Background and Challenge
Healthcare reform and its various side-effects dramatically re-shape an employer group’s incentives and options when considering health insurance for its employees. Many employer groups are seeking to either: a) exit the benefits administration of health coverage entirely, or b) convert from defined-benefit to defined-contribution health coverage. Those employers that continue to offer coverage want a variety of cost-competitive solutions to meet their beneficiaries’ needs.
Given this environment, one of the nation’s largest benefit consultancies engaged L.E.K. to independently analyze the nature and magnitude of the private health insurance exchange opportunity. The benefit consultancy considered private health insurance exchanges a powerful disruptive force to its “high touch” business model and asked us whether the consultancy should proactively disrupt itself by building its own private health insurance exchange.
Approach and Recommendations
We worked with the consultancy’s senior management team to develop a robust fact base and rationale for how much and how quickly to invest in a private health insurance exchange offering. Work streams included:
- Significant primary and secondary research to:
- Detail market drivers and their relative influence
- Segment employer groups based on needs, buying patterns, and other drivers
- Inform product mix between Medicare Supplement, Employer Group Waiver Plans (EGWPs), Medicare Group, and Medicare Advantage plans
- Creation of a market model and forecast scenarios for the market opportunity
- Working sessions with client management to review and validate assumptions
- Final business case for executive review and for investment case validation
The consultancy’s executive team agreed with our bullish case for immediate and meaningful investment in the private health insurance exchange opportunity. The consultancy invested heavily and created a market-leading solution. To date, the consultancy has transitioned many of its employer group clients to its exchange and has attracted significant new business from competitors that were slower to develop an exchange offering. Analysts now routinely cite the consultancy’s “first mover advantage” in building critical, early scale to win in the new defined-contribution environment.