Study Shows That Private Exchanges Help Retain Employees

Seventy-two percent of employees using a private exchange say they are more likely to remain with their employer because of their benefit program, according to a new Liazon survey. The survey findings suggest that retention can get a boost from increased engagement and awareness of benefits, including a better understanding of their value in total compensation package. Ashok Subramanian of Liazon said, “The retention case is incredibly strong for private exchanges. The data show us that employees appreciate their benefits more when they are engaged in the process of selection and view the full cost of their plans. As private exchanges become a more popular form of benefit delivery, employers are beginning to recognize the model as a way to communicate the value of the benefits they are offering to their workforce.”

When asked to compare their experience using an exchange to the traditional method of benefit distribution, 83% of employees said they are more engaged in their health care decisions and 77% said they value their benefits more. Further, by increasing transparency into employer contributions and the full cost of benefits, private exchanges help employees better understand and appreciate their benefits as part of their compensation. In fact, 85% of respondents using an exchange, for the first time, said that they are more aware of their company’s contribution to their benefit costs and 81% said they value their company’s contribution more.

The Cost Implications of Private Exchanges

Private exchanges could encourage employees to select less-generous plans, according to a report by Rand. This could expose employees to higher out-of-pocket costs, but premium contributions would drop substantially, so net spending would decrease. On the other hand, employee spending may increase if employers decrease their health insurance contributions when moving to private exchanges. Most employers can avoid the ACA’s Cadillac tax by reducing the generosity of their plans, regardless of whether they move to a private exchange. There is not  enough evidence yet to determine whether private exchanges will become prominent and how they will affect employers and their employees.

Workers who choose less-generous plans could risk higher out-of-pocket costs. But their net spending would drop because premiums would drop substantially. Average employee spending could increase if employers lower their health insurance contributions when moving to private exchanges. Private exchanges are unlikely to significantly affect the ACA’s Small Business Health Options Program (SHOP) Marketplaces.

Study Reveals Leading Healthcare Benefit Trends

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The Healthcare Treds Institute issued a massive survey of employee benefit trends. The good news is that employers are looking to insurance brokers and benefit consultants to help them evaluate health benefit designs and distribution models. Forty percent of employers say they will depend on insurance brokers to learn about new health benefit models, such as defined contribution plans and private exchanges, and 31% will depend on benefit consultants. Nearly 40% rely on insurance brokers to learn about health benefit designs and platforms.

“The ACA has created a dynamic marketplace in which brokers have a front row seat navigating in this new era,” according to the study. Human resource professionals have new responsibilities due to the ACA. Thirty percent are looking for help from benefit consultants. However, 30% are researching independently compared to 26% in the previous year. Employers gave the following answers to this question, “What partners would you depend on to help you learn about new health benefit designs and distribution models?”

  • Insurance broker 39.7%
  • Will research independently 30.8%
  • Benefit consultant 30.8%
  • Insurance carrier 24.4%
  • TPA 19.2%
  • None 15.4%
  • Trade Association 11.5%
  • Payroll company 10.3%
  • Other 5.1%

What Benefits Employers Are Offering

About 40% of employers offer three or more health plan options, which are usually a PPO, an HDHP, and an HMO. Employees are choosing HDHPs (39%) over HMOs (35%). The following is a breakdown of benefits that employers offer:

  • PPO 59.5%
  • Flexible spending account (FSA)59.5%
  • Health savings account (HSA) 52.1%
  • High deductible health plan (HDHP) 38.8%
  • HMO 34.7%
  • Self-insured plan 22.3%
  • Health-reimbursement arrangement (HRA) 15.7%
  • Catastrophic insurance 8.3%
  • Dental plan 73.6%
  • Vision plan 67.8%
  • Prescription drug coverage 67.8%
  • Mental health coverage 52.1%

How Healthcare Reform Has Affected Employee Benefit Packages

Forty-nine percent say that healthcare reform will increase employee cost-sharing; 39.6% say it will increase premium contributions, and 3.6% say it will shift their company towards a defined contribution plan. Employee cost-sharing has risen every year for 10 years. Employers and the medical industry have had to deal with other ACA implications, such as the employer mandate and new compliance, which has caused an increase in capital and human resources. Employers have done the following in response to health reform:

  • Increased employee cost sharing 49%
  • Has had no effect 30%
  • Enhanced wellness/preventive health programs 23%
  • Increased employee engagement in their health 19%
  • Increased employee engagement in reducing healthcare costs 18%
  • Adopted new wellness/preventive health programs 17%
  • Reduced covered benefits 15%
  • Added HDHPs/CDHPs 14%
  • Stopped offering healthcare benefits 9%
  • Shifted to a defined-contribution plan

The Cadillac Tax

The impending 2018 Cadillac Tax is a prevalent challenge for employers. The ACA 40% excise tax will be imposed on the portion of group health plan premiums that exceed specified thresholds. The concern may be more regional since it could be triggered in parts of the country where healthcare costs are high and less likely to be triggered in parts of the U.S. with below average healthcare costs. Thirty-five percent of employers are very concerned about the 2018 Cadillac Tax; 25% are somewhat concerned; and 30% are not concerned. Sixty-one percent are making no changes to their benefits in light of the impending Cadillac tax while 18% have changed plans to avoid the Cadillac Tax. Recent news reports along with lobbying efforts may be influencing the 61% of companies who have a wait and see approach about the Cadillac Tax.

Defined Contribution Plans

Employers continue to learn more about defined contribution plans and private exchanges with about 35% saying they are familiar with them. This is an increase of about 5% over last year. Twenty-eight percent say that exchanges help employees understand the value of their benefits. Twenty-five percent say that a defined-contribution plan would help employees understand the value of their benefits and make more cost-conscious benefit decisions.

Five percent of employers offer defined-contribution plans (not on a private exchange) while same offer defined-contribution plans on a private exchange. Also, 7% are considering offering a defined contribution plans on a private exchange while 53% have not explored defined contribution plans.

Fifty-five percent of employers who are considering a defined-contribution plan, say they would explore the option for 2017 or 2018. This suggests that near-term adoption will be gradual. But the adoption curve may steepen as the benefits of defined-contribution plans become better known.

Private Exchanges

Employers want private exchanges to provide many solutions including health spending accounts (62%), carrier integration (58%), COBRA compliance (56%), automation of premium payments (51%), and payroll integration (50%). Employers choose private exchanges to control costs and increase employee choices, which is why employers say, most often, that they are looking for health spending accounts. Incorporating consumer directed healthcare coverage, such as HDHPs, HSAs and HRAs, helps private exchanges create a competitive marketplace that promotes cost-savings for employees and employers.

To succeed a private exchange needs to provide broad choices and help participants in the selection process. Sixty-two percent of employers say that it is somewhat important to very important to have health-spending accounts in an insurance exchange. Also considered somewhat important to very important are carrier integration (59%), COBRA compliance (56.4%), and premium payment automation (53%). Employers say they would choose the following offerings in an exchange:

  • Plan and cost comparison tools 80%
  • Online capabilities 69%
  • Combined benefit enrollment 47%
  • A help line 47%
  • Transparency solutions for treatment cost comparisons 45%
  • Mobile applications 45%
  • Progressive cost tracking tools 35%
  • Consolidated employer billing 35%
  • Integrated consumer healthcare accounts 30%
  • Financial account options 28%

Employers rank several exchange features as important, such as being a private exchange instead of a public exchange (83%), having a large selection of plan choices at targeted benefit levels (58%), and being provided by their broker or benefit consultant (55%). These findings indicate that broad choice is more important than who runs the exchange (broker versus carrier).

Wellness

Wellness programs continue to gain interest as 35% of employers have initiatives in place compared to 30% last year. Another 22% are considering implementing a program. Sixty-five percent are considering adopting a wellness program in 2017, and 16% are considering adopting one by the end of 2016.

