Retiree Health Exchanges Make Sense But Which One? by Daniel J. Cahill, Ph.D.

Retiree Health Exchanges Make Sense But Which One? by Daniel J. Cahill, Ph.D.

MAGAZINE Reproduced with permission from Benefits Magazine, Volume 53, No. 3, March 2016, pages 24-29, published by the International Foundation of Employee Benefit Plans (www.ifebp.org), Brookfield, Wis. All rights reserved. Statements or opinions expressed in this article are those of the author and do not necessarily represent the views or positions of the International Foundation, its officers, directors or staff. No further transmission or electronic distribution of this material is permitted. pdf/216 Sending Medicare-eligible retirees to a health insurance exchange has become a popular and worthwhile option for employers that want to continue to help them. This article provides unbiased advice on choosing a vendor. march 2016 benefits magazine 25

learn more Education Health Care Management Conference April 11-13, Phoenix, Arizona Visit www.ifebp.org/healthcare for more information. Overview of Exchanges Visit www.ifebp.org/elearning for more information. The adoption of private health insurance exchanges for active employees may not be evolving as rapidly as marketing and sales efforts would have human resources (HR) professionals believe, but the adoption of retiree exchanges also referred to as Medicare connectors continues to grow steadily. The larger benefits consulting firms have either built or bought products that have enjoyed tremendous success over the last seven-plus years. The business case for these models is sound, and the platforms in the market are proven and effective. Still, HR professionals are in a conundrum about vendor selection. Because the top retiree exchange products are owned and operated by consulting firms, employers considering a retiree exchange need to know the inflection point between advising and selling. While there may not necessarily be a conflict, this does create a question of whether an advisor is selling or consulting. A good consultant should be neutral and objective, but HR professionals understandably are on edge as it relates to speaking with private exchange vendors because the notion of objectivity is violated regularly. Following are insights from an author who has worked with but no longer has links to a retiree exchange. The Market According to an analysis by Connecture, a company that provides technology platforms for exchanges, about 1.6 million Medicare-eligible retirees enrolled in health insurance using a private exchange last year. While in 2008 about 18 million Medicare-eligible retirees received group retiree coverage from about 330 employers, that number recently has dropped to over 11 million Medicareeligible retirees receiving employersponsored coverage from about 200 employers (50/50 private and public sector employers). There still are many employers with retirees who could transition to an exchange. Employers have awakened rapidly to the value of moving retirees to an exchange because of Financial Accounting Standards Board/Governmental Accounting Standards Board (FASB/ GASB) standards saying liabilities for promised benefits must appear on organizations balance sheets. The savings from going to an exchange are substantial and real, driving a significant increase in analysis and request-for-proposal (RFP) activity in the last five years. Often, in the analysis process, return on investment can include soft savings or scenarios based on adoption (for example, the savings on claims costs when money is spent on health management). Where costs for providing health care coverage were once unpredictable and increases certain, they become predictable and possibly flat to the employer when it moves Medicareeligible retirees to an exchange going from a defined benefit to a defined contribution model. In the author s experience presenting the business case for retiree exchanges to many employers over the course of the due diligence process, employers never ceased to end a meeting with the words What s the catch? In the retiree exchange model, there typically isn t one. The Conundrum: Retirees and Employers A move to a retiree exchange is a group-to-individual transition. Thus, employers may benefit significantly, particularly if they keep a level contribution over time, but retirees will see mixed results. Still, a retiree exchange creates a reasonable buffer for retirees and employers. Retirees typically have been absorbing increases as employers tried to manage costs by capping benefits. These are individuals who have planned for a lifetime of support, so changes are very disruptive to their lifestyle. An exchange allows them to move from their group plan to an individual plan that fits their needs, with a tremendous amount of support in the form of communication materials, technology, prescription drug analysis and call center availability. The exchange allows employers to keep their commitment to retirees, manage costs, offer a tool retirees can use at little or no cost and ease administrative burden substantially. 26 benefits magazine march 2016

