MISHRM 2014 Annual Conference

1. MISHRM 2014 Annual Conference HR Amplified: Driven to be…

2. Gimme the Keys:What Employers Need to Consider Before Driving Employees to a Private or Public Exchange Sue Mathiesen Director of Research McGraw Wentworth, a Marsh & McLennan Agency LLC company

3. Today’s Agenda • Health Care Reform – Big Picture Impact • Creates Public Exchanges • Spillover effect of health reform-private exchange options for active employees • Public Exchanges • State-based • Premium subsidies for moderate incomes • Plan options available • Private Exchanges • Conceptual design • Options available • Employer considerations • Concluding Thoughts

4. The Big Picture

5. In 2014 – Market Changes • Public exchanges launched • Individual (non-employer) market accessible/viable alternative • No medical underwriting • No pre-existing condition limitations • No rating based on health conditions, gender • Subsidies are available to qualifying individuals to help pay for coverage • Individual mandate requires coverage or tax penalty • Half of states expand eligibility for Medicaid • Employer mandate delayed until 2015

6. HCR Spillover Effect - Employer Market Sources: Pre-2006 Mercer National Survey of Employer Health Plans Post-2006 Hewitt Health Value Initiative CPI data Bureau of Labor Statistics, • Many initial HCR provisions increased employer cost • Many employers did not absorb full cost increase • When benefits modified over past few years, most employers quick to communicate added burden of HCR with employees • Larger employers pressing for innovation • Vendor marketplace responding with new ideas • Improve marketplace information • Create new incentives to control cost and improve quality of care • One of the innovative ideas – Private Exchanges • Mirrors feel of public exchange-but not the same thing • Most pair with defined contribution approach to financing benefits

7. Financing Benefits, a Problem? • In most years, employer cost rising 2 to 3 time inflation • Two major slowdowns in employer plan increases • Will pace of increase remain calm or jump back up ? Sources: Pre-2006 Mercer National Survey of Employer Health Plans Post-2006 Hewitt Health Value Initiative CPI data Bureau of Labor Statistics,

8. Most Employers Committed to Health Plans Importance of providing subsidized health benefits for the following populations: Active Full-Time Employees 96% 1% 2014 2015 and beyond 95% 2% Spouses 71% 21% 2014 2015 and beyond 56% 30% Active Part-Time and Seasonal Employees 33% 26% 2014 2015 and beyond 30% 25% Retirees 21% 22% 2014 2015 and beyond 20% 17% Very Important Somewhat Important Source: 2014 Employer Survey on Purchasing Value in Health Care, Towers Watson and National Business Group on Health Source: 2014 Employer Survey on Purchasing Value in Health Care, Towers Watson and National Business Group on Health

9. Exchanges – Important Options “Get Out” Strategy What would employees/participants see if you dropped your plan? • Public Exchanges • ACA Marketplaces and subsidies • National picture • New Michigan Marketplace • Considerations for retirees • Private Exchanges • Why are employers interested? • Evaluating Exchanges for your organization • Administration of benefits • Long term financial impact • What’s available for mid-market employers? “Stay In” Strategy Emerging strategy focused on Defined Contribution approach

10. Public Exchanges

11. What Is A Public Exchange • ACA mandates each state has a “Marketplace” • Online facilitator to purchase health insurance (individuals, groups <50) • Subsidies provided for those who qualify based on income Manage plan activities Determine eligibility, enroll individuals Assist consumers Provide financial management Ensure plan accountability Determine Medicaid and Federal Subsidy Assistance

12. Exchange Enrollment Rights • Enrollment in the Exchange is limited • Initial enrollment (October 1, 2013 – March 31, 2014) • Open enrollment (generally from October 15 – December 7) • Special enrollment (permitted in specific situations) • Special enrollment (60 day window to enroll) permitted for: • Loss of minimum essential coverage • Gaining a dependent or becoming a dependent through marriage, birth, adoption or placement for adoption • Newly attained status as US citizen, national or lawfully present individual • An Exchange error, misrepresentation or inaction of Exchange party • QHP materially violated contract provision • Becoming newly eligible for premium assistance • Gaining access to QHP because of permanent move • Exceptional circumstances defined by DHHS