Fifty-five percent of those offering wellness programs, offer an employee-assistance program (EAP); 53% offer flu shots or vaccinations; and 37% offer a smoking cessation program. The disease management tools that most employers offer are for diabetes (30%) and depression or other mental health (30%). Fifty-four percent of employees are not offering disease management tools. But 30% are providing services for diabetes and mental health conditions. To promote positive health outcomes, 44% of employers offer at least one wellness program; 31% offer biometric screening; and 20% offer a disease management program.

Forty-four percent have at least one wellness initiative in their workplace. Employers that are interested in offering wellness plans should consider how it would affect productivity, absenteeism, turnover, retention, and recruitment, according to the survey authors. Including these factors in the ROI discussion can help demonstrate additional savings a company could achieve.

When it comes to wellness incentives, HSA and HRA contributions (18%) and premium reductions (16%) are most popular. Companies are split on whether to offer wellness incentives with 58% not providing rewards to employees and 42% offering some type of incentive in varying monetary amounts to participate. The value of the incentives remains relatively modest. Companies interested in wellness incentives can use the ACA as a guide. Eighteen percent offer $250 or more of incentives to employees for health-related tasks. Common values of incentives are $101 to 250 and $1 to $50. For more information, visit www.HealthcareTrendsInstitute.

Hyper-Growth Expected for Private Exchanges

Hyper-Growth Expected for Private Exchanges
Hyper growth in private exchanges is projected to continue through 2018, according to a report by Accenture. Six million people enrolled in a private health insurance exchange for the 2015 plan year, continuing a remarkable adoption trend that exceeds 100% annual growth since 2013. The mid-size employer segment of 100 to 2,500 employees is driving initial growth with the expansion of the consultant-led exchanges servicing this market.

Accenture expects enrollment to grow for employees under 65 and dependents to 12 million in 2016 and 22 million in 2017.Accenture expects growth to remain on track to reach 40 million enrollees by 2018.

Two key factors that limit private health insurance exchanges will dissolve in the near term: a lack of mature solution providers and adoption delays among large employers. Private health insurance exchange adoption has been constrained by a lack of mature solution providers that can meet market demand. As the market and service providers mature, adoption rates of private health insurance exchanges are expected to accelerate.

Technology vendors in the mid- and larger market segments are emerging players. These startup-like companies have capital and resource constraints that inhibit the rapid deployment of their platforms. During this first wave of private exchange rollout, large scale rollout successes have been limited to more mature market players operating with the scale needed to serve their customers (national benefit consultant exchanges).

Few technology providers have emerged in the small employer market (100 employees or fewer). There has been a reluctance to compete with public Small Business Health Options Program (SHOP) exchanges. However, enrollment has been well below expectations for these public small group exchanges. The door may now be open for new commercial alternatives to provide an exchange experience for small firms.

These capacity constraints will erode as exchanges see continued consolidation (e.g., acquisition of bswift), capital investment (e.g., equity investment in Benefitfocus), and organic growth.

Many large employers have been reluctant to be early adopters of private health insurance exchanges. The standardized solutions that most exchanges offer are not aligned with traditional employer offerings. Highly customized benefit designs have been important to large employers. The complexities of the exchange selection process have taken some prospective buyers by surprise with new options, such as defined contribution, implementation, and ongoing benefit administration. Others are wary of regulatory uncertainty and evolving requirements. Risk-averse employers want proof of  savings. They also want to see the enhanced customer experience that’s been touted by leading exchange sponsors.

New entrants are designing specialized exchange models to meet employer demands. For example, single-carrier exchanges now offer more customizable plan designs. Sponsors are enhancing implementation and change management services and back-end benefit administration.

Employers face increasing administrative requirements under the Affordable Care Act (ACA), such as new minimum essential coverage reports due to the IRS (section 6055). These requirements add to an already substantial compliance workload (ERISA, HIPAA, COBRA). Private health insurance exchanges can significantly reduce these requirements with reporting and compliance services.

The employer mandate will compel employers to revisit their benefit strategy. Coupled with lower than expected SHOP enrollment, more smaller firms may consider private exchanges for a simpler path to comprehensive and compliant coverage.

