A 5-Step Strategy for States
Kevin Counihan, President 800.511.0001 ext. 7632 [email protected]
Ron Goldstein, Chief Executive Officer 800.511.0001 ext. 4405 [email protected]
A CHOICE Administrators White Paper
The implementation of Small Business Health Options Program (SHOP) exchanges remains one of the more complex aspects of Patient Protection and Affordable Care Act (ACA) compliance for state policymakers. There are several logical reasons for this. In the first place, projected SHOP enrollment is a small percentage of estimated enrollment in Medicaid and subsidized coverage. It is not uncommon for projected SHOP enrollment to represent less than 5% of total subsidized individual and family plan (IFP) enrollment. Secondly, SHOP is a unique product with a value proposition that appeals to a segment of the small business market. As the concern of small businesses is less about access to coverage than it is about affordable premium prices and employee satisfaction, successful SHOP plans must unearth those purchaser segments that value choice and defined contribution (DC) benefit models. Finally, state policymakers are naturally more familiar with Medicaid pricing and access issues than with commercial small group products and pricing. Commercial insurance involves a number of stakeholders (e.g., brokers, commercial insurers, employers) less familiar to many state officials experienced with the nuances of subsidized insurance.
The purpose of this paper is to highlight the key elements to make a SHOP exchange successful and self-sustaining. Further, it provides specific guidelines to craft an attractive SHOP exchange to meet the core needs of small employers, brokers, and health plans and the key compliance concerns of the ACA. Its genesis is based on the assumption that state officials need to become “policy entrepreneurs” (as Jon Kingsdale coined the phrase1) and all entrepreneurs benefit from
the lessons of experience.
Actionable market research is the first step in SHOP
implementation. The purpose of this research is to understand the basic characteristics of purchasers and influencers in the small group market. “Influencers” include Chambers of Commerce, trade associations, and industry coalitions. “Purchasers” may include brokers, who typically act as the employer’s agent in selecting group health insurance, or employers who prefer to buy health insurance directly from health plans. The key inference of this research is to segment the small group market into meaningful buyer categories.
For example, research conducted by the Massachusetts Connector (the state’s health insurance exchange) found five distinct segments in the individual market.2 An example of
one of these segments was “Hand Holders,” those individuals who spent between 15 and 20 minutes with a customer
Implementing a SHOP Exchange:
A 5-Step Strategy for States
1 Kingsdale, J; “How Small-Business Health Exchanges Can Offer Value to Their Future Customers-And Why They Must;” Health Affairs, 2012;
February, 31:2; p. 278
2 Commonwealth of Massachusetts Health Insurance Connector Authority; internal research report, 2008
Step 1
service representative to walk through their plan and premium payment options. By applying basic consumer product research techniques, the Connector segmented the size, geographic, psychographic, and communication preferences of the individual market in Massachusetts.
For SHOP, a primary goal of market research is to understand what portion of the small group market prefers an employee-choice product. In Massachusetts, research showed 88% of participating employers were more satisfied in offering a “choice model” than a traditional “sole source” insurance plan. Similarly, 91% of participating employees preferred the option of choosing a plan other than the employer’s “benchmark” plan.
In addition to defining the market for SHOP, an additional goal of research is to understand the following of employers and brokers: • Communication Preferences
• Product Preferences
• Distribution Preferences (broker v. direct; on-line v. off-line, etc.) • Value-added Services
• Decision Support Tools • Price vs. Benefit Preferences
Communication preferences highlight the most effective ways to communicate to the target market of small employers. Options include direct mail, email, social networking sites, website, industry trade associations, on-site seminars, and other choices. Understanding communication preferences helps direct marketing and outreach activities to the most efficient communication
channels, which improves enrollment and customer satisfaction. Product preference research provides insight as to the most attractive products to the target market. This research is also helpful to health plans that wish to grow membership profitably and consistently. Often, it is helpful to review this research with input from health plans for their insight and experience, and to establish credibility of survey results.
Preference of distribution channel helps the exchange understand the most effective ways to bring SHOP products to market.
Further, it helps the exchange understand the most appropriate ways to use brokers and navigators, and to understand if there are segments that prefer direct quoting and enrollment without the assistance of third-parties. Distribution preference research also helps uncover value-added administrative and account management services for brokers and navigators.
Know Your Customer
(cont’d)By definition, most small employers lack dedicated human resources departments. Their focus is on product, distribution, customer acquisition, competition, and meeting payroll. Small employers appreciate basic HR support services, and research helps uncover those services most valued. An example is providing free Section 125 documents and support. A surprising number of small firms have either not created Section 125 plans or have outdated plans. By providing free Section 125 documents on the exchange’s website, small employers and their employees will both save money and find greater value as customers of the exchange.
