Home > Articles

Building a Better Benefits System

The creator of one of the first private exchange platforms lays out what we mean by the concept of a “benefits store” (also known as a “benefits marketplace” or “private exchange”) and the seven key principles that define one.

Save 35% off the list price* of the related book or multi-format eBook (EPUB + MOBI + PDF) with discount code ARTICLE.
* See informit.com/terms

This chapter is from the book

Access to health care has long been an emotionally and socially charged issue. During the Progressive Era of the early 1900s, President Theodore Roosevelt believed that “no country can be strong whose people are sick and poor.” Such beliefs gave rise to much of the activism and political mayhem over health care and health insurance we see today.

One recent action that has riled public opinion on both sides of the health care debate is the Patient Protection and Affordable Care Act (PPACA), typically called the Affordable Care Act (ACA) or my least favorite term, “Obamacare,” which President Obama signed into law in 2010. By 2014, the first coverage year for which it was implemented, the ACA succeeded in its mission of getting millions of previously uninsured Americans enrolled in some form of health coverage, such as private insurance or Medicaid (see Figure 1.1).

Figure 1.1

Figure 1.1 Percentage of Uninsured U.S. Adults, 2010–2016.

Other than the burden of increased reporting requirements and headaches about which employees need to be covered by an employer’s health insurance, the hoopla surrounding the ACA and its attempted repeal has very little to do with employer-sponsored group insurance. Still, the steam rising from President Obama’s pen since the signing of the ACA has served to increase consumer awareness and engagement in the overall benefits landscape and has brought the term marketplace into the mainstream when it comes to purchasing individual health insurance.

In contrast to the individual market, private benefits marketplaces, also known as private exchanges, enable people who receive insurance from their employers to tailor-make their coverage portfolios, just as they would select their 401(k) portfolio, as well as access advice and tools that can help them feel more confident about these types of transactions. Giving the American people the freedom to shop online for the coverage they want and need has opened opportunities for innovation and market growth for insurers, human capital experts, consultants, and employers themselves. Indeed, we are actualizing the potential of private exchanges forecast by experts such as Dr. Paul Fronstin of the nonpartisan Employee Benefit Research Institute (EBRI), who said in 2012:

  • Through these exchanges, in tandem with a defined contribution funding approach, employers can accelerate the drive toward a more mass, consumer-driven insurance market and gain more control over their health care contribution costs, capping their own contributions, and shifting to workers the authority to control the terms (and to some extent, the costs) of their own health insurance.1

Using the sound principles of variety, quality, and transparency that have guided effective marketplaces throughout time, private exchanges are poised to empower more people to make personalized, informed choices about their health and well-being in an environment in which the health care conversation is front and center—and this is where it gets really exciting.

The success of our company Liazon, one of the first private exchange operators, and some of its competitors, demonstrates that private exchanges are becoming a sustainable fit for employers and their employees. A recent press release from Frost and Sullivan, titled “Private Health Insurance Exchanges Solutions Primed for Robust Growth Among U.S. Employers as Vendors Differentiate to Meet Evolving Consumer Expectations,” notes “employers’ growing need to reduce the costs, complexities, and back–office administrative burdens” and consumer “expectations derived from shopping experiences with online retailers.”2 With Liazon-powered exchanges, companies can adopt prestocked, “ready to go” online stores for buying benefits, or they can design their own custom stores that provide their employees with meaningful choices in medical, dental, and vision insurance, along with protection benefits like life and disability insurance, identity theft protection, and much more (see Figure 1.2).

Figure 1.2

Figure 1.2 Different Benefits Portfolios for Different Folks.

Until recently, most people had limited health insurance choices. Employers typically contracted with an insurer to offer one or two plans that people either signed up for or waived in lieu of paying out-of-pocket for their own care. As discussed in this book’s Introduction, the average number of medical plans offered actually decreased from 4.1 plans in 2015 to 3.6 plans in 2016.3 In contrast, the average number of medical plans offered on Liazon private exchanges in 2016 was 7.2, in line with the previous year.4 With private exchanges, also known as benefits marketplaces, people have more choices and can select the specific plans to create a unique portfolio that satisfies their personal and family needs.

The following sections dig a little deeper into some essential principles from economics and other disciplines and show how they are at play in a benefits marketplace.

