NEW PEEC SURVEY: Despite Delay in Excise Tax, Employers Continue to Explore Value of Private Exchanges

According to a survey of employers conducted by the Private Exchange Evaluation Collaborative (PEEC), 46% have implemented or are continuing to look at private health insurance exchanges to offer health benefits for their covered populations. Over the last few months PEEC has polled employers for a broad study on their views and intentions related to exchanges. A second shorter study was conducted in January to gauge strategies in light of the two-year delay in the implementation of the excise tax.

Under the Affordable Care Act, employers whose health benefits cost more than $10,200 for individuals or $27,500 for families have to pay an excise or “Cadillac” tax of 40% on the amount above those figures. Prior to the extension of the excise tax implementation, employers were modeling whether their plans would hit the tax thresholds, and if so, when that would take place. Over 40% of employers expected to be exposed to the tax in 2018.

"Overall, interest in private exchanges remains strong. This year’s results show interest is highest among small and mid-market employers, with 50% showing interest” says Barbara Gniewek, Principal at PricewaterhouseCoopers (PwC). “Interestingly, these employers are thought to have the most to gain from a private exchange, but noted a lack of available information and education on the solutions. 36% of employers over 10,000 have or are considering private exchanges.”

Key findings

• When asked if they would consider using a private exchange for full-time active employees before 2019, 6% of employers responded they have contracted with an exchange, the same percent as in 2014 and somewhat fewer (40% versus 41%) indicated they are still considering this strategy.
• Over half of employers (53%) agreed that if an industry peer moved to a private exchange they would be more likely to do so.
• The rate of employers considering the public exchange for full-time active employees did not change year over year (16% in 2014 and 2015).
• Key attributes considered when evaluating private exchanges have remained stable from 2014 to 2015, with high priority placed on cost of moving to an exchange, customer experience, and networks available from the exchange plans.
• Almost half of early adopters of exchanges said they were able to save money.
• Company size is a determining factor in whether or not a company will consider a private exchange, with greater interest from small and mid-sized firms than larger ones.
• While over 60% of employers anticipate the excise tax will be repealed, employers continue to aggressively look at ways to reduce their exposure to the tax law.

An executive summary of the findings along with additional details can be accessed here.

“Employers are more invested than ever in the value of their health care dollar,” said Larry Boress, president and CEO of the Midwest Business Group on Health. “Motivated by high medical care costs and their potential exposure to the ACA's excise tax, interest remains high among health care purchasers in exploring the potential value of private exchanges and other strategies to reduce their exposure to the tax. Many are focused on improving employee engagement through a suite of tools and services that will ultimately enhance the health of their population.”

Survey details

These results come from two online surveys of employers’ views on health insurance exchanges conducted in November 2015 and January 2016. More than 350 employers (28% had less than 500 employees, 21% had 500 – 2,499 employees, 23% had 2,500 – 9,999 employees, and 28% had over 10,000 employees) from 34 different industries across the nation participated in the November survey. PEEC also surveyed 129 employers in January 2016 after the delay in the excise tax implementation was announced, to understand how this delay may have changed their views or intentions related to private exchange and other benefit and worksite activities.

About the Private Exchange Evaluation Collaborative (PEEC)The Private Exchange Evaluation Collaborative (PEEC) is an initiative launched in 2013 by four leading nonprofit business coalitions, Employers Health Coalition, Inc. (Ohio), Midwest Business Group on Health, Northeast Business Group on Health, and the Pacific Business Group on Health – all independent coalitions representing employer health care interests –and PricewaterhouseCoopers (PwC) (not an exchange provider). PEEC will solicit and provide unbiased, comparative information and support on private exchange strategies and purchasing decisions.

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Will Employers Favor Private Exchanges Over Coverage Sponsorship?

Originally posted 10/17/14 on The Health Affairs Blog

By Brian Klepper

Over the past couple years, health care exchanges probably have consumed more of corporate benefits managers’ time and psychic energy than any other topic. An outstanding question is whether the rank and file of American businesses will drop the hassle that employer-sponsored coverage represents, or default to private exchanges.

