What do companies like NerdWallet, Expedia, and Amazon have in common? All have transformed the way people shop by catering to customer interests and providing tools to help them make informed choices.
Whether booking a trip or buying a new television, consumers want the product that best suits their needs, not a one-size-fits-all option. As a result, today’s consumers are savvier and expect choice and personalization in all aspects of their lives, including their benefits … and that’s exactly what they’re getting.
Over the last decade, led in part by the growing influence of private exchanges (online marketplaces where employees can shop for benefits), consumerism has transformed how some companies provide benefits by shifting the decision-making power to their employees. And the benefits decisions that people are making in an environment of choice might be surprising to some.
The Private Exchange Research Council (PERC), an industry think tank with exclusive access to real-world private exchange data, recently released a report showing enhanced choice in benefits, coupled with support, results in good decision making and increased purchasing over time.
This is good news for employees who want to choose benefits that are best for them, as well as for employers, who can leverage private exchanges to attract and retain talent and gain better control over their benefits costs.
Related: Employers wary of private exchanges
So why are only 4 percent of companies with more than 50 employees offering coverage through a private exchange?
Adoption rates for private exchanges have been slower than anticipated because many employers aren’t yet comfortable with allowing employees to choose their own benefits. That lack of comfort stems from a concern that employees may not be knowledgeable enough about various types of insurance plans to make effective selections.
Others worry their employees will be financially impacted by the choices they make. However, the PERC report shows that when employees are empowered to make their own choices — so long as they are equipped with decision support such as education, plan comparisons, and recommendations — they make informed decisions that fit their unique circumstances.
Furthermore, the number of employers using private exchanges is expected to increase to 13 percent by 2018, according to Gallagher’s 2016 Benefits Strategy & Benchmarking Survey. This increase is on par with 401(k) adoption trends.
Evidence of employees making informed decisions is reflected in the PERC data, which reveal that Gen Xers, the sandwich generation with the highest financial needs, tend to purchase the most products compared to other generations: Approximately 44 percent purchased four or more products, compared with 42 percent of baby boomers and only 30 percent of millennials.
In addition, higher earners, who tend to have more disposable income, purchase more products: 57 percent of employees earning over $100,000 purchased four or more products, as compared to 30 percent of those earning below $45,000.
The data also indicate that people are using the recommendations to guide their decision-making, resulting in choices that are grounded in analytics rather than just price. There is a nearly even split of employees who bought a more costly plan than recommended, a less costly plan than recommend, and the recommended plan.
The overrepresentation of recommended plan purchases indicates that people are using the recommendation as a source of valued information, and the split among buying up and buying down indicates that they are not just looking for the cheapest plan, but rather making decisions that suit their needs and preferences.
The same trend holds true for employees’ selection of health savings account (HSA)-qualified plans. The percentage of HSA-qualified plans selected by employees is significantly higher on a private exchange (42 percent of private exchange users selected an HSA-qualified plan as opposed to the industry average of 19 percent).
Those who did select HSA-qualified plans are more likely to be younger, male, healthier, higher-paid and have fewer financial issues, again showing that people are being thoughtful about their selections.
The result is seen in cost control and cost savings for employers. On the Gallagher Marketplace, a private exchange included in the PERC study, there was a 9 percent to 11 percent reduction on a premium basis for companies using an exchange versus the year before they moved to the exchange.
For an employer to achieve those savings without an exchange, it would need to restrict medical plan options to cheaper plans, running the risk of having some very unhappy employees. Instead, the savings were achieved by putting the employees in the driver’s seat, and letting them make their own decisions as to the best plan for them.
The best way to offer employee benefits is to engage the consumer in the process — creating transparency around pricing and products and giving them the tools to help them choose what’s right for them.
Although private exchange adoption has taken longer than initially predicted, there is no question that consumerism is here to stay. And the PERC data show that with the right tools and support, employees can make appropriate choices.