Principle #1: Give Them Money and Let Them Shop

019fig01.jpg

By offering employees control over and accountability for their money, the defined contribution model is one cornerstone of an efficient market. With a defined contribution model, an employer allocates a certain amount of money to each employee, who then decides what combination of benefits they’d like to purchase. Each employee can choose from a variety of plan designs for health insurance, for example, and decide how much he or she is comfortable paying for monthly premiums now versus how much may have to be paid later—in the form of deductibles, coinsurance, and so on. The employee can also allocate dollars from his or her paycheck toward additional benefits to help round out any gaps that may be missing from their medical coverage.

The defined contribution model became commonplace in retirement benefits planning decades ago. Employers and employees embraced the concept of people managing their own IRAs and 401(k)s, combining personal savings with designated annual employer contributions, with caps and floors based on an employee’s salary. From the employer’s perspective, 401(k)s saved money, compared to a pension plan. These vehicles contributed to a vast portion of individuals’ savings for a number of reasons: the psychological appeal of controlling one’s own retirement dollars, defaults on private pension plans (which scared employees and employers alike), fairly robust public confidence in rising stock and bond markets, and the role of many federal policies (including adjusting interest rates) in influencing returns. Viewed in this context, the concept of defined contribution is fairly simple to understand and often used as an analogy for how it works for employer-sponsored benefits.

By offering workers a defined, or fixed, contribution as part of their compensation to purchase health insurance and other benefits, employers cut through the murkiness that has long been associated with the cash value of employer-sponsored benefits. Employees would never accept not knowing how much salary a prospective employer is offering, and the same should be true for the compensation that comes in the form of benefits—which on average account for nearly one-third of the total employer costs of employee compensation.5 Giving employees cash to spend in a store instead of a predetermined insurance policy makes it clear how much the benefit contribution adds to a person’s total pay (a far bigger chunk than they may realize). When people understand that they’re spending their own money, they can make smarter, more personalized, decisions than their employers did on their behalf in the past. Liazon’s data show that with private exchanges, the value equation works better all around: Employees are more satisfied and engaged with benefits, and employers save money or control costs.6

Writing in the 2014 New England Journal of Medicine with Barak Richman and Kevin Shulman, Harvard Business School professor and consumer-driven health care trailblazer Regina Herzlinger summarized the defined contribution difference:

  • In rigid sectors of the economy, defined-contribution strategies could burden employees disproportionately with the weight of medical nflation. Yet the appeal of defined-contribution plans—whether as part of Medicare reform or in the form of changing benefits for retirees and workers—remains potent. Defined-contribution strategies reveal to employees and health insurance customers any cost increases that exceed the growth of wages, and individuals purchasing insurance on exchanges have shown a growing preference for lower–priced plans that increase cost sharing for health expenditures.7

With control of these dollars turned over to them, consumers are using private exchanges to foster the market–based competition many analysts have sought for years. They’re deciding how much to allocate to certain benefits, based on the perceived value of those benefits to their lives.

Professor Mark Hall, director of the Health Law and Policy Program at Wake Forest University, put it this way:

  • In the past with traditional plans, the employer picked up the whole or most of the cost. People had to decide whether they wanted single or spousal coverage and the differences between the various options they had were quite small. The key to defined contribution and employee control is how we make cost decisions at the margin.

  • Under defined contribution, we see the cost of what we’re adding to our basic package. This means paying a great deal of attention to what the added value will be of more generous coverage that comes at a higher cost. That kind of focus on the marginal cost is critical and helps drive value-based competition. It makes the consumer think hard: is it really worth it for me to opt into a plan that has a broader network or that frees me from certain restrictions? We’re asking ourselves not only about whether a benefit fits our needs—but is that extra cost worth it? That is the critical piece that the exchange concept brings.8

There are many advantages resulting from people spending their money more thoughtfully in private exchanges. Consumers are more aware of overall plan costs, as well as their share of them, because of true price transparency. They, in effect, demand their own cost controls through benefits selection, with guidance in the form of decision support. Thanks in part to the private exchange paradigm, more people (particularly single and younger workers) are choosing high-deductible health plans, narrower provider networks are becoming more popular, and nonmedical products from critical illness insurance to telemedicine are finally getting their due.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020