beyond only the most common products.
Fifty-nine percent of respondents believe that the availability of ancillary products
will lead to an improved consumer shopping and enrollment experience on private
exchanges; however, nearly half of respondents (47 percent) indicated that less
than a quarter of private exchanges will offer a robust and comprehensive set of
ancillary products by 2016. Given that ancillary offerings are increasingly considered
an important part of an employee’s overall compensation package, insurers offering
private exchanges are missing an opportunity to create a compelling consumer
experience by not quickly deploying beyond traditional product sets to ancillary
offerings like life, critical illness, accident and pet insurance. This lack of urgency is
especially surprising when almost half of the respondents see ancillary products as
key to positioning private exchanges as go-to platforms for all insurance needs.
By January 2016, what
percentage of private exchanges
(single and multi-insurer) will
offer a robust and comprehensive
set of ancillary products such as
life, critical illness, accident,
pet insurance, etc.?
% of private
exchanges
76-100
51-75
7%
14%
31%
26-50
0-25
0
10
20
30
40
47%
50
What role will ancillary products play in the private exchange market in the
next 2-3 years? They will:
Incentivize employer adoption
of private exchanges
32%
Improve consumer shopping and enrollment
experience and overall satisfaction
59%
Position private exchanges as go-to platforms
for all insurance and ancillary needs
Create new and more ongoing touch
points between sellers and consumers
Not have a material
impact on the market
47%
39%
13%
0
10
20
Health Check: Examining the Business Impact of Private Health Insurance Exchanges | 2015
30
40
50
60
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INSIGHT 3
Private exchanges are on their way to becoming the de
facto model for employer-sponsored health insurance.
Nearly three-quarters of respondents (71 percent) indicated that the majority of
health insurers will offer a private single-insurer exchange by the end of 2017, if not
sooner, and almost half of respondents (44 percent) indicated that the majority
of employers will offer employer-sponsored health benefits via a private exchange
within that same time frame. These findings corroborate recent reports from both
Accenture and Deloitte, which found that private exchange enrollment could reach
40 million by 2018.
The majority (more than 50%)
of health insurers will offer a
private single-insurer exchange:
The majority (more than 50%) of
employers will offer employer-sponsored
health benefits via a private exchange
(single-insurer or multi-insurer):
38%
38%
38%
29%
30
30
30
2525
25
18%
20
20
15
30%
30%
29%30%
29%
20
12%
15
15
12%
12%
10
10
11%
11%
18% 18%
11%
30
30
25
25
20
15
0
20
15
5
5
0
end of 2015
By the end By the end
of 2016
of 2017
After
2018
By the
By the endByBy
thethe end
By the end
After By theNever
end
end of 2015 of 2016
end of of
2015
2017 of 2016
2018 of 2017
Never
After
2018
22%
18%
18%
18%
15
10
4%
5
0 By the
22%
22%
18%
18%
18%
20
25
10
10
5
5
30
0
Never
4%
0
10
5
4%
By the 0By the end By the end
end of 2015 of 2016
of 2017
After
2018
Never
By the
By the endByBy
thethe end
By the end
After By theNever
end
end of 2015 of 2016
end of of
2015
2017 of 2016
2018 of 2017
Health Check: Examining the Business Impact of Private Health Insurance Exchanges | 2015
After
2018
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Never
INSIGHT 4
Defined contribution has a PR problem.
The pros of defined contribution (DC) for employers are clearly understood. Of the
possible pros – among them more choices for employees as well as opportunities
for cost savings – an overwhelming majority (86 percent) pointed to better cost
predictability as a reason for adopting a DC approach. However, recognizing the
benefits does not mean employers are actually implementing defined contribution.
Sixty-nine percent of respondents indicated that a barrier to employer adoption of
the model was fear that it would be negatively perceived by employees.
What do you perceive to be the barriers to widespread
adoption of the defined contribution model?
26%
Employers feel locked into their current
health insurance funding model
Employers fear that it could be
perceived negatively by employees
69%
49%
Employers are hesitant
to experiment
35%
Health insurers don’t have
technology to support it
28%
Employers are unaware of it
0
10
20
30
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40
50
60
70
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Employers have an opportunity here to educate their employees about ways in
which better cost predictability can allow them to re-invest in other areas that
benefit employees, such as health and wellness programs. Insurers and brokers
also have an opportunity and obligation to correct any employer misperceptions
that private exchanges are just a DC tool. The operational benefits of a private
exchange approach can make enrollment more efficient for employers that want
to continue with the more traditional defined benefits (DB) model. Insurers are
no longer looking to implement private exchanges with just DC; they want their
private exchanges to offer a wide variety of funding models, often for the same
employer groups at the same time.
Why is defined contribution attractive to employers?