Decision-support tools help employers, brokers, and employees make the right decision for their business, client, or personal needs. These tools range from provider search and a cost calculator to more sophisticated tools that enable employers and employees to find the plan providing the most value for their individual need. Research in Massachusetts found decision-support tools to be among the most valued roles of the exchange. One of the outputs of market research is a better understanding of the types of products small businesses, their employees, and brokers find attractive. Research should also underscore opportunities for product and delivery system innovation.
Examples of such innovation are limited network plans, products based on different medical delivery systems, and products offered by new health plan entrants. Realistically or not, small businesses expect the state exchanges to offer lower cost health insurance products. Exchanges that understand this expectation have the benefit of working with area health plans to uncover ways to provide products with lower price points.
As in other economic activities, competition will drive the most value in product offerings in the SHOP exchange. Health plans that align themselves with the most efficient providers and offer products that better control costs through more effective provider contracting or medical management will be more successful in the exchange, just as they would be outside of the exchange.
Know Your Customer
(cont’d)Step 2
Promote
Cost-Effective Products
Product innovation should be kept in context with the small group marketplace in the state. Deviating too far from the traditional market runs the risk of attracting membership with utilization outside the norm of the market. The risk of SHOP membership utilization imbalance is adverse selection, which has been the source of unsuccessful state exchanges in California and elsewhere.3 Adverse selection may also result from the bifurcation
of the individual and small group risk pools as well as the impact of small employers with favorable utilization experience migrating to self-insurance funding.
By offering multiple competing health plans, a SHOP exchange can drive value in a number of ways, including the employer use of a defined contribution financing model. In a DC model, the employer pays a specific percentage of a “benchmark” health plan. The benchmark plan may be the lowest cost plan or a plan within a specific metal tier (e.g., Silver). Employees are free to “buy up” (or, possibly, “buy down”) to a plan that better meets their individual needs. In this way, the employees enjoy the flexibility of plan choice, the health plans are rewarded for competitive pricing, and the employer has a fixed budget.
Employees value choice. In the “CaliforniaChoice” small group exchange, 64% of enrollees “bought up” to richer coverage.4 This
combination of features can be a unique “differentiator” for SHOP plans and can help address a core need of small employers. Small businesses and their employees are no different than other consumers. They value simplicity and clarity. The SHOP portal must promote these features to make quoting, enrollment, administration, and renewals transparent and intuitive.
Complexity in any product promotes an unsatisfactory consumer experience, and as health insurance is already perceived by most consumers to be confusing, complex, and expensive, it is particularly important for the SHOP exchange to create an easy user experience.
There are many examples of such experiences. The
Massachusetts Connector website is considered simple and intuitive for employers and brokers. One small business owner
Promote
Cost-Effective Products
(cont’d)
Step 3
Easy and Simple
Administrative Experience
3 M. Weinberg, B. Kramer; “Building Successful SHOP Exchanges: Lessons from the California Experience; Pacific Business Group on Health Issue Brief; 2011 4 CHOICE Administrators internal data; 2011
said he shopped and enrolled his 12-person group in twenty minutes.5 The UX 2014 project has used research and member
experience to create an enrollment prototype with large fonts, welcoming colors and graphics, and other means to make shopping for either subsidized or commercial insurance easy and comforting. In profiling your marketplace, user experience research will help uncover areas of potential complexity that need attention as well as other services and features desired by the target market of employers.
As brokers and small employers are time-starved, it is important that employee censuses may be uploaded via a broker or employer’s spreadsheet. While it’s important to offer manual census enrollment, many brokers and employers will choose to upload their employee census for quotations. The absence of this feature will discourage a percentage of the target market and make it tougher to bring this segment back to the exchange.
It is essential that the SHOP exchange aggregate premium payments and distribute these payments to the appropriate health plans. It must review eligibility and perform appropriate financial and plan management functions. It must also produce SHOP premium statements that are understandable to brokers and employers. While these services sound simple and straight forward, they require vendors with the experience and configurable systems to meet the needs of a choice-based product.
Similarly, it is critical that employers and brokers are able to access account management tools on the exchange website to manage their account and their business. An obvious example of account management functionality is the ability to manage “qualifying events” (e.g., adding or deleting dependents, etc.), adding or terminating employees, and managing a broker’s exchange book of business–including quoting activity, renewals, commissions, and other administrative services.