Many employers have not dropped coverage altogether, as some initially forecast. In fact, most employees view health insurance as a critical employer-provided benefit. Seventy-six percent of consumers see health insurance as the primary or an important factor in staying with their employer. As employers seek a compelling alternative, the private exchange model of reducing costs and administrative burden emerges as a clear favorite.

The 40% excise tax on high-cost plans, “the Cadillac tax,” will go into effect in 2018. This could affect as many as 38% of large employers and 17% of all American businesses if insufficient action is taken. Private health insurance exchanges will provide an ideal alternative to these legacy high-cost plans. They will give employees new options to manage their health. Accenture expects private exchange enrollment to spike in 2017 as employers look to avoid these looming penalties. Employers’ drive to meet consumer expectations will lead to 40 million members on private exchanges by 2018

Employers Expect Changes to Employee Health Benefits

Complimentary Benefit Seminars in CaliforniaEighty-four percent of employers expect to make changes to their full-time employee health benefit programs over the next three years, despite cost increases remaining at historically low levels, according to new research from Towers Watson. In addition to aggressive cost management, employers are evaluating the implications of the changing provider landscape, embracing new ways to deliver care through innovative network arrangements, focusing on increasing employee engagement and exploring new options for delivering benefits. This includes assessment of active employee private exchanges and a rapid migration of Medicare retirees to private exchanges.

Employers are using and actively considering various options to manage cost, change employee behaviors and optimize program performance.

Employers project health care costs to increase 4% in 2015 after plan changes, compared to the 4.5% employers predicted for 2014. Without plan changes, projections are for an increase of 5.2%. These modest increases are still more than double the rate of inflation and are a primary factor driving employers’ affordability concerns as the 2018 excise tax in the Affordable Care Act approaches. Two in five employers that have done extensive modeling of their plans say they will trigger the excise tax in 2018. Two-thirds say the tax will have an impact on their health program strategies.

Randall Abbott, a senior consulting leader at Towers Watson said, “Employers have strived to keep their cost increases at the market average, but increasingly, this just isn’t enough. The new focus is on reducing cost trends to the CPI or below. This means driving cost growth to roughly 2% or less, which requires an acute focus on all aspects of health plan performance. In addition to solving the rate of cost trend, employers must pay attention to the base cost. We are seeing a wide variation across and within industries even after adjusting for unique group characteristics. High-performance health care has become the new mantra emphasizing not just reducing costs but improving workforce health, better engaging employees and leveraging new health technologies.”

Among the actions gaining traction are changes to benefits for spouses and dependents. For example, the percentage of employers using spousal surcharges (when coverage is available elsewhere) is expected to nearly double, from 32% now to 61% in three years. Fifty-three percent of respondents plan to significantly reduce subsidies for spouses and dependents by 2018. In addition, 41% say they may adopt a defined contribution arrangement (capping employer contributions at a flat dollar amount) by 2018.

Employers reported greater resolve to improve health outcomes per dollar spent, with two-thirds planning to use data extensively to evaluate plan performance and employee behavior changes in lifestyle and health management. In addition, the use of centers of excellence (within health plans or via a separate network) and narrow networks are expected to triple over the next three years. The use of telemedicine services in place of in-person physician visits, when appropriate, will continue to be rapidly adopted, already expanding by 35% in 2015 over 2014. Over 80% of employers say they could be offering telemedicine services by 2018.

Over the next few years, more than 80% of employers will carefully evaluate specialty pharmacy programs and benefits embedded in their medical plans. Sixty-one percent of employers report including coverage and utilization restrictions in their specialty pharmacy strategy.

Employers recognize the business value of a healthy workforce and are encouraging employees to take control of their health. Two of the top five areas employers say will be the focus of their health care activities in 2016 link to employee engagement and accountability: developing or enhancing a workplace culture where employees are responsible for their health (66%), and adopting or expanding the use of financial incentives to encourage healthy behaviors (51%).

The following are the most popular tactics for boosting employee engagement in health care:

  • 48% will place more emphasis on educating employees about how to select providers based on quality and cost information over the next two years. In 2016, 43% of employers will provide price and quality transparency tools to help employees make better consumer choices.
  • 60% of employers deliver health and wellness messages through mobile apps and portals. That percentage will increase to 95% by 2018.
  • 17% of employers offer full-replacement high-deductible plans tied to tax-advantaged health savings accounts. The percentage may increase to nearly 50% by 2018.