Experienced HR professionals know there are very few win-win solutions that come to fruition after implementation. A retiree exchange can be as close to a win-win as there is in health care. How Does It Work? A retiree exchange can seem similar to an active exchange in concept, but in reality the two are very different. In the active exchange space, points of differentiation are more visible. Among retiree exchanges, the points of differentiation are very subtle. Each retiree exchange has the same components including a: Turnkey but often customizable retiree communication package (e.g., materials, plan) Website that includes decision support allowing retirees to input relevant personal data (e.g., health, pharmacy) Call center with licensed agents to help retirees select plans Carrier network, which is the choice of plans offered by the exchange vendor Health reimbursement arrangement (HRA), which is the vehicle to help retirees spend tax-exempt dollars provided by the employer (typically for premiums and reimbursement for drugs). Any exchange that does not include these features is not a market-ready retiree exchange. Purchasing a Retiree Exchange Consultants from the larger consulting firms are pressured to sell products and services such as their exchanges, which can impact transparency and impartiality. Still, the retiree exchange teams at the larger consulting firms can be very effective in helping HR professionals make decisions about which exchange would best suit an employer. Which vendors should be part of the vendor selection process for employers? The market is dominated by two multicarrier exchange operators: Extend Health offered by Towers Watson and the Aon Retiree Health Exchange offered by Aon Hewitt. These two vendors account for over 90% of transitions from group plans to exchanges. While there are many others and several new entrants coming, these two are tried-and-true vendors. For employers with more than 5,000 Medicare-eligible retirees, these two vendors would be the logical candidates. Employers with fewer than 5,000 retirees particularly those with a retiree count between 500 and 2,000 should consider opening up the search as the two largest vendors in the market continue to take on more retirees for larger employers. After examining vendors, employers should determine how to proceed as it relates to procurement. Given the similarity of the models and number of vendors, it s recommended employers work with two or three vendors closely as part of due diligence as opposed to offering the market a long, comprehensive RFP that promotes shelf responses from the exchanges. Frankly, costs and added value will typically be similar, and the platforms are similar. Employers often are better served conducting in-depth analysis and demonstrations with three top vendors and then following it up with demonstrations using actual retirees and agents. A call center visit may also be a good idea if the transition is large. Consulting firms offer the process at no cost, and the carrier options typically are about the same. Employers are looking for a team and approach that fit their culture. In the event that procurement is a necessary part of the process, there are several excellent firms (e.g., Curcio Webb, Deloitte, Health Exchange Resources) that can conduct the process quickly and with substantially less pain. The vendors know these companies and the models they use, so it can help speed the process and help highlight any special needs requested by employers. The key questions for employers are always the same: (1) Can my retirees get the same plan or better on the individual takeaways The number of Medicare-eligible retirees enrolled in health insurance using a private exchange has been rising steadily. Employers may benefit significantly by moving retirees to an exchange and maintaining a level cost, while retirees will benefit from support, technology, prescription drug analysis and call center availability. There is little difference among exchange options for Medicareeligible retirees. In deciding which vendor to use, employers should check retention rates to be sure retirees didn t switch plans from year one to year two, indicating they chose wrong the first year. When deciding on exchanges for different groups of employees, an employer may want to focus on one group at a time. march 2016 benefits magazine 27

Table Top-Tier Retiree Exchange Platforms Date Number Number Number Operated HRA Started of Clients of Retirees of Carriers by Partner Other Extend Health 2008 600 1M 95 Towers Watson PayFlex First and most experienced Aon Retiree Health Exchange 2010 45 500,0001 85 Aon Hewitt No Focus on advocacy as key differentiator market for the same cost that they can get it from me? Plans are registered with Centers for Medicare and Medicaid Services (CMS), so mostly the plan options are about the same with the exception of a few regions. (2) Which vendor will offer the best experience at the lowest cost? Retiree exchanges are offered at no cost because vendors get paid commission to offset expenses. Thus, employers need to decipher which vendor teams they most trust to help their retirees get through a very difficult transition. Employers looking to work with an exchange vendor should ask a few other questions. First, they should ask about the vendor s balance of Medicare Advantage prescription drug contracting vs. medigap enrollments. Medigap enrollments produce higher commissions for vendors. It is a compliance violation to steer retirees to plans, but agents in the call centers influence decision making. The top vendors in the market are solidly proven, but it is worth asking the question. Employers should also check retention rates. If retirees are switching plans from year one to year two, this is an indication that they chose wrong the first year. This should be a concern for employers. Finally, pricing has become irrational. Vendors may offer, for example, ten years of free HRA service, multiple free consulting projects and no cost for the solution to build up their resumé. But in the end they need to make money to stay in business and offer good service. When they offer too much in an effort to get market share, they aren t about to continue delivering long term. Once employers have made the transition to the individual market, it is exceedingly rare that they would return to offering a group plan. The trigger for eligibility is that the employer cancels retirees group plan, creating a special enrollment period for Medicare-eligible retirees. Once retirees transition to the individual market, they are individual consumers of health care. Thus, it is a winner-takes-all game for vendors. Employers should be leery of any pricing that is too good to be true. The market right now offers no cost to the employer for the exchange, no-cost HRA for multiple years and, in larger cases, no cost for actuarial services and other consulting services. Some of these may get pulled back as the vendors try to balance service-level agreements with market share. Finally, the vendors in the market are well-established, but there are new entrants that warrant a look by employers. The table shows highlights for the top-tier vendors Extend Health, the Towers Watson retiree exchange, and Aon Retiree Health Exchange from Aon Hewitt. The next tier of vendors includes Xerox s RightOpt and Mercer s Marketplace. While the top-tier vendors have built or bought solutions, the middle tiers have focused on partnering with existing vendors to drive their solutions. Several other exchanges will assist with retiree transitions, among them AmWINS, Retiree Health Access and Health- PlanOne. Expect some carriers to start offering solutions as well. Overall, the solutions tend to operate using the same model, but their level of experience, technology and platform will differ. The rule of thumb for employers should be to ask about any part of the platform that is outsourced and understand the experience of the project team. Implementation Risk and Other Considerations HR teams are skeptical when told a solution is out of the box, turnkey or even simple. A retiree exchange transition actually delivers on being turnkey, although it is not always smooth. Typically, transitions include moving retirees from an employer-sponsored group plan to an individual plan. 28 benefits magazine march 2016

