Employer-Sponsored Healthcare: What Happens Now?

Transcription

1 For more information, contact: Mindy Kairey Employer-Sponsored Healthcare: What Happens Now? The 2012 Survey on Employer Health Benefit Plans and Preferences Conducted by the Oliver Wyman Health & Life Sciences Practice By Mindy Kairey and John Rudoy If you ask American companies, as we did in a recent survey, how they feel about employersponsored health insurance and how they intend to react as U.S. healthcare reform is implemented, two points will leap out at you. 1. Overwhelmingly, employers want to continue to provide coverage to employees. Despite the rapidly rising cost of coverage, only 8 percent of the employers surveyed, accounting for 5 percent of employees, planned to drop employer-sponsored coverage. Fifty percent indicated that they will continue to offer insurance, but anticipate major changes. The remaining 42 percent are inclined to maintain the status quo. 2. They know that if current trends continue, they can t. Nearly two-thirds of employers believe that the cost of providing health coverage is unsustainable in the long term at current rates of medical inflation, and more than half would find it unsustainable even if medical inflation fell by five points. How will employers resolve this conundrum? That is one of the most significant questions facing the United States and especially the healthcare industry. Employer-sponsored insurance remains a crucial element of U.S. healthcare: Of the 218 million Americans under age 65 who had health coverage of any sort in 2010, 157 million (or more than 70 percent) were covered through an employer, their own or a family member s. Over the next few years employers will face tremendous pressure to shed the burden of healthcare costs and the Accountable Care Act (ACA), if it survives its current court challenge, will provide many employers with a plausible way to discontinue healthcare benefits or shift them to a defined-contribution model. What healthcare benefit strategies are employers likely to pursue in the next few years? Which employers will choose which alternatives? What are their underlying motivations? How aligned are employer intentions with those of employees? What will it take to keep employers in the health insurance market, and what products and marketing messages will speak most directly to their needs and wishes? To answer these questions, the Health and Life Sciences practice of Oliver Wyman surveyed more than 1,300 employers, large and small. Because most employers care a great deal about what employees think, we also surveyed 738 employees with employer-sponsored health coverage. In this report, we will share our findings. We will look first at what motivates employers when it comes to providing healthcare coverage and identify the four pathways they are likely to follow. We will look briefly at their rather surprising attitude toward alternative forms of health coverage, such as private exchanges and value-based networks. We will also share insights on how health plans and healthcare providers and other new players likely to enter the market can design products and

2 revamp value propositions to attract employers with different needs and motivations. Finally, we will focus specifically on what health plans need to do to survive and win in the new healthcare marketplace. Four Paths Forward Our goal was to gain a nuanced view of what choices employers will make and why. Toward that end, our survey included scenario-based questions asking respondents to choose between realistic alternatives. We looked at three primary variables employer size, employee compensation, and employer attitudes and motivations to assess their relative influence. When evaluating employer attitudes, we examined how respondents felt about the cost of healthcare relative to their own financial situation, knowing that cost is a likely driver of action. All employers face serious financial issues today, but some are more willing than others to tolerate the high cost of care, given the relative value they place on employee health and satisfaction. We found that employers fell into four segments. They differed primarily along two dimensions their risk of exiting the insurance market and their interest in new solutions: 1. Exit the Market. This is the smallest segment, accounting for 8 percent of employers and 5 percent of employees. They tend to be smaller companies in manufacturing and retail, and their employees tend to be low-paid. They are driven by economics these are companies that simply can t continue to offer health coverage. They believe the status quo is unsustainable, and they see little reason to pursue alternative solutions. It makes sense for these employers to send employees to the public exchanges, but they might be persuaded to try other alternatives as long as they save money. 2. Follow the money. This segment makes up 22 percent of employers and 16 percent of employees. They tend to be small and medium-sized companies, with a concentration in retail and manufacturing, and they face severe financial pressures. Their employees have low to moderate wages, but the companies have a great interest in their health. Their economic constraints coupled with the value they place on supporting their employees, create a difficult dilemma to stay in or exit. Because they are concerned for their employees health, they are willing to try new solutions. But their focus is primarily on lowering costs. This segment may eventually exit the market if financial pressures continue and they find no palatable solution. 3. Maintain the Status Quo. This is the largest segment 42 percent of employers and 43 percent of employees. They tend to be medium to large companies, with a high concentration in business services. They are in relatively good financial health compared to other groups, and their employees are relatively high-income. They have a high level of concern for both employee health and employee satisfaction. Cost of coverage is secondary. It is important to note that if healthcare costs continue to rise, this segment will probably migrate to our last segment, Imperative to Innovate, rather than exiting the market, given their strong desire to support employees and their favorable economics. 2

