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PREPARING FORHEALTH CARE EXCHANGESREVISED JULY 22, 2014
Tim LambingKansas City
Not Peer Reviewed
MERCER
CONTENTS
Evolution of health care benefits environment
Exchange environment• Public exchanges• Private exchanges…and defined contribution
Strategic opportunity for employers
1
MERCER
Managed care Consumerism Reform
17.1%
12.1%
10.1%
8.0%
-1.1%
2.5%
0.2%
6.1%
8.1%
11.2%
14.7%
10.1%
7.5%
5.5%5.2%*
2.1%
4.1%
6.1%6.9%
6.3%6.1%6.1%6.1%7.3%
2.1%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Workers' earnings Annual change in total health benefit cost per employee Overall inflation*ProjectedSource: Mercer’s National Survey of Employer-Sponsored Health Plans; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April toApril) 1990-2013; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April) 1990-2013.
EVOLUTION OF HEALTH CARE BENEFITS ENVIRONMENT
2
WHAT IS A PUBLIC EXCHANGE?
• Created by ACA• Structured marketplace to sell and purchase health insurance• Subsidies provided for those who qualify based on income• Goal: Insure all Americans
MERCER 4
State-run exchange Partnership exchange Federally FacilitatedExchange
State operates all exchange activities(subject to federal guidelines)
State takes responsibility for activitiesrelated to plan management, consumerassistance or both.
State plan management partnershipexchange. State recommends plans forQHP certification, manage QHP issueraccounts and day-to-day administrationand oversight of QHPs.
State consumer partnership exchange.State manages navigators and the in-person assistance program. HHSoperates call center, website; and fundsand awards navigator grants. Statesmay also manage outreach andeducation efforts.
HHS operates all exchange activities
State maintains role as enforcer ofmarket reforms inside and outsideexchange
STATE PUBLIC EXCHANGE OPTIONS
Sources: National Conference of State Legislatures; HHS.gov
MERCER 5
STATE PUBLIC EXCHANGE DECISIONS FOR 2014(AS OF JULY 2, 2014) Declared state exchange (15)
Planning partnership exchange (8)
State SHOP/Federally Facilitated Individual (3)
Default to federal exchange (25)
*Nevada residents will be directed to Healthcare.gov until the Silver State Exchangeinfrastructure is repaired, expected to occur in late 2015.
Source: Kaiser Family Foundation
MERCER 6
WHAT DO THE PUBLIC EXCHANGES DO?
Provide financial management
Ensure plan accountability
Assist consumers
Determine eligibility,enroll individuals
Manage plan activities
MERCER
WHO IS ELIGIBLE FOR SUBSIDIZED GOVERNMENT INSURANCE?ASSUMES STATES EXPAND MEDICAID TO 138% FPL1
Household income <138% FPLEligible for Medicaid.2
Federal Poverty Level(FPL) 2015 eligibility threshold3
Family size of 2014Medicaid138% FPL
Exchange400% FPL
1 (single) $11,670 $16,105 $46,680
2 $15,730 $21,707 $62,920
3 $19,790 $27,310 $79,160
4 $23,850 $32,913 $95,400
5 $27,910 $38,516 $111,640
6 $31,970 $44,119 $127,880
7 $36,030 $49,721 $144,120
8 $40,090 $55,324 $160,360
Household income between138% and 400% FPL.Could be eligible for
subsidized exchange coverage.
1. Most adults will be eligible for Medicaid up to 138% of FPL.2. Health reform legislation specifies income threshold of 133% FPL but also requires states to apply an “income disregard” of 5% of FPL in meeting income test;effective income threshold for eligibility is 138%.3. Based on 2014 FPL (note that some states may use 2013 FPL ($11,490) for Medicaid eligibility in 2014).
7
MERCER
2014: PRODUCTS OFFERED IN EXCHANGESEXCHANGE PRODUCTS WILL DIFFER FROM GROUP PLANS
Plan options in public exchange are named after metals.
Public exchanges Large ER |Group
Bronze Silver Gold PlatinumCatastrophic
age <30 andthose eligible for
a hardship waiver
Plandesign1Features
Plan value 60% 70% 80% 90% under 60% >60%
• Silver – second-lowest cost plan – is baseline for calculating government subsidy.
• Government subsidy and member contribution requirement calculated based onincome, vary by level between 100% FPL and 400% FPL.
• Once subsidy determined for silver plan, can use for gold plan (pay more) orbronze plan (pay less).
• No subsidies are available for catastrophic coverage.
8
1.Some provisions apply differently for grandfathered and non-grandfathered plans. Employer plans generally must offer coverage of at least 60% value to full timeemployees to avoid shared responsibility payments.
