Defined Contribution Healthcare and Exploring Private Exchanges. Phil Bushnell Managing Director, Religious and Nonprofit Practice

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1 Defined Contribution Healthcare and Exploring Private Exchanges Phil Bushnell Managing Director, Religious and Nonprofit Practice

2 Total Rewards Philosophy Strategic Regulatory Analytics Compensation Comprehensive Benefit Package Work Life Balance Professional Development Performance Management and Recognition What is Total Rewards? Total Rewards is all of the tools available to the employer that may be used to attract, motivate and retain employees. Total Rewards include everything the employee perceives to be of value resulting from the employment relationship. 2

3 Workforce Evaluation The Changing Priorities of your Workforce Generations Simple yet powerful tool that provides a unique perspective on the alignment between your Benefits and Total Rewards program and your current and future workforce. This analysis can be extremely valuable in setting strategy and designing an effective program. 3

4 Issues Facing (Arch)dioceses Dynamic market forces add layers of complexity for (Arch)dioceses. These market forces dramatically impact how you invest in and manage your workforce. Accelerating Costs Expanding Health Coverage Labor Changes/Unrest Cost Shifting/Inflation Evolving Legislative Landscape Healthcare Reform State/Federal Regulations Employer Administrative Burden of Complying Sweeping Change Attracting Key Talent Economic Climate Technology 4

5 Drivers of Perceived Benefits Value Employees in light of their age, family status, career path, and other factors all have a unique perspective on the benefits that are most important to them. Recognizing these generational and life stage differences will allow you to personalize this value equation for employees. Benefit Plan Costs Choice and Flexibility Employee Communications Value of Your Employee Benefits 5

6 Why are these my only choices year after year? Pass more costs onto your employees Cut or decrease benefits Spend even more on benefits 6

7 What is a Private Exchange? Sponsored benefits marketplace Medical Ancillary Voluntary Other Fully or self-insured option Shopping experience Sponsor selects carrier(s) and plans Vendor identified Budget determined Employees purchase products 7

8 Why is everyone talking about them? Employers are looking for a way to cap expenses Many are looking for alternatives to public options Diversity makes one-size-fitsall impractical 8

9 What is Defined Contribution? Similar to defined contribution for retirement (e.g. 401k) Employer establishes budget Determines buckets Link to total rewards philosophy Budgeted growth Performance factor 9

10 Evolution to Defined Contribution/ Private Exchange Comparison 10

11 Employees have different needs A one size fits all solution doesn t meet them. Traditionally, everyone gets a POS plan, basic dental and company-paid life. Chris & Family Cost: $1,800 My son has asthma, so we see the doctor often. I don t want to think about how much I spend each time. I need to protect my family in case something happens to me. Tom Cost: $650 Doctors I don t go much. I want to spend as little as possible on premiums. I haven t built up much in savings, so if I get sick and I m not getting paid, I need a source of income. Alicia Cost: $650 My favorite doctor doesn t accept insurance. I d like to stop smoking, and I do worry about cancer as it runs in my family. 11

12 Gallagher Marketplace makes it easier Employees can translate their needs into a personalized benefits portfolio 1 Employees fill out a simple questionnaire 2 They receive a personalized recommendation 3 They get additional educational information and guidance 4 They pick their portfolio of plans from a range of choices selected by employer 12

13 Finding the right protection It s about combining the right portfolio for that person or family. Now, everyone got what they wanted and total savings are $575 Chris & Family Tom Previously: $1,800 Previously: $650 With Gallagher Marketplace: With Gallagher Marketplace: HMO Health $1,300 Plan (Copay) HDHP Health $550 Plan Alicia Previously: $650 With Gallagher Marketplace: $675 (includes her monthly metrocard) Long Term Disability Life Vision Telemedicine Enhanced Dental HSA Long Term Disability Short Term Disability Basic Dental Accident POS Health Plan Critical Illness Wellness Transit FSA 13

14 Defined Contribution Current Medical Spend = $6.3m Other Health & Welfare = $1.7m Possible Strategy: Provide $$ G.M. Employee with DC value of $600/ pepm, with a max value applied to medical up to $400. Total Spend $8m or $666/pepm Variable Input based upon employer business results Page 14 14

15 Gallagher Marketplace 1000 Employee Example 2013 Benefits PPO High - 64% - $600 HSA Low 36% - $ GM PPO Gold 12% - $600 PPO Silver Hi 22% - $500 PPO Silver Lo 31% - $450 Medical Plan Spend $6.3m * % s represent enrollment distribution HSA 18% - $400 ACO Plan 17% - $300 Medical Plan Spend $5.2m projected 15

16 How do my employees make decisions? Carrier/plan options determined by plan sponsor Employees respond to lifestyle questions Decision support recommends portfolio Employees review, make adjustments and confirm choices spending their money on what is most important to them 16

17 What happens to my experience? Typically not pooled, so your demographics and experience determine your rates Defined contribution gives employees ownership in how they spend Employee purchase decisions and revised risk profile can change experience 17

18 Is this all about shifting risk? If it isn t done right absolutely! Done well, employees: Better understand and appreciate their benefits Choose plans that are suited to their individual needs Lower costs Manage risk 18

19 What is the difference between Private Exchanges? Exchange vs. benefits administration Process vs. transaction Strategic alignment Regulatory and legislative compliance Defined contribution discussion/decision Communication Meaningful choice Robust decision support Superior customer advocacy 19

20 What does a Private Exchange cost? Free to expensive Nothing is free Expensive isn t good, either Set-up costs are typically low and are borne by the sponsor Like 401k plans, user fees are generally paid by employees Net costs tend to decline Y1 and often trend lower than past trend 20

21 Who should be considering a Private Exchange? Controlling the growth of benefit costs is important to you Defined contribution Trend Hire date to full productivity is relatively long and you want to continue to provide benefits as part of your acquisition/retention strategy Employees don t fully understand/ appreciate what you are spending on benefits Employees want more choices 21

22 Why should I add Private Exchange? Realign your benefits to fit your overall organizational people strategy Employer Define budget not benefit create quantifiable savings Build a custom benefits store with a variety of insurance products Provide employee education and decision support Employee Employees want more choices Better consumers with Best-in-class decision support Right-sized benefits to maximize value to employee Understand/appreciate value of benefits Instead of the typical one-size-fits-all approach, personalize each employee s benefits. Page 20 22

23 When should I make the move to a Private Exchange? Align your total rewards philosophy with your overall organizational strategy Leader vs. follower Find the right partner Value Advice Ease of business process 23

24 Introducing Gallagher Marketplace Instead of the usual one-size-fitsall approach, personalize and right-size each employee s benefits portfolio. You give employees a set amount of money to spend on benefits Employees shop in the online store and are guided to personalized benefits selections Gallagher Marketplace Provides technology support online and on the phone Consolidates and handles administrative tasks 24

25 Make it Easier, Make it Better Employees personalize a benefits portfolio to meet their needs Employees complete a questionnaire Receive a personalized recommendation Receive educational information Choose portfolio of plans from a range of options 25

26 Gallagher Marketplace With Gallagher Marketplace both employers and employees win Employer Save money Get a predictable benefits budget Streamline administrative tasks Employee Save money Get the right benefits for their needs Understand and appreciate the value of their benefits Get more involved in their healthcare 26

27 Thank you! Phil Bushnell Managing Director, Religious and Nonprofit Practice Gallagher Benefit Services, Inc Main Fax 27