Aon Hewitt: Evolution of Employer-Sponsored Health Benefits

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1 Aon Hewitt: Evolution of Employer-Sponsored Health Benefits Matt Levin 2014 Analytics Insights Conference July Prepared by Matthew C. Levin

2 Evolution of Employer-Sponsored Health Benefits Today s Topics Aon & the Role of the Broker Health Exchanges Questions

3 Who is Aon? Risk Solutions 65,000 colleagues worldwide HR Solutions Aon Benfield Aon Risk Solutions Aon Hewitt REINSURANCE PREMIUM TRANSACTED INSIGHT INTO PREMIUM FLOW THROUGH GRIP $29+ billion $80+ billion in premium flow OPERATIONS IN INVESTMENT GRADE CAPITAL $1+ trillion 120 countries Administer benefits for more than million people 3

4 Aon s Role as a Health and Benefits Broker Insurance Market Insights Project Analysis Brokerage Benchmarking/Marketing Day-to-day Account Management Underwriting Expertise Consulting Short/Long-Term Benefits Strategy Planning Data Analytics Expertise Compliance Expertise Risk Mitigation/Prevention Product/Solution Innovation $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 Health U.S./Canada Benefits Administration Health Exchange Platform for Corporate Group Exchanges Greater Insight (TBS) for Global Benefits and H&B Globally New Platform for Retiree Exchanges (Navigators) 4

5 Aon Competes in a Crowded Marketplace LOCAL BROKERS 5

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 6

7 Rising Medical Costs: Employers Need to Take Action Health insurance cost are rising 1 at substantial levels Rising medical costs are pushing employers to react with: Wellness programs Third-party PBMs Direct contracting with providers High Deductible plans Surcharge for smokers Elimination of subsidies 1 Kaiser Family Foundation: Employer Health Benefits 2012 Annual Survey Experts estimate that health care costs will continue to rise at 8-9% per year HSAs & HRAs Risk Transfer models 7

8 Compliance: ACA Reforms, Taxes, Fees and Public Exchanges ACA Reforms Fees Expenses allocable to RDS payments not deductible Patient Centered Outcomes Research Institute (PCORI) fee Transitional reinsurance fee Applicable Large Employers must provide affordable health care coverage to FTEs or risk penalty Taxes New taxes on highincome 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 8

9 Health and Health Care: A Risk Paradigm From 57% to 37% over next 3-5 years* Current State: Annual Trend Mitigation Manage Risk: House Money, House Rules Transfer Risk: Leverage Exchanges Future State: Risk mitigation From 2% to 28% over next 3-5 years* Regardless of path, you need health improvement, outcomes measurement, and system change * Aon Hewitt 2013 Health Care Survey 9

10 The Next Frontier for Cost Containment in Group Health Care Driving Efficiency Below the Waterline How We Access and Pay For Health Care (Demand) Discount Rates Plan Design Wellness What Health Care Costs (Supply) Payment Reform Competitive Market Forces Care Management Health System Reform 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? 10

11 Above the Waterline Strategies Fail to Impact (and might even enable) Underlying Market Inefficiencies Wide Cost Variations within Local Markets Chicago Example Major Joint Replacement Pacemaker Implant Pneumonia Case $74,425 $165,000 $32,000 $36,141 $36,000 $7,674 Source: CMS More health care supply in a geographic market = higher health care costs --Dartmouth Health Care Study 11

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 12

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 New England Journal of Medicine, Jan 16,

14 Three Potential Employer Responses 1 Stay the Course Discount Rates Plan Design Wellness Competitive Market Forces Payment Care 2 Reform Management 3 Drive Health System Change Directly Health System Reform Leverage Market Forces to Drive Change (fully insured exchange) 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? 14

16 What is an Exchange? An exchange is a competitive marketplace that consists of suppliers and buyers Exchange 16

17 How the Exchange Works: Key Levers Consumerism Competition Standardized Plans Attractive Buyer Market Transparency Multiple Carriers Fully-Insured Risk Adjustment 17

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 Defined Contribution Subsidy Competition Our Value Proposition Reduce Trend Remove Volatility Employee Sustainability and Choice Choice and Flexibility Best-in-Market Efficiencies Consumerism 18

19 This Can Work in Health Care 25,000,000 Market Maturity DVD Players $600 20,000,000 $500 15,000,000 10,000,000 $400 $300 $200 # Units Avg. Unit Price 5,000,000 $ ,600,000 # of Procedures Avg. Price (per eye) 1,400,000 1,200,000 1,000, , , , ,000 0 $0 Market Maturity Lasik Surgery $2,200 $2,100 $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 Source: MarketScope, Consumer Electronics Corp

20 This Has Worked in Health Care The Closest Existing Analog Medicare Part D Historical Premiums, $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Average Base Monthly Premiums 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 20

21 Aon Hewitt Active Health Exchange: How it Works Determine Employer Contribution Insured Plan Offerings for Participants Exchange Background Mechanics with carriers 21

22 Value Proposition Making This Work for All Stakeholders Employers Risk transfer and predictability Trend mitigation through competition, efficiency, and best-in-market contracting Focus on health and productivity Employees Greater choice of plans and carriers Superior customer experience Flexibility to tailor benefit/contribution trade-offs Carriers Market share opportunity Earnings potential Product innovation and control Attractive risk pool 22

23 Online Retail Shopping Experience Encourages Plan Comparisons 23

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 Enrollments 700, K+ 600, , , , , K+ The average cost increase in fully insured premiums for re-enrolling companies in 2014 was 5.1%, roughly bps better than average estimated health care cost increases for large U.S. employers of 6-7% in , Active Employees Covered Lives (Employees + Family Members) 24

25 2014 Enrollment Results Medical Aon Hewitt Enrollment by Metallic Level Public Exchanges 25

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 I have a good understanding of how my employer and I share the cost of my medical insurance 72% 75% Survey scores represent Top Three Box scores across 24, 246 survey responses. 26

27 The Participant Online Experience Over 90% of participants enrolled online Participants are leveraging tools in a meaningful way Exchange Enrollment Channel Website Tool Usage 10% 10% 90% 90% Health Plan Comparison Provider Search Decision Direct Destination Rx Carrier Microsite Medical Expense Estimator Need Help Deciding 50% 18% 66% 31% 29% 27% 9% 24% 10% 64% Website Enrollment % Aon Hewitt Corporate Exchange Customer Service Enrollment % 86% 27

28 Decision Support Tools Were Well Received Consumer satisfaction with web tools Enrollment Guidance Medical Expense Estimator Provider Directory Need Help Deciding 78% 82% 84% 79% Health Plan Comparison Chart Carrier Website Prescription Drug Formulary 88% 78% 78% Survey scores represent Top Three Box scores across 24, 246 survey responses. 28

29 Price Matters, But Not Exclusively Primary reason for selecting their medical plan level 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 carrier 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 changing 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 29

30 Second Year Switching Behavior 12% 15% 7% 30% 27% 34% 36% 25% 22% 14% 12% 30

31 Where Large Employers are Going Source: Aon Hewitt 2013 Health Care Survey, 5% of respondents chose Other 31

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 32