There are other options (e.g., optional, hybrid), and if an employer wants to use these models, it should ask vendors specifically about their services. In a typical transition, employers are canceling their group coverage and offering the retiree exchange as an option. Thus, there is some ongoing reporting, but the information flow is one way. The employer is severing coverage and moving the individual to the individual market. Vendors can report on who took coverage, when they took it and what they took, but the ongoing reporting is pretty simple. The employer is no longer responsible for much except ensuring that the individual HRA accounts are funded. Other than that, the employer has cut group coverage. The vendor now takes care of everything. If the vendors want to maintain commissions, they must perform in a way that makes the individual want to stay with them. In short, the transition for the employers can be fairly simple except for the cultural blowback. For retirees, the transition is much more demanding. In the past, retirees typically got new insurance cards each year and went on their way. In the individual market, they have to educate themselves so they can make an intelligent decision about which plans most benefit them. The platforms and the project teams have a lot of experience, but the employers and retirees need time to adjust. Thus, the recommended implementation time is six months or longer. The biggest risks through the process are the capacity of the call center, contracting, retiree complaints and the transfer of data between employer and vendor. Employers should also note a few other considerations when exploring exchanges: Retiree and active exchanges are completely different models. Each category of exchange for currently working employees, part-time employees, pre-65 employees who are retired and post-65 retired employees requires totally different solutions. And, except at the post-65 retiree level, the solutions are different. If a vendor is good at one, it doesn t necessarily mean the vendor will be good at all. When vendors are selling hire to retire, employers should focus on one solution bio Daniel J. Cahill, Ph.D., is a vice president at HORAN Associates in Fort Mitchell, Kentucky, where he provides clients support in all aspects of their health care costs. He specializes in consumer-based health care opportunities brought about by the Affordable Care Act, including private health care exchange options in the market. Cahill previously worked with multinational employers at PWC Consulting. He has a bachelor of fine arts degree in communication from the University of Cincinnati, a master s degree in organizational communication from Washington State University and a Ph.D. degree in interdisciplinary business studies from the University of Cincinnati. at a time. There is little disadvantage to having one exchange for actives and one for retirees. Pre-65 retirees remain a gap for employers and exchanges. Employers should ask about how the exchange vendor would handle pre-65 retirees. Some solutions may be adequate, but employers should not expect a silver bullet for pre-65 retirees. Medicare is not available to this group of retirees, who don t have access to the same level of reasonably priced plans in the market and typically make too much money to get a subsidy from the individual ACA exchange. Exchanges work only when the individuals choose correctly. The group coverage model is based on healthy people paying too much, unhealthy people not paying enough and moderate-health individuals maintaining the balance in the middle. If unhealthy retirees buy down to save on premium, it could lead to a poor result for the retiree. Employers should be diligent to ensure the exchange vendors are educating retirees appropriately. march 2016 benefits magazine 29