U.S. employers continue to be challenged by both the cost — still trending above the rate of general inflation — and performance of their health benefit programs. With cost projections indicating that cost concern won’t be going away anytime soon, they continue to search for new and better ways to manage cost and value through benefit delivery and workforce health improvement.
Commitment to providing some form of health care benefit to employees over the next 10 years is stronger than it has been in recent years. Our research shows that, now that the Affordable Care Act (ACA) is settled law, most employers expect to reevaluate their health and pharmacy benefit strategy in the next few years.
Amid this dynamic period and accelerating pace of change for health care in the U.S., the number of employers giving defined contribution (DC) plans a second look is growing — 20% of respondents are using this approach, a number that is expected to double by 2018. One reason for this upswing in interest in DC plans is the growth of private exchanges for employee health care delivery, many of which encourage employers to take a DC approach. Other trends include employers’ growing desire for greater price transparency in health plan cost sharing and employer subsidies, and for employees to avoid paying for coverage they’re unlikely to use.
In addition, the changing composition of the workforce is stimulating greater interest in choice and flexibility in benefit offerings.
As more private exchanges have entered the employer-provided health care marketplace in recent years, including Willis Towers Watson’s OneExchange, the workforce has also undergone a generational shift. These trends have shined a bigger light on creating a consumer-grade shopping experience with more choice for active employees who have limited compensation dollars to spend and want to meet their families’ needs at the right price and acceptable risk levels.
In this discussion, Willis Towers Watson health care experts discuss the current impact of private exchanges for active employees on employer-provided health care and, as they evolve, on the future of health care in the U.S.
Moderator: Why are employers that you talk to interested in private exchanges for active employees? What are they seeking?
The private exchange concept for active employees is relatively new and it’s rapidly evolving. At first, employers were curious to understand what they were all about. They were already familiar with private exchanges for retiree health, using them to reduce cost and improve value. As employers have become more aware of what an active exchange can accomplish, we are seeing some who are interested in moving forward quite quickly. We see others who are taking a more wait-and-see attitude.
Initially, interested employers focused on cost and financing. Could this arrangement save me money? Is there an opportunity to finance my health plan in a different way? But as employers have grown to better understand the concept more holistically, they are also very intrigued by the opportunity to increase choice and flexibility in health plan offerings for their employees. They’re also very interested in creating more transparency about their subsidy arrangement and potentially about adopting a defined contribution approach. They like the employee experience afforded by the exchange platform’s technology. And they also see an exchange as a way to select from a range of benefits and programs that often have been curated by the carriers to improve overall program efficiency.
In addition, many of the employers we work with also see an exchange as an opportunity to design programs that are more responsive to the Gen Y population — the millennials in the workforce today — as well as the even more tech-fluent Gen Z coming behind them.
As the exchange models have evolved, employers are starting to think about them from a longer-term sustainability and cost management perspective, more than immediate cost savings. And they are thinking about how they align more broadly with their employee value proposition (EVP) and how they can help them accelerate their benefit strategy. They are interested in leveraging the technology, the innovation and the choice available within the private exchange to enhance their ability to attract and retain the newer generations of employees.
So in a nutshell, the private exchange premise seems to resonate with employers interested in more choice, more price and subsidy transparency, greater employee engagement in the benefit process, and a program design
that’s more responsive to the needs of the emerging workforce. The big question really is, are these things the employer needs a private exchange to do or can employers do them within the parameters of their existing self-managed plans? And the answer is really unique to each employer.
As the exchange models have evolved, employers are starting to think about them from a longer-term sustainability and cost management perspective, more than immediate cost savings.
Regardless, our goal as Willis Towers Watson consultants is always to help employers make a choice that achieves their benefit objective within their total rewards strategy and EVP. We are indifferent to which approach an employer takes. But what we’re finding is that there is a strong cadre of employers who are intrigued by the exchange platform and the choice it delivers. They are very intrigued by the technology and — a key point that Craig raised — how they can accelerate benefit strategy change.
