The Case for ‘Private Exchange 2.0’

This article was originally published with co-author George Kalogeropoulos, CEO of HealthSherpa, on LinkedIn.

You’ll be hard-pressed to find somebody with ties to employer-based benefits who doesn’t have a visceral reaction to the term “private exchange.” Sadly, this reaction was largely earned over almost a decade of huge expectations but sometimes under-delivered or ahead-of-their-time options that left benefits professionals and consumers alike struggling to even agree on what constituted a private exchange.

Yet from this experiment in changing benefits delivery comes a multitude of lessons from which we can place what we’ll call “Private Exchange 1.0” in proper perspective, and follow it up with a transformative second pass.

In this edition of HealthSherpa Research, we tackle the movement that was, and how we build a bridge to a successful, consumer-driven future.

A Brief History of ‘Private Exchange 1.0’

First, let’s travel back to 2012. President Obama was on his way to reelection. Unemployment was about to dip below six percent for the first time since before the Great Recession. The Affordable Care Act (ACA) had survived court challenges and shifts in Congressional power. And the public marketplace for ACA-subsidized individual coverage was readying for a 2013 launch.

In parallel, large-scale consultancies were racing to see who could have the first, best and largest private exchange. Though the idea of private health insurance exchanges had been around for years, consultants and brokers were sent into a panic when McKinsey released a report that predicted up to one-third of all U.S. employers would drop healthcare coverage, pay the ACA “Employer Mandate” penalty, and send their employees to public exchanges (AKA state-based exchanges and for coverage.

Private exchanges came in all shapes and sizes, just like the stakeholders who were banking on them. Functionally, they all tended toward focusing on the consumer experience with tools familiar in other areas of online retail — things like decision support tools, questionnaires, plan bundles, and even avatar-guided shopping. Administratively, they ran the gamut: there were fully-insured exchanges attempting to mirror the community-rated economics of the ACA; ones that promised employers they could stay self-insured; ones that gave employers and employees a menu of options; and ones that let you have it any way you wanted.

With more than a dozen “new,” or newly rebranded, private exchange solutions being offered to employers of all sizes through aggressive marketing and sales campaigns, the prospects for success looked good. Accenture predicted that there would be 40 million employees insured through private exchanges by 2018. Those predictions were bolstered by what was, by most accounts, impressive adoption in the first couple of years.

Then…the luster wore off. By 2016, Accenture had essentially stopped tracking private exchange enrollments, which topped out at about 10 million.

What happened? How did Private Exchange 1.0 fall short of expectations? Several factors that can be summed up with this: business goals were put out in front of consumer needs, and the industry was unable to recover from the mismatch.

The consumer experience and “consumer-driven healthcare” were central to Private Exchange 1.0 marketing strategies. “Choice” was the buzzword — offering employees multiple choices of health plans, giving them a “defined contribution” to “shop” for their benefits, and managing it through an online shopping and enrollment interface. But while employees may have been looking at more plan choices than they had a decade earlier, they were still limited to what their employer had negotiated with broker(s) in order to make the economics work for insurers. The jockeying was happening but it wasn’t toward greater consumerism — it was toward finding an operating model that would earn the stakeholders a profit.

Nowadays, the private exchanges that are left don’t really call themselves private exchanges at all. They typically go by this universal Private Exchange 1.0 attribute: online enrollment.

Moving Beyond Past Missteps to a Better Second Act

If you can move on with only one universal attribute, at least that’s the one. Online enrollment, as quaint as it sounds now that we’ve had online shopping for a generation, serves a vital role in transforming healthcare by putting the individual at the center of the benefits universe. All other considerations — administration and business processes in particular — work in service of individual needs, not vice-versa.

Annual enrollment is a critical entry point to the healthcare system for most Americans, regardless of whether they’re covered through their employer or through the various points of the individual market that intersect with private coverage (ACA-subsidized individual, unsubsidized individual, Medicare Advantage, some Medicaid). In other words, everyone needs coverage and separating public from private doesn’t matter so much to consumers. This realization, largely the adversarial foundation of Private Exchange 1.0, is actually what makes Private Exchange 2.0 both necessary and promising.

