Many Americans pride themselves on being independent. self-sufficient, able to do things for themselves, make their own choices. They may get to put that decision-making ability to the test in the years ahead and passing that test will be very important … and costly. Obamacare provides many incentives for employers of all sizes to drop health care benefits, but that is not the point of this post.
The High Deductible Health Plan (HDHP) is the first step toward a defined contribution approach whereby the employers liability is limited in favor of more financial risk for the employee. But even that is not the issue today.
As you may know, come 2014 Obamacare establishes state health insurance exchanges. These exchanges will offer several health insurance plans that will be chosen by individuals for their coverage. Large employers are not eligible for the exchanges . . . and now we come to the point. At least one large U.S. consulting firm is on the road to offer private exchanges for large employers. Here is the essence of the idea, the employer drops all its health benefits and instead offers enrollment in a private health insurance exchange. The employer contributes a set amount and the employee chooses the health insurance he wants and pays any difference in premium. Let me repeat that, the employer contributes a set amount and the employee chooses the health insurance he wants and pays any difference in premium. In effect the employer is out of the process and the employee is on his own to select coverage and deal with the insurer and the exchange thereafter.
As the article points out, proponents of exchanges provide an analogy with the demise of defined benefit pensions in favor of defined contribution 401(k) plans. This is quite valid as both take the financial burden and obligation from the employer and shift most of it to the employee with no guarantees for the future. How appealing does that sound?
The unsaid but obvious point of all this is the advantage for the employer. The employer gets to set the contribution amount with little regard for premium increases and the employee gets to pay the balance of each year’s increase. That’s why employers may like the idea, the primary purpose is to save the employer money. Some experts will tell you that will make employees better consumers. It may also make them poorer (that is unless employers share their savings in the form of higher wages..he said with a smirk). As long as we are into analogies, how well are employees doing with retirement savings in the 401(k) as opposed to being a participant in a traditional pension plan?
According to our informal poll [see poll in right margin] many people say they welcome the idea of taking employer money and selecting their own insurance. Let’s hope they still like the idea after the first year.
One thing is undeniable, the relationship between employer and worker is changing and in the process the worker’s re$pon$ibility in increa$ing.
The following is from an article in th May issue of Employee Benefit News and is part of an interview with the CEO of Aon Hewitt, one of the largest Hr and employee benefits consulting firms.
Can you give a little bit of background on your health care exchange and how it’s going?
Savacool: Let me draw a parallel for you to the retirement pension market. If you compare 1980 to 2005 and you look at retirement plan participants – I’m going to contrast this to health in a minute – 61% of participants were in active retirement and DB plans and 39% were in other DC plans, such as thrift saving plans and profit-sharing plans. And none were in 401(k) plans. Today, 62% are in 401(k) plans, 11% in other DC and only 28% in DB plans. So, we’re essentially moving from a group-based or a company-sponsored plan to a more individual level of responsibility.
When you look at that trend and you look at health care, there’s a parallel track happening. This is really parallel to the DB-to-DC transition.
I draw the parallel to health care. If you look at 1988, 73% of enrollments were in conventional plans, about 16% in HMOs and only 11% in PPOs. Today (2011), only 1% are in conventional plans, 17% in HMO, 55% in PPOs and 17% in quasi-defined-contribution kinds of plans.
So, when you think about where exchanges fit in this, and you look at the transition to an individual level of responsibility and moving from a self-insured to an insured marketplace, you get a trend toward the utilization of exchanges, both for retirees and for active employees.
We entered the business in the retiree exchange business and have had great success. In fact, the demand this year, the rate of growth and the utilization of exchanges to both advise and then place the health insurance is growing pretty significantly. When we look at our large corporate employers – we have about 562 that we surveyed recently – what we found is that 94% of those employers are committed to offering and financially supporting health benefit coverage for their workforce in some form.
To the question I often get asked, “Are employers bailing out?” – the answer is no. They’re going to change the solution set that provides for health care coverage, but they are unlikely to exit. We are executing right now on our strategy related to our retiree health care exchange, and we’re in the process of building a corporate exchange for those who can’t access the state exchanges because they’re too big, they have more than 1,000 employees.
The interest from employers is high. We think it’s in their best interest, and we’re working with the insurance markets to define that.
Are you thinking about competing with state exchanges in the future?
Savacool: It doesn’t compete with the state exchanges. It really is complementary. In fact, we spent time at the White House meeting with members of President Obama’s staff on health care reform and the exchanges for state governments and U.S. companies; I think I’ve been there three times in the last six months to talk with them about that. Because they really are complementary, and as the exchange network, if you will, develops, everyone from very large, jumbo-level employers to small businesses will be able to avail themselves of the opportunity to participate in that.
How that ultimately lands between those who choose to participate in the state exchanges on behalf of their employees, they do a contribution of sorts, and those who participate in some industry combination – that’s all developing. But the concept, the important message, is that the concept of combining the capability of accessing the insurance markets in a very efficient way, in providing advice to those in terms of the best health care options for them and placing that insurance is very much here to stay.
How are you envisioning the structure?
Savacool: You would have a set of options that might be in a metallic kind of structure – bronze, platinum, gold, etc. – that have different attributes. Think of grouping your health care plans into different selections that are grouped based on carrier, design and price point. So you, as a prospective health care insurance consumer, can make choices: Carrier A through D, you can choose a design that works for you that has different coverage options, different deductible options, and then there’s a price point associated with each of those. So you would contact the exchange, talk through your health care needs. You would get advice in the form of what the different options were, and then you would make a choice around that. Your employer would contribute a subsidy to a certain level and then you would pay the difference to the extent that there was one.
So there are a lot of moving pieces, and given the amount of advice that needs to happen with respect to exchanges, we think that we’re really well-positioned based on our expertise.</
And then there is this from Information Week Health Care
Towers Watson To Acquire Extend Health
Benefits and talent management consulting firm plans to buy online health insurance exchange provider Extend Health for $435 million.
By Marianne Kolbasuk McGee
May 15, 2012 11:59am
Professional services firm Towers Watson has signed an agreement to purchase Extend Health, an online health insurance exchange for supplemental Medicare coverage, for $435 million.
The addition of Extend Health’s health insurance exchange technology infrastructure, call centers, and existing base of 75 carriers represented in its online marketplace will help Towers Watson–best known for workplace benefits and talent management consulting services–to expand its offering into helping clients provide their retirees with assistance in purchasing private health insurance, including supplemental Medicare health plans.Related articles
- NFIB Endorses Defined Contribution Option for Health Insurance (prweb.com)
- Is a defined contribution health plan in your future? (quinnscommentary.com)
- Retirement Woes: 401(k)s That Look Like Old-Fashioned Pensions (moneyland.time.com)
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