Private exchange offerings typically move employees from their companies’ previous self-funded health plans to fully-insured individual arrangements, purporting to offer more flexibility and choice that can adapt to the wide-ranging needs of employees and employers, while creating a more competitive health plan marketplace.

Several recent surveys have reported that employers plan to move aggressively to private exchanges. In a survey last year of more than 700 businesses, the Private Exchange Evaluation Collaborative, a group of regional business health coalitions working with the consulting group PwC, found that 45 percent of employers have implemented or are considering using a private exchange for active employees before 2018. Similarly, a February Aon Plc survey found that, while 95 percent of employers say they expect to continue offering health care for the next 3-5 years, and 5 percent of employers currently use a private exchange, 33 percent say they may consider using one in the future.

My organization, the National Business Coalition on Health (NBCH), is an umbrella for regional business health coalitions around the country, representing about 4,500 employers, unions and local governments and some 35 million people. Working with Benz Communications, an employee benefits communications firm, we surveyed 333 benefits managers, mainly in middle-market (1,000-5,000 employee lives) technology and service firms in the Western and Southeastern US, about how they intend to manage their health plans going forward.

More than half (55 percent) of the respondents indicated they will “never” stop sponsoring employee health plans in favor of giving employees money to buy coverage through a private exchange. Just 5 percent – this number syncs with other surveys – say they already use a private exchange to provide employees’ health benefits. About 8 percent say they’ll consider moving within the next three years.

It remains to be seen whether private exchanges can outperform conventional self-funding arrangements over time. New data from private exchanges – see here and here – claim 5-plus percent health plan cost savings, but we don’t know whether those numbers will be seen across the sector, or whether they’ll be sustainable.

Analyst and former health insurance executive Robert Laszewski has been openly skeptical, arguing that these structures do little to make health care cost less and much to make it cost more. In addition to the added costs of state mandates and risk management that individual, fully insured plans must deal with, individual products have higher health plan “expense factors,” meaning the costs of handling an individual an individual rather than a group policy. He notes:

Individual products operate on an expense factor of as much as 20 percent and small group plans as much as 15 percent. Moving away from self-insurance and to an individual choice platform will increase the expense factor leaving the employee less money for benefits.

There are other issues as well. While, admittedly, employer and union health plan sponsors have not, as a whole, been assertive health care purchasers in the past, they represent powerful market potential to reward organizations that deliver high value and withhold that support from those that do not. The US’ regulatory environment has effectively been “captured” by the health care industry, and a steady stream of information has made it clear that our health care delivery and finance systems are characterized by excesses that make our costs double those of other developed nations. One important question is whether, by moving the center of health care power from group to individual purchasers, we abrogate our ability to push back effectively against a health care industry already pre-disposed to excess.

I cannot explain why the NBCH/Benz survey results suggest much lower purchaser inclination to move to private exchanges. But they raise the possibility that there is an alternative view of what is possible in health care, and that self-funding and a willingness to continue trying to control the health care value monster remains alive and vibrant.

Brian Klepper is the CEO of the National Business Coalition on Health.

New Survey Reveals Employers' Plans, Preferences and Challenges Related to Private and Public Health Insurance Exchanges

Private health insurance exchanges are one health benefit option employers are considering to reduce their costs and administrative burdens, while increasing choice and access to coverage. According to a national survey of 723 employers, 45% said they plan to consider or will be using a private exchange for their full-time active employees before 2018, although the path they will take is far from clear. The study by the Private Exchange Evaluation Collaborative (PEEC), was conducted to help employers better understand what their peers are thinking about private health insurance exchanges, timelines for consideration, and critical features and challenges.