Put another way, in the future state of benefits, keeping the individual at the center of the experience isn’t just important — it’s the only way it will work.

That’s why it’s essential that we learn the lessons of Private Exchange 1.0 and press on for a version 2.0. Other industries are rife with examples of “if at first you don’t succeed, try, try again.” Electric cars have been around for decades and, in fact, a small electric/alternative fuel movement sprouted in the ‘90s. Yet it was hindered by a combination of technology limitations that kept the movement from going mainstream, as well as meddling from major automakers more interested in protecting the status quo than in leading consumers down a new path.

This example provides an interesting corollary to our industry. There are extremely powerful and embedded interests in healthcare that fight change at all costs. But once consumers see that a better way not only exists but is available to them — the way Elon Musk’s Tesla started with luxury and worked its way into the mainstream — then they will demand that better way and the embedded interests will be forced to listen and act.

The Five Pillars of Private Exchange 2.0

Here are five ways to act on Private Exchange 2.0:

  • Make it experience-driven
  • Make it data-conscious
  • Make it service-oriented
  • Make it transparent
  • Make it holistic

Make it experience-driven. To make every consumer’s participation as meaningful and effective as possible, that universal attribute of enrolling online means an experience that is simple, human, and most importantly, helps consumers get the health coverage that fits their needs best. This goal of better outcomes for individuals during OE and throughout the year is achieved agile, consistent focus on users. You do so by adopting user experience design best practices: 1) interviews and usability tests to know what works, 2) Rapid development and analyzing that development to know how you’re addressing what works and eliminating what doesn’t, 3) repeat the process again and again, considering market factors as you go that will impact the way users approach what they see and do.

Make it data-conscious. Private Exchange 1.0 hinted at what can be done with data by introducing more advanced decision-support tools and algorithmically-driven questions. For PE2.0 to meet its potential to change the healthcare ecosystem, it must take the lessons of PE1.0 and both drive consumers to better experiences and learn from consumers’ behaviors year-round. This shift means that enrollment remains the entry-point but that it is less detached from consumer decision-making — things like picking a doctor, finding a low-cost generic drug, signing up for a personalized wellness program — anytime. The walls in healthcare are almost entirely built by business interest. Consumers just want products that make sense for how they live their lives, and Private Exchange 2.0 can and should provide them. In this approach, data is not a tool for analysis but the basis on which all decisions are made. Data and user experience are married with machine learning in such a way that consumers get what they need during OE and continue to get what they need, when they need it, throughout the year.

Make it service-oriented. A linchpin of PE1.0 was that it provided more service at less effort for employers. Yet companies remain challenged to see this through due to poor scaling of existing benefits systems and processes being layered over existing online enrollment solutions. To break free of those constraints, PE2.0 must think of service as the entire consumer experience, regardless of medium. Hence, there is not talk of “offramps” from online enrollment to telephonic enrollment but simply various paths the consumer can choose on the enrollment journey. For many if not most, shopping for an enrolling in health insurance online is an unfamiliar experience with which they are not comfortable. For these consumers, talking to an individual shouldn’t be treated as a last resort but as their first choice. To provide the best experience for them, the experience cannot be built on old hierarchical methods of service support (i.e. an escalation chain from operator to team lead to supervisor to manager) but rather on person and expertise. This method will likely require new training and service center models but it will ultimately lead to a clearer path to resolution, which in turn will lead to smarter, better served consumers.

Make it transparent. There are few businesses, outside of actual covert operations, that are less transparent than healthcare. It’s nearly impossible to find out how much procedures costs, or what you might pay for prescription drugs without insurance, or how much insurance really costs you versus what it costs your employer. It is no exaggeration to say that if we are to succeed as an industry and as a nation, we must become more transparent. Without the basic knowledge — more importantly, access to that knowledge — necessary to understand what we’re buying and how to use it, there will continue to be misaligned goals and incentives in healthcare. It is all of our duty to promote transparency both as representatives of consumers and as consumers ourselves. Without that commitment, nothing else on this list matters.

