In a world of multinational organizations and shifting demographics, as vast cohorts of aging employees face more — and more expensive — health issues, governments are forced to review and reform their approaches to medical coverage. But efforts at health care reform are inevitably complex, differing from country to country, compounded by political friction and cross-border regulatory and cultural differences. It is a 21st century challenge of unique scope.
As individual health care needs and expectations increase globally due to rising levels of chronic illness, aging, and a rising middle class, governments are struggling to ensure equitable access to quality care or even to provide sufficient regulation. Under the broad banner of health care reform, multiple tactics are being used to refinance health care, and while there are some pockets of systemic change innovation (for example, preventive care in the UK), short-term cost containment often involves making employers assume a portion of the rising costs.
This may include increasing taxes on health insurance (Ireland), reducing the scope of public schemes (Canada), mandating minimum standards for health insurance (Brazil), or increasing social security contributions (Japan). Income and wealth testing for access to government health services are being used by several countries, and others (including the United Arab Emirates) are following the lead of countries such as Singapore and Australia to ensure appropriate health coverage for foreign workers.
Strategic employers are defining their role in the provision of health care in recognition of the impact that employee health plays in business performance, but they are increasingly expecting a partnership with employees that may include defined contribution (DC) approaches to health care coupled with the provision of wellness, preventive, and primary care.
The most sweeping recent example of health care reform’s complexity is the passage of the Patient Protection and Affordable Care Act (ACA) in the US. As the last of the modern industrialized countries to enact a national policy to bridge the coverage gap between its private and public health care systems, the US now faces an array of implementation challenges. Meanwhile, its employers — who have provided affordable group access to private-market health insurance for many Americans — must cope with a changed health care landscape. (See Employers and US Health Reform: The Five Factors.)
Indeed, as the ballooning costs of health care cast a long fiscal shadow in the US, public policy has shifted, along with responsibility for the management of cost and risk. Over the past 20 years, the shift from defined benefit to DC in retirement plans has provided a model whereby the DC approach to benefits funding can be deployed. This shift limits the open-ended costs of traditional arrangements and gives employers more control over future premium cost increases. As common as the DC model is in the US with 401(k) plans, it is less developed in the UK, many other European countries, and Japan.
In the US, the influence of the DC approach is evident in a key tenet of the ACA: the “individual mandate” and the establishment of public exchanges to allow Americans to directly purchase health insurance. Most who obtain coverage through a public exchange will be low-income individuals and families who will qualify for a government subsidy. The amount of the government subsidy will be based on a particular plan (the second-lowest-cost “silver” plan) and the individual or family will pay for that plan based on household income.
If individuals would like to purchase a different plan — at a higher or lower cost — they may apply the government subsidy to their preferred option. The public exchanges include decision-support tools and navigators to assist potential members in making the best purchasing decision for their personal health needs and financial situation.
While the implementations of the ACA will largely result in greater access to health care for the 30 million uninsured, the impact on employers will be more a matter of cost on top of already high costs.
Fortunately for employers, the emergence of private exchanges is an aid in the quest for better cost management and the evolution of the DC approach. Indeed, private exchanges allow employers to offer ACA-compliant health insurance with a new efficiency, providing access to a range of health plans along with a full suite of traditional (for example, medical, vision, and dental) and supplemental benefits. Meanwhile, the private-exchange mechanism can greatly facilitate the transition to a DC model for benefits — a key value proposition for employers — while empowering employees to build their individual benefit risk portfolios — a clear value to themselves and their families.
The private-exchange market is growing quickly, as a number of players, including Mercer, have introduced private marketplaces for both large and small firms. Mercer MarketplaceSM, for example, includes more than 20 types of traditional and supplemental products and is available to employers with as few as 100 and as many as 100,000+ employees. (For more information, see About Mercer Marketplace.)
For employers and employees, a private-exchange model delivers on the value proposition vital to both groups by allowing both the employer and the employee to realize the economic benefit of negotiated costs and services and by providing overall cost transparency, including full visibility of the employer’s contribution to the employee’s benefit costs. Together, these have the combined advantage of creating a positive perception for the organization and its workforce.
It is worth reemphasizing the bottom-line value proposition for employers. Cost efficiencies of the private exchanges are derived from the streamlined administrative aspects, as well as from the competitive brokering and bundling of all benefit products. Efficiencies also accrue as employees’ benefit-buying behavior leads them to less costly plans.
As for how the private-exchange model provides employee value, there are some clear advantages, but it is important to note that employees tend to have three buying profiles when it comes to making benefit choices. There are those who like to “do it myself,” those who prefer that someone “do it with me,” and those who want the organization to “do it for me.” The private-exchange strategy works for all three of these constituencies, empowering each of them to build their own portfolios of personal protection.
Support for these employee profiles is achieved through a combination of the intuitive, user-friendly nature of a private-exchange technology platform and the personalized service of the benefit counselors staffing the call center. Both methods provide greater visibility into the costs and financial options facing employees.
