1. PART III – OUTPERFORM
CORE COMPONENTS
OF A MARKET LEADER
A market-leading private exchange will be innovative,
scalable,adaptive,and cost-effective.Private
exchanges are still in their very early stages;no
one market-leading model has emerged.Given the
lack of a market leader,payers have a significant
opportunity to create a customized exchange that
increases their market share while maintaining their
current customer base.
The defined-contribution model is beginning to gain
traction with employers.The future of the defined-
contribution model is still to be determined,but
OptimityAdvisors expects that market-leading
private exchanges will provide both defined-benefit
and defined-contribution options to employers and
employees on a single platform.Currently,payers are
actively trying to overcome the challenges incurred
by implementing the technology and to address
the operational changes required to implement
a defined contribution model.If you are able to
implement a private exchange that addresses and
overcomes these challenges,then you will be well
positioned to quickly become a market leader.
DEFINED CONTRIBUTION EXAMINED
The defined-contribution model,by its very
nature,requires more of a“marketplace” or online
shopping experience to be implemented and is
appealing because it provides flexible plan options
to employees while providing employers with
controllable fixed costs.Now that the initial version
of exchanges has gone online in the market,practical
examples of lessons learned are becoming available
to payers as they implement their own defined
contribution offerings.
INFORMATION DRIVES
SOUND ANALYSIS, INSIGHT,
AND ACTION.
IMPLEMENTING A HEALTHCARE PRIVATE EXCHANGE | PART III OF III
STRATEGIC AND TACTICAL CONCEPTS
EVERY PAYER SHOULD KNOW
INTRODUCTION
Based on our experiences helping start-ups and
large national health plans (payers) implement
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.
Because there is no one market leader (or vendor)
in the private exchange space,health plans have
significant growth opportunities.
Part III is presented below.Please refer
to www.optimityadvisors.com for Parts I and II.

2. Highlighted below are common decision points
and pitfalls that should be taken into account when
designing your defined contribution offering.
Deciding on Packaging/Grouping
Products
In order to offer defined contribution,payers must
package or group a set of products into a portfolio
that will be offered to employees.Many private
exchanges offer a pre-determined package to
employers and allow employers to narrow down the
number of plans to be offered to their employees.
For example,an employer may be able to select up
to six plans from a package of 20 total plan options.
Other exchanges take a different approach,allowing
employers to select from multiple packages whose
contents are fixed.For example,an employer has
three packages to choose from,each of which
contains eight plans.
But,how many products should a payer offer within
a package/grouping? OptimityAdvisors has worked
with payers who offer packages/groupings that
vary from four to 30 products.For the defined
contribution model to work,it is important that
there are enough products within a grouping to
provide employees with meaningful choices when
shopping for the best coverage for themselves and
their families.At the same time,employees may be
overwhelmed with too many options.In addition,
a large number of products within a package can
create operational and administration challenges for
both the payer and its employer customers.
As a general matter,OptimityAdvisors recommends
that payers start by offering a relatively small
portfolio of six to 10 plans per a few packages/
groupings for the initial launch of its private
exchange;however,payers should consider expanding
the portfolio,in the future,to provide employees
with more choices as their comfort level increases.
In the long term,we believe group-based private
exchanges will offer as many products as payers offer
to individual consumers today.But we anticipate it
will take a few years for employers to ease into a
fully consumer-shopping model for their employees,
and it is therefore wise for payers to set up the initial
versions of their private exchange to ease employees
into the commercial shopping model.
Distinguishing Products within
a Package
What makes one package different from the
other? Are the products within a package clearly
distinguishable? Does the pricing spread manage
against adverse selection? Underwriting will be
a critical success factor in managing the risk within
a package/group in coordination with actuarial
understanding of the pricing spread.

