Investment Monitoring Retirement Josh Rickard, Plan ASA, Consulting MAAA Consultant, Financial Analysis and Underwriting Benefits & Human Resources Consulting Arthur J. Gallagher & Co.
Table of Contents Executive Summary...3 Introduction...4 Data and Approach...4 Analysis...5 Part I: Comparison of Actuarial Values Before and After Marketplace...5 Part II: Financial Impact of Gallagher Marketplace...9 Part III: Impacted by Gallagher Marketplace...14 Summary and Conclusions...20 Appendix A Definitions of Terms...21 Appendix B Model Plan Designs for Metallic Tiers...21 Bibliography...21 About the Author...22 ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 2
Executive Summary Private exchange strategies continue to pick up momentum as a preferred solution for employers striving to contain rising healthcare costs while attracting, engaging and retaining top talent. Post-implementation, determining the impact of the exchange is important to assessing its value, and leveraging real data is essential to that process. The Gallagher Marketplace (Marketplace) private exchange platform, offered by Arthur J. Gallagher & Co. (Gallagher), is designed to meet the needs of both employers and employees. This market report addresses how Marketplace is meeting that objective. To assess whether Marketplace increases value for employers and employees, the following questions were asked: When using a defined contribution strategy and a private exchange purchasing model, are employees exhibiting better consumer behavior? How does the change in employee consumer behavior impact medical plan costs? To answer these questions, data were collected for approximately 4,600 employees representing 27 Marketplace groups to validate key insights gained from past implementations. Using the data, employee enrollment choices, actuarial values, and premium costs of the medical plans were compared before and after Marketplace. Results from this study indicate that employers and employees are realizing positive outcomes from Marketplace. For example: Groups on average do see a reduction in medical plan benefits elected when using Marketplace. The reduction in benefits translates into plan cost savings of approximately $1,100 Per Employee Per Year (PEPY) or 9.4% of premium. The average employee cost share remained constant at 31% on Marketplace, which confirms that employee cost shifting is not the primary cause of savings. The number and breadth of medical plans available to employees when using Marketplace are greatly increased compared to pre-marketplace offerings. Employees elect Silver and Bronze plans at twice the rate of Platinum and Gold plans with Marketplace, compared to elections before Marketplace. Gallagher Marketplace illustrates its capability to improve consumerism and reduce costs. Groups who are evaluating a private exchange strategy would benefit from considering Gallagher Marketplace as their private exchange partner. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 3
Introduction Interest in private exchanges and defined contribution strategies has remained high in the years since the implementation of the Patient Protection and Affordable Care Act (PPACA). According to the 2015 National Benefits Strategy and Benchmarking Survey conducted by Arthur J. Gallagher, 23% of employers are considering a move to a defined contribution strategy for medical benefits in the next three years. Interest in private exchanges is driven by claims that private exchange models combined with defined contribution strategies offer employers a way to control benefits spending. Private exchanges often include a technology platform that offers decision support tools to employees and allows them to choose from a wide variety of benefits from an online store. Gallagher Marketplace (Marketplace) is a private exchange platform offered to employers as an alternative to traditional benefit strategies. Marketplace offers flexibility, the capability to offer a robust suite of insurance products, proprietary decision support tools, and a cutting edge, one-stop shopping experience for employee benefits. The purpose of this study is to provide an objective look at trends and outcomes for groups who have already implemented Marketplace, and to determine if costs and consumerism are improved by private exchange purchasing models. Specifically, this report answers the following questions: How does the level of medical plan benefits selected in a traditional purchasing model compare to those on Marketplace? What is the financial impact associated with Marketplace compared to the traditional model? What trends in choices are employers and employees seeing after groups implement Marketplace? Gallagher Marketplace can serve as the delivery model for nearly all health and welfare plans offered by most employers. However, this study will focus on medical plans offered through Marketplace. Medical benefits are often the second most expensive form of compensation offered to employees in the U.S. next to salary, so they serve as the most important driver of whether groups decide to implement Marketplace or not. Data and Approach Data were collected for 27 employers who implemented Marketplace. Data included premium rates, employer contribution subsidies, enrollment elections and plan designs. All of the groups analyzed implemented a defined contribution strategy for medical benefits. Three plan periods were studied for most groups: The plan period immediately preceding implementation of Marketplace The plan period with the same effective date as the first plan year on Marketplace, assuming the group renewed without implementing Marketplace The first plan year on Marketplace ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 4
