CONSIDERATIONS IN PRIVATE EXCHANGE MARKETPLACES

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1 Benefitfocus Solution Whitepaper CONSIDERATIONS IN PRIVATE EXCHANGE MARKETPLACES Over the past decade, the popularity and importance of consumeroriented, cost-conscious employee health plans has significantly increased. A similar emphasis is now being placed on open-market solutions namely choice-driven defined contribution benefit programs supported by private exchange marketplaces. The nature of technological innovation that today s society eagerly embraces is fueling consumerism in the healthcare and benefits market. As employers, insurance carriers and consultants proactively seek to understand the evolving state of employee and consumer expectations, they are finding that marketplace technology allows them to offer a consumer-centric benefits shopping experience. Copyright Benefitfocus, Inc. All rights reserved. BENEFITFOCUS, the BENEFITFOCUS LENS LOGO, the (ALL YOUR BENEFITS. ONE PLACE.) tagline, the (SHOP ENROLL MANAGE EXCHANGE) tagline, HR INTOUCH and HR INTOUCH MARKETPLACE are registered trademarks of Benefitfocus.com, Inc. All other company and product names may be trademarks of their respective companies.

2 72% of Internet users search for health information online, demonstrating how technology plays an important role in facilitating a more consumer-driven healthcare model. Pew Research Center Launched in 2010, Pinterest allows users to design and share creative ideas through postings and is now the fourth most popular social networking site behind Facebook, Twitter and LinkedIn (ebizmba.com). Research firm emarketer confirmed in a new study that more than 50% of U.S. mobile phone users have smartphones. At the end of 2012, comscore reported that 52.4 million people in the U.S. own a tablet. All of these forces are shaping consumer expectations and marketplace behavior. When applied to healthcare and benefits, this acceleration in technology leads to an upsurge of private exchange marketplaces. Convenient shopping experiences for purchasing benefits are now a reality with online and mobile capabilities that give consumers the opportunity to review a wide selection of offerings in a way that is easy to understand and navigate. The goal of a marketplace is to address the rise in healthcare consumerism while efficiently managing the cost and risks associated with benefits, prompting several considerations in the overall design. PRIVATE EXCHANGE MARKETPLACES Private exchange marketplaces can vary in configuration depending on the stakeholders and sponsors, and identifying the appropriate entities that are participating is essential to designing the best solution. Large employers may sponsor a marketplace for their employees or go through an insurance carrier, broker or third party provider. Groups of large employers can come together to set up their own private exchange as well. Private exchanges are also being set up by employers specifically for Medicare-eligible employees and retirees to purchase Medicare Advantage and/ or Medicare supplement policies. Regional and national consulting firms are playing a role in sponsoring their own marketplaces to offer their employer clients. Many insurance carriers are implementing private exchanges as an alternative option for employers and/or individuals purchasing plans. Private exchange marketplaces facilitate new sales and renewals for employers and individuals alike, eliminating the need for paper. By streamlining the application process and reducing quote-to-card time, insurance carriers have the ability to efficiently identify, onboard and maintain the consumers who are expected to inundate the insurance market as a result of the Individual Mandate provision under the Affordable Care Act (ACA). 2