Employer confidence in private exchanges is increasing: 17% view private exchanges as a viable alternative for active full-time workers in 2016. Confidence more than doubles to 37% by 2018.

Twenty-six percent of employers have analyzed private exchanges extensively, and 20% say they are more interested in adopting a private exchange than they were a year ago. Companies that have completed extensive analysis of private exchanges twice as likely to find private exchanges a viable alternative in 2016.

Employers report that cost savings and administrative simplicity are key factors in prompting use of private exchanges. Finance will play a role in shifting to a private exchange model. Fifty-three percent report that finance will influence the decision to move to a private exchange or continue to maintain traditional employer-managed health plans

 

Managers consider more tweaks to benefit plans

Premium growth has stabilized over the past two years for employer-sponsored health plans, but employers continue looking for ways to keep health spending growth in check. Benefits managers are assessing privately run exchanges and considering changes in costs and coverage for spouses and dependents, a recent survey found. They are also transitioning to consumer-directed plans, adding telemedicine services and wellness tools, and teaching employees how to use cost and quality data. BenefitsPro.com (3/5)

Employers Are Looking At Private Exchanges for Pre-65 Retirees

Large employers are looking at private exchange solutions for their pre-65 retirees, according to a survey by Towers Watson. Over the next two years, more than half of the employers that provide health care to pre-65 retirees are planning significant changes to their medical benefits.  Many employers have concluded that their costly pre-65 retiree medical benefit programs fail to meet their benefit or workforce management objectives.

Trevis Parson, chief health actuary of Towers Watson said “Pre-65 retiree medical plan sponsors have been eagerly awaiting options to deliver improved value to their early retirees. For too long, limited options and high costs have burdened employers and retirees alike. In part, these barriers have been addressed and now private exchanges can help retirees find coverage that best suits them.”

Cost trends for Medicare-eligible retirees after plan changes (3.9%) are similar to trends for active employees (4%). However, trends for pre-65 retirees after plan changes are much higher (5.5%), highlighting the total cost of providing medical coverage to these younger retirees without the benefit of Medicare. In addition, 73% of employers offering medical benefits to retirees under 65 said their 2015 plan costs already exceed the cap for the plan.

In the absence of better solutions, most employers have fallen back on traditional methods to control the costs of pre-65 retiree medical plans. For 2015, 61% of employers that provide pre-65 health coverage changed plan design. Forty-two percent offer account-based health plans (ABHPs) with high deductibles connected to tax-advantaged health savings accounts for the plan year 2015. Another 8% are considering ABHPs for 2016 or 2017. Also, many plan sponsors rely on cost shifting to retirees, using cap arrangements. Forty-five percent cap the company subsidy for pre-65 retirees. As a result, subsidy caps may divert employers’ attention away from actively managing the plans more effectively on behalf of retirees.

Increasingly, employers are interested in public exchanges as an alternative to providing pre-65 medical benefits. However, just 4% of employers have considered ending coverage and subsidies since retirees often have access to federally subsidized plans on public exchanges. Seventy percent would end coverage, but provide a private exchange solution that connects retirees to plans on the public exchanges. Confidence is growing that public exchanges will be a viable alternative for employer-sponsored coverage for pre-Medicare retirees: While only 8% are confident for 2015, confidence rises sharply to 35% for 2017.

