The private exchange model is an innovation that has unleashed a wave of transformational change, enabling US employers to fundamentally rethink how to provide benefits to their workforces. Private exchanges have already taken off with meaningful adoption in 2014, and Mercer believes this will accelerate exponentially. Eric Grossman, senior partner and Active Mercer Marketplace business leader, speaks about the value proposition of private benefit exchanges for employers and employees.
Q: What concerns are leading companies to turn to private exchanges to manage their health and benefits programs?
Eric Grossman: Employers of all sizes are looking for new solutions to deliver benefits to their employees. Private exchanges are an excellent strategy for many employers because they address some of today’s most critical benefit program challenges.
Cost pressures continue as medical trend is significantly in excess of wage and price inflation. Employers remain frustrated with both the pace and unpredictability of future benefits cost growth.
Plan management, administration, and compliance all present a significant challenge for resource-stretched HR and benefits professionals, and new compliance requirements under the Affordable Care Act only serve to exacerbate the situation.
In addition, employees have come to expect more individual choice, but this can be challenging for employers to offer within their current programs
Q: How do private exchanges address these concerns?
E.G. :A well-designed private exchange should demonstrate a sustained ability to bend the cost trend. This is a key focus for Mercer Marketplace. One of the most important ways to achieve this is by helping consumers who are currently overinsured to “right size” their medical coverage. We have also identified opportunities to take cost out of the system through competition, medical network optimization to drive the most favorable financial terms, and collective purchasing. Another important factor is enabling new market entrants that can deliver cost-effective, high-quality medical care.
A private exchange also helps to facilitate a move to a defined contribution benefits approach. This enables an employer to de-link its benefits spend from underlying medical cost increases, resulting in greater cost predictability and savings.
And finally, a private exchange can alleviate administrative complexity by standardizing plan design, coverage procurement, and renewal processing, as well as handling a broad array of compliance requirements.
The best part is that all of these advantages can be achieved while providing greater choice and flexibility to employees.
Q: Higher-deductible plans can be scary for consumers. How does the exchange framework help people overcome barriers in right-sizing their coverage?
E.G.: A significant percentage of people today are overinsured for medical benefits, so it’s important to provide both tools and personal support to help employees purchase coverage that’s appropriate for their needs and budgets. We have seen a significant shift of employees who are right-sizing their coverage by moving to higher-deductible plans, which offer not only lower-cost coverage but also slower growth in premiums.
One reason why employees don’t right-size coverage today is because they can’t. Their employers give them only one or two choices that are in a very narrow range. So just offering the option to right-size is the first step.
There are three additional barriers that prevent consumers from selecting the right level of coverage. The first is simply inertia: “I’ve had this plan for the last few years. It seems to work pretty well and I don’t want to think about this, so I’ll just keep it.” A private exchange breaks through the inertia because, during their enrollment experience, employees can’t get what they had before and have to enroll in new coverage.
The second barrier to right sizing is the perception among many consumers that if it costs more, it must be better. While that may be true for a lot of consumer goods, it’s often not true for health care. We’ve designed Marketplace to help change that perception by giving the consumer an easy-to-use guided-shopping experience. We ask a few basic questions and then the Marketplace engine helps the consumer make the best choice, which often leads to recommendations for a lower level of coverage than they have today.
The third barrier that we need to overcome is the “fear factor.” A $1,500 or $2,500 deductible may be the right plan for many people economically, but some employees see those figures and it stops the discussion because they’re afraid that they may have to pay it. With Marketplace, we help people overcome that fear factor by enabling them to use some of the savings they get by right-sizing medical to buy a supplemental plan, such as accident or critical illness insurance, to protect against the additional risk they are concerned about.
Q: How do you see private exchanges evolving alongside the public exchanges? How do you think they’ll interact?
E.G.: Private exchanges will be a conduit to the public exchanges for some segment of the population. Let’s say only half of the employees are eligible for employer-sponsored medical coverage and the other half are working part time, below the 30-hour threshold set by the Affordable Care Act. The employer is not likely to offer company-sponsored medical coverage for that part-time population, but would welcome the opportunity to support those employees as they access the public exchanges. Many employers will also give their part-time employees the ability to purchase other types of coverage, such as life insurance, dental, or an accident policy, that could supplement health care coverage from the public exchanges. We have designed Marketplace to support those not eligible for employer-sponsored medical coverage in finding the individual medical coverage that best meets their needs, typically though a public exchange.
Q: What kind of cost and enrollment changes are you seeing so far with Mercer Marketplace?
E.G.: We are seeing some significant changes right out of the gate. Many more employees are choosing higher-deductible plans compared to what we typically experience under a traditional benefits program.
The result for employers offering Mercer Marketplace in 2014 is an average decrease in annual medical cost of $800 per employee — with about a third of these savings going directly to employees. We expect results like this to motivate more employers to explore the potential of Mercer Marketplace in 2015 and beyond.
To learn more about Mercer Marketplace, visit www.mercer.com/private-health-exchanges.
|Eric Grossman (Norwalk, CT)
Senior Partner and Exchange Business Leader
+1 203 229 6105