3 Also, in light of the ACA and introduction of public exchanges, insurance carriers are looking for solutions to interface with the Federally Facilitated Marketplace (FFM). Choosing a marketplace solution that is capable of integrating with the FFM will allow insurance carriers to offer a seamless shopping experience for individuals who are eligible to receive premium tax subsidies. With FFM integration, eligible individuals can receive and apply subsidies to their purchases within an insurance carrier s marketplace. OFFER MORE CHOICE WITH DEFINED CONTRIBUTION The idea of shopping in a private exchange marketplace is becoming more aligned with discussions of defined contribution benefit models. As healthcare costs continue to increase at almost twice the rate of inflation, employers are looking to a defined contribution strategy to control costs while maintaining a competitive total compensation package. With the defined contribution model, employers can better project overall costs by allocating a set dollar amount for each employee to shop from a variety of benefit offerings within a private insurance marketplace. This model replaces the one-size-fits-all approach of a traditional benefits model and encourages employees to evaluate their true healthcare needs. Defined contribution increases employee choice, therefore emphasizing the need for effective decision support tools. The latest marketplace technology can provide the same ease and cost transparency that consumers have come to expect with popular retail sites. With immediate access to cost estimators and plan comparison tools that personalize the selection process and explain the relationship between healthcare usage and costs, shoppers can become more informed healthcare consumers. Whether sponsored by an employer, insurance carrier or consultant, a private exchange marketplace must provide an intuitive, guided shopping experience and a straightforward process that encourages consumer self-service while also demonstrating the value of a benefit plan beyond the price of the premium. With the ability to consolidate data from disparate sources, data analytics applications can help consumers make more informed benefit decisions. Cloudbased software can be used to integrate health claims data and national averages of similar demographic profiles in one place. This can create powerful predictive analytics that can be configured into plan shopping tools to help consumers select the plans that best fit their needs and budgets. PRIVATE MICRO MARKETPLACE With evolving marketplace technology, employers can now design benefit packages that are specific to their employees needs and segment groups so that they are only presented packages for which they are eligible. This subset of options from various insurance carriers forms a private micro marketplace, allowing employers to clearly communicate the plans they have selected to make available to their employees. 3

4 A private exchange marketplace can also be designed to accommodate payment method preferences. While payroll deduction is the most common form of payment, technology has allowed for more payment options such as using a credit card or PayPal account. Having options for payment gives employees the ability to allocate their defined contribution dollars however they choose. Additionally, marketplaces enable employers to easily offer more voluntary benefits that are attractive to all demographics for a higher level of employee satisfaction. Marketplace technology can facilitate employer-sponsored wellness programs and incentives as well by supporting the automation of premium discounts and benefits based on participation. This way, employees are encouraged to improve personal wellness management and live healthy lifestyles, which can drive cost-savings for the employer as well as the individual. ELEMENTS OF MARKETPLACE DESIGN Outside In With the influence of social media and analytics technology, the conventional approach to marketing from the inside out is being reversed to come more from the outside in. Rather than developing the product and marketing plan internally to push out, companies are looking to behaviors going on outside in conversations between consumers while also considering their shopping behavior. This information can then be applied in product development. Likewise, the design of health and benefit plans has increasingly switched from being internally developed and rolled out to a consumer-influenced development that takes marketplace behavior and preference into account. Employers and health plan providers now have the technology to analyze consumer behavior and preferences when deciding how to present benefit offerings. By leveraging website analytics, a private exchange marketplace can be designed just like any other web-based retail environment, configuring product placement and decision support tools that can influence consumers to purchase plans that are right for them. With a consumer-centric design, employers, consultants and health plan providers have the flexibility to change the look and feel of the marketplace as they see fit in order to include more choice and features that meet the expectations of the consumer. Mobile As mobile devices quickly become the consumer entry-point of choice, having a significant mobile presence is crucial in a marketplace environment. Most consumers are accustomed to the portability and convenience that mobile technology offers. Using responsive technology to automatically detect the device s interface, the tools and pages within a marketplace render to the appropriate format. This design provides an easily navigable environment based on the device being used to access the marketplace. 4

