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Portfolio > Alternative Investments > Private Equity

Private exchange world: 3 things Benefitfocus and Connecture are saying

By Allison Bell

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One possible knock against the private health insurance exchange industry is that it’s not easy to get performance numbers.

Officials at the U.S. Department of Health and Human Services (HHS) and the five million other government agencies involved with the Patient Protection and Affordable Care Act (PPACA) public exchange system may release public exchange sign-up numbers with long lists of disclaimers. The public exchange numbers may be presented in such a way that they are utterly impervious to apples-to-apples, year-over-year comparisons.

But, at least the public exchange system releases something that looks like current activity reports. The builders and operators of many private exchange programs tend to be big on issuing numbers on what their performance might look a few years into the future.

One large, publicly traded exception has been Towers Watson & Company (NYSE:TW). That company’s exchange solutions unit reported $22 million in net operating income for the third quarter of 2015 on $118 million in revenue, up from $14 million in net operating income on $86 million in revenue for the third quarter of 2014.

Another, smaller public company, Connecture Inc. (Nasdaq:CNXR), also breaks out separate private exchange results.

Benefitfocus Inc. (Nasdaq:BNFT) doesn’t report separate exchange performance results, but the company, which provides the systems at the heart of the exchange at Mercer — a unit of Marsh McLennan & Companies Inc. (NYSE:MMC) — doesn’t break out separate exchange numbers. However, executives gave a little private exchange program data during a conference call with securities analysts.

For three peeks about what Connecture and Benefitfocus executives are saying about how the private exchange world really looks, read on.

Sunny pasture

1. Connecture is breaking out nice numbers.

The Connecture private exchange unit reported $484,000 in gross profit margin for the third quarter on $1.6 million in revenue, compared with $133,000 in gross profit margin on $1 million in revenue for the third quarter of 2014.

The company says the value of the combined backlog for the private exchange and Medicare exchange units was about $83 million, up 37 percent from a year earlier.

The company notes that one of the private exchange programs ramping up in 2016 will be a retiree health insurance exchange the company is setting up for members of the Blue Cross Blue Shield Association.

See also: Blues to start private exchange for retirees

Radar

2. Benefitfocus says growth is “a little bit ahead of the plan.”

Milt Alpern, the chief financial officer of Benefitfocus, said the company added one exchange client in the third quarter and was serving about 27 private exchange programs.

“We don’t break out the revenue, or segment it out on a separate basis, but it’s growing,” Alpern said. “It’s a very healthy part of our tailwind story.”

Shawn Jenkins, the chief executive officer, said that private exchange growth is “actually on track, a little bit ahead of the plan.”

“I think the long-term promise, and the size and the scale that folks have been talking about in 2017, 2018, 2019, is a very likely outcome,” Jenkins said. 

Growth may have slowed to about 40 percent to 50 percent this year, from about 100 percent last year, but “I think that’s kind of how you would expect this to play out,” Jenkins said. “The early adopters move, and then the early majorities begin to come online.”

See also: Will health exchange roots break through your wall?

(Image: Hemera/Bram Janssens)

Supermarket shelves

3. Connecture says what customers want out of a private exchange is changing.

Doug Schneider, the president of Connecture, said early private exchange adopters mostly set up passive, Web-based major medical markets.

Now, he said, sponsors tend to want active exchanges that use information about the user to offer personalized recommendations for ancillary benefits products as well as for major medical coverage.

The idea is that the consumer will “interact with their data-driven, personalized storefront throughout the year,” Schneider said.

Putting in wellness incentive programs and care management programs is central to keeping the enrollees coming back to the store, Schneider said.

See also: How private exchanges are trying to stand out

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