Key survey findings:

• If employers are permitted to contribute towards employees' coverage on the public exchange/marketplace in 2017/2018, 58% would consider encouraging their employees to obtain coverage through the exchange
• Employers are seeking comprehensive capabilities and services from private exchanges
• Close to 70% of employers believe it is very important that their advisor is independent of any exchange they are considering
• Only 25% think moving to a private exchange will save them money
• The greatest barriers to private exchange adoption relate to their immaturity, the uncertainty about their long term stability, and employer's loss of flexibility, especially as it relates to tailoring benefit plan designs
• Interest in private exchanges extends across all industry segments and employer size, while the importance of exchange features varies between employers
• Employers are split on whether they will move to a defined contribution approach

View the full survey results here.

Walgreen Moving to Private Exchange

Walgreen Co. is set to become one of the largest employers yet to make sweeping changes to company-backed health programs. On Wednesday, the drugstore giant disclosed a plan to provide payments to eligible employees for the subsidized purchase of insurance starting in 2014. The plan will affect roughly 160,000 employees, and will require them to shop for coverage on a private health-insurance marketplace. Aside from rising health-care costs, the company cited compliance-related expenses associated with the new law as a reason for the switch.

Walgreen is the latest in a growing list of companies making changes to their benefits. International Business Machines Corp. and Time Warner Inc. both said in recent weeks they will move thousands of retirees from their own company-administered plans to private exchanges. Sears Holdings Corp. and Darden Restaurants Inc. said last year they would send employees to a private exchange.

Read more about the announcement here.

Study: Enrollment in Private Exchanges Likely to Grow

Enrollment in private health insurance exchanges is likely to match enrollment in public exchanges by 2017 and may exceed it in 2018, an Accenture study found. According to the Accenture analysis, private exchange participation will approach public exchange enrollment levels as soon as 2017, and surpass them soon after. The result: In 2017, approximately 18% of the American public will purchase insurance through exchanges, radically transforming the health insurance landscape. Many employers favor private exchanges because they offer defined contribution plans and opportunities to customize supplemental offerings such as dental, life and disability products.

While public exchanges will be government operated, private exchanges are being developed by consulting firms, such as Aon Hewitt, Mercer, and Towers Watson, as well as retailers, such Walgreens, and even insurance brokers.  Health insurers are not only joining private exchanges, some like Aetna and Cigna have plans to develop proprietary exchanges of their own. 

Participating in a private HIX provides something of a win-win for insurers and employers. Both have been looking for ways to extract themselves from the annual uncertainty of renewing healthcare benefit contracts. The advantage of defined contribution for employers is that it takes the guesswork out of budgeting for healthcare costs from year-to-year, and benefits employees by providing decision support technology that enables them to choose benefits that make sense for their circumstances.

Towers Watson Signs Agreement With Federal Government to Facilitate Public Exchange Enrollments

Towers Watson has announced that it has signed a web broker entity agreement with the Centers for Medicare & Medicaid Services, which supervises the federally facilitated marketplace — the health insurance exchange operated by the federal government in 36 states.

With this agreement, Towers Watson can help employers provide health insurance education and enrollment services to part-time and seasonal employees, retirees and their dependents by supporting them as they evaluate and purchase individual health plans on the federally run exchange.

Towers Watson operates the nation's largest private Medicare exchange, which offers thousands of private Medicare plans from more than 85 health insurance carriers. Licensed benefit advisors and technology-based decision support tools provide personalized support and expert guidance to retirees as they shop for individual plans. Nearly 300 public and private sector employers and trade associations have used Towers Watson's private Medicare exchange to connect more than a half million customers with health coverage.

New Report: Private Insurance Exchanges on the Rise

Nearly one in five people will purchase health coverage through a privately run insurance exchange within four years, according to new research by Accenture Research, an arm of the global consulting firm, predicted that private exchanges will "upend … purchasing for many of the 170 million people who receive benefits through their employer." In this model, employers purchase coverage through a marketplace, allowing their workers to choose from a range of health plans. It is comparable to the publicly run exchanges soon to launch under healthcare reform.

Private exchanges appeal to employers because they operate on the basis of a defined contribution, allowing firms to better plan for future insurance costs. Accenture cites surveys by benefits consultants Mercer and Aon Hewitt indicating that one quarter of employers are considering switching to a private exchange within five years.

