Association Health Plans & Private Exchange Mania

Once upon a time, there was a concept called a Private Exchange and everyone wanted to have one. Private Exchanges were going to single handedly solve the healthcare crisis and nary a sales meeting was held in 2012 without the term Private Exchange being dropped in hopes that the prospect would bite. Overselling Private Exchanges and their potential impact became the new normal. Start-up businesses immediately were formed to take advantage of this opportunity and nearly every benefits administration company pivoted to figure out how they could create a Private Exchange on their platform. The poster child for the Private Exchange craziness was Liazon. This bright, new shiny object in the water achieved the ever-elusive first mover advantage and capitalized by selling to Towers Watson for a crazy multiple that is only dreamed about by technology entrepreneurs – 17 times revenue! The real challenge with Private Exchanges and they reason they went the way of the buffalo was that, at their core, they never impacted the very nature of employee benefits – the underlying insurance risk. The risk bearers in the health care value chain never saw how the risk would be adjusted and, therefore, never truly modified their underwriting principles for Private Exchanges. It was a crazy time in our industry and if you’ve been a client of MillsonJames or have been reading our MJ Blog since that time, you’ll recall us calling out some of the craziness that existed at that time. However, as we all know, history has a way of repeating itself and we’re gently entering a familiar time. The déjà vu moment you may be feeling is a direct result of President Trump’s Executive Order regarding Association Health Plan (AHPs). Ever since the ink hit the Executive Order last year, the marketplace has been frantically trying to develop solutions to take advantage of the new legislation. Now, don’t get me wrong, there are some key and important differences between the thin layer of value that was a Private Exchange and an AHP, but there are definitely some key similarities, as well. We are seeing many benefit administration companies pivot to try and address the market interest, we are seeing new businesses being formed to capitalize on the same market interest, and we are once again witnessing a fair amount of over-selling. Every industry of any size has initiated conversations about banding together to form an Association Health Plan and brokers are clamoring to be the ones to bring it to bear. However, there are two primary challenges that we are seeing as we’ve been pulled into many of these conversations. Administration Challenges. The ability to successfully establish and administer an AHP is significantly more difficult than it is assumed to be. A traditional benefits administration software company is incapable of immediately pivoting towards administering an AHP, although several are touting their abilities to do so. In order to successfully administer an AHP, there needs to be more TPA-like capabilities and services available. Most notably, any successful AHP will require the administrator to build, manage, and maintain a consolidated invoicing process complete with remittance and reconciliation – all of which will require a state-based TPA license to facilitate. And, unfortunately for these companies that believe they can quickly pivot and hang the AHP “Open for Business” sign overnight, TPA licenses are not easy to obtain and maintain. Additionally, the technology must be able to support a multiple-employer plan setup, where multiple groups are administered under common plan designs, multiple rates (bill rate vs composite rate) are administered through a complex tier mechanism, and multiple employer data files are able to be combined to communicate with carriers in a streamlined manner. Underwriting Challenges. The marketplace is, once again, running faster than underwriting can (or wants to) keep up. The medical carriers are all focused on AHPs, but the speed at which they are narrowing their focus varies greatly. Of the BUCA carriers, only United is actively underwriting AHPs and they are taking it very cautiously. The others are currently evaluating how they will evaluate the risk, establishing their minimum thresholds, their desire to underwrite non-ACR groups, etc. Demand is definitely outpacing abilities from an underwriting perspective. At the end of the day, we do believe that the key difference between AHPs and Private Exchanges is that AHPs actually are a viable product that has and will have an impact on our industry. The challenge is that, much like 2012, market interest is outpacing market abilities. Over the next few quarters, we anticipate the insurance side of the industry to catch up to the market demand, however, we very firmly believe that consultants looking at AHPs should be wary of the administration side of the equation and ensure you fully vet an administrators abilities and pedigree (and licenses) to be able to support you and your newfound client’s desire to offer an AHP. Be careful and safe out there. Your clients demand it!

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