Easy and Simple
Administrative Experience
(cont’d)HR support and on-line self-service tools help the exchange become a value-added resource for small employers. Examples of the types of on-line services and tools for small firms include: • Library of employee handbook templates, job descriptions,
company policies, and human resource and personnel forms • Access to updated employment laws
• Q&A database on benefits and compensation, labor relations, and recruitment
• Glossary of HR terms
• Information on FMLA, leave of absence, Section 125, 401(k), and other benefits
• Performance management tools, forms, and Employee Handbook templates
Research may uncover additional services or refinements to these ideas, but the goal of providing additional services and benefits to small employers remains important to building brand, enrollment, and self-sustainability for the SHOP exchange.
In general, businesses live in a highly competitive world, and they survive on such core functions as product, operations, service, distribution, marketing, and sales. For the SHOP exchange, product is provided typically by health plans, distribution by brokers, and operations and service by the exchange’s administrative vendor. As a result, SHOP exchanges have a number of key stakeholders, including:
• Employers
• Employees and Dependents • Brokers and Navigators • Health Plans
• Federal and State Regulators • Legislature
• Advocates and Influencers (Chambers, Trade Associations, etc.) Exchange management needs to understand the issues of each of these constituencies and find ways for mutual support. One-way contracts like one-way relationships rarely produce an enduring satisfactory experience for the customer. Exchanges and their customers will likely benefit from the creation of broker and health plan advisory groups to promote innovation and sales support. New ways of improving the customer and stakeholder experience will be uncovered and a tone of mutual support will improve enrollment and financial results of the exchange.
Easy and Simple
Administrative Experience
(cont’d)Step 4
Similarly, it is important to understand how business coalitions, trade associations, and Chambers of Commerce may help promote the SHOP exchange and its services. These organizations may “partner” with the exchange to help distribute exchange products and support enrollment. In this way, they act as a form of business “navigator” for their member firms. These groups typically have membership meetings that serve as a logical promotion and outreach opportunity for the SHOP exchange.
It is also fruitful to meet with other state agencies, which support and promote small businesses in the state. These agencies nurture small businesses with training and support to promote business growth and to attract new firms to the state. There are logical and potent ways to align with these agencies to promote the SHOP exchange and to use the websites of these agencies to link to the exchange. As with brokers and health plans, periodic meetings of inter-agency staff dedicated to developing business activity in the state helps assure their continued engagement and support of the exchange.
Marketing encompasses several business disciplines including product, distribution, sales, research, branding, and advertising. What distinguishes good marketing plans from less effective ones are the following:
• Market segmentation
– What types of firms is the exchange targeting? – What are their product, distribution, service, and
communication preferences?
– How many target firms exist in the state and where are they located?
• Product and Service Differentiation
– What unique products is the exchange offering?
– What unique administrative services are being offered by the exchange?
– How do these unique products and services align with the needs of the target market?
• Metrics
– How is marketing ROI defined and measured? – What benchmarks are used to compare results to an
industry “norm”?
– How are results and benchmarks consolidated for actionable reporting?
Build Stakeholder Support
(cont’d)Step 5
A good example of how to view marketing metrics and ROI is the use of digital marketing. Digital marketing includes a broad range of web-based marketing tactics including search engine optimization, banner advertising, pay-per-click (PPC), and email marketing. It also includes the use of social network sites such as Twitter and LinkedIn, which can serve as effective and efficient means to build awareness and brand preference for the exchange. Digital marketing has the benefit of being almost exclusively measurable through the use of website “hits,” PPC conversion rates, email conversion rates, and sales. No other advertising or marketing vehicle is as targeted, efficient, or measurable as digital marketing, and it should be an integral–but not exclusive–part of the exchange’s marketing plan.
Traditional advertising has a role too, particularly broad-based advertising such as radio and community newspapers. Community papers are an under-appreciated means to build brand and awareness, often quite efficiently. Television is
expensive and inefficient, and it is hard to demonstrate solid ROI data for much traditional advertising.
Conclusion
SHOP exchanges represent a challenging but unique opportunity to promote new choice-based products for small employers. They also offer the means to target employer segments not offering employer-sponsored insurance and use ACA tax credits and new products to make offering such coverage more affordable to these employers. The demands of the individual exchange may strain resources for development of SHOP exchanges. These five steps provide guidance for successful SHOP exchange implementation and self-sustainability.
About Us
CHOICE Administrators Exchange Solutions is a division of CHOICE Administrators® and part of
The Word & Brown Companies, the nation’s leading developer and administrator of consumer-choice exchange models. Among the exchanges currently operated by CHOICE Administrators are the CaliforniaChoice® small group (2-50 employees) and mid-market (51-199 employees)
private exchanges; HSA California®; Choice Builder®, the nation’s first ancillary benefit exchange;
and Quotit®, one of the nation’s largest individual/family proposal and online enrollment systems
that generated nearly 22 million individual health quotes in 2011. Other CHOICE Administrators products include Kaiser Permanente Choice Solution and Contractors’ Choice®.