But the firm cautioned that very few consumers understand the new model, which would "shift considerable financial responsibility to employees."

"This creates tremendous opportunity for carriers, brokers and employers to take credit for enhanced experience, yet also creates equally tremendous risk as dissatisfied consumers will blame plan sponsors," the analysis states.

Wal-Mart Exploring Private Exchange for Small Businesses

According to the Orlando Business Journal, Wal-Mart is exploring the idea of building a private health insurance exchange tailored to offer cheaper health insurance to small businesses. Marcus Osborne, a VP for the company stated that Wal-Mart wants to work with insurers and managed care companies to find new, low-cost health insurance options tailored for small companies, which historically have limited options. Smaller employers make up a huge portion of the health insurance market in the aggregate, and it’s an underserved market.

Wal-Mart already worked with Humana to offer low-cost Medicare Part D drug coverage plans, in part because traditional health insurers zeroed in on the average Medicare patients; Wal-Mart went, again, for the underserved market that needs a less-expensive option. “The biggest problem today small employers face from a health insurance perspective is they have no alternatives,” Osborne said. “If they find anything, they’ve got to take it. There’s something wrong with that.”  A private health insurance exchange such as this may be a viable alternative to the government-run SHOP exchanges mandated in the ACA.  Until now, private exchanges such as Aon Hewitt's have been aimed at large insurers.  

Wal-Mart made headlines last fall when it announced that its employee health insurance plan would switch to using a very narrow network of providers for certain expensive procedures, and cover all expenses for the employee and a family member, including travel to these selected facilities.  Wal-Mart may be looking to build upon this experience in using these types aggressive value-based purchasing strategies in a small-business private exchange, which have the potential to keep costs low.  

Mercer Launches New Private Health Insurance Exchange

Mercer has launched its own private health insurance exchange, developed by Benefitfocus, that will available to employers with at least 100 employees. Called Mercer Marketplace, the exchange will provide access to a broad array of benefits — both traditional and voluntary — from multiple insurance providers, along with education tools and support to help employees customize their choices to better fit their needs, according to the company.

In the exchange — which uses cloud-based technology developed by Benefitfocus — employers will be able to determine how much to contribute toward the cost of their benefits program. They can thus design a competitive benefits program while understanding and controlling the costs associated with a wide range of options. The platform includes full benefits outsourcing and will support employees with call center and online decision support during the enrollment process and beyond.

Mercer's announcement indicates that more and more employers may be re-thinking their benefits strategy and might be more willing to take bolder steps toward controlling costs, especially as ACA compliance requirements - and the burdens associated therewith - start hitting employers' bottom lines in the lead up to 2014.

As More Employers Drop Coverage, Retirees Turn To Specialized Insurance Exchanges

Kaiser Health News reports that in the past 20 years, the number of companies that provide retiree health coverage has dropped dramatically, leaving seniors with the difficult task of choosing among a variety of plans to supplement their Medicare benefits. It is a choice that can be confusing and has large financial implications.

But a move by some employers is softening the blow. They are contracting with companies that operate insurance marketplaces, called exchanges, where Medicare-eligible retirees can enroll in plans to replace what they used to get from the employer. Working with a counselor, retirees can figure out what coverage best meets their needs - determining, for example, whether to buy Medigap and prescription drug plans or to join a Medicare Advantage plan. (Counselors typically rely on salary but sometimes other sales incentives may factor in their compensation.)

In 1993, 40 percent of employers with 500 or more workers offered medical insurance to their Medicare-eligible retirees, according to human resources consultant Mercer's annual survey of employer health benefits. By 2011, that figure had fallen to 16 percent.

The exchanges can benefit both employers and retirees, experts say. Employers' costs are capped and predictable, with fewer administrative hassles, says Bruce Richards, chief actuary and quality leader for Mercer's health-care business. Meanwhile, because retirees can pick among different plans and rates, "usually most people are better off," he says.