41%
It is less expensive than
other funding options
Continuity of health
benefit offerings
30%
42%
More choices
for employees
86%
Better cost predictability
13%
Without it they can’t offer
insurance to employees
0
10
20
30
40
50
Health Check: Examining the Business Impact of Private Health Insurance Exchanges | 2015
60
70
80
90
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INSIGHT 5
Brokered sales continue to remain a strong channel despite
widespread access to exchanges and online tools.
Seventy-five percent of insurer respondents indicated that they would use brokers
for the sale of plans with a start date of January 1, 2016 – not far behind direct sales
(79 percent) and on par with public exchanges (75 percent), and slightly ahead
of single-insurer private exchanges (67 percent). While it would be expected that
private exchanges, direct sales and public exchanges would grow in popularity, given
the impacts of health care reform and the rise of the health care consumer, brokered
sales remain high, punctuating the need for additional educational resources in this
complicated new landscape. These findings align with the AP-NORC Center’s 2014
Employer Survey, which found that nearly two-thirds of businesses (63 percent) say
they always use a broker or consultant for assistance in choosing a health care plan.
Most importantly, the data shows that insurers and brokers need to quickly figure
out how brokers can be integrated into insurers’ private exchanges so they can
continue to add value in the health insurance e-commerce era.
For the sale of plans with a start date of January 1, 2016, which of the following
sales channels will your organization be using?
75%
Brokered sales
79%
Direct sales
75%
Public exchanges
Private exchanges
(single-insurer)
67%
48%
Private exchanges
(multi-insurer)
0
10
20
30
40
50
60
70
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80
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Other Findings
Providing a consumer-focused shopping and enrollment
experience continues to be the most important ingredient
in private exchange success.
This capability was rated as more important than other capabilities, such as
ancillary offerings and ability to integrate with existing employer and insurer
systems, echoing the 2014 findings. These results reflect the ongoing recognition
that insurers must create consumer experiences that meet the expectations of
e-commerce savvy consumers.
Rate the capabilities required for a private exchange (single and multi-insurer)
to be successful:
Enable multiple funding models,
such as defined benefit and
defined contribution
4.0
4.1
Integrate with existing employer
and insurer systems
Offer a comprehensive set of ancillary
products such as life, critical illness,
accident, pet insurance, etc.
3.5
Generate data that can improve
sales and inform product
development and placement
3.9
4.3
Provide a consumer-focused shopping
and enrollment experience
0
1
2
3
4
5
Average score on a 5-point scale
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“Single-insurer private insurance exchanges” needs a
re-brand.
This term can be confusing to those outside of the health insurance industry
and can be perceived as inaccurate inside the industry because virtually all
private exchanges sell ancillary products from multiple insurers. Nearly a third of
respondents (31 percent) indicated that “health insurance e-commerce platform”
was a more accurate descriptor, followed closely by “insurer or carrier-branded
private exchange” (30 percent). Both terms reflect a growing understanding that
this capability is an important direct channel approach to the market for insurers.
“Single-insurer private
insurance exchange”
can be a confusing term.
If you could rename the
category, what would
you call it?
30% 31%
Insurer or
carrier branded
private exchange
Health insurance
e-commerce
platform
21% 18%
Insurer-led online
marketplace
Health Check: Examining the Business Impact of Private Health Insurance Exchanges | 2015
Health insurance
retail platform
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Methodology
Survey Respondents
One hundred subscribers to Atlantic Information Services (AIS) and Healthcare
Payer News (HPN) responded to the online survey, which ran for two weeks in
April 2015.
All decimals in this report are rounded to the nearest percentage point. This may
result in certain numerical totals adding up to slightly more or slightly less than
100 percent.
The estimates and opinions expressed in this report are based on the survey
results only.
Excerpts from this report (including charts) may be used for editorial purposes
without prior permission from Array Health, provided:
• Array Health is acknowledged as the source of the content
• Charts are displayed as published
• A link to the full report is included
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About Array Health
Array Health brings consumers and insurers closer together by powering a
personalized health insurance experience. Its cloud-based e-commerce software
platform enables health insurers to deliver their own branded online exchange–
including e-commerce support throughout the value chain of brokers, employers
and consumers, across all lines of business. The company’s technology gives
employers a new way to control costs and personalizes the health insurance
experience for consumers, enabling them to make more informed decisions and
to more deeply engage in their health. Array Health is a privately held company
based in Seattle.
To learn more, visit arrayhealth.com.
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Contact us today
1-800-640-7086 | [email protected] | arrayhealth.com
© 2015 Array Health Solutions Inc. The Array Health logo and Spectrum are trademarks of Array Health Solutions Inc. All other trademarks are the property of their respective owners.