Private insurance exchanges: Interview with Liazon’s Michael Karp (transcript)

This is a transcript of my recent podcast interview with Liazon Chief Revenue Officer Michael Karp.David E. Williams: This is David Williams, co-founder of MedPharma Partners and author of the Health Business Blog. I'm speaking today with Michael Karp. He's Chief Revenue Officer at Liazon.Michael, thanks for the time today.Michael Karp: Thank you very much for having me, David.Williams: What does Liazon do?Karp: We operate a private exchange under a product name called Bright Choices. We enable employers to select a number of benefit options and give their employees dollars. Those employees can go shopping in our exchange and build benefit programs and benefit plans that meet their individual needs.The tool is designed with some intelligence and decision-support capabilities built in;  the employee answers a series of questions, and as they go through those questions, the tool is narrowing down all the choices in the portal, building them the best possible benefits program with the lowest out-of-pocket expense. It gives them the guidance and education they need to build something that meets the needs of their families.Williams: We hear a lot in the news about insurance exchanges, but they're usually talking about public exchanges, like those that are created by the Affordable Care Act. What's different in a private exchange?Karp: Well, actually, I think there's a lot that's different.In a public exchange, the objective is to provide dollars or subsidies for those people that don't have the ability to get benefits on their own. They can't afford those benefits.The private exchange is not trying to solve the problem of access to benefits. There are plenty of ways for employers or employees to get benefits that they're looking for. There are online sites where you can go to to do that today. You have a vast broker community that is helping provide those benefit options.The private exchanges, like Liazon, are a place where companies that are offering benefits to their employees have the ability to change the way they're giving those benefits to their employees. It gets the consumer more involved in the purchasing of the benefits for themselves.The employer no longer has to be the one picking the benefits that fit the needs of 500 different people in their company when they know very little about their individual situations or their families or what they really need. Each employee takes the dollars and gets to pick what makes sense to them with some tools to help guide them through that.So, public and private exchanges are really solving two different problems.Williams: You remind me, as you're describing the way the exchange works, of something that was talked about maybe 15 years ago:  cafeteria-style benefits. Is the private exchange just a next evolution of that or is there something fundamentally different about it?Karp: On one level it's similar, but think of the cafeteria plan with all the technology and all the benefits that come with technology and the ability to guide people through.A lot of the time we hear that offering a wide variety of choice and different options for employees can be overwhelming, and we agree with that. We think that without the decision-making tools that we have built into our Bright Choices platform, and without all the educational tools that we provide in the exchange, that choice can be overwhelming.So, yes, it is the next evolution of a cafeteria plan, but certainly with a lot more added on the back end.Williams: This need that's out there in the market has been recognized by some other players as well, although I think each one has taken a little bit of a different angle on it. How does Liazon differ from some other players that are out there, notably ones like Array Health or Bloom?Karp: There are different slices of the market that they're serving, just like you said.Array, for example, is providing a technology platform, mostly to carriers. Array can service the needs of those carriers, and then the carriers can offer a solution. Bloom has made a choice to partner with the Blue Cross/Blue Shield plans out there through their purchase by WellPoint and Anthem. They're really in essence offering an exchange with Blue products in it.Liazon is offering a very different approach where we're going to the market through broker partners and others offering an open architecture and working with many different carriers and many different providers in the marketplace.So, again, serving three different niches.Williams: Say more about the kinds of customers that you have. You mentioned employers, and then also you talked about the broker community, which is one that in some ways is very threatened by the concept of an exchange. But it sounds like you've decided to make brokers into strategic partners.Karp: Absolutely. We've learned a lot over the five years that we've been out in the market growing our business, and what we've found is that, number one, this applies to a wide array of companies out there.So from very small companies all the way up to very, very large corporations with literally thousands and thousands of employees, consumerism and choice and the educational tools and the administrative benefits that we bring seem to solve a very wide range of companies' needs. And it doesn't seem to be one particular industry that's more interested than another. We serve a wide array of industries.When it comes to the channel that we're going through to get to those companies, we've absolutely realized very quickly that companies value the relationship they have with their broker, their consultant. In a lot of cases, these brokers and consultants are providing a very valuable service in helping them navigate through the benefits arena