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© 2015 GALLAGHER BENEFIT SERVICES, INC.

Private Exchange SWOT Analysis Charlie Isaacs

Senior Client Consultant, Practice Leader

ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ © 2015 GALLAGHER BENEFIT SERVICES, INC.

CURRENT: TRADITIONAL MODEL FUTURE: EXCHANGE MODEL

Employer (wholesale) Individual (consumer)

Employer hands-on Employer hands-off

Limited choices Expanded choices

Custom benefit design Standard offerings

Defined benefit Defined contribution

Offline Online purchasing

Retirement and health care silos Total rewards

Trends


Defined Contribution

• Similar to defined contribution for retirement (e.g. 401k)

– Employer establishes budget

– Determines buckets

• Link to total rewards philosophy

– Budgeted growth

– Performance factor


Gaining Momentum

23% of employers will be

considering a shift toward

a defined contribution

approach within the

next three years.

Arthur J. Gallagher & Co.

2014 Benefits Strategy and Benchmarking Survey

23%


Private Exchange • Sponsored benefits marketplace

– Medical

– Ancillary

– Voluntary

– Other

• Fully or self-insured option

• Shopping experience

– Sponsor selects carrier(s)

– Vendor identified

– Budget determined

– Employees purchase products


New Attention

• Employers are looking for a way to cap expenses

• Alternatives to public options

• A diverse workforce can make “one-size-fits-all”

impractical


How it Works

PLATFORMS

150+ technology vendors with

solutions including varying

levels of decision-support

features and benefits

administration

functionality

PLANS

Long-term rational pricing

Single carrier vs. multiple

Range of plan options

Selection issues

Fully insured vs

self funded

BROKERS

Packaged solutions involving

various carriers, products and delivery

platforms

CARRIERS

In-house solutions, as well

as partnerships with brokers

and associations

EMPLOYERS

Sponsorship of private exchange solutions

PLAYERS

Instead of the usual “one-size-fits-all”

approach, personalize and right-size each

employee’s benefits portfolio.

• You give employees a set amount of

money to spend on benefits

• Employees shop in the online store and are

guided to personalized benefits selections

ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™


Experience

• Typically not pooled, so your demographics and

experience determine your rates

• Defined contribution gives employees ownership in how

they spend

• Employee purchase decisions and revised risk profile can

change experience


Not about Shifting Risk

• When done well, employees:

– Better understand and appreciate their benefits

– Choose plans that are suited to their individual needs

– Lower costs

– Manage risk


Key Differences

• Exchange vs. benefits administration

• Process vs. transaction

– Strategic alignment

– Regulatory and legislative compliance

– Defined contribution discussion/decision

– Communication

– Meaningful choice

– Robust decision support

– Superior customer advocacy


Strategic Planning

90% of organizations surveyed do

not have a written strategic

benefits plan with measurable

objectives.

87%

Gallagher Benefit Services, Inc.

2014 Benefits Strategy and Benchmarking Survey

90%


Considerations

• Controlling the growth of benefit costs is important to you

– Defined contribution

– Trend

• Hire date to full productivity is relatively long and you

want to continue to provide benefits as part of your

acquisition/retention strategy

• Employees don’t fully understand/ appreciate what you are

spending on benefits

• Employees want more choices


Time of Change

• Align your total rewards philosophy with your overall

organizational strategy

• Leader vs. follower

• Model impact


Exchange Considerations

EMPLOYER CONTRIBUTION

Defined Contribution/Defined Benefit - How much?

- For whom?

- For what?

- Funding vehicles-HRA, Section 125

- Long term strategy

- Communication strategy

PRODUCTS & CARRIERS “The Store”

Single v. Multi-Carrier – Does multi-carrier make sense?

Local/regional/national

Individual v. Fully-Insured v. Self Funded – Driven by market segment and employee segment

Product Shelf – Standard v. custom; driven by market segment

– Which products and how many?

CONSUMER SHOPPING EXPERIENCE

Driven by number of choices

Decision support

Recommendation engines

Live support

TECHNOLOGY AND ADMIN SUPPORT

Eligibility and enrollment platform

Spending account administration

Payroll deduction calculations

Billing and payment services

Other


Private Exchange Models

Pre-65 Group Sponsored Exchanges

Post-65 Group Sponsored Medicare Exchanges

Pre-65 Consumer Directed

Post-65 Consumer Directed Medicare

Group Coverage

Individual Coverage

Group Coverage

Individual Coverage

WEB BASED ENTITIES 20 public announcements (examples: eHealth, GoHealth)

Public Exchange Models

Small Group SHOP Exchange (Federal to launch in 2015)

Individual State/Federal Exchanges

Private exchanges – market organization Available Options


Gallagher Marketplace

Plan Summaries Key components of plans

simply and without

insurance jargon

Recommendation Engine Sophisticated statistical

modeling to predict the right

combination of plans

Education Accessible education

about insurance with

articles, videos and

FAQs

Comparison Tools Side-by-side

comparisons of options


Source: Towers Watson

Employee Communications

With effective

benefit

communication

Without effective

benefit

communication

Those with above

average healthcare

benefits

Those with below

average healthcare

benefits

76.2% 83.6%

22.1% 25.7%

Percentage of employees responding favorably to their benefits package:


Employee Engagement

• Communications to

educate and engage

employees in the private

exchange


Case Study

• Manufacturing company with 1,000+ employees

• Goal:

– Structure benefits to align with growth strategy

– Control cost and mitigate risk


Our Approach

• Analysis of current options

– Similar medical plans with little variation

– Significant premium increases

– High basic life benefit

• Examine Total Rewards strategy


Results Pre-Exchange vs. Post-Exchange Spend

Pre-Exchange Post-Exchange

Total Spend $9.5 M $9.3 M

FLEX Credit -- $6.5 M

Life $268,540 $167,837

LTD $234,092 $102,048

STD $292,315 --

Employer Contribution $7.2 M (75%) $6.7 M (72%)

Employee Contribution $2.3M (25%) $2.5 M (28%)

Medical Plan Ratio

Total Premium $7.9 M $8 M

Employer Contribution $5.9 M (75%) $6.4 M (81%)

Employee Contribution $1.9 M (25%) $1.5 M (19%)

ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ © 2015 GALLAGHER BENEFIT SERVICES, INC. ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ © 2015 GALLAGHER BENEFIT SERVICES, INC.

Questions? Charlie Isaacs

Senior Client Consultant, Practice Leader

[email protected]

Documents

Private Exchange SWOT Analysis - Society for Human ...wastatecouncil.shrm.org/sites/wastatecouncil.shrm.org...insurance jargon Recommendation Engine Sophisticated statistical modeling