Table 1 provides a summary of the data analyzed to complete this study. The sample includes more than 4,600 employees enrolled in medical plans representing $46.3M in medical plan premiums on Marketplace. Table 1: Summary of Sample Data Analyzed Before Marketplace Renewal As Is Marketplace 1st Year No. of Groups 27 25 27 Fully Insured - - 24 Self-Insured - - 3 4,641 4,393 4,625 56 54 185 $48.1 M $49.3 M $46.3 M No. of Employees No. of Plan Designs Total Annual Medical/Rx Plan Premium The average actuarial value of the groups studied before implementing Marketplace was 82.4% compared to 78.4% after Marketplace. Analysis The remainder of this report will focus on the findings related to Gallagher Marketplace using the sample data. The analysis section is comprised of three parts: Part I: Addresses the impact to benefits when comparing plans prior to Marketplace to plans after groups implement Marketplace Part II: Considers the impact Marketplace has on groups medical plan costs Part III: Provides a look at the consumer choices employees make as it relates to plan design as well as the plans offered by employers Part I: Comparison of Actuarial Values Before and After Marketplace In this section, the average actuarial values by group are compared before and after groups implemented Marketplace. Actuarial value represents the expected percentage of medical costs that is to be paid by a plan. For a more detailed definition of actuarial value, refer to Appendix A. Chart 1 summarizes the average actuarial value by group before and after implementing Marketplace. Additionally, the comparison is separated by groups realizing an increase in average actuarial value and those realizing a decrease in actuarial value. The average actuarial value of the groups studied before implementing Marketplace was 82.4% compared to 78.4% after Marketplace. This is a 4.0% decrease in average actuarial value and is equivalent to decreasing the average plan from a Low Gold Plan to a High Silver Plan. Of the groups included in the comparison, 21 of the 25 groups (84%) saw a decrease in actuarial value. Whether or not a group will realize a decrease or increase appears to depend on the current actuarial value of medical offerings. Whether a group saw a decrease or an increase in actuarial value, the average actuarial value after implementing Marketplace was virtually identical, around 78%. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 5
Chart 1: Change in Average Actuarial Value Based on Direction of Change 100% 95% 90% 85% Platinum Plan Gold Plan 75% 83.7% 82.4% 80% Silver Plan 78.5% 78.4% 78.4% 75.3% 70% 65% 60% Bronze Plan All Groups (25) Groups with Increase in Actuarial Value (4) Before Gallagher Marketplace Groups with Decrease in Actuarial Value (21) After Gallagher Marketplace Chart 2 illustrates the relationship between a group s current average plan election and what it might see after implementing Marketplace. This chart illustrates the change in actuarial value before and after implementing Marketplace. The plot shows a clear relationship between the decrease in actuarial value a group might expect and their current level of benefits elected. Based on the data, a group with a higher current average actuarial value can expect to achieve a greater decrease in benefits elected after employees enroll through Marketplace. Groups with lower medical plan offerings may actually experience an increase in medical plan actuarial value after implementing Marketplace. Choice itself is a benefit that increases employee satisfaction. It is important to discuss the findings associated with groups with current low actuarial value plans. Charts 1 and 2 both suggest that groups with lean medical plans can actually see an increase in the richness of plans elected when using a private exchange with more choices. There are two relevant points to make: Groups using private exchanges typically use a defined contribution strategy, so the cost to buy up is borne by employees. Therefore, plan sponsors are shielded from the additional cost when an employee chooses richer benefits. Choice itself is a benefit that increases employee satisfaction. In general, employees may buy up because they value having more insurance and are willing to pay for it. Having medical plans that closely meet their needs and desires is a perceived benefit by employees. In turn, this increases employee satisfaction with the benefits offered by groups and increases the perceived value of the overall total rewards offered. So, although groups may see an increase in the richness of benefits if they currently offer lean plans, Marketplace still delivers positive results. This will be addressed in more detail in Part III of this report. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 6
