aon hewitt: evolution of employer-sponsored health...

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


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


Aon Competes in a Crowded Marketplace

LOCAL

BROKERS

Aon plc


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


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


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


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


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


“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


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


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

http://www.ahipcoverage.com/wp-content/uploads/2012/12/ProviderConsolidationV6.jpg

Aon plc


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



Health Exchanges

Questions

Aon plc


What is an Exchange?

An exchange is a competitive marketplace that consists

of suppliers and buyers

Exchange

Aon plc


How the Exchange Works: Key Levers

Consumerism

Standardized Plans

Attractive Buyer Market

Transparency

Competition

Multiple Carriers

Fully-Insured

Risk Adjustment

Aon plc


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


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


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


Aon Hewitt Active Health Exchange: How it Works

Determine Employer

Contribution

Insured Plan Offerings

for Participants

Exchange Background

Mechanics with carriers

Aon plc


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


Online Retail Shopping Experience Encourages Plan Comparisons

Aon plc


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


2014 Enrollment Results—Medical

Enrollment by Metallic Level

Aon Hewitt Public Exchanges

Aon plc


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


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


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


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


Second Year Switching Behavior

7%

12%

15%

27% 30%

34% 36%

25% 22%

12% 14%

Aon plc


Where Large Employers are Going

Source: Aon Hewitt 2013 Health Care Survey, 5% of respondents chose “Other”

Aon plc


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



Health Exchanges

Questions

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