For instance, the exchange platform often enables employers to change their overall benefit strategies and their employees’ overall benefits experience faster than they are able to do on their own. What they are seeking really is going to vary, based upon what they need to be effective in delivering their benefit value proposition. But it is certainly a topic of considerable interest to many and I think we will see that to be the case for months and years to come.
Moderator: What’s driving these employers’ interest in making the changes you mention?
Bockhorst: What I’ve found is that HR and Benefits teams are oftentimes understaffed to manage the newfound complexities of the ACA, plus the increased complexities of managing a benefit plan that supports the needs of a multigenerational population. An exchange allows the employer a much more streamlined path to achieving the company’s specific benefit goals through a single source. It relieves the Benefits team of the burden of managing the RFP [request for proposal] carrier search every three years, doing their best to choose the right national carrier for their employees regardless of an employee’s health status and location, or managing the data integration required to implement a care management program. It becomes the exchange provider’s responsibility, freeing the Benefits and HR teams to focus on how to deploy the exchange levers to meet their business and EVP goals.
Moderator: What are some of the restrictions of active exchanges? How have exchanges overcome those limitations as they’ve evolved?
In order to deliver the efficiencies employers want from exchanges, the private exchange has a cohesive set of plan options across all lines of coverage, vendor types and plan designs provided by each one of the vendors. At first look, that cohesiveness sometimes feels restrictive to employers compared to their self-managed plan.
But as the model is evolving, there is now a far greater array of options available within private exchanges than when they began, allowing for more configurability to meet an employer’s specific needs. When an organization moves to a private exchange, its active employees may be able to identify options, vendors and plan designs that look very similar to what they were offered under the self-managed plan — only with greater choice, so there are attractive options for the various employee groups within the population.
But as the model is evolving, there is now a far greater array of options available within private exchanges than when they began, allowing for more configurability to meet an employer’s specific needs.
Frankly, the word restrictions is a little misleading. I think parameters is a better term. Each private exchange, including our own, operates within a certain framework or construct. Each private exchange has its own philosophy and approach that include certain design parameters and requirements associated with the offering. But we have listened to the marketplace as it’s evolved and heard what employers are looking for in terms of balance between efficiency and alignment with their self-managed plans.
To improve program efficiency, we’ve started to introduce some curated offerings that we truly believe will help employers achieve their desired cost objectives, employee experience, quality efficiency and the ultimate health outcomes of their population.
Increasingly we are finding that we are able to achieve a very nice balance between offering the flexibility employers want and offering a framework that enables them to deliver that experience much more effectively.
That’s an important point, Randy, because many employers wonder whether a private exchange’s increased choice is perhaps too overwhelming for employees. They wonder whether employees will be able to make the right decision for themselves based on all of the new options that suddenly become available to them when they join an exchange.
What we find is the private exchange technology makes the employee experience of choice so much easier than a self-managed plan, it’s not a problem. The tools enhance the employees’ understanding of their benefits and their ability to select the benefit package that makes the most sense for them.
In fact, choice is the number one reason employees give for liking the move to an exchange, and that’s been consistent since we first launched our exchange. And not only do employees like the choice but also they tell us they better understand their benefit programs and costs. What’s great is that we’ve evolved our exchange to allow choice for both the employer and the employee. We have the responsibility for creating the warehouse of available carriers and plan designs, then the employer chooses from that warehouse what they want to offer to their employees. Then, their employees get to shop from those choices, using the technology and call-center support provided by the exchange. The degree of choice for both the employer and the employee is really popular.
Moderator: If employees like choice, why have we seen some self-managed plans move to less choice over the years?