Change in Actuarial Value Before and After Marketplace Chart 2: Change in Actuarial Value vs. Current Actuarial Value 8% 6% 4% 2% 0% 70% -2% 75% 80% 85% 90% 95% 100% -4% -6% -8% -10% -12% Actuarial Value Before Marketplace Gallagher Marketplace facilitates a decrease in plan benefits selected by employees using its defined contribution strategy and technology without imposing required benefit decreases on employees. In the traditional model, many groups attempt to drive down benefit spend by increasing member out-of-pocket costs (e.g. increasing deductibles or copays), resulting in a decrease in actuarial value. Gallagher Marketplace facilitates a decrease in plan benefits selected by employees using its defined contribution strategy and technology without imposing required benefit decreases on employees. Chart 3 provides a comparison of the average actuarial values, by group, before and after implementing Marketplace. The results are ranked from left to right based on the actuarial value before Marketplace. The groups with a blue arrow pointing upward experienced an increase in average actuarial value after implementing Marketplace. As shown in Chart 3, each of these groups had an average actuarial value below 78% prior to Marketplace. This represents a continuation of the discussion which began after considering Chart 1. Chart 1 shows that the change in benefits elected after implementing Marketplace is dependent upon current benefits. Chart 3 supports this notion since all groups with an average actuarial value of 78% or above realized a decrease in actuarial value after joining Marketplace. For 23 of 25 groups (92%), a plan is offered through Marketplace that is at least as rich as the average plan elected prior to Marketplace. However, for the same sample of groups, the average plan elected through Marketplace is lower than the average plan prior to Marketplace. So, although employees have the option to purchase richer benefits, most of the time employees purchase leaner benefits when purchasing through Marketplace. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 7
Chart 3: Average Actuarial Value by Group Before and After Marketplace 100% Average Actuarial value 95% 90% 85% 80% 75% 70% 65% 60% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Average Actuarial Value Before Although employees have the option to purchase richer benefits, most of the time employees purchase leaner benefits when purchasing through Marketplace. 20 21 22 23 24 25 Average Actuarial Value After A common argument against private exchanges is that employees purchase leaner benefits because employers decrease contributions. Employees then must purchase leaner plans to reduce their portion of the plan premium in order to meet their individual budgets. Table 2 shows the average actuarial value, separated by whether or not employers increased or decreased their contribution after groups implemented Marketplace. If cost shifting was occurring when employers reduced their contribution, the average actuarial value would be lower for groups that decreased their employer contribution when compared to groups that increased their employer contribution. Table 2 shows that the average actuarial value was actually higher when groups decreased their employer contribution. The data suggests that employees make their choice of medical plan independent of how much their employer contributes. As more groups adopt private exchanges, this will be an important item to update. Table 2: Average Actuarial Value by Employer Contribution Impact After Marketplace Employer Contribution Impact Number of Groups Actuarial Value After Marketplace Decreased Contribution 14 80.3% Increased Contribution 13 77.0% Part I of this report confirms two important results driven by Gallagher Marketplace. First, nearly all of the groups analyzed saw a decrease in their medical plan average actuarial value after employing a defined contribution and private exchange strategy ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 8
Without a carrier change, the average savings is $1,122 or 9.4% of premium per employee per year. using Marketplace. Plans with lower actuarial values are associated with higher levels of consumerism and lower premium costs. The second important result is the apparent relationship between current average actuarial value and the decrease or increase in average actuarial value after implementing Marketplace. Based on the data, groups with higher current average actuarial values tend to see larger decreases in average actuarial value after Marketplace. Some groups with low current average actuarial values saw an increase in average actuarial value which signals a potential midpoint of plan design on which the general private exchange population may converge. If this occurs, it is still a positive outcome, because employees choose plans that meet their needs and are more satisfied. Part II: Financial Impact of Gallagher Marketplace This section addresses the financial impact to groups after