13. Medicaid Expansion – Current Status • Goal of HCR - standardize eligibility provisions across states • Standard income-based eligibility, no asset requirements • Reality – Almost ½ of states not expanding • Exchange subsidies not available under 100% of FPL • Leaves many low income earners in “No Man’s Land” Source: Kaiser Family Foundation, January 27, 2014

14. Initial Enrollment in “Metal Tiers” • Plan options in public Exchange named after metals • Subsidy based on “2nd Lowest Cost Silver Plan” • Can buy up to Gold plan (pay more) or buy down to Bronze plan (pay less) http://aspe.hhs.gov/health/reports/2014/MarketPlaceEnrollment/Feb2014/ib_2014feb_enrollment.pdf

15. Who is Eligible for Subsidized Coverage? Household income < 138% FPL Eligible for Medicaid* (assuming State expands Medicaid) Household income <400% FPL Could be eligible for subsidized Exchange coverage

16. 2014 Exchange Subsidies

17. Michigan Marketplace Statistics Eligibility for Coverage for Current 1.1 Million Michigan Uninsured Source: Kaiser Family Foundation, July 2014

18. Carrier Plans Offered in Michigan • Marketplace pricing released for single (age 27 & 50) and family (age 45) rate tiers • Included all 83 Michigan counties • All counties had access to Bronze, Silver and Gold plans • Only 31 counties had access to Platinum options • On average, counties had 4 carriers offering coverage (min 1 carrier, max 9 carriers)

19. Carrier Specific Pricing • Humana offered lowest cost plans (all 5 tiers) for Wayne, Oakland and Macomb counties • These three counties most populated (39% of the state’s population) • Humana did not offer any plans outside these three counties • All Humana offerings are HMO plans • LIMITED NETWORK: 12 hospitals included in Humana network – majority are DMC locations (Crittenton, Henry Ford Macomb were included) • Outside these three counties, BCN had lowest cost plans in majority of counties • More on limited network options coming • BCBSM releasing a limited network Marketplace product later this year • CMS pushing back with regulations in January for 2015 • Providers appear very concerned

20. What Do Plans Cost on the Exchange? Incremental Increase in HHI Over $95k “The Cliff” Cost to Buy Up to PPO Plan significant especially for older workers without access to subsidies Wayne County 400% of FPL Buy Up to PPO: $370 + ($1,109 - $732) = $737/mo.

21. What Do Benefits Look Like on the Exchange? Impact on Employer decisions in the future Room to move to higher deductibles? Trend to higher deductibles, not necessarily to HDHP compliant plans?

22. Wayne County – All Plans Sorted by Tier • Overlapping pricing between tiers (for instance, highest cost Silver vs. lowest cost Gold) suggest vastly different approaches to setting pricing between carriers. Rates for Single coverage for a 50 year old

23. Cost for 40 Year Old – No Subsidy 40-year-old making $51,705 per year (450% of Poverty), with no financial assistance Notes: Premiums indicate the amount a 40-year-old would need to spend on the second-lowest cost silver plan in a given county or region. Source: Premiums for state-based exchanges were obtained through a Kaiser Family Foundation review of insurer rate filings to state regulators. Premiums for federally-facilitated and partnership exchanges were obtained from data published by HealthCare.gov, as of January 22, 2014, available at https://www.healthcare.gov/health-plan-information/. $154 $261 At 450% FPL, an enrollee would not be eligible for premium tax credits $311 $365 $481

24. Cost for 40 Year Old – Limited Subsidy 40-year-old making $40,215 per year (350% of Poverty), with moderate financial assistance Notes: Premiums indicate the amount a 40-year-old would need to spend on the second-lowest cost silver plan in a given county or region. Source: Premiums for state-based exchanges were obtained through a Kaiser Family Foundation review of insurer rate filings to state regulators. Premiums for federally-facilitated and partnership exchanges were obtained from data published by HealthCare.gov, as of January 22, 2014, available at https://www.healthcare.gov/health-plan-information/. $154 $261 At 350% FPL, eligible enrollees would have to pay a maximum of 9.5% of their income on premiums for a benchmark silver plan $311 $47 $318 $163 $318