3. Comparing Packages/Decision
Support Tools
One challenge payers need to address is providing
an effective online“view” that allows users to
compare packages.Since a package may include
many products,your private exchange platform must
provide consumers with an easy and effective way
to compare their options and weigh the tradeoffs
between premium and out-of-pocket expense as well
as exposure to financial risk.Fortunately,numerous
private exchange platform vendors have been
working in the market with consumer-centric plan
selection tools for some time.Many are even refined
to provide an increasing number of guided shopping
and educational tools.As you are selecting the
platform for your private exchange,closely evaluate
the shopping experience provided by each vendor
and select a mature and flexible one that offers a
customizable set of decision support tools.
Determining Pricing/Adverse Selection
The payer should work with underwriting to
understand how the pricing of products may change
to manage against adverse selection.It is possible
that the underwriting team may want to add“float”
to manage risk (e.g.,percent price increase).This
float may result in products being more expensive
under the defined-contribution model whereas the
exact same product may be less expensive within the
defined-benefit model.
Deciding on a packaging/grouping,distinguishing
products within a package,comparing packages/
decision support tool,and determining pricing/
adverse selection are only a few of the many strategic
differentiators that should be considered when
implementing a defined contribution model.As
discussed in Part II of this series,OptimityAdvisors
recommends that payers start by implementing
simple private exchanges and then build on the initial
release by introducing enhanced functionality over time.
ADDITIONAL OPERATIONAL
CONSIDERATIONS
As any change management expert will state,
implementing a solution that differs from current
operations poses a number of unique challenges.
Thoroughly guiding a company through all of
the administrative and operational pitfalls of
implementing a new solution is a significant effort
beyond the scope of this Orange Paper.However,to
illustrate examples of operational implementation
support needed to complete a successful launch,
OptimityAdvisors has summarized below some
lessons learned from our experiences supporting
organizations through developing and executing
private exchanges.
Target Group Size
Many payers today are approaching private exchanges
and defined contribution as a market share opportunity
in the small/mid-group market and a defensive play
in the large group market.Most of the initial versions
of private exchanges were rolled out to the large
market,in part because of the large amount of
manual work and administrative overhead involved
in managing immature platforms.As these platforms
have matured,however,carriers are increasingly
choosing to target the small to mid-size market.
A fully integrated solution should allow for market
segmentation that can be as accommodating as
actuarial and market forces allow.When determining
target group size,it is critical to forecast planned
revenue and identify the market that will have

4. the greatest return on investment and the highest
internal rate of return.This return will provide capital
to fund additional future endeavors for other markets.
Shopping Experience
Many shopping experiences1
require several
deployment steps prior to a private exchange being
able to offer true shopping.Fully mature one-
stop shopping (i.e.,a model that includes medical,
pharmacy,vision,dental,life,disability,worksite,etc.)
may present too many complexities for release
on day one.Often,these products are provided
by the carrier and ancillary vendors and require
an integrated exchange that presents a range of
products in one view (similar toAmazon.com or
kayak.com).Platforms that focus on customer
experience,by providing an easy way for employers,
brokers,and employees to review plans without
excessive data entry,will win the market share.
Payers should also engage user experience experts
to help determine the process flow and to design a
solution that aligns with the demographics of your
target group size.
Billing Options
OptimityAdvisors recommends that payers utilize
defined contribution as funding model,not a billing
model.As a funding model,employers get billed from
premiums and paychecks deducted from employee
contributions—exactly the same as in defined
benefit.Some other models include employee and
employer billing.
Some plans are considering a multi-billing model
in an effort to capture all market opportunities;
however,there are significant operational
complexities added in administering employee and
employer contracts,billing to multiple entities,and
setting standard policies (e.g.,what to do when an
employee does not pay).
In the event that your plan opts to use billing as
an option,which does not immediately require
automation,you should then consider a phased
implementation to minimize risk.Developing a
roadmap that enables a payer to move from current
state,through exchange setup,and into the defined
contribution solution,in stages,is a strategy for
success.
Maintaining Current Operations
Maximum efficiency is achieved by fitting all
strategies (e.g.,defined-contribution solution)
within your current payer operational framework.In
particular,maintaining consistent billing functionality
and policies offers significant operational stability
within a changing framework.Additionally,do not
force migration of current customers;existing
businesses may like the plan and/or benefits offering
they have today.Instead,the payer should provide a
solution that not only supports existing operations,
but also offers an attractive model for new and
existing business.
Comprehensive Broker Strategy
Any private exchange defined-contribution strategy
must fit within the larger comprehensive broker
strategy and align to ongoing relationships.Private
exchanges are not direct competitors to brokers;
rather,private exchanges are new,innovative benefit
solutions/tools that brokers can offer their clients to
maximize broker effectiveness and efficiency.Payers
should consider allowing rebranding or cobranding
of the private exchanges by key brokers and general
1 FFM, state-based exchanges, a major defined-contribution vendor