3 4. Imperative to Innovate. This segment accounts for 28 percent of employers and 36 percent of employees. They tend to be large companies from a wide range of industries though with a lower concentration in retail and manufacturing. They are under a fair amount of financial pressure. Companies in this segment have the highest level of concern with employee health, and they are somewhat concerned with employee satisfaction. They tend to have a paternalistic attitude toward their employees they believe they can make better decisions about healthcare than their employees can. Their workforce is relatively highly paid, and if ACA is upheld, its penalties will make it financially unfeasible for this group to discontinue health benefits. At the same time, they see the status quo as unsustainable. They must reduce costs but believe that the right kind of benefit program can lead to better health and significant savings. They are actively looking for new alternatives to traditional health insurance. Who s staying, who s going, and who s ready for a new solution One of four distinct strategies will be pursued by different employer segments Only 8 percent of employers plan to stop offering health coverage, while 50 percent are likely to make real change 3

4 Carriers have traditionally categorized their employer customers by size, industry, and employee demographics. (See Size, Income, and Attitude: What Matters Most. ) In our survey, however, the most important factor was employer attitudes and motivations, including perceptions of how healthy their business was, how much they cared about employee health, why they offered health insurance, and how open they were to change. The importance of attitude is relatively new for the employer-oriented healthcare market. It suggests the industry may need to evolve, as so many other industries have, toward greater customer-centricity. Looking for alternatives This is not to say that employers have made up their minds or are committed to specific alternatives. In our survey, more than 70 percent said they do not have a strong understanding of healthcare reform, and more than 80 percent said they do not yet have a post-reform strategy for employee benefits. As a result, one objective of our survey was to understand how employers might be enticed to continue private healthcare coverage. For some years employers have been seeking alternative solutions that would hold the line on costs while improving employee health. While a variety of innovations have emerged, many would argue that they haven t successfully met the needs of employers. It is reasonable to expect new, more revolutionary solutions to become increasingly important as health plans work to keep employers from exiting the market. To better assess employer s specific interests in new solutions, our survey focused on two alternatives: private exchanges and value-based networks. (See SIDEBAR.) Our reasoning was that these two (1) are gaining enough traction in the marketplace to make it clear that they will play a significant role in a post-reform market and (2) are sufficiently different from traditional insurance and distinct enough from each other to make them a practical option for employers. Size, Income, and Attitude: What Matters Most? The conventional wisdom is that size will be a key factor in determining how employers will choose to proceed with larger employers maintaining benefits and smaller ones dropping them. And indeed, 8 percent of the smallest employers in the survey (10 to 50 employees) planned to exit the private insurance market, compared to only 4 percent of the largest employers (3,000 employees or more). On the basis of their answers to the survey, an additional 25 percent of small employers are likely to stop offering coverage if the market does not offer new solutions for reducing costs. The equivalent figure is 12 percent of the largest employers. Employee compensation is a significant factor as well. About 5 percent of companies where a majority of employees make more than $44,000 a year plan to drop coverage, compared to about 10 percent of companies where the majority of employees make less than $44,000 a year. The third variable, employer attitudes, was the single most important factor in determining which strategies employers are likely to pursue. We looked at a variety of factors, including employers beliefs about their current financial situation, the relative importance they gave to employee satisfaction, their openness to change, and their motivation for providing healthcare coverage. For example, many employers have a strong interest in maintaining or improving employee health, but some are more motivated by their belief that it s the right thing to do, while others believe that managing health effectively will ultimately reduce costs. Only 5 percent of those most interested in their employees health are likely to consider discontinuation, compared to 16 percent of those most oriented toward cost. Employers who provide insurance because they believe it is the right thing to do were the least likely to stop: Only 2 percent would consider discontinuing coverage. 4