For many, this education process will lead to the realization that they can reduce their medical coverage and costs while still protecting their out-of-pocket exposure by moving to a consumer-directed health plan or a plan with supplemental medical gap coverage. It all points to an enhanced employee appreciation of their employer’s financial and service commitment to them.
The key aspects of the ACA have become well known to most US employers, but HR executives are still grappling with a few additional issues. Here are five key factors for employers to focus on:
1. The Hourly Threshold
For many companies, the question of providing health benefits versus managing hourly workers to less than the 30-hours-per-week eligibility threshold is a key issue, and Mercer’s discussions with employers have revealed that many of them have not addressed it. Beginning in 2015 (the original deadline of January 1, 2014, was extended to allow employers more time to comply), companies with 50 or more full-time equivalent employees will face Shared Responsibility penalties if they do not offer a medical plan that meets minimum plan requirements and with affordable contributions for all who work at least 30 hours per week.
Regardless of their strategy, employers will have to rigorously track their employees’ hours, relying on solid databases to document those hours. The data will be critical to prove what they may or may not owe in Shared Responsibility penalties based on IRS data calculations after the close of 2015.
2. Rethinking Where and How Care Is Delivered
Market innovations such as telemedicine, surgical centers of excellence, and medical homes are starting to transform the health care delivery system. Medical homes, also known as patient-centered medical homes, are team-based health care delivery models led by physicians and include physician assistants and nurse practitioners. The goal is to provide comprehensive and continuous medical care to patients in order to achieve optimal health outcomes. The time to consider these innovations, along with possible investment in onsite medical clinics (which can reduce absenteeism and further control cost), has never been better.
3. Resetting Benefit Values
Benefit plan design remains a strategic question for many employers. Each year since the law was signed into effect, employers have faced compliance requirements that have added cost to the health benefits. The elimination of benefit maximums and 100% coverage for preventive care are several examples.
This will continue into 2015, when employers must provide benefits to everyone working 30 or more hours per week, satisfy minimum plan design requirements and affordable contributions, or be subject to Shared Responsibility penalties. As employers quantify the impact of the law on their overall health benefit costs, many have become motivated to embrace bold plan design strategies. Mercer’s research and interviews with HR executives have revealed a trend toward more companies making consumer-directed health plans, or CDHPs, their default or core plans, and better communicating the advantages of the CDHP option, from which employees can buy “up” to higher benefit levels.
4. Driving Improved Health
Employers have long been focused on improving the overall health of their workforce. Wellness and health management programs are prevalent strategies, as is favoring health plans with better-coordinated care management for high-cost patients. More employers are now willing to reward health performance through outcomes-based incentives, such as offering lower premium contributions for nontobacco users or rewarding employees for achieving or maintaining specific health status targets, such as body mass index or blood pressure.
While it is challenging to show the savings from improved health, the largest employers are the most likely to have formally measured the return on investment of their health management programs (46% of employers with 20,000 or more employees), according to Mercer’s 2013 National Survey of Employer-Sponsored Health Plans. Nearly nine out of 10 of these employers say that their programs have had a positive impact on medical plan trend.
5. Planning and Communicating
This includes planning for new federal reporting requirements of the ACA, as well as revising Health Insurance Portability and Accountability Act privacy and security policies and procedures in compliance with final omnibus regulations. In addition, it is important to prepare and distribute required employee communications — for example, summaries of benefits and coverage, exchange notices, summary plan descriptions, and summaries of material modification.
Mercer MarketplaceSM includes more than 20 types of traditional and supplemental products and is available to employers with as few as 100 and as many as 100,000+ employees. Mercer Marketplace — which launched in 2013 and currently works with 67 employers to provide medical and other benefits to 282,000 employees, retirees, and family members — was developed based on three concepts:
Mercer Marketplace facilitates employer-sponsored delivery of a total benefits package to employees, with all the advantages cited above. These benefits are provided and managed through a state-of-the-art technology platform that includes intuitive, user-friendly online enrollment applications coupled with decision-support tools for calculating the costs and the types of plans (for example, preferred provider organizations and high-deductible CDHPs) that will best meet the needs of individual employees and their families.
Employers who join Mercer Marketplace will also have the option to offer easy access to individual medical plans both on and off the public exchanges for their employees and retirees who do not qualify for sponsored plans. This will be provided by GetInsured, a California-based private company whose technology platform powers state government exchanges and is a federal web-based entity.
The enrollment protocol is also supported through a call center staffed by seasoned, salaried, and licensed benefit counselors, thus relieving pressure on HR and benefit staff within the organization, who are often challenged to counsel employees on benefit specifics and choices. In addition to providing enrollment functionality and technology support, the exchange offers streamlined administration of benefits, including integration with payroll systems, along with eligibility management and billing services. This drives efficiencies to reduce employer and employee costs.
Learn more about Mercer Marketplace,
Learn more about Mercer’s other exchange solutions
|Tracy Watts (Washington DC)
Senior Partner, Health & Benefits
+1 202 331 5252
|Eric Grossman (Norwalk, CT)
Senior Partner, Health & Benefits
+1 203 229 6105
|Amy Laverock (New York)
Partner, Health & Benefits
+1 212 345 7270