5. producers to further strengthen their relationships.
In addition,it is important to fit a private exchange
solution into the incentive strategy for brokers.There
are significant opportunities to positively influence
the adoption of exchanges through administrative
and retention commissions.These strategies can
drive adoption of the exchange as well as help realize
cost savings through payer administrative reduction.
Change Management
Organizations experience growing pains with any
major initiative like implementing a private exchange.
Payers should be prepared to develop a market
adoption and training plan in tandem with their
implementation plan.Training plans should include
a wide variety of stakeholders,such as customer
service,marketing,external sales,underwriting,
brokers,and other support staff.
Employer Support Tools
A payer should dedicate tools and resources for
employers,which in turn assist in the decision-
making process and minimize the need for member
support.Collateral,such as readiness worksheets,
make it easy for employers to understand how they
fit into an exchange (or defined contribution) post
ACA-world.
Underwriting & Actuary Operations
Underwriting and actuarial guidelines need to be
focused to enable adequate selection.Group size
has already been addressed above;on a related
note,it is advisable for companies to confirm that
all their employees either sign up or waive coverage.
Payers should know if the underwriting process
is automated or manual.If it is manual,then an
approach that balances automation and manual
intervention will be needed.
Defined Contribution Considerations
Keeping the Process Simple
The transition to defined contribution should be
broken down into five simple steps for the employer:
1. Confirm eligibility (group size).
2. Determine defined-contribution level (through
payer consultation).
3. Determine defined-contribution product options
available to employees.
4. Navigate employees through plan selection.
5. Provide ongoing online administration,including
financial transactions,census management,
and reporting.
The main selling value to employers is simplicity and
employee satisfaction;operations and policies need
to be customer-centric and focused on keeping these
five steps simple and efficient.
Maximizing Defined Contribution and Participation
Many payers ensure that the minimum contribution
is 100 percent of the total monthly single-person
premium for the lowest plan offered in order to
eliminate participation requirements.Defined
contributions of less than 100 percent are allowed,
but minimum participation requirements must then
be enforced.This strategy helps to prevent adverse
selection and reduces actuarial risk.

6. CONCLUSION: PRIVATE EXCHANGES
OFFER TANGIBLE BENEFITS
Payers must integrate private exchange solutions
into their approach to market segmentation and
channel acquisition.OptimityAdvisors advocates
that payers approach private exchanges as additional
channels to support current business and expand
new business,and that payers align their private
exchange strategies with their public exchanges
and broker strategy.Defined contribution private
exchanges offer a number of intriguing benefits,but
the core components of a private exchange are
non-negotiable.
At this stage of the game,payers are racing to
implement private exchanges to gain market share.
Fortunately,because of the early stage nature of
private exchanges,those payers who are just entering
the market still have time to establish their offering,
and they have the advantage of being able to learn
from the experiences of the leading few who have
already launched their initial efforts.
OptimityAdvisors has noted a specific surge in
the mid-market segment of employers with
between 51 and 200 employees.These employers
need to offer benefits that are competitive and
comprehensive while managing the administrative
cost associated with the benefits administration.
Private exchanges provide a promising opportunity
to meet these challenges.
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 I and II of the
series and to contact us about any questions.
Ian.Donner@optimityadvisors.com
Andrew.Woods@optimityadvisors.com
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Washington, DC 20006
Phone: 202.540.9222
Fax: 202.540.9223
Washington, DC
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