MCUPA. PRIVATE HEALTH CARE EXCHANGES - What are They and How They Compare to Public Exchanges. Kathy Schwappach October 14, 2014

Transcription

1 MCUPA PRIVATE HEALTH CARE EXCHANGES - What are They and How They Compare to Public Exchanges Presented by: Mitch Bramstaedt Kathy Schwappach October 14, 2014 Copyright 2014 by The Segal Group, Inc. All rights reserved.

2 Agenda Key Concepts What is a health care exchange? Public Exchange Private Exchange What is a defined contribution approach? Affordable Care Act and Public Exchanges Private Health Care Exchanges for Active Employees Some Long Term Perspectives 2

3 Key Concepts 3

4 What is a Health Care Exchange? Webster defines an exchange as a place where things or services are exchanged, as an organized market or center for trading in securities or commodities a store or shop specializing in merchandise usually of a particular type a cooperative store or society a central office in which telephone lines are connected to permit communication Think of a health care exchange as a store or shop specializing in health insurance merchandise A health care exchange is a concept not a product Health insurance is the product 4

5 What is a Health Care Exchange? A marketplace through which individuals, employees and retirees can purchase health insurance and evaluate differences among various plan designs and/or carriers In its most basic form, there are two types of Exchanges Public Exchanges Vary by state May be run using federal model Private Exchanges Vary significantly from vendor to vendor Most exchanges share these characteristics: Online portals Offer a variety of comparable health-plan options Their operators build or license technology platforms 5

6 What is a Public Exchange? Created by the Affordable Care Act Two types of Public Exchanges Individual Exchange Individuals may go online and select their own plan, at the level they want May be eligible for a federal premium assistance tax credit ( subsidy ) First open enrollment period (for 2014 coverage) ended on March 31, 2014 Federal government reports that over 8 million people have selected a plan Now referred to as Marketplaces Small Business Health Options Program (SHOP) Open to small businesses with 50 or fewer employees for 2015 Allows employers to select a group plan for their employees Not eligible for the subsidy, but employer may have a Section 125 plan and allow employees to pay their share of the coverage on a pre-tax basis 6

7 What is a Private Exchange? Public and Private Exchanges Only Share the Same Exchange Name Generally, Private Exchanges: May use a defined contribution (DC) approach to EE contributions Are operated by private sector companies Cannot take advantage of federal subsidies Low income employees purchasing coverage on a Private Exchange will not receive government subsidies Often include a wide array of other benefit offerings in their portfolio Three main markets that Private Exchanges serve: Medicare Market: Offers individual Medicare products; ties in advocates to help retirees select best plan Active Market: Operates on a group basis and varies significantly from vendor to vendor Access-Only Market: Similar to Medicare market, with different individual coverage options; generally uses enrollers to help members navigate the Public Marketplace and leverage subsidies 7

8 Public v. Private Health Exchange Public Exchanges ACA created and regulates public exchanges Each State has its own public exchange and began enrollment in the fall of 2013 Each State determines the number of carriers and plans available in its public exchange Public exchanges offer qualified health plans to individuals and small employers Larger employers will not have access to the public exchange until 2017 or after Low-income individuals may be eligible for subsidies or tax credits Private Exchanges The private sector sponsors private exchanges which are not regulated like the public exchanges An employer may use a private exchange to satisfy its ACA obligation to provide health coverage to full-time employees ACA compliance requirements still apply to plans offered on a private exchange Private exchanges have successfully provided health insurance coverage for Medicare-eligible retirees Private exchanges for actives are available Low-income subsidies and tax credits are not available on private exchanges 8

9 What is a Defined Contribution Approach? Employers offer employees a fixed dollar amount with which to buy health insurance themselves through the exchange An employer s health benefits costs will be almost entirely predictable As is the case with the many employers that have replaced defined benefit pension plans with 401(k) plans and other defined contribution plans Workers get a range of easy-to-compare health plans to choose from Displaying pricing and other key plan details in a way that allows for apples-to-apples comparisons between plans is central to the exchange concept That could help keep their costs in check, because the exchange may offer plans that are more affordable than the limited options their employers had been offering previously Test Your Knowledge: Can a private exchange operate without a defined contribution approach? Can a traditional employer-sponsored group health plan not part of an exchange operate with a defined contribution approach? 9

