A New Strategy for Group-Sponsored Health Care: The Competitive Marketplace Model

Presentation to Michigan Purchasers Health Alliance's Annual Conference

A New Strategy for Group-Sponsored Health Care: The Competitive Marketplace ModelSeptember 27, 2012

Kraig Koester, SVP of Outsourcing Business Development

Linda Van Howe, SVP and Local Practice Leader

Consulting | National Health Care ExchangeProprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012 2

2011 Plan Year 2011 2012 2013 2014 2018

Lifetime dollar limits on

Essential Health Benefits

(EHB) prohibited1

Preexisting Condition

Exclusions Prohibited

for Children under 191

Overly restrictive annual

dollar limits on EHB

prohibited1

Extension of Adult Child

Coverage to Age 261

Prohibition on

Rescissions1

No Cost Sharing and

Coverage for Certain

In-Network Preventive

Health Services2

Effective Appeals

Process2

Consumer/patient

protections2

Nondiscrimination

requirements on fully

insured plans2

(DELAYED) Certain Retiree Medical

Claims Reimbursable

(ERRP) Retiree Drug Plan FAS

Liability Recognition

Over-the-Counter

Medicines Not

Reimbursable Under

Health FSA, HRAs,

or from HSAs

Without a

Prescription,

Except Insulin HSA Excise

Tax Increase Public Long-term

Care Option

(CLASS Act)—No

Longer Supported

by HHS Medicare Part D

Discounts for

Certain Drugs

in “Donut Hole”

Employer

Distribution of

Summary of

Benefits and

Coverage

to Participants1 Comparative

Effectiveness Fee Employer Quality

of Care Report2 Medical Loss Ratio

rebates (insured

plans only)1

Employer Reporting

of Health Coverage

on Form W-2 (due

January 31, 2013)

Notice to Inform

Employees of

Coverage Options

in Exchange Limit of Health Care

FSA Contributions

to $2,500 (Indexed) Elimination of

Deduction for

Expenses Allocable

to Retiree Drug

Subsidy (RDS) Medicare Tax

on High Income Addition of women’s

preventive health

requirements to

No Cost Sharing

and Coverage for

Certain In-Network

Preventive Health

Services2

Individual Mandate

to Purchase Insurance

or Pay Penalty State Insurance

Exchanges Employer Responsibility

to Provide Affordable

Minimum Essential

Health Coverage3

Preexisting Conditions

Exclusions Prohibited1

Annual Dollar Limits

on EHB Prohibited1

Automatic Enrollment Limit of 90-Day Waiting

Period for Coverage1

Employer Reporting

of Health Insurance

Information to

Government and

Participants Increased Cap on

Rewards for Participation

in Wellness Program2

Cost-sharing limits for

all group health plans, not

just HDHPs/HSA

(deductibles and OOP

maximum)2

Excise Tax

on High-Cost

Coverage

1 Denotes group/insurance market reforms applicable to all group health plans.2 Denotes group/insurance market reforms not applicable to grandfathered health

plans. 3 This requirement applies to full time employees (e.g., 30 hours per week) and will

require coverage that is affordable and satisfies a certain actuarial value to avoid the penalty. Guidance forthcoming.

Affordable Care Act—Your Compliance Timeline


Reform. Rising Costs. Declining Health. What now?


Leveraging/Subsidizing Exchanges

Key Questions Employers are Asking About Exchanges Will the state exchanges happen? And if they do, will that work

for any of my population? What are private or “corporate” exchanges? How do they work? What is my role as the employer? How will they affect my cost? How about my

employees’ cost? What are the reform compliance implications if I pursue this

path?

Play on a New Field


What is an Exchange?

An exchange is a competitive marketplace that consists of suppliers and buyers

ExchangeSuppliers Buyers

http://www.zappos.com/


Where Has This Worked Before?

Disruptive Exchange Models Changed the Travel Industry

Sustained Outcomes Driven by the Exchanges

One in two US leisure travelers purchase airfare online today

– Improved consumer-oriented shopping experience enables price-conscious buyers to select from comparable travel options

Cascading changes drove innovation through value chain, creating a more efficient marketplace

– Travel agents were forced to adapt their value proposition or went out of business

Airlines that are able to drive reduced cost, improved outcomes, and a superior customer experience will flourish

Corporate Exchange innovation can have a similar affect on the supply side of the healthcare value chain by transferring accountability to insurers in a competitive marketplace

