Private Exchange Market A Report from the Front Lines

MAHP Summer Conference 2014Denise Christy

Private Exchanges : The Ultimate CDHP

Private Exchanges PHIX

Private versus Public Exchange

Private Exchange Public Exchange

Organizer Employer Federal Government

Target Population Employees with group heath coverage

Individuals uninsured or with private insurance

Plan Design Employer/Carrier State or Fed requirements

Plan Selection Individual employee Individual

Scope of Benefits Essential health benefits Essential health benefits

Subsidy Employer usually 50% of single

Federal subsidy with income below 400% FPL

Mandate Employer Individual

Premium Tax treatment Pre- Tax dollars –section 125

Post Tax- itemized above 7.5% of income

Technology Decision support No Decision Support

Ancillary offerings Full scope of financial protection

Medical only

Private Exchange Goals

Create a competitive market in health care benefits at a retail/consumer level

Facilitate the movement to a defined contribution model for those employers who are aligned with this philosophy

Expand choice, allowing consumer selections (e.g., networks, premiums, deductibles) that could not be driven unilaterally at the employer level.

Source: Aon Hewitt.

If you’ve seen one Private Exchange … you’ve seen one

Different Models of Exchanges

Defined Contribution: From Parenting to Partnering

Defined Benefits to Defined Contribution Game Changer

• Preserving the group benefits offerings and all the tax benefits

• Driving a more educated and engaged worker- values the cost of care

• Offering choice and financial protection for all levels of talent/roles

Shifting from DB to DC

Budget the Spend-Transfer the Power

Employer DecidesLump or TieredClasses of WorkersSplit or Total HSA allocation Unused Dollars Waiver Credit Part Time

Drivers to Defined Contribution

Hard Drivers1.IRS Notice 2013-54 /DOL 2013-03- HRA usage2.2018 “Cadillac Tax” 10,200/ 27,5003.9.5% Contribution maximum4.De-Risking the Balance Sheet ( Walgreens)

Employer Adoption of Private Exchanges

Unless you’re the Lead Dog…..

Employer Market Options in a Post Reform Marketplace

Keep what they have

Continue coverage/

adjust offering

Offer through a

private exchange

Hybrid offering

Opt out

Least Change 2015---------------------------2018 Most Change

45-50% 35-45% 3-5% 4-9%

• Private Exchange Strategy for a Post Reform Market • MACPA Conference, April 29 2014• Denise Christy

Survey Results

3 million Enrolled though the Public Companies

Three Reasons for Employers to Choose a Private Exchange

1. Costs – Employers seeking cost reductions and predictability in their costs.

2. Enhance Employee Satisfaction- Employees have a say in choosing their plans.

3. Relieve administrative headaches and the compliance burden.

Reason #1 Costs

• Higher uptake of CDHP plans on Exchange • Predictability of costs from a budget

management point of view • Impact of new product offerings to enable

employee purchasing lower cost options (narrow networks)

• Higher consumerism levels to bend trend on utilization

Average per employee contribution is $337.16 per month

EducatNonPft

FinanceService

Health Manfac Retail Service Tech Total

Gross Spend

13,310 12985 12926 12040 11316 13460 11958 12542

Net Spend

9521 8302 9258 8121 7502 9224 8374 8496

Employee Share

3789

28%

4683

36%

3668

28%

3919

32%

3814

34%

4236

31%

3584

30%

4046

32%

Source: PWC 2014 employer survey

Choosing the HDHP options

Walgreens Perspective De-Risking

Self funding – Walgreens held all the risk.1.Disease Management not working due to lack of integration2. Wellness/ no medical premium ROI

Private exchange- Each stakeholder plays their part • Carriers take on the risk and the

disease management where it belongs.• Employers contribute at a pace

in keeping with market variation and talent retention

•Employees choosing and using care and coverage greater insight to the cost.

Employer

Carrier and Provider

Employee

Reason #2 Employee Satisfaction

Liazon Employee Survey July 2013

This is what employee Engagement Looks like!!

Liazon, 2013

Reason #3 Administrative Burden and Compliance

• PPACA requires employers to now track the following: – flex spending account annual limit– Detailed Dependent information – Employee acknowledgement of SBC’s– Employee acknowlegement on Notice of Exchange– Form w-2 Reporting – PCORI Fees – Waiting period limited to 90 days – Wellness Incentives – Full-time/Part time status and hours worked (stability and lookback periods)– 6055 and 6056 Reporting ( 2015 extension) – Auto Enrollment Rule (guidance pending )

HRIS and Enrollment Platforms Integrate

In the next year most companies will be engaged in evaluating their HR automation process.CedarCrestone HR Systems Survey

Private Exchange Technology will automate the enrollment experience, through consumer centric decision support.

Most PHIX technology solutions will have full integration capability with payroll and SAS HR vendors to support compliance reporting .

What do we expect this year?

Small Groups 2014-2015

Hold or Move?

Level Fund or FI

Determine if a Private Exchange/Defined Contribution is the best Solution

DB or DC?

60% of Carriers Small Group block are renewing December 2014

Large Group Strategies

2015 Mandate kicks in..• Employers who have not covered previously are now seeking coverage.. Carriers may apply participation penalty surcharge, but must issue coverage•Agents are now introducing DC as viable strategy•Most Self Funded employers will stay the course, moving to mostly CDHP plans with HSA’s

Wellness Integration: Re-thinking the ROI • Employers shifting focus from

medical cost reduction to employee engagement and productivity

• Incentive based programs on activity completion and in compliance with ACA

• Works well with defined contribution approach attaching rewards to their spending account.

Private Exchange: New Bases to Cover for Sustainability

Thank You