25. Cost for 40 Year Old – Larger Subsidy 40-year-old making $28,725 per year (250% of Poverty), with significant financial assistance Notes: Premiums indicate the amount a 40-year-old would need to spend on the second-lowest cost silver plan in a given county or region. Source: Premiums for state-based exchanges were obtained through a Kaiser Family Foundation review of insurer rate filings to state regulators. Premiums for federally-facilitated and partnership exchanges were obtained from data published by HealthCare.gov, as of January 22, 2014, available at https://www.healthcare.gov/health-plan-information/. $154 $193 $69 At 250% FPL, eligible enrollees would have to pay a maximum of 8.05% of their income on premiums for a benchmark silver plan $311 $193 $118 $318 $193 $173 $318 $193 $289

26. What Does 2015 Look Like in MI Marketplace? • Open enrollment for 2015 starts on November 15, 2014 • Still finalizing plans and rates • Looks like carriers will be consistent Source: 2014 PriceWaterhouseCoopers, A Preliminary Look at 2015 Individual Market Health Insurance Rate Filing

27. Retirees

28. Retirees Covered By Employer Plan • Include in active plan • Plans must meet many ACA coverage requirements • No “Employer Mandate Penalty” for affordability/benefits tests • No Exchange Notices required • Segment into “retiree-only” plan • Pay taxes/fees • Otherwise exempt from many ACA requirements • Annual/lifetime maximums can apply, preventive care can be excluded, etc. • HRA plans can exist without medical plan • Must have separate ERISA plan and cannot cover ANY active employees (i.e., if a retiree returns part-time and keeps retiree benefits, it would not be a “retiree-only” plan)

29. Retirees – Subsidy Eligibility • Pre-65 • Eligible for subsidies as long as not ENROLLED in ANY employer plan • “Eligibility” for a qualified plan doesn’t matter, but enrollment in ANY employer-sponsored medical plan EXEMPTS retiree from subsidy • FAQs disrupted many employer plans to exit market via HRA funding and leveraging subsidies • Post-65 • Eligible if not enrolled in Medicare A/Medicare Advantage • Both groups may be eligible for Medicaid • States who expanded Medicaid removed asset tests (just Income) • Retirees should evaluate what is better for their situation, employer coverage or Exchange coverage • Difficult communication role for employers as decision specific to individual decision (income, assets, state of residence, etc.)

30. Summary Insights • Public Exchanges not currently an equitable strategy for replacing current employer coverage • Benefits and networks significantly different • Costs for non-subsidy and especially older employees high • Regulations keep closing loopholes for employers to leverage Exchange subsidies • Market continues to evolve • Technology challenges will continue in short-term • Pricing impact of actual enrollment versus projections will be seen in 2015 and beyond (age mix, volume of enrollment) • Usually takes about 2 years to learn how claims are running vs. premiums

31. Public Exchange vs. Private Exchange PUBLIC PRIVATE State or Federal Government Consultant/Broker, Insurer, Tech Firm SPONSOR Open Closed ACCESS Online and Telephonic ENROLLMENT Dental, Vision, Life, Voluntary, +More Medical/Rx PRODUCTS CARRIERS Single or Multiple Individual (Get Out Strategy or Retiree) Group CONTRACTS Individual ELIGIBLES Actives, Retirees Individual Post-Tax, Federal Subsidies Employer Pre-Tax, Employee Pre-Tax Insured Self-funded FUNDING PAYMENT Comparison Tools Decision Support, Education TOOLS

32. Private Exchanges

33. Private Exchanges • Why are Employers interested in Private Exchanges? • Evaluating Exchanges for Your Organization • Administration of Benefits • Long Term Financial Impact • What’s Available in Exchanges for Mid-Market Employers? • Options were limited in 2014 – expanding in 2015 • Targeted quoting plus delays in insured rates due to HCR • Several Exchanges now expanding marketing efforts

34. Lots of Confusion • Do they wrap around Public Exchanges? No • Can Employees receive subsidies? No • Are active and retiree Exchanges the same? No • Can employees choose from lots of carriers? Not Yet • Is my experience “pooled” with other employers? No

