1. Based on our experiences advising start-ups and
large national payers on the implementation of
healthcare private exchanges,OptimityAdvisors
developed a three-part series to describe industry
best practices as follows:
Part I – Inform: Provides an overview of the private
exchange market and highlights considerations for
forming a marketplace strategy.
Part II – Transform: Identifies key features of
a market-leading private exchange,provides
considerations for prioritizing features,and outlines
best practices for deploying a private exchange via
multiple phases.
Part III – Outperform: Outlines essential factors,to
convert a strategy from paper to practice,necessary
for the establishment of a differentiated and market-
leading private exchange.
Part I is presented below.Please refer to
www.optimityadvisors.com for Parts II and III.
PART I – INFORM
HOW PAYERS SHOULD APPROACH
PRIVATE EXCHANGES
Private exchanges serve as sales channels that
allow payers to target new businesses and provide
payers with innovative tools to entice and maintain
their existing business.Although private exchanges
have been theorized for many years,only recently
has enabling technology allowed marketplaces to
become available on theWeb.
INFORMATION DRIVES
SOUND ANALYSIS, INSIGHT,
AND ACTION.
IMPLEMENTING A HEALTHCARE PRIVATE EXCHANGE | PART I OF III
STRATEGIC AND TACTICAL CONCEPTS
EVERY PAYER SHOULD KNOW
INTRODUCTION
The Patient Protection andAffordable CareAct
(PPACA orACA) changed the health insurance
industry rules,creating an array of new market
opportunities and the potential for disruptive
innovation—something extremely unusual for this
highly regulated and typically stable industry.The
shift could bring 30 million1
new consumers into
the market by 2017 as well as 27 new insurers2
who plan to offer products on the public health
exchanges in 2015.
Amid all this change,private exchanges are a key
innovation that will reshape how insurance is
consumed.A recent survey of health plan (payer)
industry leaders indicates that almost 80 percent3
of respondents believe that most health insurers
will be participating in private exchanges within the
next five years.Further,28 percent4
of employers
are already planning to move to private exchanges
in the next five years and 56 percent5
of employers
are considering it.
Private exchanges provide consumers with a retail
marketplace where they can research,compare,
and select insurance products.Private exchanges
can increase cost transparency,offer highly flexible
plan options,and make an increasingly complicated
process slightly less daunting for both existing and
new insurance consumers.
1 Congressional Budget Office: Estimate of the Effects of the Affordable Care Act on Health Insurance Coverage, February 2013.
2 “Insurers Flocking to ObamaCare.”TheHill.Web. 6 June 2014.
3 “The New Marketplaces. Health Insurers Expected to Broaden Distribution Channels.”Array Health, 1 Jan. 2013.Web. 6 May 2014.
4 “Aon Hewitt Survey Reveals Growing Shift in How Employers Intend to Offer Health Care Benefits in the Future.”Aon. 28 Feb. 2013.Web. 14 June 2014.
5 Jaspen, Bruce.“Insurers Flock to Private ExchangesWhile States GrappleWith Obamacare Marketplace.” Forbes. Forbes Magazine, 15 Apr. 2013.Web. 10 May 2014.

2. Private exchange is a wide range ofWeb-based
sales models.The common use of this term refers
to marketplaces that sell individual products;such
models are not particularly new as both insurance
carriers andWeb brokers (such as eHealth) have
sold individual insurance products online for
years.Based on the recent transformation of the
healthcare industry resulting fromACA,the strategic
relevancy of private exchanges in the market has
drastically increased.
Payers’ strategies for implementing private
exchanges should vary based on its intended
market segment (defined by number of employees):
individual (1),small group (2–50),medium group
(51–199),and large group (200+),as well as senior
(over 65 years old).Although OptimityAdvisors’
experience spans all these market segments,this
series focuses on the unique needs of the small and
medium market groups.
Private exchanges enable payers to manage
consumers’ brand perception,engage stakeholders
in a guided shopping experience,perform real-
time eligibility and enrollment transactions,and
offer operational efficiencies.Additionally,private
exchanges provide new and innovative ways to
deliver comprehensive products,simplify benefit
administration for employers,and give employees/
consumers more control over their healthcare
decisions and costs,more so than with traditional
models.Further,by establishing private exchanges,
payers can bolster their competitive edge against
other channels in the market,such as the public
exchanges and multi-carrier private exchanges
established by benefit consultants and brokerages.
Counter-intuitively,the primary obstacle in
bringing these solutions to market is not about
obtaining consumer buy-in.Instead,the challenge in
implementing an operationally sound and market-
disrupting private exchange is to strategically develop
and prioritize differentiating features while balancing
speed-to-market.
PRIVATE EXCHANGE MODELS
There are three distinct private exchange models
available in the marketplace today:
• The single-carrier model allows users to shop
for plans from only a single carrier.It is typically
staged and branded by an insurance carrier as an
online retail site.
• The multi-carrier third-party model is sponsored,
deployed,and potentially branded by a brokerage
or similar firm,which makes its revenue (and pays

