One of several private health insurance exchanges that has evolved over the past several years, Buffalo-based benefits exchange company Liazon garnered some attention recently when it was ranked number 132 on the Inc. 5000 list of fastest growing companies.
The company sells small and large business plans on its Bright Choices Exchange through defined contribution systems, a model that about half or more of companies are considering adopting, according to several recent surveys.
As health reform changes take hold over the next few years, Liazon co-founder and chief strategy officer Alan Cohen is bullish on the market for defined contribution plans, and thinks that more personalized insurance choices, along with an intuitive consumer web experience, can help lead to more price transparency and efficiency in healthcare.
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HPN: The current model of employer-sponsored health insurance has been around for a while. Why do you think it's broken?
Cohen: We think one of the big things that's broken about health insurance and employee benefits in this country is that people aren't making decisions. Regina Herzlinger, the Harvard Business School professor, I think says it best: "It's a historical accident that your company is the one who chooses your health insurance, and it's a historical accident that has lots of unintended consequences."
There were some early health insurance plans offered by the railroads in the '10s and '20s. But it really took off in 1946. There were price controls because of the war and so there had to be wage controls. General Motors was finding it difficult to hire employees because of the wage rate that they were forced by law to have. They decided: What about this idea of a new type of perk? And they went to Washington and asked: If we buy hospital insurance for our employees, would that fall under these laws? The people in Washington said no. So they came out with this new perk; Blue Cross at the time insured it, and it was $5 a month for hospital insurance. Now, 66 years later, that policy costs $605 a month, and companies are forced to make decisions for their employees that they should never been making in the first place.
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We looked at how benefits are provided in this country, and we saw that we're just careening off a cliff. We think there is a better way within the construct of still having an employer fund a big portion: get the employer to step away from making decisions about what insurance you should have. Here's the money, you make the choice.
HPN: Liazon sell plans to the employees of about 3,000 companies currently, all of it online. What goes into building and managing the exchange's web shopping systems?
Cohen: One area is user-based design: interface experts who design and develop an interface that works for individuals, from CEOs at financial services companies, to truck drivers, to people who speak Spanish as a primary language. We do extensive usability testing. They come up with ways to advance the user interface, and we go and test that. We also use consultants, to come in and do an outside look at our user interface, and say, give us ideas from the outside.
We have a team of developers who are doing all the programming, writing the code for internet systems and also now for mobile systems. It's all in a cloud-based environment. We code in Microsoft-based technologies.
It's not just consumer facing technology. You have to have all this transaction processing technology. We have to make sure the insurance company gets the right enrollment information, we have to get the right payroll information, etc.
HPN: Do you think Liazon is part of a broader transition to electronic administration, because healthcare has lagged other industries?
Cohen: What's really surprising is that for all intents and purposes, all health insurance companies in the small group market use paper. It is very rare to find any small company that is communicating with their carrier in electronic format. Every client of ours communicates in electronic format. Beyond the enrollment and eligibility side, we also do billing administration.
HPN: How do you see Liazon and other exchanges, public and private, evolving under health reform?
Cohen: A quarter of what we do is price transparency. Everyone sees the real cost for everything. That changes buying behavior dramatically.
We're excited about the concept of exchanges. If you drew a Venn diagram of Bright Choices and a Venn diagram of the public exchanges, there's some overlap, some area of competition. We also look to working closely with the public exchanges, as a web-based entity. There could be a hybrid model in the future, where individuals can go to a private enterprise and then access the insurance off the public exchange with the subsidies. And we think that's another great role for a private exchange, to help people understand what subsidies they're eligible for and help manage the process.
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