A few months ago, I threw out the opportunity for interested writers to use this blog as their forum for sharing the gospel of HR Technology. I have had quite a few vendors take me up on that, but most recently a coworker within Lockton has thrown his thoughts our way. Following is the first of many (if we are so lucky) posts from Mike Smith, Director of Exchange Solutions. Because private exchanges and HR technology are so closely related, I feel his content is just as relevant and makes complete sense to debut here. So, without further ado…
As I travel around the country meeting with employers and their Lockton consulting teams, we invariably review the various projections/assumptions for private exchange growth over the next five years from analysts, pundits, vendors, etc. Most of these projections are very aggressive. According to a recent Kaiser Family Foundation report on the private exchange market, at least 20%, and on average 33%, of current employee benefit plans will be constructed through a private exchange framework over the next five years. Some studies expect as much as 47% of the market to be using private exchanges by 2020. Wow! Can you imagine almost half of all employees changing their benefits buying behavior in just six short years?
It’s natural that we overestimate enrollment in private exchanges at the commencement of this marketplace. There is excitement, capital, development resources, new vendors, cost fatigue, etc., all wanting these services to take off and over time become the new norm of employee benefits structures. Analysts, vendors, and early adopters all are vested in the successful launch of this market.
And while interest in learning about group private exchanges is running hot, this interest is not yet translating into broad-based demand and implementation commitment on behalf of employers. Most are concerned with the newness associated with this change as these approaches are yet to be proven over time, ability to save money in the long run, lack of transparency of the emerging models and impact to employees.
Given current circumstances, I do not believe that the enrollment projections for 2015 and 2016 will meet or exceed the aggressiveness that many studies proclaim. Beyond the baked in reasons of new market adoption, I believe there is another pressure afoot tamping down true demand.
President Bill Clinton and Economist James Carvill. (Image courtesy of The New York Times)
“It’s the economy, stupid,” was a tenant proclaimed on the walls of Bill Clinton’s presidential campaign headquarters in Little Rock in 1992. This was the second point of three, along with “change versus more of the same,” and “don’t forget health care,” authored by James Carville, which helped propel Mr. Clinton into the White House.
In order to offer a private exchange for January 1st, most employers needed to commit to implementation long before the recent volatility in the stock market, the spread of ISIS, and the threat of Ebola, all of which seem to be upsetting the U.S. economy and threatening global growth. Prior to the rise of these issues, the market was roaring. Companies were reporting positive growth, and wage growth was robust. Since benefits are a critical component to total rewards and a key lever to the attraction/retention of talent, most employers were focused on keeping their existing talent and bringing in new talent as opposed to cost management. In 2014, for most companies, talent trumped cost.
Now, change is always afoot. When the economy turns, (it always does) more of a focus will be placed on cost management and containment. This is not to say that organizations aren’t aggressively managing costs and promoting wellness. They are. For private exchanges, too much of the early emphasis has been on expanded consumer choice, decision support, and benefits administration. To drive market adoption and faster growth, exchanges need to help employers and employees better manage costs and promote wellness throughout the year and not just at Annual Enrollment. Emphasis needs to be placed on chronic disease management, Rx utilization, better consumer tools, and integration with a client’s HR and total rewards strategy. When these developments occur, we will see rapid growth in the exchange space. In the meantime, there are still plenty of questions, plenty of opportunities, and plenty of room for needed innovation.
The Exchange Solutions Practice is part of Lockton Benefit Group, helping clients decide whether a public or private exchange/marketplace is the right decision for them. If you have any private or public exchange related questions, send them our way! Mike and his team would be more than happy to help! Are the above predictions in line with what you are seeing in the marketplace? We’d love to hear your thoughts.