5 Defining the New Solutions The market hasn t yet come to an agreement on how to define and describe alternative forms of coverage. Here is how we used them in constructing our survey: Private exchanges offer employees access to a variety of insurance products, either from a single carrier or from multiple carriers. They can be customized in terms of what sorts of products they offer and whether they are fully subsidized or follow a defined-contribution model. They can be operated by individual health plans, benefit consultants, or other third parties. Value-based networks take many forms and range from a selected provider network focused on managing a particular disease state to broader networks that are rewarded for maintaining the health of the general population. The essence of the value-based network is that providers are reimbursed for outcomes instead of utilization, reducing overall healthcare spend. In our scenario testing, employers were highly interested in both solutions. About 20 percent were interested even if no savings were anticipated. Another 50 percent were highly interested in either private exchanges or value based networks if they could save at least 10 percent. Only 10 percent of employers rejected both alternatives regardless of how much they could save. For private exchanges specifically, about 60 percent of employers were willing to choose this option if it saved them at least 10 percent of healthcare costs. An additional 20 percent were interested even if there were no savings. Employers interested in this solution tend to see it as a way to save money while keeping employees happy. Private exchanges offer an easy mechanism for employers to move toward a defined contribution approach, and many were interested in that. At the same time, they also want services to help their employees choose optimal coverage, and they want to avoid disruption as much as possible by offering plans that maintain current patient-physician relationships. About half of employers would select a value-based network if it saved them at least 10 percent in healthcare costs, and about 20 percent were interested regardless of savings. The employers who favored this approach are concerned about cost savings but see a similar balance between reining in health insurance costs and preserving employee experience. These employers say their strongest motivation for choosing a value-based network is to improve employee health. They highly value features such as rewards for healthy employee behaviors and access to e-health options. Nonetheless, not every solution will appeal to every employer, and players in the market will have to develop specific solutions that address what employers want and need. For example, a private exchange can be structured in many ways, with each offering its own mix of cost, coverage, degree of care management, and customer experience. Let s consider the private exchange supermarket. This type of exchange, hosted by a third party, will offer products from multiple carriers, with a focus on low-cost offerings. The host of the exchange will handle administration and maintenance, allowing employers to diminish or eliminate their own role. Customer service will be minimal. This model is likely to appeal to companies in our Exit the Market segment; which will see it as a soft landing for employees and a graceful exit for them. It might also appeal the Follow the Money segment but to a lesser degree. These employers need to save money, but will lean toward exchange models that provide a better customer experience and focus on improving health (for example, exchanges that offer a value-based network type of product, provide advocacy support, or focus on a positive consumer experience). 5

6 Along similar lines, valued-based networks will appeal to both the Imperative to Innovate and the Follow the Money segments but for different reasons. In the former, the value proposition should emphasize: Value-based networks provide access to the best doctors. Marketing messages and solution attributes should focus on making employees healthier, happier, and more productive. Cost savings would be obtained by providing better quality care, not restrictions. In contrast, the value proposition for the employer segment Follow the Money should emphasize: Value-based networks provide the most efficient care at the lowest prices. Marketing messages and solution attributes should focus on how employees will receive better quality care. It will be important to demonstrate how better care translates into productivity gains for employers. It will also be necessary to provide evidence of tangible cost savings to both the employer and the employee. Three points should be noted: Employer attitudes and motivations must be taken into consideration both in designing healthcare solutions and in designing marketing messages. There is no doubt that new solutions and products must have superior features and functions, but they must connect to the emotional beliefs and values of the customer. This is a relatively new idea in the employer-sponsored insurance market. Similar insights hold true for members as well. Health plans need to better understand employee s attitudes and motivations and should work to build a direct relationship with the members. There is no doubt that the definition of customer is changing but new competencies and behaviors are required to successfully secure their business. Preparing to Win Our survey showed that employers are willing to try new approaches, but willingness alone will not bring about change: Employers are used to working with traditional payers, who have a significant stake in the status quo. Moreover, employers worry that employees will resist change. (And employers care what employees think: More than half the employers in our survey planned to consider employee input in healthcare decision making; and only 18 percent planned not to.) Together, these factors have helped delay healthcare innovation. But will they in the future? Here are two reasons to think not: Employers are prepared to do business with new partners. Two-thirds of respondents were willing to obtain a private exchange from a benefits consultant instead of a conventional payer organization. This is especially significant because benefit consultants have emerged early as solution providers in this space. Health plans will need to think carefully about whether and how to participate in consultant-run exchanges, which could have a major impact on traditional distribution channels as well as their own plans to develop sole-source exchanges. Similarly, almost 40 percent of employers said they were interested in contracting directly with provider organizations for a value-based network a possibility that could seriously disrupt the healthcare marketplace. While it can be difficult to create and operate a value-based network for large employers that do business in multiple geographies, providers with strong brands could open up significant new market opportunities. 6