10 What is a Defined Contribution Approach? continued Example: The employer allocates a dollar amount per employee toward the cost of employee health care benefits and presents employees with a selection of benefits plans through an online marketplace. Each employee selects from those plans based on individual needs. Employer $ Online Marketplace Allocates defined contribution dollars per employee $ Employee $ Shops via Private Exchange website or call center Consults with employer to determine defined contribution allocation amount Administers employee accounts Identifies most appropriate product options Acts as market maker between employers and employees 10

11 Will Defined Benefit Medical Plans Follow Pension Plans? Employees Participating in Retirement Plan 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source US Dept. of Labor, BLS, private plans DB DC 11

12 Affordable Care Act and Public Exchanges 12

13 Recapping Objectives of the Affordable Care Act (ACA) Remember the intent of the law Reduce uninsured population with everybody in the pool Guarantee coverage to all individuals Eliminate benefit limits Improve quality of care, transparency, electronic records, best practices, wellness, etc. Create public exchanges Regulate insurers Other stated objectives that are more questionable Keep the coverage you have? Will not add one dime to the Federal Deficit? Reduce overall health care costs and spending? 13

14 ACA and Public Exchanges State Health Insurance Exchanges under the Affordable Care Act 2014: State Health Insurance Exchanges will allow individuals and small employers to choose from a menu of insurance products Exchange plans must offer essential health benefits Rating restricted to geography, family size, age rated 3:1; tobacco use 1.5:1 Federal subsidies will be available to help people buy coverage 2017: States may allow large employers to buy through Exchanges 14

15 Status of State Health Insurance Exchanges Declared State-based Exchange 17 Planning for Partnership Exchange 7 Default to Federally Facilitated Exchange 27 First open enrollment period: October 1, 2013 March 31, 2014 Data Source: Kaiser Family statehealthfacts.org 15

16 Enrollment in the Public Exchanges Employers notified employees of the new Exchanges by October 1, 2013 The initial open enrollment period ran from October 1, 2013 through March 31, 2014 October 1, 2013 December 2013 March 2014 Starting in 2014, annual open enrollment periods will run from October 15 through December 7, with coverage effective on January 1 of the following year 16

17 Exchange Benefit Levels Platinum: 90% of the full actuarial value Gold: 80% of the full actuarial value Silver: 70% of the full actuarial value (keyed to subsidies) Bronze: 60% of the full actuarial value Young Invincible (catastrophic plan for individuals under 30) 17

18 Premium Assistance Tax Credit What it Is and Why it s Important Money from the Federal government that goes to insurance companies to subsidize coverage for lower-income individuals in the Exchanges Potentially more than 50% of U.S. households could qualify (based on Bureau of Labor Statistics (BLS) estimates) Depending on the income, age and family size, the subsidy can be substantial 18

19 Exchange Subsidies Subsidies to individuals up to 400% of FPL to purchase Exchange coverage In 2014: 400% FPL = $95,400 for family of 4 Subsidies on a sliding scale based on income Premium assistance tax credit Refundable and advanceable Measured by cost of purchasing silver-level plan Cost-sharing assistance is also available 19

20 Premium Assistance Tax Credit The premium assistance tax credit is based on The premium cost of the second-lowest-cost silver plan offered through a State Health Benefit Exchange, and The Federal Poverty Level of the applicant s household Household Income Level (% above FPL) Maximum Premium as Percentage of Income Up to 133% 2.0% 133% 150% 3.0% 4.0% 150% 200% 4.0% 6.3% 200% 250% 6.3% 8.05% 250% 300% 8.05% 9.5% 300% 400% 9.5% 20

21 Purchasing Subsidized Exchange Coverage Example Family of four purchasing coverage in an Individual Exchange in 2014: Modified Adjusted Gross Income $58,875 Federal Poverty Level 250% (based on 2013 FPL) Family Share of Premium 8.05% Annual Cost of Second Lowest Silver Plan $12,000 Annual Premium Max $4,739 ($58,875 x.0805) Premium Assistance Tax Credit $7,261 $12,000 = Cost - 4,739 = Max Family Share $ 7,261 = Subsidy 21

22 Purchasing Subsidized Exchange Coverage Example Single worker purchasing coverage in an Individual Exchange in 2014: Modified Adjusted Gross Income $58,875 Federal Poverty Level over 400% His Share of Premium 100% Premium Assistance Tax Credit $0 Worker pays the full cost of the coverage and will pay more for gold or platinum than for silver 22