Several exchanges have emerged in recent years. They may work with both employer clients and individual insurance buyers. Some offer a range of products from different insurers, while others offer only one insurer's plans. As more employers start re-thinking their overall health benefits approach and potentially offering their active workers defined contributions to buy their own insurance on an exchange, insurance coverage could become entirely seamless between active employment and retirement, thereby reducing the potential for gaps in care that may increase health care costs in the long term.

Two Major Employers Embrace Private Health Insurance Exchange

According to Employee Benefit News, in a move that could herald a sea change in health benefits, Sears Holdings Corp. and Darden Restaurants, Inc. this year will begin allowing employees to purchase health insurance through a private insurance exchange.

Around 90,000 Sears employees and some 45,000 Darden employees will be eligible to purchase insurance through the exchange, which will be operated by Aon Hewitt. Starting Jan. 1, employees at the two companies will be given lump sums of money to use in choosing their medical plan and provider from the exchange. The Journal states that neither Sears nor Darden disclosed the amount employees would receive, although Darden said it would increase the amount as health care costs rise.

Aon Hewitt describes its corporate exchange as a full-service model that includes a suite of consumer-based decision support tools “that turns selecting health benefits into a retail shopping experience.” The firm has been using its exchange to administer health insurance benefits for its own employees and families.

Aon Hewitt explains that employees in its exchange will have access to a wide range of benefits experts and advisors, including its “advocacy support” team, to answer questions and provide guidance during enrollment and throughout the year.

Research reports show there is growing interest among both employers and employees in corporate exchanges. Aon Hewitt's 2012 Corporate Health Exchange survey of more than 562 employers shows more than 40 percent of employers expect to participate in a health care exchange in the next three-to-five years. Another study conducted by J.D. Power and Associates in March 2012 revealed that approximately 41 percent of employer-insured health plan members would use a private health insurance exchange approach if it were available.

While industry consultants say most employers are still taking a wait-and-see attitude toward private insurance exchanges, more announcements of private exchange deals are expected soon. In addition, WellPoint Inc. has stated that it intends to introduce an exchange product next year called Anthem Health Marketplace. WellPoint says it is close to signing up more than 30 midsize and large employers for early next year.

ACA Implementation Raises Questions for Small Businesses

We know that many of NBCH's members are thinking about strategies to recruit smaller employers to their coalitions, and we are thinking about ways to expand our policy reach to be relevant to our members who are engaging in this recruitment.  This Richmond Times-Dispatch article clearly describes the decisions facing smaller employers as implementation of the Affordable Care Act moves forward.  These decisions rely on a variety of factors, including whether a state implements its own health insurance exchange or relies on the federal fallback exchange, and whether a state participates in the Medicaid expansion.  Smaller employers, as opposed to larger employers, are more keenly aware of the implications of rising health care costs and the costs to comply with the various ACA mandates.  In short, there are a lot of "moving parts," and smaller employers may be thinking about whether innovative strategies, such as private exchanges, may make sense for them.

Look for more policy guidance from NBCH regarding smaller employers in the near future.  We know they are an important part of your coalition strategies moving forward, so they are an important part of our strategy as well.

New Booz & Co. White Paper Examines Potential Impacts of Private Insurance Exchanges

For decades, U.S. companies that offer health care benefits to employees have stuck to a defined benefits model, in which the company offers a standard set of health benefits and shoulders most of the financial burden and risk of health care cost. Over the past decade, this model has come under increasing strain as health care costs have more than doubled, creating an affordability crisis for employers. Now the problem has reached a tipping point. Some employers are considering a paradigm shift to their health benefits strategy that's akin to the transition from pension plans to 401(k) accounts: switching from a defined benefits toward a defined contribution model. Instead of designing and offering defined health benefits, companies make cash contributions to savings accounts that employees use to purchase insurance products of their choice. This model allows the company to cap its health care cost at a desired threshold, improving control of current expenses and future liabilities.

This white paper, part of an ongoing series of Booz & Company Perspectives on the shift to consumerism in health insurance, considers the impact of this change on the payor industry and the strategic approach that leading companies may consider taking.