Private Exchange Momentum Increasing . . . But Let's Not Panic

As might have been expected as we approach the open enrollment season, there's been a flurry of news over the past week about the latest big-name companies to shift away from traditional company-sponsored health benefits and send their employees out to an Exchange.

Last Friday, the Trader Joe's grocery chain announced that it was ending health benefits for part-time workers and instead sending them to the public exchanges with a $500 stipend. On Wednesday, Walgreens announced that it was moving 120,000 employees to Aon Hewitt's private exchange. In doing so, it joins IBM and Sears in exploring the private exchange approach, and we can reasonably expect similar announcements to follow from other firms in upcoming weeks.

In a curious side-effect to the news, the stock for both Catamaran, who provides PBM services to Walgreens, and Express Scripts, a peer PBM competitor, plunged 8% and almost 5%, respectively. Investors are worried, apparently, that the move to a defined contribution and exchange-purchase model (whether via public or private exchanges) will be harmful to PBM revenue.

I personally can't see how this makes a difference. Regardless of how members acquire their insurance, they will still need a PBM to manage all the pharmacy benefits.

But, the larger issue is this: the immediate reaction is to see a change in the benefits-funding and sales model to be disruptive to the entire spectrum of insurance operations. This goes hand in glove with what I typically see among payers and other healthcare-related companies when they contemplate the notion of "private exchanges." They tend to blow it up to be a much larger and more mysterious beast than it needs to be.

"Private exchanges" are really nothing new. They're just a different type of sales channel, and payers should look at them that way. From a sales and marketing perspective, they will create huge new challenges for how to reach new prospects and, in particular, ensure that payers can win the loyalty of consumers shopping side-by-side with the their competitors.

But, from an operational perspective, once that member has decided to get coverage from that payer, everything else--the enrollment, new member fulfillment, invoicing and payment, member service--should just flow through the existing operational processes.

The more we are able to see that public and private exchanges are just new sales and marketing channels and not entirely different insurance markets the more effective--and less panicked--we can incorporate them into existing technology and operational processes.