23 Can Individuals with Employer-Sponsored Coverage Receive the Premium Assistance Tax Credit? Generally, no However, employees may apply for the premium assistance tax credit when the employer-sponsored coverage for which they are eligible is: Below 60% of actuarial value, or Not affordable (i.e., the employee premium for self-only coverage exceeds 9.5% of household income) Note: Employee must turn down this employer coverage in order to get tax credit 23

24 Private Health Exchanges for Active Employees 24

25 Has the train left the station? 25

26 Just 13% of Insured Individuals Report Obtaining Health Insurance Through an Exchange To the best of your knowledge, did you obtain your primary health insurance coverage through an exchange? An exchange is an online insurance marketplace. It can be run by a state or federal government (a public exchange) or a private company (a private exchange). Among those with health insurance coverage (2014 n=1,385) 21% 7% 6% Yes, a public exchange Yes, a private exchange No 66% Not sure Source: Employee Benefit Research Institute and Greenwald & Associates, 2014 Health and Voluntary Workplace Benefits 26

27 1 in 10 Say They Expect to Purchase Health Insurance Through a Public Exchange within the Next Two Years Instead of offering health insurance the way they do now, do you expect your employer will move to a public exchange for health insurance within the next two years?/do you plan to obtain health insurance through a public exchange within the next two years? Among those who do not currently have coverage through a public exchange (2014 n=1,421) 10% 45% 45% Yes No Don't know Source: Employee Benefit Research Institute and Greenwald & Associates, 2014 Health and Voluntary Workplace Benefits 27

28 Private Exchanges Illustration A Conceptual Overview Online marketplace where employers send their employees with a contribution to buy health insurance Employee Uses employer contribution to select insurance products that best meet employee needs Could include access to additional health and wellness products for one stop shop Employer Transacts Contracts with carrier Sets defined contribution Selects products to offer employees Private Exchange Marketplace of health insurance policies Marketplace potentially enhanced through other insurance and non-insurance retail products Administration Support Employer Receives List of members enrolled in each product Employer/employee contribution levels to manage payroll deduction Single bill for all group products purchased through the Exchange Call Center Web Chat Retail Store 28

29 Value of an Active Private Exchange Employer Health Plan Responsibilities Pick Vendor Partners Define a Contribution Strategy Pick Plans Pick Individual Plan Features Ensure Compliance Manage Open Enrollment Define Health Management Strategy Additional Employer Responsibilities Choose and Manage Ancillary Benefits Administer COBRA, FSA, HRA/HSA Manage Wellness Programs Select Consultant Design Communications Educate HR and Employees Employee Responsibilities Choose H&W Benefits based on suite offered Call HR with questions/issues PRIVATE EXCHANGE Employer Responsibilities Pick a Private Exchange Partner Define a Contribution Strategy Choose from suite of plans for all H&W benefits Define Health Management Strategy Ultimately Ensure Compliance Exchange Responsibilities Choose and Manage Ancillary Benefits Administer COBRA, FSA, HRA/HSA Manage Wellness Programs Provide Consulting renewals, rates, etc. Design Communications web Educate HR Generalists and Employees Offer Patient Advocacy service Provide Employee Decision Support Employee Responsibilities Choose H&W Benefits based on offerings Call Exchange Advocate or Carrier with questions/issues While an employer s responsibilities would change under a private exchange, employee responsibilities would be generally the same. 29

30 The Exchange Marketplace Sample of Intermingled Players in an Immature Market CONSULTANT/ BROKER OWNED START-UP CARRIER-OWNER PLATFORM-BASED AonHewitt Corporate Exchange Gallagher Marketplace Bloom Health Aetna Benefit Focus Buck Right-Opt Towers Watson One Exchange Lockton Mercer MarketPlace Willis Advantage Liazon (Bright Choices) AmWins ehealth Insurance HealthPlan One GetInsured Anthem Cigna United Healthcare Highmark BCBS Bswift (SpringBoard Marketplace) Optum Array Health = relationship = ownership The extent to which players are intermingled as well as the level of market maturity will play a role in the viability of a private exchange. 30

