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Prepared by Aon plc Matthew C. Levin
Aon Hewitt: Evolution of Employer-Sponsored Health Benefits
Matt Levin 2014 Analytics Insights Conference July 22 - 24
Evolution of Employer-Sponsored Health Benefits—Today’s Topics
Aon & the Role of the Broker
Health Exchanges
Questions
Aon plc
Proprietary & Confidential 3
Who is Aon?
65,000 colleagues
worldwide Risk Solutions
Aon Risk Solutions Aon Benfield Aon Hewitt
HR Solutions
Aon plc
INSIGHT INTO PREMIUM FLOW
THROUGH GRIP
$80+ billion
in premium flow
REINSURANCE PREMIUM TRANSACTED
$29+ billion
$1+ trillion
INVESTMENT GRADE CAPITAL
OPERATIONS IN
120
countries
Administer benefits for more than
million people
Aon plc
Proprietary & Confidential 4
Aon’s Role as a Health and Benefits Broker
Health
Health Exchange Platform for
Corporate Group Exchanges
Greater Insight (TBS) for Global Benefits and H&B Globally
New Platform for Retiree Exchanges
(Navigators)
U.S./Canada Benefits
Administration
$100+ MM Investments to Drive Distinctive Health Solutions
Aon has Market-Leading Capabilities
Largest provider of health & welfare admin
– 10k unique health plan designs
– Administer benefits for 22 M participants
– Direct $8B in health premiums annually
Pioneer in health care exchanges
– 600,000+ employees and their families in our Aon Hewitt
Active Health Exchange for 2014
– Serve 200,000 retirees through our retiree exchange
Provide Health & Benefits consulting covering the
health benefits management spectrum
– 90 locations worldwide
– 5,000+ large and mid-market clients in both public and private
sectors
• Insurance Market Insights
• Project Analysis
• Benchmarking/Marketing
• Day-to-day Account Management
• Underwriting Expertise
Brokerage
• Short/Long-Term Benefits Strategy Planning
• Data Analytics Expertise
• Compliance Expertise
• Risk Mitigation/Prevention
• Product/Solution Innovation
Consulting
Aon plc
Proprietary & Confidential 5
Aon Competes in a Crowded Marketplace
LOCAL
BROKERS
Aon plc
Proprietary & Confidential 6
Trends Impacting our Business as an Advisor to Employers
Rising medical costs, trend expected to continue
Healthcare reform actions driving major changes and new options – We must help our clients to be ahead in benefits, compliance and tax requirements
Aging population increases the proportion of inactive participants in the system
Demand for global benefit solutions increasing
Absence, productivity and wellness are major concerns to employers
ACOs, delivery system transformation, insurance mandate for employers
Aon plc
Proprietary & Confidential 7
Rising Medical Costs: Employers Need to Take Action
Wellness programs
High Deductible
plans
Risk Transfer
models
Rising medical costs are pushing
employers to react with:
1 Kaiser Family Foundation: Employer Health Benefits 2012 Annual Survey
Health insurance cost are rising1 at substantial levels
Experts estimate that health care costs will continue to rise at 8-9% per year
Elimination of
subsidies
HSAs & HRAs
Surcharge for
smokers
Direct contracting
with providers
Third-party PBMs
Aon plc
Proprietary & Confidential 8
Compliance: ACA Reforms, Taxes, Fees and Public Exchanges
2013 2014 2015
ACA
Reforms
Expenses allocable
to RDS payments
not deductible
Applicable “Large
Employers” must
provide affordable
health care
coverage to FTEs or
risk penalty
Fees Patient Centered
Outcomes Research
Institute (PCORI) fee
Transitional
reinsurance fee
Taxes New taxes on high-
income individuals
earning over $200K
($250K for joint
filers)
Individuals must buy
health insurance or
pay shared
responsibility tax
Exchanges Notify all employees
about Exchanges
State insurance
exchanges begin
Aon plc
Proprietary & Confidential 9
Health and Health Care: A Risk Paradigm
* Aon Hewitt 2013 Health Care Survey
Current State:
Annual Trend
Mitigation
Future State:
Risk mitigation
Manage Risk:
House Money, House Rules
Transfer Risk:
Leverage Exchanges
Regardless of path, you need health improvement, outcomes measurement, and system change
From 2% to 28% over next 3-5 years*
From 57% to 37% over next 3-5 years*
Aon plc
Proprietary & Confidential 10
The Next Frontier for Cost Containment in Group Health Care— Driving Efficiency “Below the Waterline”
Payment
Reform
Care
Management
Competitive
Market Forces
Discount
Rates
Plan
Design
What Health Care Costs
(Supply)
How We
Access and Pay For
Health Care
(Demand)
Do you have the scale and interest in driving change below the water line?