and the array of different options that they have.We did a focus group recently and learned that people are very, very interested in hearing about this type of option and solution. Obviously it's getting a lot of press, as you said, with the public exchanges, so when we asked how many companies, on a scale of 1 to 10, how likely were they to be interested in hearing about private exchanges, we saw them ranking about 7.5 out of 10. That's where it came in.When we asked who they really wanted to hear from, who they wanted to see bring the solution to them, the brokers got 9.5 out of 10 every time. So we realized quickly that those trusted advisers were a channel that we wanted to  work with.Williams: I understand how brokers add value the first time around by identifying Liazon as a partner and bringing it to their clients and explaining what you do, but as you look down the road two or three years, is there actually an extended model that brokers participate in or have they just done their one-time job by letting folks know the exchange exists?Karp: No. I actually think the broker has a long trail in this 'brave new world'.Remember, as you're building the exchange, as you're picking products to go into the exchange in the model like Liazon, you're still going out and getting quotes from different carriers. You're still figuring out which plans you want to put into the exchange.Yes, we have certain models in certain markets where there's a set offering or a set grouping of offering of plans that you can offer a small group company every time. But as you get into the larger, more complex organizations, they're going to want to pick and choose different plans to put in there. When you're offering multiple plans, they've got to pick those plans that go in there. They also want to make sure that they pick the right dental carrier or vision provider and so on.So the broker is still providing the same level of services on the front end that they're doing today to make sure that the right plans and the right benefit options are in the exchange. And they're still providing that regular service that they do to their clients to make sure that they're servicing them on an ongoing basis.So I think technology plays a role, but I still believe the broker will play a role long into the future.Williams: Liazon has just debuted on the Inc. 500, and I imagine as the Chief Revenue Officer, that's certainly a feather in your cap, so congratulations on that.Can you explain what's driving such rapid growth? Obviously there are a lot of companies out there that are doing well that are not jumping onto the Inc. 500. So, what is it about Liazon?Karp: We're in a wonderful space. Obviously this is a topic of conversation with every company today. The cost of providing benefits continues to go up, and people are looking for alternatives. They're looking for new ways to offer benefits that they can get their employees involved in and take maybe a slightly lesser role in picking plans but still being sure that their employees are being taken care of.So there's a big interest in this.We have seen studies like the recent Oliver Wyman study; 80 percent of the companies they talked to said that they would consider a private exchange over the next few years.We're seeing that it's a very hot space, it's very topical, and people want to learn more about it. Once they take a look at it they understand how the process works and how it benefits both the employer and the employee, and even in this case it benefits the carriers. So it's really a win-win all the way around and just the natural evolution of where things go in an open market.Williams: You explained that the private exchange concept that Liazon offers is a lot different from the public exchanges under the Affordable Care Act, and yet certainly a lot of health care is affected by what happens with that Affordable Care Act, or Obamacare, if you prefer. What is the relationship between what you're doing and the Affordable Care Act? And perhaps asked another way, what if Romney gets into office and the Affordable Care Act is repealed; how does that influence your business?Karp: Either way the Affordable Care Act comes out is OK for private exchanges and companies like Liazon.Obviously, the path that it's taken has certainly been a boon for us. The press around it, the awareness has just gone up dramatically. I mean, clearly the government's going to have a little bit bigger marketing budget that we're going to have to start educating people. So it makes the conversations a lot easier. People are aware of what public exchanges do. It's not a big leap to understand how private exchanges coexist in that environment.So, again, I think that the value of the water-cooler conversations or the boardroom conversations has already taken place, and whether it stays the way it is or it changes, I believe that there's a place for this in the future, and companies are proving that by the level of interest that they're showing today.Williams: Say a little bit, if you would, about the revenue model. Who do you think about as the paying customer, and what sort of structures do you use for revenue?Karp: We get our fees in a number of different ways. It's really the choice of the broker and the client to some degree, but we get fees from carriers, we get fees from the broker, or we can get our fees directly from the client.So it really depends on the revenue model that the broker has with the client today;  whether they're taking those fees from the carrier or if the employer is paying those fees to the broker. So we ride along in that process as well.Williams: I've been speaking today with Michael Karp, he's Chief Revenue Officer at Liazon. We've been talking about private exchanges.Thank you very much, Michael.Karp: Thank you, David.