Determining Which Private Exchange is Best for Your Organization: A Case Study

Determining Which Private Exchange is Best for Your Organization: A Case Study

October 2015

The Conference Board

The 2015 Private Health Insurance

Exchanges Conference

Introductions

October 15, 2015 2 The 2015 Private Health Insurance Exchanges Conference

Don Biron

Director, Benefits Consulting - ISG

Kari Heerdt

Chief People Officer, MSC Industrial Supply Company

Discussion Overview

• About MSC

• Current Benefits Structure

• The need for change and options explored

• Goals established

• Running the search process

• Outcomes

• Lessons learned

3 The 2015 Private Health Insurance Exchanges Conference

STRONG CONSISTENT GROWTH

About MSC

As we grow, we continue to invest in

our business to deliver innovative

solutions and offer expertise that enables

customers to drive productivity,

efficiency and savings.

BY THE NUMBERS

1941 Year

founded

$2.8B In fiscal

2014 revenue

1,000,000+ Industrial

products

99% In-stock

availability

99.9% Next-day delivery

on qualified

orders

#41 Global 500

eCommerce

Engine

12 Fulfillment

centers

6,600+ Trained

associates

MSC is one of

the largest value-

add distributors

of MRO products

and solutions.

We help

customers get

their products to

market faster with

our expertise and

quick delivery of

more than 1

million items.

10/19/2015 4

Current Benefits State

• Offer associates 3 health plan options (all equate to gold)

− 69% enrolled in the “Platinum” Plan

• Independence BCBS is carrier in all U.S. markets

− Provider network and discounts

− Claims administration

• Mercer- benefit consultant and actuary

• All benefits administration is managed by MSC manually

− Associate inquiries and support

− Data management (HRIS integration, payroll reporting, dependents, survivors, beneficiaries)

− Assigning, reconciling and distributing PeopleSoft profiles

− Enrollment (annual, new hire) and life events, dependent verification

− Plan information (SPDs)

− 5500 preparation, testing & compliance

− COBRA administration is partially outsourced

− Spending account administration


MSC Historical Medical Expense

• Total gross medical claim cost per

participant is $11,500

− CAGR (FY07-FY15) is 3.9%

− Significant variation year-over-

year with increases ranging

from -3.9% to 14.2%


Adjusted plan design and associate contributions to address continuous

increases in healthcare costs.

2007 2008 2009 2010 2011 2012 2013 2014 2015

MSC HW Cost Per Participant v. Total Cost Change

Four Reasons To Make A Change

• Administrative Burden

− Need benefits administration system to reduce manual/paper administration

− Few tools for associates (web, service center)

− Current system limits plan design options

− Not able to scale for future growth

• MSC plans are very narrow and offer very limited choice

− Options are not competitive, all MSC plans have actuarial value between 84-88%, most

companies have offer plans ranging from 65-90%

− E.g. No high-deductible plan with HSA or mid-level PPO

− One provider (Independence/BCBS) may not be the best carrier in all markets

• Limited ability to manage healthcare cost

− Consumerism

− Wellness, disease management

− Analytics and reporting

− Defined contribution (optional)

• ACA – excise tax for Cadillac plans in 2018

− 40% excise tax on benefits above designated cost levels

− MSC plans at risk for Cadillac threshold at several tiers


Options

Build It

Ourselves

Pros:

• Ability to control plan design

and maintain status quo

• Ability to control

administration

• Allows for gradual change

Cons:

• Resource constraints, costly

• Not a core competence of

MSC

• Distracts from more strategic

priorities

• Takes time to build, can’t

build for 2016

| 19-Oct-15 8 | Confidential | Exchange Overview.pptx

Traditional

Outsource Model

Pros:

• Proven model

• Ability to control design and

maintain status quo

• Removes administration

burden

Cons:

• Does not remove plan

design burden

• Al a carte approach will

likely cost more than

exchange

• Significant challenge to

implement for 2016

Private

Exchange

Pros:

• Plan design and

administration burden

removed

• Bundled approach provides

more options/services for

amount spent

• Fully available for 2016

Cons:

• New model, only available

since 2013 and relatively

few clients

• Standardized plan design,

limited choice

• Significant change

Private Exchange Is Lowest Cost Option And Only Option Available for 2016

Private Exchange Market

| 19-Oct-15 9 | Confidential | [Insert>Header and

Footer>Name of Presentation]

Exchange Owner Launch Date Clients/

Members

Corporate Exchange Aon Hewitt 2013 18/ 600,000 (note: 33/ 850,000 for 2015)

Right Opt Buck/Xerox 2014 3/ 225,000

Mercer Marketplace Marsh 2014 27/ 115,000

One Exchange Towers Watson 2014 3/ 45,000

Bright Choices Liazon/ Towers 2007 500/ 100,000

Bloom HCSC, Anthem,

BCBSM, private

2009 240/ 90,000

Benefit Focus Benefit Focus 2001 280, 30+/ 20m

bSwift bSwift 2000 200, states/ 3m

Aetna, Cigna, UHC Aetna, Cigna, UHC Mid-2014

Source: Private Exchange Evaluation Collaborative, May 14, 2014

Note: While private healthcare exchanges are a relatively new concept (began in 2012-2013 in response to the development of

public exchanges), exchanges have been in place in the retiree space for over a decade. Plus, all of the top 4 players have been

leaders the benefit administration/outsourcing market for many years in addition to operating retiree exchanges.