MERCER
ELIGIBILITY FOR EXCHANGE PREMIUM TAX CREDITSBASED ON SECOND-LOWEST COST SILVER PLAN IN 2014
Maximum monthly contribution to avoid employer penalties if using FPL safe harbor($11,670 x 9.5% ÷ 12 = $92.39 (based on 2014 FPL; safe harbor for 1/1/15 calendar year plans)Other options for affordable contribution safe harbor are: W-2 earnings and rate-of-pay.
% Povertylevel
Annualhousehold
incomePlan value with
cost-sharing credit
Maximum monthly employeecontribution in exchange
% Householdincome Dollars
<100% <$11,670 Medicaid / Access gap N/A N/A
<138% <$16,105 Medicaid (if expanded) N/A N/A
138% $16,105 +24% to 94% 3.00% $41
150% $17,505 +17% to 87% 4.00% $59
200% $23,340 +3% to 73% 6.30% $123
250% $29,175 70% 8.05% $196
300% $35,010 70% 9.50% $278
400% $46,680 70% 9.50% $370
>400% >$46,680 70% No maximum Full cost
Individual in 2015 (Based on 2014 FPL of $11,670)
9
MERCER 10
2014: FAMILY COVERAGE IN A PUBLIC EXCHANGEPREMIUMS AND SUBSIDIES WILL DETERMINE APPEAL
Total monthly premium forsecond lowest cost silver plan2
Family of 4 Average TN NJ$912 $659 $1,033
Full Premiumat 100%
$912/month
Individual premiums may behigher than in group plans.
Individual product costs willvary by state
1. Mercer Survey of Employer-Sponsored Health Plans, 2012 – Average monthly employee contribution for PPO coverage: Employers 500+ = $111/monthfor individual; $391/month for family; All employers = $148/month for individual; $544/month for family
2. Straight-average of second lowest cost silver plans from each rating area across the state. Based on federally-facilitated exchange states.
$47,000$35,000 $100,000
Family of 4 average household income
$391
Averagegroup
plan totalpremium1
$Second
lowest costsilver plan
MERCER
EMPLOYERS AND PUBLIC EXCHANGESHOW WILL IT WORK WHEN EMPLOYEES APPLY FOR SUBSIDIES?
Individual appliesto Exchange
Provides & attests to certaininfo, including:• Income and family size• Lowest cost employer
plan option that meetsminimum value (employeeonly cost)
Exchangeverification
• Verifies income and otherinformation
• Verification process foremployer coverage(statistical sample only)
• Individual can enroll duringverification process
Exchange EligibilityNotice
• Notice to individual ofeligibility determinationafter verification complete
• Notice to employer ifindividual determinedeligible for exchangesubsidies after verificationcomplete
1 2 3
Employer Appeal IRS reporting &reconciliation
After close of calendar year,IRS has at least threesources of info to confirmsubsidies were providedcorrectly:
• Employer reporting• Exchange reporting• Individual tax filing
• Employer requests appealwithin 90 days of noticedescribed in step 3
• Exchange tells employeeof appeal request
• Written appeal decisionw/in 90 days of receipt ofappeal request
IRS Employer SharedResponsibility
processIRS has said, afteremployee tax returns forcoverage year are due:
• IRS will contactemployer about possibleliability
• Employer opportunity torespond
• IRS notice & demand forpayment
4 5 6
11
MERCER 12
NAVIGATING PUBLIC EXCHANGESCOMPLEX FOR EMPLOYERS AND EMPLOYEES
Employeecommunications
Requirement to communicate modelexchange notice to employees
Likely intense confusion based onpublic/press information
Inform employeeshow to make their selections
Datarequirements
Paper/electronic environmentErroneous enrollmentson public exchanges
Rolling enrollment all year if changein status
Multi-stateemployers
Public exchange options andMedicaid expansion – and therefore
employer coordination– will vary by state
Systemrequirements
Technology and tools totrack employee hours
Reporting and disclosurerequirements
Cost to upgrade and implement
WHAT IS A PRIVATE EXCHANGE?
Marketplace with core and voluntary product offerings acrossmany benefits and services
Exchange sponsor stocks products and manages end-to-endconsumer experience
MERCER 14
PUBLIC VS PRIVATE EXCHANGES
Medical,prescription
Dental, vision, life,voluntary, plus more
Governmentsponsored
Broker, insurer, TPAtechnology firm
Actives, retirees
PUBLIC PRIVATEOpen Closed
Single ormultiple carrier
IndividualsSmall Group
Group plans
Insured orself-funded
MERCER 15
GROWING INTEREST IN PRIVATE HEALTH CARE EXCHANGES
25%
45%
In 2 years In 5 years
Percent of employers thatwould consider offering a
private exchange
Employer advantages
§ Cost control
§ Choice for employees
§ Streamlined managementand administration
Employee advantages
§ Cost-efficient, convenientbuying
§ Comprehensive coverage
§ Personalized portfolios
Source: Mercer’s National Survey of Employer-Sponsored Health Plans 2013.