moving to a private exchange strategy using Gallagher Marketplace. Total medical plan costs, employer contributions, and employee contributions are considered. One of the most popular claims about private exchanges is that they decrease overall plan costs. Chart 4 summarizes the premium savings after groups implemented Marketplace. The savings are stated in average dollars PEPY as well as on a percentage basis. To calculate the savings, the PEPY premium through Marketplace is compared to the PEPY premium for the group if it had renewed as is. The savings are separated by those who used a different medical carrier on Marketplace than was used prior to Marketplace. Results are separated this way to isolate the financial impact associated with plan elections and mitigate the effect of other factors. For groups changing carriers, confounding variables, such as network differences, will be more common and thus skew understanding of the true financial effects of Marketplace. The data in Chart 4 includes 25 groups, 15 that did not change carriers and 10 that did. The average savings for all groups considered is $1,446 PEPY or 11.1%. After removing the impact of carrier changes and looking only at the groups without a carrier change, the average savings is $1,122 or 9.4% of premium. Chart 4: Marketplace Premium Savings vs. Renewal ($ and %) $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 13.7% 11.1% $1,932 9.4% $1,446 $1,122 All Groups (N=25) No Change in Carrier (N=15) Changed Carrier (N=10) Average PEPY Savings % 15.0% 13.5% 12.0% 10.5% 9.0% 7.5% 6.0% 4.5% 3.0% 1.5% 0.0% Average PEPY Savings $ ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 9
Based on the PEPY dollar savings data from Chart 4 and assuming a group does not change carriers, Table 3 puts the savings opportunity into perspective for various group sizes. A group of 500 employees could potentially save more than $0.5M annually, and a group of 1,000 could potentially save more than $1.1M annually by implementing Marketplace. Table 3: Potential Annual Savings for Various Group Sizes A group of 1,000 could potentially save more than $1.1M annually by implementing Marketplace. Group Size Annual Savings 50 $56,000 100 $112,000 500 $561,000 1,000 $1,122,000 While it is important and useful to understand the average impact Gallagher Marketplace groups experienced, it is also important for groups considering Marketplace to understand how results can vary. Chart 5 demonstrates the spread in realized medical plan premium savings after implementing Marketplace using the same methodology that was used to construct Chart 4. Twenty-one out of 25 groups experienced a decrease in medical plan PEPY premiums. This is consistent with the groups realizing a decrease in actuarial value from Part I of this report. Furthermore, some groups experienced greater savings than others. Savings due to Marketplace will depend on factors such as carrier, demographics, current plan elections, and other factors. Chart 5: Change in Total Plan Premium PEPY on Marketplace Average Change for All Groups -11.1% 10 9 Number of Groups 8 7 6 5 4 3 2 1 0 < -20% -20% to -10% -9.9% to -5% -4.9% to -0.1% 0% to 4.9% 5% to 9.9% > 20% % Change in PEPY Premium ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 10
The average cost share between employees and employers maintained a rate of about 31% and 69% of total premium costs, respectively. It is also important to understand how groups are structuring the cost share between employers and employees as it relates to their medical plans. Charts 6A and 6B describe the dollar change and premium cost share percentage change on average when comparing groups before and after Marketplace. It is important to note that the data in Charts 6A and 6B compare Marketplace to plans in place prior to Marketplace rather than the renewal as is plans. The percentage change in cost in Chart 6A differs from the percentage change in cost in Chart 4 because Chart 4 assumes there is no change in plans. Important insights can be gained from Charts 6A and 6B. On the Marketplace, the following occurred: The average PEPY employee premium decreased by 3.1%. The average PEPY employer medical contribution decreased by 4.0%. On a cost share percentage basis, the average cost share between employees and employers maintained a rate of about 31% and 69% of total premium costs, respectively, when comparing cost shares before and after Marketplace. This means that on average, both employers and employees are sharing in medical premium reductions in their non-marketplace plans. Chart 6A: Employer (ER)/Employee (EE) Cost Share Before and After Marketplace, in Dollars1 Chart 6B: Employer (ER)/Employee (EE) Cost Share Before and After Marketplace by Percentage 1 $12,000 120% $10,000 $8,000 $3,152-3.1% $3,054 $6,000 $4,000 EE Cost Share ER Cost Share $7,082-4.0% $6,797 $2,000 100% 80% 31.2% 31.3% 60% 40% EE Cost Share ER Cost Share 68.8% 68.7% Premium Cost Share BEFORE Premium Cost Share AFTER 20% $0 0% PEPY Cost BEFORE PEPY Cost AFTER 1 PEPY costs illustrated in Chart 6A are calculated using a simple average of the individual group employer and employee PEPY costs. The same is true of the calculation for the premium cost share percentages by employer and employee in Chart 6B. Due to the averaging methods, the cost share using the PEPY costs by employer and employee illustrated in Chart 6A will not equal the cost share percentages by employer and employee shown in Chart 6B. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 11
