Private Exchanges - Creating New Opportunities for Consultants - Part 1 of 2

Private exchanges are growing in popularity and membership, and that is expected to continue.  How can employee benefit consultants, employers, and employees adapt and succeed in the private exchange era?  This two-part series investigates the private exchange landscape, and what opportunities are emerging, particularly with small and midsize employer groups.

 What is a private exchange?

A private exchange is a platform that can transform the way employers and individuals review and select benefits.  Employees are offered a wide range of options and can choose the plan(s) that are right for them.  From an employer standpoint, a private exchange can help a group re-frame benefit presentations and choices to meet financial goals (defined contribution models), offer a broader range of benefits that appeal to more employees, and provide decision support that can help employees understand their needs and the benefits that can meet those needs.

A history of exchanges

Exchanges have been around for many years.  Technology has made the functional role of exchanges easier to implement, but the concept of a marketplace for benefits remains the same.  The Affordable Care Act has accelerated the growth of private exchanges for many reasons.  The employer mandate requires that employers offer health insurance to all full time employees, and employers need a scalable solution that can provide reach, education, administrative efficiencies, and will ensure compliance.  Upcoming regulations, such as 6055 reporting and the Cadillac Tax, will further accelerate the growth of private exchange models.
 
Expected growth of private exchanges

Until recently, there was low adoption of private exchanges, but there was a high level of interest.  That is changing quickly.  Accenture estimates that there are 6 million people enrolled in benefits via private exchanges in 2015.  That number, according to Accenture, is expected to grow rapidly, with 12 million enrolled in 2016, 22 million in 2017, and 40 million in 2018.
 
Established private exchanges

Large employers have been the primary growth drivers for private exchanges, but options for small and medium companies are starting to see value in what private exchanges can do for them.  The private exchange market had a large numbers of innovators and early entrants, but as the market matured we saw consolidation through mergers and acquisitions.  Some insurance carriers and brokerage/consulting firms have developed and/or purchased their own private exchanges, while there are a number of independent private exchanges that function as third party partners.
 
Future of private exchanges

The private exchange market is destined to grow rapidly in the next 3-4 years.  A large portion of this growth will come from individuals employed by large employers, but small and midsize employers are expected see growth as well.  Small and midsize employers have faced their own unique challenges and realities over the past couple of years.  Depending on the State, the Small Business Health Options Program (SHOP) exchanges have had limited success.  Further, small and midsize business owners need an integrated and comprehensive solution to support their benefits and HR functions, and a scalable solution that will grow with them.  Most of all, they want to focus on what they do best – taking care of their customers, creating opportunities for their employees, and growing their business.

 

Look for part two of this series on Thursday, November 18.  Part two will identify emerging opportunities in the small and midsize employer markets, particularly for benefit consultants.