31 Comparing Top Active Exchange Solutions Exchange Feature Aon Corporate Exchange One Exchange Active RightOpt Mercer Marketplace # of clients / members ~18 / 600,000 ~10 / 150,000 ~14 / 400,000 ~33 / 300,000 Funding Mechanism Fully Insured Self Insured Self Insured or Fully Insured Self Insured of Fully Insured Bundled Coverage Medical, Rx, Dental, Vision Medical, Rx, Dental, Vision Medical, Rx, Dental, Vision, Supplemental 1 Medical, Rx, Dental, Vision, Supplemental 1 Number of Medical Carriers Five Six Four Majority Carrier Regions Varies based on client Number of Carriers by Region Plan Offerings Advocacy Services At least two Four nationally, two locally One per MSA Seven standard plans for medical (a max of five and a min of three can be offered) Standard advocacy services included, buy-up available Four standardized plans, employers can choose which plans to offer Standard advocacy services included, buy-up available Payment Structure Commissions Flat Fees Administration Flexibility Wellness Features HEALTH INSURANCE EXCHANGE VENDOR COMPARISON Currently requires Aon Administration Included in plan Currently requires Towers Watson Administration Included in plan (incentives required) Seven standardized plans, with some employer customization available Standard Health Advocate Services Included Commissions on voluntary and portion of ASO fees Administration with Xerox not required Included in plan (incentives optional) Many of the above solutions are new to market in We expect that they will evolve as the private exchange market matures. Varies based on client and funding Five standardized plans, with limited customization available Standard advocacy services included, buy-up available Commissions on fully insured, ASO fees on self insured Administration with Mercer not required Not required, can be supported 1 Supplemental coverage includes accident, critical illness, and hospital indemnity; Mercer also offers life, disability, FSA, and COBRA services. 31

32 Exploring the Private Exchange Market The general approach to assessing this market has been viability-first, then an RFP (partner search) The active market has a much longer viability review process, since the market is so varied, and the impact of moving is felt beyond benefits Discovery Contribution Strategy Market Overview Vendor Search Vendor Match Organizational goals and constraints Understand current state: plans, contributions, liabilities, groups Review whether exchange approach would be viable for your organization Review defined contribution scenarios Gain understanding of potential impact on your employees Determine preliminary employee contribution strategy Preliminary review of market Review timelines, vendors Customize RFP based on predetermined goals Send RFP to market Review proposals to determine winners/losers, footprint of vendors, fees Provide report summarizing findings Determine appropriate vendor, if any Assist in implementation, as needed VIABILITY PARTNER SEARCH 32

33 Assessing Viability of an Exchange In determining whether a private exchange is a viable option, in employer will consider how the following aspects may impact the organization's benefits strategy: Cost: The financial impact to the organization and its employees Member Impact: How the organization s employees and their dependents will be affected Risk: The possibility of an unpleasant occurrence for the organization and/or its employees Market Maturity: Limited experience of the exchange markets (public and private) as well as the uncertain impact that health care reform may have on these markets and employers in the future Control: Ability to customize plans and carrier relationships offered through the exchange 33

34 Should You be an Early Adopter? Following are some of the considerations that might lead you to be an early adopter or to wait and see Characteristic Early Adopter Not Now, Maybe Never HR Role in Health Care Delivery Want to get out Will stay very involved Role of Health Plans in Total Rewards Not Important Differentiator Competition Jumping On Staying Away Health Costs Aberrantly High Low Current Participation Levels Low High Health as an Asset Not Important Core Strategy Turnover High Low Employee Affordability Low High Geographic Dispersion National Local Benefit Consistency (need to harmonize) Not Important Important Need for Technology Upgrade Urgent Not pressing Desire for new/additional program offerings Great Not necessary 34

35 What to Look for in an Exchange Administrative Complexity How much will the employer have to do to ensure smooth interaction between the exchange and the employer s human resources and payroll systems? Will you just have to send a check every month for X number of employees times the amount of employer contribution? In fact, an employer may not even want to outsource plan administration. How would that affect the interaction between employer and exchange? Flexibility on Plan Design and Coverage Tiers The greater the number of plans and tiers offered in an exchange, the more difficult it may be for an employee to compare all of them with one another. Do you want flexibility, which brings complexity, or just want to keep it simple where everybody knows exactly what they re looking at? Cost to Employer Private exchanges typically assess a per-employee administration fee to the employer This may vary from exchange to exchange. 35

36 What to Look for in an Exchange continued Cost to Employee New complexities around the underwriting of insurance products offered in private exchanges There could be large rate swings from one year to the next if big employers join an exchange and radically alter the demographics of the enrolled population Rates employees are subject to usually build in commissions that insurers pay to exchanges for distributing their products. These too may vary from exchange to exchange Relationships Among Exchange Managers, Coverage Providers, and Plan Sponsors Today, most large and many midsize companies work directly with the health carriers when there are claims issues or problems with plan administration. You know who to call to get such issues addressed. With this new [exchange] model, is that so clear? If an employee has been denied coverage, does the employer have any influence? And do you call the carrier or the exchange? If the carrier, are you just calling an 800 number? 36