Chart 7 shows the distribution of percentage increases in employer contributions before and after Marketplace. It indicates an even spread across the spectrum in how much groups are changing their employer contribution. Fifty-two percent of groups decreased their employer contribution while 48% increased their contribution. The wide spectrum of employer contribution increases is likely reflective of the individual goals and objectives groups seek to achieve via a private exchange purchasing model, which will vary from group to group. Chart 7: Change in Employer Contribution PEPY by Group on Marketplace Average Change for All Groups -0.9%2 5 Number of Groups 4 3 2 1 0 < -20% -20% to -10% -9.9% to -5% -4.9% to -0.1% 0% to 4.9% 5% to 9.9% 10% to 20% > 20% % Change in Employer PEPY Contribution Fifty-two percent of groups decreased their employer contribution while 48% increased their contribution. Chart 8 shows an analogous illustration to Chart 7 but from the employee point of view. The changes in employee PEPY contribution look very different than they do for employers. Rather than an even spread, the results are more polarized, with the majority of groups seeing extreme changes. Thirty-seven percent of groups saw their average employee contribution decrease by 20% or more. At the other end of the spectrum, an equal 37% saw employee contributions increase by 20% or more. The remaining 26% of groups realized something in between. These results indicate a serious misalignment between what employees would like to spend and what spending options are available in non-exchange purchasing environments. Some employees are willing to choose leaner plans in return for lower contributions, while other employees are willing to do the opposite. 2 Average is based on a trimmed mean excluding the maximum and minimum values to provide more normalized results. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 12
Chart 8: Change in Employee Contribution PEPY by Group on Marketplace Average Change for All Groups -2.1%3 10 9 Number of Groups 8 7 6 5 4 3 2 1 0 < -20% -20% to -10% -9.9% to -5% -4.9% to -0.1% 0% to 4.9% 5% to 9.9% 10% to 20% > 20% % Change in Employee PEPY Contribution Marketplace does appear to encourage employees to purchase leaner benefits, resulting in medical plan savings. Part II evaluates the impact of Marketplace from a financial perspective. Overall, groups experienced savings by using Marketplace as its platform for employees to choose benefits. The average savings was 9.4% of total medical plan premiums if groups used Marketplace instead of renewing their current plan offering and purchasing model. Additionally, employers varied in their decision to either decrease or increase their employer contribution towards medical plans. Roughly half decreased contributions while the other half increased contributions. The change in employee contributions were much more extreme, with many employees decreasing their costs by 20% and, many employees increasing their costs by more than 20%. The overall message from Part II is that Marketplace does appear to encourage employees to purchase leaner benefits, resulting in medical plan savings. Also important is that, at the group level, the decision to increase or decrease cost is an individual decision for both employees and employers. 3 Average is based on a trimmed mean excluding the maximum and minimum values to provide more normalized results. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 13
Part III: Impacted by Gallagher Marketplace In this section, consumer choices are more closely analyzed. This includes the kinds of plans employees are choosing as a result of defined contributions and decision support. Chart 9 provides a distribution of the type of plans employees elected before and after Marketplace. The chart considers enrollment by medical plan category regardless of group. Therefore, the results are not controlled for what options are available to employees in either the traditional or Marketplace scenario. There is an enrollment shift to leaner medical plans after groups enroll using Marketplace. Analysis of the type of plans elected before Marketplace, versus after, shows employees tend to choose leaner plans on Marketplace. The most commonly elected plan before Marketplace was High Gold. This includes plans with an actuarial value between 85% 89%. The most commonly elected plan after Marketplace was high Silver. This includes plans with actuarial values between 75% 79%. Also, participation in Low Silver, High Bronze, and Low Bronze plans are all greater on Marketplace than before Marketplace. Chart 9: Distribution of Plan Elections Before and After Marketplace 40% 35% 34% 30% 33% 27% 25% 20% 18% 17% 17% 14% 15% 12% 9% 10% 6% 5% 0% 5% 2% 4% 0% Low Bronze High Bronze Low Silver High Silver Low Gold High Gold Low Platinum Before Marketplace 1% 0% High Platinum After Marketplace ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 14
