Posted on behalf of Mike Smith, Director of Exchange Solutions, Lockton Benefit Group
Last Thursday night, my wife asked me a pretty random question. “Hey Smitty (my nickname is so ingrained, even my wife calls me Smitty…), what color is this dress?” I glanced over at her iPhone and replied, “White and gold…” to which our youngest daughter said, “No it’s not. It’s black and blue.” Turns out our nieces created a Facebook post asking people about the color of this particular dress. I dismissed it as some kind of internet hoax right up there with imprisoned foreign ambassadors looking to move vast sums of money to America…if you could only supply your bank info, instant riches await. Thinking nothing more of it, I went to bed.
Well, the next morning, this “dress controversy” was all over the news, social media and even my morning Boston sports radio program. It kind of freaked me out when Pam came into my office later in the morning and said, “Now the dress is black and blue!” I still only saw a white and gold dress on her phone. She was fascinated with this dress sensation and researched what was causing the color to change. Apparently it depends on the circumstances under which you view the dress, light sources, time of day, media source, height, weight, what you had for breakfast. But I digress.
And that got me thinking about, of course, private exchanges.
As I meet with clients, Lockton Associates, analysts, competitors and partners across the country, I am inevitably asked, “So, what’s your definition of a private exchange?” And my standard reply is “That depends.” Some define a private exchange as a vibrant marketplace of expanded plans and choices for employees, powered by decision support technology and underlying defined contribution. Others say it’s a metallic structure of plans (platinum, gold, silver and bronze) from competing carriers, underwritten on a fully insured basis. Still others say a private exchange is just ben admin on steroids and sometimes “free” with the inclusion of voluntary benefits. What about the inclusion of a public strategy for the non-benefits eligible/seasonal population or retirees, or as an alternative to COBRA? How about mobile and wellness? There are even very liberal (small “L”) interpretations stating that every employer is an exchange unto themselves, since they offer choice (“take it or leave it is still a choice”), some method of decision support (think benefits comparisons), define their contributions through the annual renewal/budget cycles, and administer benefits either manually, outsourced or through some technology combination.
So who’s right? Well, that depends. We have seen clients be successful with a strict defined contribution, broader choice, and powerful decision support. Sometimes this was due to budget pressures in their business and sometimes it was the desire to get employees more engaged as consumers. Another client was able to leverage a private exchange through carrier and technology innovations to meet head-on some unique challenges posed by the Affordable Care Act and by such, actually grow their business. Many clients are using an integrated hybrid solution of private and public exchanges to provide a seamless benefits program throughout an employee’s career and in transition to retirement or end of employment.
So the dependency is really what a particular client is looking to accomplish: their HR strategies, their ability to enable that strategy and what is holding them back. There is no one-size-fits-all for clients. Employers often look to provide financial/physical stability for their employees and their families, as well as look to be efficient and productive as businesses. Benefits help with these goals. And sometimes private exchanges can help employers meet these goals. But there is more than one way to accomplish these objectives. I applaud our partners and even competitors who are building and innovating in this arena — but for Lockton, we will always think about the client first, rather than our internal business needs, products, investments, investors or shareholders. Being privately held has its advantages.
We consult with clients in the emerging private exchange market space through education, analysis, vetting and then implementation. Some clients look to turn-key solutions (including competitors’), others to our preferred partners, and still others implement a solution customized to the needs of their businesses and employees. We demand transparency, disclosure and a spirit of partnership in these exchange solutions. Clients still have many responsibilities (fiduciary, compliance, payroll, etc.) even after going with a private exchange. As the exchange market grows, we see the need for independent advice growing in an era of product/solution-based sales pitches, presentations, webcasts and news releases.
Many people are confused by the various approaches. I think the right answer is dependent upon returning to the questions stemming from employers’ HR strategies, goals and objectives, balanced against other (sometimes competing) business requirements. In my opinion, brokers and consultants investing in their capacity to provide advice to map these strategies, goals and objectives to actionable solutions will see opportunities in this emerging market. And all of that depends on where they are investing for the future.
By the way, the dress is still white and gold.