3. for the exchange platform) through commissions
on the plans sold through the site.
• The employer-based model enables large
employers’ employees to shop for insurance on
their branded portal as a single- or multiple-carrier
exchange.The employer directly pays the
administrative fees to sponsor use of the platform.
Each of these models can support a variety of shopping
and enrolling functions.The models can offer a full
slate of medical insurance products,ancillary products,
like dental and vision,voluntary benefits,as well as
accidental death and dismemberment and consumer
lifestyle services and products, such as holistic
medicine and pet insurance.
There are two primary approaches for private
exchanges in the group market.However,these two
approaches are not necessarily mutually exclusive;
rather, they support a comprehensive solution
when combined.
• Consumer-shopping allows employers/employees
(and individuals in the non-group market) to
choose from a select group of individual and family
plans from a single insurance carrier defined by
the employer.
• Defined-contribution marketplaces build upon
the consumer-shopping approach by enabling
employers to offer insurance coverage wherein
employees may shop and select plans for themselves,
from a wide range of options,and receive a fixed
dollar contribution from their employer.
The adoption of defined contribution by major
employers such asWalgreens,Home Depot,Sears,
Trader Joe’s,Xerox,and IBM indicates a growing
trend.In fact,almost 70 percent of industry survey
respondents believe that more employers will use a
defined contribution model than a defined benefit
model within the next five years.
Payers should strongly consider implementing a
private exchange that supports defined benefit and
defined contribution in order to provide consumers
with maximum flexibility.Adoption of defined
contribution by employers will take time.A payer’s
first step toward increasing consumers’ comfort
with defined contributions is to guide consumers
to use private exchanges,even if this means
renewing their current benefits using defined-benefit
methodologies.
THE CURRENT PRIVATE EXCHANGE
MARKET LANDSCAPE
Through our direct client experience and ongoing
monitoring of the market,OptimityAdvisors
has identified the following insights,on the current
private exchange environment, that payers
should consider as they evaluate their options for
implementing a private exchange.
• Early-stage, fragmented market: The appetite
for defined-contribution private exchanges is new
so most payers in the market are still refining their
offerings and have not yet gained large portions
of the market.Some of the well-known benefits
consultants,likeAon andTowersWatson,have
garnered attention resulting from the selection of
their exchanges by a few high-profile organizations;
however,no clear market leader has emerged and
6 In some cases, the consumer-shopping model can support shopping from multiple carriers.
7 Health Insurers Expected to Broaden Distribution Channels

4. the major health insurance companies are still in
the process of launching their private exchange
initiatives without a common offering.
• Promising but uncertain future: Opportunities
exist for both payers and consumers to benefit
from defined-contribution programs and especially
defined-contribution online marketplaces.Other
consumer-centric innovations,such as Health
SavingsAccounts,have been beneficial for both
payers and consumers.However,the success of the
model is by no means certain;as it has only been
adopted by a relatively small number of employers,
there is limited data supporting its value.
• Evolving platform vendor offerings: No platform
vendor in the market today has a fully mature
product offering that provides a comprehensive
end-to-end solution.Vendors are still enhancing
their platforms based upon the experiences
of early adopters in their first two years live.
In fact,through reviewing demonstrations and
interviewing vendors,OptimityAdvisors has
determined that many functionalities shown by
vendors as part of current product sets are
actually still in development and not yet in use
by existing customers.
In developing strategies to implement private
exchanges,payers should assess the benefits of
supporting both defined-benefit and defined-
contribution models that offer consumers maximum
flexibility while also recognizing the fragmented,
uncertain,and evolving offerings that are currently
available in the market.Building upon this overview
of current market conditions,the next two parts
of this series identify key features that should
be included in a private exchange and outline
operational considerations for sustaining the online
shopping experience through the enrollment process.
Optimity Advisors has assisted organizations ranging
from start-ups to large national plans in all market
segments, including the mid-market. Please navigate
to www.optimityadvisors.com for Parts II and III
of the series and to contact us about any questions.
Ian.Donner@optimityadvisors.com
Andrew.Woods@optimityadvisors.com
1600 K Street NW, Suite 202
Washington, DC 20006
Phone: 202.540.9222
Fax: 202.540.9223
Washington, DC
Corporate Headquarters
1600 K Street, Suite 202
Washington, DC 20006
Phone: 202.540.9222
Fax: 202.540.9223
Email: info@optimityadvisors.com
Brussels, Belgium
Square de Meeus 25
B-1000 Brussels, Belgium
Email: brussels@optimityadvisors.com
London, United Kingdom
1st Floor, Kemp House
152-160 City Road
London EC1V 2NP UK
Phone: +44 (0) 207.552.4800
Email: london@optimityadvisors.com
Los Angeles, CA
1100 Glendon Avenue, Suite 925
Los Angeles, CA 90024
Phone: 310.954.2980
Email: losangeles@optimityadvisors.com
New York, NY
183 Madison Avenue, Suite 1205
NewYork, NY 10016
Phone: 212.239.3371
Email: newyork@optimityadvisors.com
Offices also in Sacramento, Minneapolis,
and Dallas
www.optimityadvisors.com