Chart 9 shows that there is an enrollment shift to leaner medical plans after groups enroll using Marketplace. Table 4 and Graph 1 summarize the enrollment for all employees studied based on whether they enrolled in a plan above 80% (Platinum and Gold plans) or below 80% (Silver and Bronze plans) for before and after Marketplace. The data indicate that employees are 2.4 times more likely to choose a plan below 80% when Marketplace is used versus traditional offerings.4 Table 4: Enrollment Below and Above 80% Before and After Marketplace The data indicate that employees are 2.4 times more likely to choose a plan below 80% when Marketplace is used versus traditional offerings. Period Enrolled In Plan 80% or Below Enrolled In Plan Above 80% Total Before Marketplace 2,183 2,458 4,641 After Marketplace 3,135 1,490 4,625 Total 5,318 3,948 Graph 1: Enrollment Below and Above 80% Before and After Marketplace Before Marketplace After Marketplace 1,490 2,458 2,183 3,135 Enrolled in Plan Above 80% Enrolled in Plan 80% or Below 4 Odds ratio testing was used to determine the likelihood of employees to choose plans below 80% after Marketplace assuming a 2x2 contingency table. Results are statistically significant at the 0.05 confidence level. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 15
Groups experienced a significant buy-down in elected plan design on Marketplace versus current plans. It is also significant that 96% of employees using Gallagher Marketplace say they are satisfied (2015 Liazon Employee & Employer Survey). According to the same survey, 96% of employees indicate they prefer to choose their own benefits rather than letting their employer choose for them. Employees are choosing leaner benefits on average and they are satisfied with their choices. Chart 10 displays the percentages of groups offering plans in each of the metallic level categories both before and after Marketplace. On average, groups offer only two medical plan options to employees in the traditional model versus more than six plans on average when using Marketplace. Furthermore, only 22% of groups offer a Low Silver Plan and only 11% offer any sort of Bronze Plan prior to joining Marketplace. Consequently, some of the migration to lower plans experienced on Marketplace is due to an increase in options available to employees. In other words, employees are choosing richer plans than necessary in the traditional scenario simply because it is the only kind of plan available to them in some cases in the beforemarketplace scenario. By offering more options, with some options leaner in benefits, and a technology-based decision support tool, more employees will choose leaner medical plans. In the Liazon survey mentioned earlier about employer and employee satisfaction, it was found that 90% of employees either felt there was just the right amount of choice or wanted even greater choice when using the technology behind Gallagher Marketplace. Therefore, greater choice is seen as a benefit of Marketplace by most employees. By offering more options, with some options leaner in benefits, and a technologybased decision support tool, more employees will choose leaner medical plans. This results in lower costs for employees and less pressure on employers to match high premium cost increases, as is the case for many traditional plan offerings. This exemplifies one of the strongest virtues of Gallagher Marketplace. Chart 10: Percentage of Groups Offering Plan Type by Metallic Level 100% 96% 90% 85% 80% 70% 59% 59% 60% 48% 50% 41% 40% 44% 41% 30% 44% 37% 14% 20% 11% 10% 0% 7% 4% 0% Low Bronze High Bronze Low Silver High Silver Low Gold High Gold Low Platinum Before Marketplace 0% High Platinum After Marketplace ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 16
Consumer-driven plans (often called HSA plans) are usually associated with high expectations of consumerism, as are private exchanges. This relationship is apparent in the HSA participation and offerings of Marketplace. Chart 11 summarizes the HSA participation rates before and after Marketplace. The participation rates include groups who offered at least one HSA compatible plan alongside a nonhsa plan both before and after Marketplace (sample size is 11 groups and 1,620 employees). Some groups experienced an increase in participation and some experienced a decrease. However, the average across all the groups, when comparing before Marketplace to after Marketplace, increased from 38% to 44%. Another noteworthy metric is the number of groups offering an HSA plan before Marketplace versus after. Approximately half of the groups offered at least one HSA compatible plan prior to Marketplace, whereas every group offered at least one HSA plan after Marketplace. HSA plans provide tax benefits via an HSA funding account which is owned by employees. This is another example of how Marketplace provides expanded choice and benefits to employees. Every group offered at least one HSA plan after Marketplace. Chart 11: HSA Participation Before and After Marketplace 100% 100% 90% 80% 70% 60% 