5 By making shopping for benefits more accessible with mobile capabilities, the participation rate during enrollment within a private exchange marketplace increases. As the younger demographic enters the workforce and mobile devices become more ubiquitous, marketplaces can deliver the convenient online shopping experience consumers have come to expect. KEY BUSINESS CONSIDERATIONS FOR PRIVATE EXCHANGE SUCCESS SUPPORT defined contribution for employers to offer consumers and employees more choice MAKE the shopping experience easy and intuitive PROVIDE flexibility and configurability to handle legislative changes OFFER tools to help consumers understand what they are buying and intelligently allocate funds INTEGRATE ancillary benefits through apps to offer more benefit options ACCEPT multiple forms of payment at the group and individual level PROVIDE mobile marketplace solutions EXTEND the offering with CDHP add-ons such as HSA/FSA/HRA administration TECHNOLOGY CONSIDERATIONS FOR MARKETPLACE INFRASTRUCTURE Cloud-Based A cloud-based private exchange marketplace is designed to manage the complexities associated with benefits for both insurance carriers and employers of all sizes. The best marketplaces are not built from the ground up, but rather are built with trusted, proven technology that can already handle the intricacies and transaction volumes the employer and insurance carrier currently experience, as well as the influx of data they anticipate as a result of the ACA. This way, costs are not going toward the development of an operable, successful exchange; it s already at their fingertips. Furthermore, an open platform extends the value of a marketplace with integrated third party applications. This dynamically expandable environment allows for full integration and scalability, creating an ecosystem where new products and functionalities are consistently introduced to the marketplace. The extensibility of a cloud-based infrastructure allows the sponsor or other 5

6 stakeholders to easily manipulate the personalization within the marketplace or build apps that provide more product offerings. In a cloud-based environment, administrators can take advantage of the latest functionality and superior transaction security at a lower cost than traditional legacy systems. With continuous investment by sponsors and third parties as well as the quick speed to market, the ecosystem within a marketplace can grow with new applications. An expanding ecosystem provides employers the ability to offer a broader range of benefits, increasing the value of their total compensation package for a more competitive recruiting and retention strategy. Connectivity A benefits marketplace is an extremely complex environment where multiple consultants and vendors are providing product features and functionality. Sophisticated data integration options are necessary in marketplace solutions to reconcile both plan and rate data from varying systems. Whether configuring personalization tools, building a new app or introducing new products, a consumer-centric set of browser-based tools allows all stakeholders to interact with the marketplace. A standard set of application programming interface, or API calls, creates the ability to exchange data between all of these environments. The technology used for these connections should be PCI and HIPAA compliant, and should provide safeguards for the data being processed. With these compliance measures in place, along with existing partner connections, secure transactions can be made. KEY CONSIDERATIONS FOR IMPLEMENTATION USE iterative development in order to get a product to market as quickly as possible KEEP it simple to start, then add products as you expand LEVERAGE existing data connections to reduce complexity and implementation time SELECT one segment stay focused on consumer, employer or employee AUTOMATE underwriting to simplify workflow MAKE the experience seamless limit logins and differing experiences SIMPLIFY administrative rules and underwriting related to group and individual sales KEEP the team small agility and quick decisions will get your exchange to market faster 6

7 Flexibility & Choice The accelerated pace of technology is a key trend that is driving the changes in the benefits landscape. Private exchange marketplaces offer employers, insurance carriers and consumers the convenience to shop, enroll, manage and exchange all their benefits in one place. Cloud-based technology seamlessly integrates the tools and data necessary for a marketplace to create more choice and personalization in benefits in order to fulfill consumer and employee expectations. The flexibility and extensibility of a cloud-based infrastructure allow for the continuous investment and scalability required for introducing new functionalities and product offerings to a marketplace. Considering all these factors will be the key to creating a successful private exchange marketplace that will continuously attract more third party vendors, employees and consumers. About Benefitfocus Benefitfocus, Inc. (NASDAQ: BNFT) is a leading provider of cloud-based benefits software solutions for consumers, employers, insurance carriers and brokers. Benefitfocus has served more than 20 million consumers on its platform that consists of an integrated portfolio of products and services enabling clients to more efficiently shop, enroll, manage and exchange benefits information. With a user-friendly interface and consumer-centric design, the Benefitfocus Platform provides one place for consumers to access all their benefits. Benefitfocus solutions support the administration of all types of benefits including core medical, dental and other voluntary benefits plans as well as wellness programs. 7