Abbott: As I’ve watched the marketplace over the last 30 years, we’ve gone through different periods where employers were focused on reducing the array of choices available to employees and other periods where they were broadening the array of choice. If we think back to the flex benefits of the late 1980s or early 1990s, there was an acute focus on offering a broad range of plans with employees accessing employer subsidies in a way that would allow them greater choice about how those employer-provided dollars were spent on their behalf. It turned out to be overwhelming to employees and employers. But it was a different time. Remember, we didn’t have today’s technology — we didn’t even have the Internet.
In recent years, the pendulum has swung toward fewer choices, with a number of employers actually simplifying choice with just one account-based program. With the private exchange model, we are finding the opportunity to introduce not only more plan choice but also choice in health plan network options as well.
These are multiplan, multicarrier arrangements, which can be very responsive to employee needs in various markets around the country. More broadly though, when we think about the spectrum of benefits the exchange offers, we have the opportunity to increase employee choice not only in the benefit offerings but also in how they spend employer dollars for themselves.
And what we are finding, despite employer doubts, employees embrace choice and like the idea of having more opportunity to decide for themselves. And our research shows that employees value the plan to a far greater degree because of the greater degree of choice.
Jannino: Our employee surveys show the amount of choice across carriers is the most liked feature within the exchange — that is, the amount of choice within each carrier, and the different types of plan options that they have available to them that perhaps they hadn’t had before.
Bockhorst: I was actually just looking at some of this fall’s enrollment survey results for benefits that become effective January 1, 2016, and two things really struck me. First, employees overwhelmingly felt they understood their benefits the same as, or better than, they did before. So clearly, the choice wasn’t confusing. Second, our most recent employee research shows the most liked feature of our exchange continues to be having choices. So the employee data speaks for itself. As complex as health care and benefits may be, employees like having options.
Sometimes employers hear a lot from a small minority of people who are having trouble choosing. Our research shows there is a disconnect between employer impressions and what employees tell us, with about 77% of employers saying their employees are satisfied with the exchange versus 96% of employees who say they are satisfied. So employee satisfaction is exceptionally high. And employers often aren’t quite hearing that level of satisfaction anecdotally. So it’s important for us to give them that survey feedback.
Moderator: Let’s talk about the move to an exchange and the impact on HR. What does it mean to the Benefits department? What kind of impact does it have on their resources?
In the early days of private exchanges, many employers thought they would lead to a reduction in the HR staff. In fact, that rarely turned out to be the case unless, for instance, the employer had an in-house call center and that now is replaced by the private exchange’s call center. But the reality is — as with any major benefit strategy or administration change — HR needs to do significant implementation work, especially in the first year of the move to the exchange. For one thing, HR usually acts as the liaison with other employer functions, for example, IT and finance, that are also critical to successful implementation.
Beyond the first year or so, there is still a need for HR leadership because the private exchange isn’t a static one-time programmatic change. As the health care and benefit marketplace, in general, evolves we would expect the private exchange to evolve with it so that it’s providing the best value to the employer and its employees. So there is continual need to implement future change.
Yes, initially many expected the employer role to be minimized after a move to an exchange, but our experience has been that employers continue to be very much vested in their overall program management. They have an active interest in participating in that process. They of course remain the plan sponsor, the plan administrator and risk fiduciary for legal purposes, and still have accountability for any requirements under the ACA. So the employer role is as vital as ever — maybe even more so — to the success of the overall process with the active exchange team complementing HR and providing even more support and resources to enable more effective program delivery.
In fact, while we haven’t seen HR and Benefits teams being reduced after a company moves to an exchange, we have seen their roles become more strategic in nature. Since the exchange takes on many time-consuming service activities — such as vendor RFPs, core employee communications and benefit administration updates — HR has the time to spend on more strategic activities that add value specific to their unique employee populations.
The key to making incentives effective is to make sure the employee understands the value of the employer’s investment in the program and to explicitly identify how various behaviors affect the way an employee receives — or does not receive — subsidy. In other words, be transparent.
We are finding that more and more employers are focused on aligning their EVP with what they deliver to their customers. They want to make sure that their employees’ benefit experience is consumer-grade; in other words, it matches what they are accustomed to experiencing when they use one of the premier consumer websites, such as Amazon.