MERCER 16
HOW DOES DEFINED CONTRIBUTION RELATE TO EXCHANGES?
With private exchanges, employers can successfullyimplement defined contribution• Offer employees an array of choices• Encourage employees to “buy down” to lower-cost medical
coverage and use remaining dollars for other purchases
Best achieved when employees can purchase otherattractive products (life, accident, disability, critical illness, auto, etc.)
• Better meets employees’ personal needs• Helps manage their benefit spend
Defined contribution = Funding arrangement where employers manage their year-over-year increase in health and welfare benefits spend to a pre-defined amount
MERCER
HOW DO PRIVATE EXCHANGES WORK?
Funding
DC or DB
Standard PlanDesigns
Choice amongmultiple, pre-screened plans
EmployeeCommunicationsand Education
Online
Call Center
Print and email
Election Data
HRProfes-sionals
Carriers
PayrollDeductions
Reporting andPremium Data
Administration
• Eligibilitydetermination
• Data-drivenevents
• Electionmanagement
• Contributioncalculation
Enrollment
17
MERCER 18
§ Comprehensive, one-stop benefitsmanagement§ Purchasing strength§ Defined contribution
facilitation§ Proactive project
management andaccountability§ Compliance with
evolving legislation
EmployerExperience
§ All insurance needs metwith one-stop, on-lineshopping
§ Personalized experienceand portfolio
§ Multi-channel, targetedmessaging
§ Call center withexperienced, objectivebenefits counselors§ More benefits value for
the money
EmployeeExperience
§ Core & supplemental benefits§ Vendor Management§ Financial Projections§ Open Enrollment§ Ongoing Event Management
§ Payroll Reporting§ Carrier Eligibility Reporting§ Premium Reporting§ Member Service Center§ Member Communications
§ Compliance§ FSA administration§ Health Savings Accounts§ COBRA administration
Comprehensive Solution
MERCER MARKETPLACE… EMPOWERING BENEFITSWHAT WE DELIVER
MERCER
PRIVATE EXCHANGEVALUE TO EMPLOYERS
Resources required to managebenefit programs
79% of US employers cite one-stop shop forall administration as reason to integratecore and voluntary benefits
Health care reform
How to address increased costs plusdesign, communication, and administrationimplications
Cost of providing benefits
Employers’ costs continue to outpaceearnings and inflation by three times
EMPLOYER CHALLENGES
Choice for employees
Expanded plan options and tools to helpmake decisions
Streamlined management andadministration
End-to-end process for delivering benefits
Cost control
Innovative ways to control costs instead ofcost-shifting
HOW MARKETPLACE HELPS
19
MERCER
PRIVATE EXCHANGEVALUE TO EMPLOYEES
Low satisfaction with current benefits
24% think that their benefit program is “verygood”
Flexibility to choose benefits that fit theirneeds
Almost half would like to have flexibility toreduce the value of some benefits andincrease the value of others
Importance of benefits asattraction/retention factor
53% say benefits play a significant role intheir decision to stay with their employer
EMPLOYEE ISSUES
Comprehensive coverage
Wider range of coverage options
Personalized benefit portfolios
Customized benefit plans to meetemployee and family needs
Cost-efficient, convenient buying
Informed benefits buying decisions
HOW MARKETPLACE HELPS
20
MERCER
STRATEGIC OPPORTUNITY FOR EMPLOYERS
MERCER
Gro
upSe
lf-in
sure
dIn
divi
dual
Insu
red
RIS
K
ControlNone Total
DIFFERENT INDUSTRIES,CHALLENGES AND DIRECTIONS
Exchange
Exit
Maintain
Delay
22
MERCER
DIFFERENT INDUSTRIES,CHALLENGES AND DIRECTIONS
Gro
upSe
lf-in
sure
dIn
divi
dual
Insu
red
RIS
K
ControlNone Total
Decision variables includeCarrierDesignCost
ContributionMessagingWellness
23
MERCER
BROADER REWARDS CONSTRUCT
Benefits
Life balance
Pay
Career
24
MERCER
DELIVERED EFFECTIVELY, BIG IDEAS WILL…
25
…control the rate of increaseyear-over-year
Reduce administrativeburden of managing
benefits – and optimizeyour investment
Improve per-capitacosts and…
ValueBenefitresources
More effectively engageall of your people and –
meet their individual needs
Securities offered through MMC Securities Corp., Member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036; Phone 212 345 5000.
Variable insurance products distributed through Marsh Insurance & Investments Corp., MIIC Insurance Services in California and Marsh Insurance Agency & Investments Corp. in New York.