The Evolving Exchange Marketplace: EBPA Presentation December 6, 2012
Today s Discussion Macroeconomic Perspective: Why Now? and Employer Response Defined Contribution and Exchanges Defined Public vs. Private Exchange Alternatives Components of an Effective Defined Contribution (DC)/Private Exchange Solution Value Proposition to Key Stakeholders Competitive Landscape The Potential Impact of Transitioning to DC Future Landscape: The Direction of the Exchange Market
The Healthcare Challenge Current costs and expected trends are creating a significant financial burden for employers While cost management initiatives can soften the trend curve, they will likely not be able to achieve company financial objectives without becoming disruptive Growing economy reinforces the need to use benefits to attract and retain the best talent Market dynamics are creating an opportunity for employers to think differently about the role they play in delivering healthcare benefits A key strategy being considered is a transition to a Defined Contribution (DC) structure Effective implementation of a DC solution requires a broad vision that goes beyond the concept of a fixed subsidy 3
The Imbalance of Total Compensation Source: Kaiser / HRET Survey of Employee-Sponsored Health Benefits, 1999 2010. Bureau of Labor Statistics, Consumer Price Index, US City Average of Annual Inflation (April April), 1999 2010, Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999 2010 (April April). 4
Key Healthcare Challenges For Employers Affordability For the company For plan participants Employee Engagement Meaningful choice Competitive level of benefits Predictability Sustainable/manageable trend Budgetable healthcare expense 2012 Bloom Health. All Rights Reserved 5
Traditional Responding To The Challenges: Potential Strategies Design increased cost sharing Pricing increased contributions Overall structure more limited, design and provider choice Innovative delivery solutions (e.g., clinics) Compliance models Defined Contribution Fixed/defined subsidy Expanded design platform Purchasing leverage through a healthcare exchange Effective decision support and positive consumer experience Uniform model across all participant groups (active, pre-65, post-65) Evolution towards a total benefits solution 2012 Bloom Health. All Rights Reserved 6
What Employers Are Considering State Exchanges Limited market segments Narrow range of benefits Limited choice architecture Concerns over consistency in service delivery and long term viability Private Exchanges Emerging mechanism for offering benefits Primary vehicle is an online purchasing marketplace Exchange models typically incorporate defined contribution strategies Defined Contribution Retiree Medical Exchanges Allows employer to create a budgetable trend line Most models are account based Absent other components, a fixed subsidy solution will have a limited shelf life Existing alternatives in an accepting marketplace Marketing focus has been on post-65 individual coverage solutions Recent implementation challenges have resulted in some market volatility 7
What Are Private Exchanges? Emerging mechanism for offering medical and specialty employer benefits and wellness offerings through h an online platform directly to retirees/consumers. Distribution Channel Defined Contribution Retail Experience Healthcare Account Online Marketplace 2012 Bloom Health. All Rights Reserved 8
Public Exchanges vs. Private Exchanges ( (Anticipated Healthcare Reform Changes) Public Exchange Will it Happen? Private Exchange Is Happening Governance State / Federal Private Market Segments 2-100 & Individual All Group sizes Product Offerings Health & Dental Health, Dental, Life, Wellness, all Ancillary Carrier Choice Determined by state Determined and controlled by exchange and participating employers Billing Traditional billing methods Integrated health account tracking to manage DC dollars Funding Government subsidies individually paid Traditional employer contribution Defined contribution 9
Defined Benefit vs Defined Contribution Defined Benefit Variable employer cost Uncertainty over annual increases Limited coverage options selected by employer Point of service decision making Defined Contribution Fixed employer subsidy Controlled rate of annual increases More plan choices for employees Combines point of enrollment and point of service decision making 10
Core Principles of a Successful DC/Private Exchange Solution Not dependent on medical trend Employer determines the right amount to spend on health care Fixed Subsidy Support for the new world of choice Improved Service Model Decision support, plan More oedesign esg Choice recommendations Call center More plan designs Paradigm shift Power of the purse 2012 Bloom Health. All Rights Reserved 11
Core Components of a Successful DC Solution Fixed Subsidy Not dependent on medical trend Employer determines the right amount to spend on healthcare Power of the purse 12
Core Components of a Successful DC Solution Fixed Subsidy More Choice More plan designs Paradigm shift Power of the purse 13
Why Design Expansion Is Critical: Defined Benefit Constraints Employer is at risk for migration and adverse selection Employee choice is limited, and employer subsidy is not transparent $12,000 $11,000 Status Quo DB PEPY $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $7,000 Low Plan Employer Subsidy $8,000 High Plan Member Contributions 14