That’s one of the prime benefits many employers like about the private exchange concept because it enables them to deliver a more highly engaged experience with better technology and more decision support, tools and resources. Employers seem to be focused very acutely on aligning employee experience with their broader EVP and reward strategy, but also developing the communication and change strategy that needs to be in place not only during program operations but also before it is actually launched.
More broadly speaking, what really helps drive employee satisfaction with the exchange is the amount of education, communication and support they receive, both when they are first enrolling and learning about the program and also as they continue to stay connected and involved in their purchasing decisions and decisions about how to use the benefits that they have purchased.
The up-front education, like with any other major benefit strategy change, is key to the success of the transition to an exchange — not only so employees understand what to enroll in and next steps but also so they understand what their employer is asking them to do differently than perhaps they’ve had to do in the past.
I’d like to add a couple of points. First, the exchange technology is a personalized decision-support system, so it’s far simpler for the employee to choose than the lengthy enrollment guides and comparison charts we have sent historically during open enrollment for self-managed plans. The technology enables those choices, yet simplifies the decisions that need to be made by the employee. Second, because the exchange technology is so powerful, we tend to overlook the fact that we continue to offer stellar call-center support to members as well. Given the multigenerational factor we discussed earlier, some members still just want to pick up the phone and talk. We continue to invest heavily in both our call-center technology and our people staffing them, to ensure that when members do need to talk to someone, we are prepared to help them.
Moderator: How effective are an exchange’s incentives and other subsidies in changing behaviors? Are employees more engaged in their health after moving to an exchange?
Abbott: The effectiveness of incentives is a challenge employers are faced with, whether they are operating a self-managed plan or looking to adopt an active private exchange. The key to making incentives effective is to make sure the employee understands the value of the employer’s investment in the program and to explicitly identify how various behaviors affect the way an employee receives — or does not receive — subsidy. In other words, be transparent.
For example, both a tobacco-use surcharge and a spousal surcharge are behavior-based subsidy adjustments. The organization is saying to the employee, it is important to us that you don’t smoke or use tobacco. We’re not going to say you can’t smoke, but we want you to be aware that if you choose to do so, you’ll pay a price in order to be covered by our insurance program.
Similarly, an employer says, if your spouse is working and has coverage through her or his own employer, that employer should be the primary provider of coverage. We’re not going to say that you can’t cover your spouse. But again, you will pay a price for that choice.
Employers seem to like this idea of making subsidies they pay for coverage more transparent and identifying the behavior changes they desire. The same is true in terms of incentives. We have found incentives to be especially effective from a personal health behavior viewpoint. They are effective in getting an employee’s attention and initial engagement in the process.
The challenge, of course, is keeping that individual engaged long enough to affect behavior change. We’re now starting to see incentives being built into design at the point of care. A good example of that is an enhanced benefit for individuals who used a center of excellence for certain defined procedures. That has become a critical element of design in helping an employer achieve the behaviors they desire from employees as well as the desired point-of-care behavior that encourages higher value solutions.
Bockhorst: The exchanges are still too new to be able to measure whether greater choice at enrollment time leads to the behavior change employers would like to see. However, we do believe that there will be a longer-term positive impact. Our early data shows that people understand their benefits better after a move to an exchange. If that’s truly the case, then we can surmise that employees are better able to make more informed decisions at point of care, too. That may mean they will seek out a higher-quality provider, a lower-cost generic mail order prescription or a lower-cost testing facility. Not to mention, it could mean they will embrace longer-term lifestyle changes to avoid those expenses altogether. We believe that by combining choice with transparency, employees will make improved decisions as time goes on.
Moderator: Have employees become more sophisticated about benefits since the enactment of the ACA?
Jannino: I don’t think so. If anything, employees are likely more confused about the difference between a public exchange and a private exchange.