Make it holistic. Perhaps the biggest change from the old system to the new is that it goes beyond enrollment. This goal is the subject of much debate within healthcare circles and is heavily impacted by where you think the individual’s journey starts. On one hand, clinicians largely believe the journey is centered on the patient-doctor relationship. On the other, employers might say it begins with the benefits offered to their employee. The reality is that it is centered on the individual and, as such, it doesn’t matter too much where it begins but rather how fully an individual can manage their personal health and well-being in one place. What this means for Private Exchange 2.0 is that the exchange ensures that individuals not only get covered but that they understand how to use their healthcare and benefits year-round.

Such a mindset makes it clearer why the only holistic approach that works is transparent, service-oriented, data-conscious and experience-driven.

Getting There and Staying There

Depending on where you are in the industry — or out of it — you’ll look at these five foundational considerations as either too basic or too challenging. For those in more agile industries it may seem frustratingly simplistic. For us, an important lesson: the Ubers of the world have succeeded largely by disrupting industries that were ripe for it because few people were paying attention. Healthcare has everyone’s attention, from voters to politicians to doctors to employers to academics. It is a fascinating boondoggle that touches everyone’s lives. In such an environment, even the smallest move can meet tremendous resistance to change.

But we must change. Here are the ways that we can do it.

Personalization first, last, always. The easiest and most overused comparison whenever speaking for consumerism is “the Amazon experience.” It’s a great way to get people to know what you’re talking about but, unfortunately, it’s often misread when applied to benefits. In describing the simple design that has driven Amazon’s success, Fast Company Design outlines four universal principles: being transparent, being tangible, being trustworthy and being helpful. It’s the simplest and most elegant way to get a user-centric design. Where Private Exchange 1.0 got off track was taking the rest of the Amazon experience literally and seeking to “delight” customers. For Private Exchange 2.0, the more appropriate comparison — one that also adopts these design principles to great effect but focuses on confidence more than delight — is TurboTax. It’s our job with Private Exchange 2.0 to make sure consumers are in and out as quickly as possible and that they leave with the comfort that they did the right thing and got what they needed. The way you do that is always focusing on the individual user’s needs and finding ways to scale those needs so that you’re reducing both the effort required of individuals to complete enrollment and the need of administrators to support that effort.

Data-informed decision-making. The healthcare space is phenomenally data-rich — and, as noted above, phenomenally opaque. Virtually everything we do inside the healthcare system is tracked and cataloged in some way. Yet as surely as this ecosystem is rich with data that could make our lives better, it is so disjointed as to be at odds with itself. Providers have limited, arcane standards for clinical communication. Health payers rely on government protocols that are both outdated and poorly enacted. Individuals have stultifying challenges gathering their own data to make themselves better consumers. If Private Exchange 2.0 is to excel where the first version only scratched the surface, we must demand that we are more open and data-driven. But even more than just driving decisions with data, we must always keep the consumer at the center of the experience and not let them become just another data point. We must talk to consumers, and use data insights to make those conversations better and more personalized. It is a challenge of infrastructure and experience. That means finding ways to open up existing systems and also lobby for updates to laws and regulatory guidelines drafted for technology and societal needs that have moved on — things like ERISA and HIPAA. We’re not advocating reducing consumer security and protection but making it stronger by passing laws that are in keeping with the times. It’s on all of us to not simply get caught up in mastering the way we currently do it. We must work to change the way we operate.

Cooperation and Coordination. Likewise, we can’t let our current leverage battles derail the effort to put the consumer at the center of healthcare. Payers, providers, pharmaceutical interests and more have been building this byzantine system for so long that it’s nearly impenetrable. We must swing the doors open and keep them open. Transparency lets us see the areas of waste firsthand, which in turn lets us become methodical in going after that waste. Stakeholders currently trying to hang onto their closed way of doing business will ultimately falter…if those who decide to work together for the greater good start outnumbering them to the point that they can no longer wield the leverage of the unknown. If we can see ourselves as relying upon each other as opposed to getting in each other’s ways, then we can focus our attention on what works to help consumers.

There are so many issues in the healthcare space that need our attention. Luckily, there is more motivation to make real change than there has been in a very long time. We can reshape the healthcare world if we are focused and committed. And Private Exchange 2.0 is a great place to start.