Joe Murad, managing director for Towers Watson’s Exchange Solutions said, “Pre-65 retiree medical benefits are complex. Companies have to consider the excise tax, new benefit options, provider networks, and subsidies along with the retirement needs of their workforce. Fortunately, with guaranteed issue, the ACA created a viable individual market for health insurance. Public exchanges simplify access to individual plans, and private exchange solutions help ease the experience of purchasing plans on public exchanges or directly from carriers. For the first time, employers can develop a pre-65 retiree medical strategy that meets the needs of retirees and helps them manage costs

Privately run insurance exchanges report growth

Insurance exchanges run by Aon Hewitt and Mercer recently reported significant enrollment growth. Some 3 million Americans are estimated to be getting employer-sponsored insurance from a privately run exchange, triple the number of a year ago, and 40 million Americans are expected to be enrolled in a plan through a privately run exchange by 2018. Forbes (10/13)

Employers Look to Private Exchanges

Twenty-eight percent of midsize to large employers have looked into private exchanges. Twenty-four percent say that private exchanges could provide a viable alternative for their active full-time employees as soon as 2016, according to a study by Towers Watson. These top three factors that would cause employers to adopt a private exchange for full-time active employees:
1. 64% – They see evidence that a private exchange can deliver greater value than their self-managed model.
2. 34% – Other large companies in their industry have adopted a private exchange.
3. 26% – They can’t stay below the excise tax ceiling as 2018 approaches.

In contrast, public exchanges are not on the radar. In fact, 99.5% have no plans to exit health benefits and direct active employees to a public exchange. Seventy-seven percent don’t expect public exchanges to offer a viable alternative for their full-time employees in 2015 or 2016. The Affordable Care Act’s excise tax, which is is top of mind for large employers, could cost companies billions of dollars unless they act now to keep below government-mandated cost thresholds in 2018 and beyond. Employers that have kept health care benefit costs increases lower than average are not resting on their laurels. They are working very hard to maintain that success, said Dave Osterndorf of Towers Watson.

Seventy-three percent of employers are concerned about triggering the excise tax. Forty-three percent say that avoiding the excise tax is the top priority for their health care strategies in 2015. Osterndorf said, “Private exchanges offer more choice, including account-based plans, with the tools and support for helping employees make better health decisions, and recognize the connection between their physical and financial well-being. Employee understanding and engagement are critical to the long-term sustainability of an employer’s program. Private exchanges can accelerate the fulfillment of that goal.”

Nearly three-quarters of respondents offer account-based health plans (ABHPs), with another 9% expecting to add one for the first time in 2015. Nearly 16% have adopted an ABHP as their only plan option, up from only 7% in 2012. Nearly one-third could offer ABHPs as their only option by 2015 if they follow through with plans. Private exchanges offer a new opportunity to save on health care coverage with a reduced operational burden, which is the main reason that employers are evaluating them more seriously. For more information, visit towerswatson.com.

Health Insurers Must Reinvent Their Business Model Toward Consumerism

ConsumerHealthcare

Health insurers must change their business models now to address a growing wave of consumerism, according to Psilos Group’s 2014 Healthcare Outlook. “The health insurance industry’s 50-year legacy as a business-to-business model is on the edge of irrelevance. The health insurance market is rapidly shifting to 40% individual policies from just 10% prior to the Affordable Care Act. A change of this magnitude affects every stakeholder in healthcare,” said Steve Krupa, managing member of Psilos Group.

Insurers must reinvent their entire businesses to embrace consumer expectations and respond to a dramatic shift toward more individual policies through public and private healthcare exchanges. This means overhauling market research, benefit design, network development, operations, marketing, and sales. Psilos says that insurers need to do the following:
• Understand their new individual consumer base.
• Provide value-added products and services beyond mandated baseline care.
• Shift service to meet consumers’ demands. More consumer interaction will require contemporary technology and automation among insurers and their business process outsourcing partners.
• Understand that price transparency, quality measures, and other healthcare consumerism trends will change the relationship between insurers and providers.
• Make customer service and business transactions real‐time, 24/7, and accessible via multiple platforms, including online and mobile.
• Reach various consumer segments and leverage exchanges as a primary distribution channel, which is in stark contrast to their experience selling group plans directly to employers.

Al Waxman, CEO and senior managing member of Psilos said, “Insurers will have to make major changes…to remain competitive in a post-ACA world. The good news is that technological innovations are addressing the full spectrum of needs…If approached correctly, we’re predicting the result will be a more outcomes-focused healthcare system in which the patient is the most important aspect of the business.” For more information, visit www.psilos.com.

Last Updated 10/14/2020

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