35. Lots of Advertising Messages • You only need to make one strategic decision • Best prices through market leveraging • Improves buying experience for employees • Personalizes benefit decisions • Lots of choice, lots of decision support tools • Eliminates employees from being “overinsured” • 60% or more employees will “buy down” • Reductions in overall gross costs of 25%+ • Works just like a 401(k) • Reduces administrative and compliance burdens • Simplifies communication Percent of employers that would consider offering a private exchange

36. What’s the Real Deal? • Fit varies by employer • Short and long term considerations • Private Exchanges new and continually evolving • Goal today is to provide: • Fundamental understanding of Private Exchanges • Framework for how to evaluate these options for your organization • Information about current Exchange marketplace • Focus on administrative and financial aspects of Exchanges

37. The Benefits Management Process PROCUREMENT TECHNOLOGY SERVICES PROCESS DESIGN • Financial Structure • Funding • Contribution Approach • Budgeting/Renewal Process • Plan and Carrier Selection • Enrollment/Communication • Open Enrollment • New Hires/Qualifying Events • Terminations • Mergers / Acquisitions • Paper/Online/Call Center/ Face to Face BENEFITS Medical/Rx Dental, Vision Income Replacement FSA, 401(k) Voluntary Benefits Wellness PROCESS DESIGN PROCUREMENT TECHNOLOGY SERVICES • Data Management • Bill Reconciliation • Data management (transferring between systems) • Internal Cost Allocation/ • Bill Payment • Data analysis/reporting • Process Management • Compliance • Eligibility Rules • Dependent Verification/Audits • Evidence of Insurability • COBRA PROCESS DESIGN PROCUREMENT TECHNOLOGY SERVICES

38. Private Exchange Solutions • Benefit Management Process still responsibility of employer • Bundles online enrollment systemwith carrier solutions • Automatically sends eligibility to all Exchange carrier partners • Unique decision support tools • Can leapfrog employers into online solution (inc. email with employees) • Pre-defined plan/carrier menus • Limits time on plan design and pricing decisions • Offers more choice of benefit options (typically 5+ plans) • Plan materials pre-developed (benefit summaries, certs, etc.) • Facilitates commitment to defined contribution approach • Most employers can do with current process, but don’t • Systems built to communicate and price DC plans • Primary driver of savings when moving to Private Exchange approach

39. Data Management and Enrollment Enrollment System Adds, Terms, Benefit Election, Demographic and Dep Data Enrollment System Enrollment System Carrier Systems Adds & Terms Demographic Data Payroll System Enrollment Process (Manual or Online) Benefit Elections for Contributions Service Providers (COBRA) • Benefits of Online System: • Feeds create integrated system • Eliminates manual entry • Reduces billing differences • Enrollment and communication material can be mix of online and paper-based approach • Paper bills continue for most carriers • List bill from life/disability Incentive Compliance New Government Reporting? Wellness Vendors

40. Data Management with Exchanges • Exchange facilitates carrier enrollment feeds/owns issues • Expands review beyond selecting a “medical vendor” • Moving carriers becomes tied to Exchange options • Single carrier Exchanges more risky than multi-carrier • Exchange can also tie the employer to a broker partner • Can create administrative complexity (deductions, bill reconciliation) • Can be more expensive than independent systems • Carriers indicating plans priced the same off and on Exchanges • System can be free…but many cost $5-$20+ PEPM • Some solutions are not all-encompassing (medical/dental only) • Challenging situation if already have an online system • Can bring wide variety of “pre-packaged” voluntary benefits

41. Data Management with Exchanges Exchange Carriers Connected to Exchange Carrier Partners Enrollment System Enrollment System Non-Exchange Carrier Systems Adds, Terms, Benefit Election, Demographic and Dep Data ? Adds & Terms Demographic Data Payroll System EXCHANGE ? Benefit Elections for Contributions Service Providers (COBRA) ? ? Incentive Compliance New Government Reporting? • Exchanges don’t necessarily talk to payroll or support upload process • Goal of Exchange partner to support connecting as many systems as possible Wellness Vendors