What will the employee and employer experience be in the process?
Health
System
Reform
Wellness
Aon plc
Proprietary & Confidential 11
“Above the Waterline” Strategies Fail to Impact (and might even enable) Underlying Market Inefficiencies
Major Joint
Replacement Pacemaker Implant Pneumonia Case
$74,425 $165,000 $32,000
$36,141 $36,000 $7,674
Wide Cost Variations within Local Markets—Chicago Example
More health care supply in a geographic market = higher health care costs
--Dartmouth Health Care Study
Source: CMS
Aon plc
Proprietary & Confidential 12
Going Forward “Above the Waterline” Strategies Cannot Contain Upward Price Adjustments and System-wide Cost Shifting
Tylenol with
Codeine Pill
IV Fluid Bag
Neck Brace
Echocardiogram
Knee
Arthroscopy
California
Pacific
Medical
Center
$36.78
$137
$154
$1,791 Hospital fee only
$14,110
Market
Price $0.50
< $1
$19.99
$358 Includes doctor
$2,037
Sources: California Pacific Medical Center chargemaster; Health Care Blue Book; CVS in San Francisco
‘We are required to give Medicare one level of discount from list price, Medicaid another, and private insurers negotiate for
still others,’ officials told the newspaper. ‘If we did not start with the list prices we have, we would not end up with
enough revenue to remain in operation.’
--Yahoo News, 1/28/2014: “Snakebite Victim Charged $89,000 for 18-hour Hospital Stay”
Aon plc
Proprietary & Confidential 13
Health Systems Recognize This and are Scaling for Price Power
“The Affordable Care Act (ACA) has unleashed a merger frenzy, with hospitals scrambling to shore up their market positions, improve operational efficiency, and create organizations capable of managing population health. The figures are impressive: 105 deals were reported in 2012 alone, up from 50 to 60 annually in the pre-ACA, pre-recession years of 2005–2007”
– New England Journal of Medicine, Jan 16, 2014
Aon plc
Proprietary & Confidential 14
Three Potential Employer Responses
Payment
Reform
Care
Management
Competitive
Market Forces
Discount
Rates
Plan
Design
Do you have the scale and interest in driving change below the water line?
What will the employee and employer experience be in the process?
Health
System
Reform
Wellness
Stay the Course
Drive Health
System Change
Directly
Leverage Market
Forces to Drive
Change (fully
insured exchange)
1
2 3
Evolution of Employer-Sponsored Health Benefits—Today’s Topics
Aon & the Role of the Broker
Health Exchanges
Questions
Aon plc
Proprietary & Confidential 16
What is an Exchange?
An exchange is a competitive marketplace that consists
of suppliers and buyers
Exchange
Aon plc
Proprietary & Confidential 17
How the Exchange Works: Key Levers
Consumerism
Standardized Plans
Attractive Buyer Market
Transparency
Competition
Multiple Carriers
Fully-Insured
Risk Adjustment
Aon plc
Proprietary & Confidential 18
Six Essential Elements of a Health Exchange
No “silver bullet”; there are six key levers working in concert to
support our Value Proposition
Insured Plans
Consumerism
Competition
Choice and Flexibility
Defined Contribution
Subsidy
Best-in-Market
Efficiencies
Our Value Proposition Reduce Trend
Remove Volatility
Employee Sustainability and Choice
Aon plc
Proprietary & Confidential 19
This Can Work in Health Care
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
1997 1999 2001 2003 2005
$0
$100
$200
$300
$400
$500
$600
# Units
Avg. Unit
Price
Market Maturity—DVD Players
Source: MarketScope, Consumer Electronics Corp.