37 What to Look for in an Exchange continued Employees Questions Is it still the employer s problem? Or will HR still get the calls when things go wrong? Ease of Navigation Within the Exchange How easy is it to assess the various options? 37

38 Transition to an Exchange Employers will need to determine a contribution strategy that supports the organization s overall Employee Value Proposition Depending on the exchange vendor, a defined contribution strategy review may be appropriate/necessary Before selecting the appropriate private exchange vendor, there are number of variables to consider when establishing a contribution strategy, including: Geographical differences in cost Will the employers provide an increased contribution for those who reside in higher-cost areas? (e.g., 80% of Silver plan in each region) Overall budget constraints What is the targeted budget that the employer needs to maintain? Deviation from the current state How will employees be impacted? Annual contribution increases How will the COLA be set? Treatment of dependents Will the employer continue to subsidize dependents at the same level as it does today? 38

39 The Employee Experience Employee Impact Will be on a Continuum How ready for change are employees? Perceived magnitude of change depends on current situation: Using the web for the first time to enroll/ get benefits information? Few choices now expanding choice can create confusion Change in organization brand, EVP? Just a new website with new choices OR an entirely new approach to healthcare Temper Expectations and Don t Oversell! 39

40 The Employee Experience continued What You Say You have more choice You have new tools at your fingertips Contact the Exchange if you have questions Now you can learn the real cost of medical tests and procedures, and find the most cost-effective, high quality care options You will have lower-cost coverage options available What Employees Hear; What They Think I have more decisions to make; Spare me I m on overload I have to learn how to use something new; I don t know how to use the last thing that was new Now I have to call another customer service department and deal with them; I want to speak with someone I know and trust I m being asked to make decisions I m not equipped to make; I don t have the time to do this I ll have lower-quality health care options available; How will I know if I have the right coverage? 40

41 Feedback What We Have Seen/Heard So Far From those who have moved: Strong administrative burden on lean HR staff post-aca; movement to an exchange allowed these employers to offload this burden at little to no cost Opportunity for savings outweighed other factors Able to provide more to employees than previously able to administer From those who have remained in employer plans: Not ready to be a first adopter of significant change is this just a fad, or really the future? Too much change from current state for employees; need to phase change in to be more exchange ready Administration platform issues are they stuck? 41

42 Some Long Term Perspectives 42

43 ACA Public Exchange Value and Costs Remember goal was to get everyone covered but reduce medical cost drag on US economy and budgets Most growth is from Medicaid enrollment (approximately 60% of newly covered) Nearly 80% of Public Exchange enrollment is in Silver or Bronze Plans (HHS) Silver and Bronze Plans: Selection is most popular because of lower premium Value is 20% to 30% lower than current client offerings Typical Silver Plan - $2,000 individual deductible, $4,000 family, $5,000/$10,000 oop max Result in $1,500 to $2,500 higher member cost sharing in the form of high deductibles, copays and out of pocket maximums Narrow networks with less choice of providers, in some cases 40% less provider choice than current network provider panels offered by Segal clients (Broad group networks) Will workers care where they get their insurance from or who insures them? Segal survey says 70% of workers prefer to get coverage from employer or union vs. government public exchange Will wages rise to offset lost medical plan value? 43

44 Expansion of Medicaid and Federal Subsidies Will Affect Future Coverage % OF US COVERAGE 2011 (CMS) Individual 6% % OF US COVERAGE 2020 Individual 12% Medicaid 16% Medicare 21% Employer Based 57% Medicaid 23% Employer Based 40% Medicare 25% US uninsured population cut by millions but still significant and costs remain a problem Excludes VA, Tricare population 44

45 One Possible Long Term Scenario Migration towards Public and Private Exchanges with defined contributions Low wage employers begin to terminate plans first (Darden, Wal-Mart, McDonalds) If results are positive, then others may follow No major backlash from workers If profits improve Insurance market stays robust and stable (service is acceptable) Offer cash incentives (wage increase) to terminate group plans Employment patterns may change Greater part time workforce Competitive advantage for small employers Benefit offerings evolve to provide different type of benefit offering Less generous medical benefits to avoid excise tax Supplement plans (e.g.. High Deductible plan) with Health Savings Accounts Enhance ancillary benefit offerings (dental, vision, life benefits, critical care supplement) Demand for concierge/advisory services may grow among private plan sponsors and unions 45