42. Online Enrollment Systems vs. Private Exchange Online Enrollment System Private Exchange Defined Contribution Sometimes Most of the time Products and Carriers Limited selection of plans Wide selection of plans and benefit options One carrier per employer Sometimes multi-carrier Fully insured or self-insured Fully insured or self-insured Consumer Experience Automation Automation Some decision support High degree of decision support Some employee engagement High degree of employee engagement Administrative Support Generally includes year-round eligibility, enrollment, QLEs, billing, payroll feeds, carrier feeds, COBRA and FSA admin, call center Often not end-to-end processing, more open enrollment focused

43. Defined Contribution Approach Employer provides $6,000 annual contribution Employee shops the online exchange John chooses: CDHP health plan HSA Life insurance STDLTD Total cost = $6,420 John’s cost = $420 Jane chooses: PPO health plan Dental Life insurance STD LTD Health FSACritical Illness Total cost = $7,210 Jane’s cost = $1,210 Employer Fund John Jane

44. Non-Defined Contribution Trend Management – “The Balancing Act” ? Employee Costs Out of Pocket What should those who use the plan pay? How much risk are we willing to allow them to take? $13,857 $12,830 $11,880 $11,000 Payroll Contribution What can they afford? What cost should be shared by all? Employer Cost What can we afford? What benefits do we need to offer to attract and retain employees?

45. Defined Contribution ApproachExample: 5-Plan Menu with $6,300 Employer Funding Buy-Down Occurs When More Choices are Offered ? Employee Costs $12,247 Out of Pocket/Payroll Contributions Employee Decides Exchange support tools help to educate $11,340 $11,000 $10,500 Employer Cost What can we afford? What funding leveldo we need to offer to attract and retain employees? Commitment to aggressive management of trend line Assumes: 8% annual trend

46. Trend Management Strategies Still Required $13,857 $12,830 $12,247 $11,880 $11,340 $11,000 $11,000 $10,500 Assumes: • 8% annual trend • 100% PPO enrollment • 60% employer contribution • Assumes: • 8% annual trend • 60% PPO enrollment, 40% CDHP enrollment • Employer contribution fixed at 60% of 2014 gross cost

47. Long-Term Considerations In DC Design • Underlying plans – employer-fundeddefined benefit plans • Unlike 401(k)s, year over year deficits add to cost • If 30% increase received, will you react via increased funding/vendor review? • If self-funded, budget variance felt immediately • Adverse selection may have impact over time • Initial pricing set based on plan differences • What will impact be of employees “buying down”? • Small percent of employees drive most costs • Individual employees may be “over insured” but employer groups typically not • Adverse selection can “load” rates for some plans by 3-15% • If gross premiums drop by 25%, but claims don’t, what happens? • Cadillac tax impact based on “gross plan” costs and plan offerings - cost needs to be managed to avoid tax

48. Snapshot of Exchange Marketplaces Exchange Sponsor Target Market Segments Carriers Available • Consultant/broker • Technology firm • Insurer • Small to mid-size • Large to jumbo • All employer sizes • Individual/Non-Covered Employee Segments • Retirees • Single carrier • Multi-carrier Benefits Administration Services Product Suite Funding Flexibility • Online enrollment platform • Payroll / carrier integration • Decision support tools • Call center support • Employee communications • Medical/Rx only • Medical/Rx, dental, vision only • Comprehensive portfolio including dental, vision, life, disability, voluntary • Fully-insured only • Both fully-insured and self-funded

49. Michigan Options–BCBSM’s GlidePath • Limited roll-out 1/1/2014, expanding for 2015 • 30 clients (4 self-funded) • High HDHP adoption • Pre-defined menus of HDHP, PPO, and HMO • BCBSM medical mandatory (single carrier), dental/vision optional • No other benefits supported on platform • Must use Defined Contribution strategy (can have classes) • 75 day implementation • $5 per eligible employee per month (PEEPM) administrative fee • Standard payroll reports, employer works with payroll vendor to load deductions • Broker neutral

50. Michigan Options – Mercer Marketplace • Available 100+ employees, fully-insured or self-funded • Many carrier options – employer picks one (with some flexibility for larger locations) • Aetna, United HealthCare, CIGNA • Many regional players (Anthem) • Pre-defined menus, all lines of coverage • Six month implementation schedule • High level of integration services and employee communication support including call center, compliance services • $21 PEEPM plus $5,000 minimum implementation fee • Not broker neutral (Mercer or MMA)