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
$1,500
$1,600
$1,700
$1,800
$1,900
$2,000
$2,100
$2,200# of Procedures
Avg. Price (per eye)
Market Maturity—Lasik Surgery
Aon plc
Proprietary & Confidential 20
This Has Worked in Health Care The Closest Existing Analog
Medicare Part D Historical Premiums, 2006-2014
Average Base Monthly Premiums
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
2006 2007 2008 2009 2010 2011 2012 2013 2014
This is the Closest Health Care Analog to Aon Hewitt’s Exchange—
Standardized, Fully Insured Plan Designs with Robust Carrier Competition
Source: Centers for Medicare and Medicaid Services
Aon plc
Proprietary & Confidential 21
Aon Hewitt Active Health Exchange: How it Works
Determine Employer
Contribution
Insured Plan Offerings
for Participants
Exchange Background
Mechanics with carriers
Aon plc
Proprietary & Confidential 22
Value Proposition—Making This Work for All Stakeholders
Employees Greater choice of plans and carriers
Superior customer experience
Flexibility to tailor benefit/contribution trade-offs
Employers Risk transfer and predictability
Trend mitigation through competition, efficiency, and
best-in-market contracting
Focus on health and productivity
Carriers Market share opportunity
Earnings potential
Product innovation and control
Attractive risk pool
Aon plc
Proprietary & Confidential 23
Online Retail Shopping Experience Encourages Plan Comparisons
Aon plc
Proprietary & Confidential 24
Aon Hewitt Active Health Exchange is Growing Fast and Producing Positive Results
Aon Hewitt Active Health Exchange enrolled over
600K individuals in 2014, up from 150K in 2013
600K+
150K+
Enrollments
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2013 2014
Active Employees Covered Lives(Employees + Family Members)
The average cost increase in fully
insured premiums for re-enrolling
companies in 2014 was 5.1%,
roughly 100-200 bps better than
average estimated health care cost
increases for large U.S. employers of
6-7% in 2014.
Aon plc
Proprietary & Confidential 25
2014 Enrollment Results—Medical
Enrollment by Metallic Level
Aon Hewitt Public Exchanges
Aon plc
Proprietary & Confidential 26
Employees Prefer Choice vs. Unilateral Change
Exchange enrollees who agreed with the following statements:
Total
I like being able to choose my own carrier
87%
I feel confident that I chose the health plan that offered the
best value
73%
How satisfied were you with the benefits enrollment process
80%
I feel like (employer) tries very hard to make my benefits
enrollment experience positive
72%
I have a good understanding of how my employer and I share
the cost of my medical insurance
75%
Survey scores represent Top Three Box scores across 24, 246 survey responses.
Aon plc
Proprietary & Confidential 27
The Participant Online Experience
Over 90% of participants enrolled online
Participants are leveraging tools in a meaningful way
Website Tool Usage
50%
18%
31%
24%
86%
66%
29%
27%
9%
10%
64%
Health Plan Comparison…
Provider Search
Decision Direct
Destination Rx
Carrier Microsite
Medical Expense Estimator
Need Help Deciding
Aon Hewitt Corporate Exchange
90%
10%
Exchange Enrollment Channel
Website Enrollment %
Customer Service Enrollment %
90%
10%
Aon plc
Proprietary & Confidential 28
Decision Support Tools Were Well Received
Consumer satisfaction with web tools
Health Plan
Comparison Chart
Carrier
Website
Prescription
Drug Formulary
88% 78% 78%
Enrollment
Guidance
Medical Expense
Estimator
Provider
Directory
78% 82% 84% 79%
Need Help
Deciding
Survey scores represent Top Three Box scores across 24, 246 survey responses.
Aon plc
Proprietary & Confidential 29
Price Matters, But Not Exclusively
• Best overall pricing (32%)
• Closest plan to my current plan (23%)
• Best level of medical coverage for me (19%)
Primary reason for selecting their medical plan level
• Lowest cost carrier for the coverage level desired (36%)
• Good experience with the carrier in the past (25%)
• Doctors in the network (22%)
Primary reason for selecting their medical plan carrier
• New carrier’s premium was the best deal (27%)
• Prior carrier increased their premium too much (26%)
• Only 1.6% said it was due to their doctor no longer being in the network
Primary reason for changing medical plan carrier
Aon plc
Proprietary & Confidential 30
Second Year Switching Behavior
7%
12%
15%
27% 30%
34% 36%
25% 22%
12% 14%
Aon plc
Proprietary & Confidential 31
Where Large Employers are Going
Source: Aon Hewitt 2013 Health Care Survey, 5% of respondents chose “Other”
Aon plc
Proprietary & Confidential 32
Companies Most Likely to Adopt a Private Exchange
Key decision criteria (in order of importance)
Mandate for change
Strategic fit
Internal champion with access to the C-suite
Acceptable financials
Internal decision process that matches RFP results
timeline
Willingness to take on change management
activities
Evolution of Employer-Sponsored Health Benefits—Today’s Topics
Aon & the Role of the Broker
Health Exchanges
Questions