Faced with a consumer-based, price-sensitive environment, insurers will be forced to compete for membership to a degree they have not experienced in the employer market

http://www.expedia.com/

http://www.orbitz.com/

http://www.travelocity.com/

Consulting | National Health Care ExchangeProprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012 7 7

Corporate Exchange: How It Works


Corporate Exchange Plan Designs

*

Bronze Bronze Plus Silver Alt Silver Gold PlatinumMedical Plan Design

INN Deductible (sing/fam) $2,750 / $5,500 $2,000 / $4,000 $750 / $1,500 $1,500 / $3,000 $600 / $1,200 NoneINN Coinsurance 20% 20% 30% 20% 10% 0%INN OOP max (inc ded) $5,950 / $11,900 $5,000 / $10,000 $5,000 / $10,000 $3,750 / $7,500 $3,000 / $6,000 $1,500 / $3,000Hospital Inpatient Per Admission 20% 20% $250 per admit + 30% after ded 20% 10% 250 CopaymentPrimary Care / Specialist 20% 20% 30% after deductible 20% $20 / $35 Copayment $20 / $35 CopaymentEmergency Room 20% 20% $150 Copay; 30% after deductible 20% 10% $100 Copayment

Rx Plan DesignDeductible & OOP Maximum Included w/ medical Included w/ medical None Included w/ medical n/a n/aRetail Generic 20% 20% $10 Copay 20% $5 Copay $4 CopayRetail Brand Formulary 20% 20% $40 Copay 20% 20% (up to $50 maximum) $20 CopayRetail Brand Non-Formulary 20% 20% $60 Copay 20% 40% (up to $100 maximum) $40 Copay

Actuarial Value of Plan 66% 71% 72% 75% 81% 92%

Notes:Actuarial values based on Aon Consulting relative value pricing tools; reflects medical and Rx claim components of premium equivalent rates; based on national data, not calibrated to client-specific claim experience


How Can We Gain Predictability and Risk Transfer Without Cost Increases?

Insured Plans

Consumerism

Competition

Choice and Flexibility

Defined ContributionSubsidy

Best-in-MarketEfficiencies

Reduce TrendRemove Volatility

Ensure Employee Sustainability

In every consumer market, competition reduces cost

Regional rating bands allows market-specific insurer strengths to emerge

Consumers will make economic choices if they can reap the full economic benefit

Freedom of movement across insurers will keep costs low and, service levels high, generating more control and increased satisfaction

Insurers will have accountability for managing care; price becomes critically important

With competition mitigating trend, plan sponsors can move to a DC approach without long-term cost-shifting to associates

No “Silver Bullet”: Six Key Levers Working in Concert


Benefits for Key Stakeholders

Greater autonomy and choice of carriers and plan options

Ability to tailor benefit/contribution trade off

Eventual portability from individually owned policies

More affordable coverage than what would be available through state exchanges

Superior customer experience over state exchanges; includes advocacy function

EmployeeEmployer

Reduced overhead More limited “hands on”

management role Ability to control liability

through fixed subsidy (DC) Short-term cost reduction

through best-in-market contracting

Transfer of risk to insurers Focus on wellness and

health/productivity Ability to effect gradual

transitions to an individual market, true defined contribution model

Carrier

Group contracts, economies of scale

Administrative efficiencies Market share opportunity

(and risk) Better risk than individual

and small group market in state exchanges

Risk adjustment mechanism to mitigate adverse selection


Employers Will Join a Corporate Exchange if They:

Are philosophically aligned with “monetizing” their commitment in the form of a defined contribution

Do not want to be involved in plan design or vendor relationships, but still want to own health promotion

Do not believe that health benefit plan design should differentiate in Total Rewards

Want to move toward a compensation-like rate of cost growth in the long term without cost-shifting to employees

Are comfortable with employees accessing information and support from a third party


Corporate Exchange Timeline

Build corporate exchange modelwith employers

and insurers

January–February Letter of Agreement to

secure ratesfrom insurers;

RFP in February

Q3 2012

June Final rates

from insurers

March–AprilRFP results, business

case, and go/no-go decisions

September–November

Employee rollout and annual enrollment

Q1 2013 Q2 2013 Q3-Q4 2013

Binding Rates

Returned


Aon Hewitt

Kraig Koester, SVP, Outsourcing Business Development 614/284-9313 [email protected]

Linda Van Howe, SVP, Detroit Health and Benefits Practice Leader 248/936-5238 [email protected]

mailto:[email protected]

mailto:[email protected]

Documents

A New Strategy for Group-Sponsored Health Care: The Competitive Marketplace Model