48% 50% 40% 44% 38% 30% 20% 10% 0% Average HSA Participation Groups Offering HSA Before Marketplace After Marketplace More detail on HSA participation rates for the groups analyzed in Chart 11 are provided in Chart 12. The groups were ranked from highest to lowest based on HSA participation prior to Marketplace. As mentioned before, some groups realized an increase in HSA participation while others realized a decrease. What appears to be consistent, however, is most groups on Marketplace tend to have participation rates in the 30% 50% range, while there is significantly more variation among groups prior to Marketplace. Many important factors affect employees choices to participate in HSA plans including: demographics, risk aversion, financial stability, healthcare needs, employer HSA funding allowances, etc. Groups contemplating Gallagher Marketplace should consider these factors when evaluating the potential HSA participation impact on specific populations. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 17
Chart 12: HSA Participation by Group Before and After Marketplace 100% 90% HSA Participation % 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 Group ranking by HSA Participation Before Marketplace Average After Marketplace Without decision support, employees choose lower cost sharing levels in return for high payroll contributions to avoid the uncertainty associated with healthcare costs. HSA Participation Before HSA Participation After Several groups analyzed offered employer HSA funding allowances to participants in HSA plans prior to Marketplace. It is most common for groups to offer a defined contribution without direct HSA allowances made into employees accounts on Marketplace. A few of the groups analyzed did include explicit HSA funding contributions on Marketplace. It is important for groups to consider if HSA funding will be provided to employees on Marketplace as it can affect HSA participation. Two of the most influential cost sharing levers affecting the actuarial value of a plan are deductibles and out-of-pocket (OOP) maximums. Deductibles require employees and their dependents to meet a certain dollar amount of health costs before a plan sponsor will pay benefits. OOP maximums set a limit on how much an employee and their dependents will pay towards health costs in a year. For purposes of this study, OOP maximums include deductible. Employees in a traditional medical plan purchasing environment tend to choose more costly plans with lower cost sharing levels when compared to Marketplace. Chart 13 illustrates this by showing the average deductible and OOP levels before and after groups implemented Marketplace. The results are separated by single and family coverage. Both deductibles and OOP maximums increased after groups implemented Marketplace. This is true for both single and family coverage. This signifies that increasing deductibles and OOP maximums are major contributors to groups seeing a decrease in actuarial value after implementing Marketplace. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 18
The data presented in Chart 13 may also signify two other important aspects of traditional medical plan purchasing models: Employees are risk averse when choosing plans. Without decision support, employees choose lower cost sharing levels in return for high payroll contributions to avoid the uncertainty associated with healthcare costs. Some employees don t have access to higher deductible plans in a traditional environment and when presented with the option to buy down, a significant portion of employees are doing so. Chart 13: Average Member Deductibles and Out-of-Pocket Maximums Before and After Marketplace +30% +15% +8% +11% $9,000 $8,533 $7,702 $8,000 Member Cost Sharing $7,000 $6,000 $5,000 $4,233 $4,000 $3,668 $3,901 $4,215 $3,000 $2,000 $2,109 $1,620 $1,000 0% Single Deductible Family Deductible Single OOP Max Family OOP Max Before Marketplace After Marketplace Part III addresses several important factors of employee consumer behavior related to purchasing medical plans using Marketplace. Employees tend to choose leaner medical plans using Marketplace when compared to before Marketplace. This is true even though most employers offer more plan options to employees using Marketplace, including plans that are often richer than previously available to employees. It was also shown that HSA plan participation increased for groups after implementing Marketplace. Lastly, actuarial values are decreasing in large part due to higher deductibles and out-of-pocket maximums chosen by employees. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 19