7 Employers will consider non-health plan players: Employers are more likely to consider benefit consultants for Private Exchanges Employees are willing to change. It wouldn t be true to say that employees actively desire change; most are reasonably happy with the status quo. But they are not committed to it: Almost two-thirds said they were not very satisfied with their current insurance arrangement, and 90 percent said they would accept major changes in their coverage to save money. Because employers will be influenced by employee preferences (almost 60 percent will take employee input into account when making benefit decisions), it is imperative to clearly understand their needs and priorities. By doing this, health plans will be able to demonstrate that they are expert in engaging employees, serving their needs and, ultimately helping them achieve better healthcare outcomes. Similarly, health plans can begin to build a more trusted relationship with employees. These efforts, in combination, could accelerate the path to change. Employees are ready for change, and are open to new solutions The road to healthcare reform will be long, and it will offer surprises, disruptions, and new opportunities. The best of plans will have to be revised, the best predictions modified. But the views employers expressed in our survey encourage us to think that a sea change is at hand. Employeroriented health plans have not been under the delusion that healthcare reform would pass them by, but many have underestimated how great a change their business will undergo. 7

8 Recent history reminds us that employers can make breathtakingly swift paradigm shifts when faced with the right combination of cost pressure, opportunity, and legislation: Think of the rapid rise of defined-contribution pensions in the 1970s and the HMO boom of the 1980s. Conditions are ripe for similarly sweeping change now. Underlying the insights we have collected is a familiar business lesson, but with a new level of significance: Know your customers. In the case of employer customers, this means recognizing that employers can no longer afford a one-size-fits-all approach to health benefits. To succeed in this market health plans need to understand employers specific needs and provide products that solve their problems urgent problems in many cases. If traditional healthcare players don t deliver, employers will find new partners to help them. But the focus on understanding your customer needs must go further. Health plans need to help employers achieve healthier workforces and save money on care. To do that, they will have to understand and engage with employees consumers, patients on a whole new level. Health plans that Ready to Win: A Checklist for Health Plans Our survey results point to a new era in employer-sponsored health insurance an era marked by rapid evolution, more differentiated customers, and greater opportunity for players who can truly meet customer needs. Some key questions to ask: Which of your customers will pursue what path forward and why? Which of your new solutions are most attractive to which customers and why? How well can you demonstrate that you understand employee needs and motivations, can provide an improved member experience, and drive better healthcare outcomes? What will it take for you to have timely market-ready solutions that directly appeal to these buyers? choose to participate in private exchanges must develop a new sense of what appeals to employees, what will attract them to optimal products, and how to move them toward taking greater responsibility for their own health. Companies that work with value-based networks will have to learn a new clinical and economic approach rooted in motivating and incentivizing providers and patients alike to adopt new behaviors and attitudes. The transition will be difficult. But we believe that it will lead to a more sustainable healthcare industry in which companies will have new opportunities to create value and profit by it. That, we believe, is the win-win we ve all been looking for. 8

9 About Oliver Wyman Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 25 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. The firm s 3,000 professionals help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC], a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy, and human capital. With 52,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in risk and reinsurance intermediary services; and Mercer, a global leader in human resource consulting and related services. Oliver Wyman s Health & Life Sciences practice serves clients in the pharmaceutical, biotechnology, medical devices, provider, and payer sectors with strategic, operational, and organizational advice. Deep healthcare knowledge and capabilities allow the practice to deliver fact-based solutions. For more information, visit Follow Oliver Wyman on About the Authors Mindy Kairey is a partner in Oliver Wyman s Health and Life Sciences practice. She can be reached at mindy.kairey@oliverwyman.com John Rudoy is a Senior Consultant in Oliver Wyman s Health and Life Sciences practice. He can be reached at john.rudoy@oliverwyman.com 9