There will be certain segments of many employee populations, part-time employees, for example, that may be eligible for coverage on a public exchange, and to avoid confusion in those situations, employers need to help employees understand the differences.
We have heard from employees consistently that using the tools and resources available to them in the private exchange to make a decision helps them understand their employer-provided benefits better than they ever have before.
Abbott: As a result of the ACA, employers have made a number of benefit program changes that confuse employees. Those changes have also been colored by the discussion in the general marketplace and media regarding the public exchanges or marketplaces available in each state.
It’s going to be increasingly important that employers make sure that they are communicating the specifics of their benefit program and EVP, anticipating questions that might likely arise from employees about the public exchanges. This is especially true for low-wage workforces that might be eligible for some form of government subsidy in the absence of employer-provided coverage.
And beyond that, there is a need for employers to continually stress the value of not only the benefits but also the employer-provided subsidy, which is a critical part of their overall compensation and is delivered to them on a tax-favored basis. So employers need to communicate their value proposition, remind employees of the value of that benefit — the value of the employer subsidy — and take care to describe their program in a way that does not create confusion with what’s going on in the broader marketplace.
Moderator: What are the key decisions and inherent risks employers need to weigh when moving to an exchange?
Jannino: There are a lot of decision points for employers. First and most important, does an exchange align with their objectives or help them accomplish their strategy? Once they make the decision to move to a private exchange, they need to consider elements such as the decision support and employee experience. What are the additional elements that are built in to the private exchange to help manage long-term cost trend? As we’ve said earlier, cost savings isn’t necessarily a driver, but cost trend and cost savings, efficiencies with carriers and plan designs that ultimately drive a lower trend are all important factors for the employer to consider.
An additional item that has come up consistently, especially in these early days, is the funding mechanism — that is, whether an employer stays self-insured or moves to a fully insured arrangement — and does that help in the cost management picture? Or are there other mechanisms that make more sense for the employer?
Abbott: As employers think about how they want to deliver their overall benefit program for current employees and future workforce, the really key decision they face fundamentally is, can they deliver on their commitment through their self-managed arrangement — given the time, money and resources they have available — or does it make more sense to consider the private exchange approach? They have to consider not only their program design but also their subsidy strategy, EVP, and the technology and decision support they want employees to enjoy.
In terms of risks, I see no more risk in the private exchange model when it is properly structured and properly vetted than in continuing a self-managed program. The greatest risk is not dealing with the issue at all. In judging risk, employers need to make a conscious evaluation of their current state, consider the private exchange premise and determine yes or no, it does or doesn’t make sense, and — if there are certain circumstances under which the employer would move forward with a private exchange in the future — identify what are those criteria and when will they know that they are triggered.
Often, employers that analyze the benefits of moving to an exchange will come to the conclusion, if not now, when? Employers need to think that through, do the due diligence so that when senior management asks, “Why haven’t we pursued this?” they’re able to provide an intelligent answer about the impact, good and bad, both now and in the future.
Bockhorst: In fact, an exchange will oftentimes be a much less risky path to deliver benefits than self-managed, in the sense that the exchange is investing tremendous resources in technology, call centers, communication, vendor contracting, network strategy, data warehousing and integration. The employer gets to take advantage of all of that intellectual capital when they are ready at no additional fee — it’s just part of what the exchange delivers.
Abbott: We are in a period of incredibly dynamic change within the benefit marketplace, not just in health care but in benefits overall, as employers step back and evaluate their total rewards perspective, their EVP, and align that with the organizational branding they want to deliver, not only to their customer base but also to their employees and their employment relationship.
And thinking about a private exchange for active employees is one of many things that employers need to consider. To dismiss it out of hand is folly. It’s certainly fine to say, it’s not for us and these are the reasons why. But it’s something that employers deserve to examine carefully to make an informed decision, and to ask, “Now that I’ve examined it thoroughly, is this right for me? Is this right for me now or may this be right for me in the future?”