Summary and Conclusions The data analyzed in this report provides insight on several important points. These points relate to the effectiveness of Gallagher Marketplace as a private exchange platform to reduce medical plan expense and improve employee consumer choices. Most of the groups analyzed saw a decrease in average actuarial value as a result of using Gallagher Marketplace and a defined contribution strategy to enroll employees in group medical plans. There is an apparent relationship between a group s current average plan value and the reduction in plan value a group will experience as a result of Marketplace. Groups with lower current average actuarial values may see a smaller decrease in average actuarial value or may even see an increase on Marketplace when compared to groups with higher current average actuarial value. The average savings in total plan costs for groups using Marketplace compared to their equivalent renewal, assuming they made no changes from current, was 9.4% of premium or $1,122 PEPY. The average Marketplace PEPY employer and employee costs both decreased when compared to current costs. For employers, about 50% increased their medical plan contribution while about 50% decreased their contribution when comparing Marketplace to current contributions. Employee cost share remained constant at 31% on Marketplace when compared to before Marketplace. This debunks the claim that savings in a private exchange are primarily the result of cost shifting to employees. The financial impact of Marketplace, in general, results in total plan savings. However, it is also important to acknowledge the individual goals of groups, which is an important driver of how employers will manage their portion of contributions towards medical plan benefits. In a pre-marketplace model, many employees are over-insured. When appropriate, Gallagher Marketplace encourages employees to purchase leaner medical plans which results in lower costs to them. This buying decision also reduces the pressure on employers to increase their contributions in future years. Employees are more than twice as likely to choose a plan with an actuarial value below 80% when purchasing a medical plan using Marketplace compared to a traditional purchasing method. Furthermore, employees chose higher deductibles and out-of-pocket maximums on Marketplace which are significant drivers in lowering actuarial value and total plan costs. All of the metrics in Part III of this report signal a definite and noticeable enhancement in consumer behavior, and confirms the capability of Gallagher Marketplace as a consumerism improvement tool. Gallagher Marketplace has illustrated its ability to drive better results than the traditional purchasing model for employee benefits. As interest in private exchanges continues to grow, and more groups consider a private exchange platform, groups should strongly consider Gallagher Marketplace as their private exchange partner. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 20
Appendix A Definitions of Terms Actuarial Value The expected portion of benefit costs paid by a medical insurance plan. In formulaic form it is equivalent to: (Expected Benefits Paid by Plan After Plan Design) (Total Expected Benefits Paid) Plan Metallic Level Actuarial Value Platinum Plan 90% 100% Gold Plan 80% 89% Silver Plan 70% 79% Bronze Plan 60% 69% Appendix B Model Plan Designs for Metallic Tiers These example plan designs suggest typical details for metallic coverage levels. These are not the only plan designs that fall into each category. Rather, these plan designs are meant to provide a baseline to understand the type of benefits covered by each metallic level. Plan Name Network Deductible Platinum Gold Silver Bronze $100/$200 $250/$500 $2,000/$4,000 $5,000/$10,000 Network Coinsurance 100% 80% 80% 80% Network Coinsurance Max (Not Including Deductible) $0/0 $2,500/$5,000 $3,500/$7,000 $1,350/$2,700 Copays (OV/SP/ER) $15/$30/$200 $25/$50/$200 $25/$50/$200 Deductible + Coinsurance Retail Rx (Generic/Brand Formulary/Brand Non-Formulary) $10/$30/$60 $10/$30/$60 $10/$30/$60 Deductible + Coinsurance Mail Order Rx (Generic/Brand Formulary/ Brand Non-Formulary) $20/$60/$120 $20/$60/$120 $20/$60/$120 Deductible + Coinsurance Bibliography Arthur J. Gallagher & Co. Benefits Strategy & Benchmarking Survey, 2015. Liazon Corporation. Employer & Employee Survey Results, 2015. ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 21
About the Author Mr. Josh Rickard is a consultant for the Benefits & Human Resources Consulting division of Arthur J. Gallagher & Co. Located in Chicago, Illinois, he works on the North Central Region Financial Analysis and Underwriting team to provide financial support to help clients manage financial costs and risks associated with group health and welfare plans. He also assists clients with plan design, funding and defined contribution structures on Gallagher Marketplace. Josh delivers solutions for clients in a variety of industries ranging from manufacturing to healthcare and has a strong background in analyzing healthcare financial information. In addition to his experience in financial analysis, Josh is an Associate of the Society of Actuaries. Josh Rickard Josh Rickard, ASA, MAAA Consultant, Financial Analysis and Underwriting Benefits & Human Resources Consulting Arthur J. Gallagher & Co. Josh_Rickard@ajg.com 630.285.4431 www.ajg.com Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as Gallagher Benefit Services of California Insurance Services and in Massachusetts as Gallagher Benefit Insurance Services. Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice. 2016 Gallagher Benefit Services, Inc. 16GBS26899A ARTHUR J. GALLAGHER & CO. APRIL 2016 :: 22