MSC’s 2016 Benefit Objectives

1. Provide quality and affordable benefit plan designs to meet the needs of

associates and their families in order to:

− Attract and retain talented associates

− Provide flexibility and choice, at multiple price points

− Better tools and resources for informed decision making

− Be competitive

2. Outsource benefits administration including online enrollment, plan design

and service center support

3. Have a scalable benefits platform that allows for growth in the Associate

population

4. Manage MSC’s healthcare costs over the long term


Why Choose to Work with an Advisor

The 2015 Private Health Insurance Exchanges Conference 11 October 15, 2015

• Process

• Experience with providers

• Analysis expertise

• Allowed internal team to focus on getting their questions answered,

listening and understanding v. running the process.

• Why ISG

− Demonstrated benefits experience

− Great set of tools, templates and process

− ISG helped get to an apples to apples comparison

− Really helped normalize offerings, pricing, SLAs and terms and helped sort

through the very different offerings of each provider

− Helped us to understand the financial impact of the different approaches

Our Experience with The Process

The 2015 Private Health Insurance Exchanges Conference 12 October 15, 2015

• November 2014 - internal HR team formed to review benefit

administration providers

• January - Engaged ISG to consult on RFP process

• February - RFP released to:

− Xerox – RightOpt

− Mercer – Mercer Marketplace

− Aon Hewitt – Aon Active Health Exchange

• March - Providers submitted proposals

• March – Site visits

• March — Financial presentations and re-bid

• April – Aon Hewitt and Xerox/Buck selected as finalists

• May – Finalized selection of Aon Hewitt

Service Provider Considerations

Evaluation Criteria

Implementation and

Conversion

Company Profile

Account

Relationship

Management

The MSC team evaluated all providers based on site visits, financial reviews, proposals and scored based on this evaluation criteria.

Aon Hewitt and Xerox were the

leaders - however - scores were very close in almost every

category.

Systems,

Technology,

Infrastructure

H&W

Administration

Participant

Servicing

Contract Terms

[Subjective only;

not scored]

Fees

[Subjective only,

not scored]

Service Levels

[Subjective only,

not scored]

Health Care Platform

The 2015 Private Health Insurance Exchanges Conference • 13

October 15, 2015 13

Enhancements to Services

Included in cost analysis are added services and enhancements to delivery:

• State of the art Health &Welfare

administration platform

− Flexibility to handle change:

acquisitions, plan design, increased

growth

− Extremely well designed associate

engagement portal

− Robust tools for plan and carrier

selection

• Ability to integrate associate wellness

programs

• Fully trained, staffed and supported

associate call center

• Strong data management and interface

processes

• Outsourced additional functions:

− MCSO qualification and management

− Communications Support

− FSA /HSA/HRA Administration

− Ongoing Dependent Verification

− Carrier Premium Payment

− Retirement and Survivor Counseling

− Signature-Ready 5500s

− Public Exchange Support

− Safe Harbor Hours Tracking Tool

− Section 6055/6056 Employer Reporting

− Reporting and calculation/payment of:

• PCORI fees

• Transitional reinsurance fees

• Excise tax on "Cadillac" plans

The 2015 Private Health Insurance Exchanges Conference

14 October 15, 2015

Save both the company and associates money… AND keep them healthier!

Looking Ahead

• 2016 – Introduce New Benefits Platform

Manage change

Help associates understand choices and how to utilize the new resources (web, service

center, advocates, etc.)

• 2017 – Start to Influence

Communications and portal based engagement

Educate on consumerism and how to best use benefits

Add initial wellness programs: smoking cessation, lose weight, exercise, etc.

• 2018 – Further Influence

Initiate more robust wellness programs – biometrics screenings, “carrot or stick”

incentives

Ramp up disease management programs: diabetes, heart disease, stress

Incent move to HDHP - seed an HSA

• 2019 and beyond – Platform for Change and Future Growth

The 2015 Private Health Insurance Exchanges

Conference 15 October 15, 2015

Allow enough time to do the analysis and work through the decision!

Lessons Learned

• Define up front:

Acceptable plan designs

Contribution strategy and levels

Wide set of carriers or narrower

• Meet the providers early in process

Mutual discovery sessions

• Utilize independent consultants

Benefits administration sourcing specialist with broad HW administration experience

Actuary

• Actuarially equivalent ≠ same plan design

• Engage Legal early as there are a lot of contracts



Thank You



Determining Which Private Exchange is Best for Your Organization: A Case Study

Recruiting & HR

Transcript of Determining Which Private Exchange is Best for Your Organization: A Case Study