Why Design Expansion Is Critical: Defined e Contribution o Solutions o Employer fixes (reduced) Defined Contribution, eliminating migration risk Employee choice spans a wider spectrum of plan value, and employees are happier having the power of the purse $12,000 Bloom DC PEPY $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $7,300 $7,300 $7,300 $7,300 $7,300 $7,300 $7,300 $7,300 $7,300 $7,300 $5,000 $4,000 Plan 1 Plan 2 Plan 3 Plan 4 Plan 5 Plan 6 Plan 7 Plan 8 Plan 9 Plan 10 Employer DC Amount Member Contributions Exchange Fees 15
Core Components of a Successful DC Solution Fixed Subsidy Support for the new world of choice Recommendations for great matches Call center Flexible Platform Improved Service Model More Design Choice 16
The Private Exchange Model Employer $$$ Deposits money on behalf of each member into a Bloom Health account Bloom Private Pi Exchange Health Insurance Pharmacy Wellness Consumer Uses dollars to purchase health insurance and other services Educated about their optionsand benefits Manages health accounts for employees Has various products and services on the shelf Helps individuals buy services tailored to their needs Brings stakeholders closer to impending health care reform changes Ancillary Benefits Other (401k, PTO, etc.) Consumer shops for services in the Private Exchange Significantly more efficient and targeted sales and marketing 17
Decision Support A combination of online and live support that generates a custom list of recommended health products and related services that best match specific needs. 18
Platform Flexibility Structure Funding Limited network tied to vendors: Potential transition to Individual retail model Price point reflects access to broad array of providers Model ASO Retail Concepts Traditional Provider Network Group Insured Further streamlines the delivery model Accountable Care Alternatives High Performance Network Trades price reduction for narrower network Individual Covered Populations Active Pre 65 Post 65 19
Key Funding Considerations Self lffunded d Fully Insured PROS Allows for greater design flexibility Allows larger employers, who can handle claims variability, to avoid risk charges and premium taxes Capitalizes on potential impact of medical management initiativesi i i Benefits directly from buy down effect CONS Not a true DC solution Limits potential leverage of a multicarrier model PROS Risk transfer creates true DC approach Allows for future trend to be tied to non medical inflation indices Facilitates multi-carrier solutions (with effective risk adjustment) Defines true value of medical management/wellness CONS Imposes risk charges and premium taxes Requires compliance with insurance regulations 20
Value Delivered Through the Defined Contribution / Private Exchange Model EmployerValue Proposition Delivers greater control over total benefit costs and annual spending increases Offers solution for employers seeking to transition Retirees and/or Actives to defined contribution benefits Provides engaging, consumerfriendly channel Reduces administrative burden and costs Supports employer in promoting healthier, happier, more productive workforce Consumer Value Proposition Expands consumer choice and control Optimizes plan selection based on employee needs, financial status, and risk tolerance Promotes increased awareness of costs and cost variance Delivers familiar, online consumerfriendly retail experience 21
The Competitive Landscape Private Exchange Market 22
What Differentiates the Competitors? Philosophy Scope of Service Flexibility Decision Support Carrier Support Long Term Sustainability 23
DC Impact Analysis Focused actuarial analysis to determine Defined Contribution (DC) value proposition ii for employer Assesses financial impact on three key stakeholders Employer Employees Shareholder Facilitates strategic discussion regarding Structuring plan design alternatives Setting the DC subsidy Creating balance between employer s objectives and the ability to deliver a competitive/affordable benefit to plan participants 24
Data Requirements From most recent plan year prior to proposed DC implementation: Employee Census Plan and coverage tier elections Include opt-outs Summary Plan Descriptions Or equivalent benefit provision detail Include detail of any employer funding of HRA or HSA Insured Premiums or Budget Rates Include employer cost for any funding of HRA or HSA Employee Payroll Contributions 25
Employer Recommendation Engine Dashboard Real-time, interactive modeling helps client establish DC amount, identify potential savings, and understand out-of-pocket expense for employees. 26
Employer Recommendation Engine Key Exhibits Impact on expected plan migration, average premiums and contributions, and potential savings for all key stakeholders. 4,000 3,500 $14,000 2013 PEPY Premium Cost XYZ Company Cost ($M) Headcount 3,000 2,500 2,000 DB DC 1,500 1,000 500 0 60.0% 65.0% 70.0% 75.0% 80.0% 85.0% 90.0% 95.0% 100.0% $100 $95 $90 $85 $80 $75 $12,000 $10,000 $3,839 $2,764 $8,000 $6,000 $4,000 $8,496 $8,228 $2,000 $0 Status Quo DB Bloom DC Actuarial Value XYZ Company Subsidy/DC Amount Employee Contribution 2013 2015 XYZ Company Cost } 2013 2014 2015 DB DC }$17.7M 3 year total ΔEPS (Pre Tax) $0.030 $0.027 $0.025 $0.020 $0.018 $0.015 $0.010 $0.008 $0.005 $0.000 $0.000 $0.000 $0.000 DB DC 2013 2014 2015 27
The Future Landscape The exchange market is evolving. The future of the marketplace will be determined d by several factors, including unsustainable cost, the Affordable Care Act, and different market actors. To a large extent, the direction exchanges head will be determined by the market itself. Public Exchanges Third Party / Carrier / Company Solutions Group vs. Individual, ASO vs. Insured Total Benefit Solutions 28
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