TOPICS FOR TODAY
• The Exchange Landscape
• Why Employers Move to Private Exchanges
• Mercer Marketplace
• Pondering Points
3
4
PUBLIC VS PRIVATE EXCHANGES
Medical,
prescription
Dental, vision, life,
voluntary, plus more
Government
sponsored
Broker, insurer, TPA
technology firm
Actives, retirees
PUBLIC PRIVATE
Open Closed
Single or
multiple carrier
Individuals Group
plans
Insured or
self-funded
4
STRONG EARLY PRIVATE EXCHANGE ACTIVITY
PRIVATE EXCHANGE GROWTH HAS JUST BEGUN
25
50 Millions of lives
PRIVATE EXCHANGE
0
2013 2014 2015 2016 2017 2018
EMPLOYERS ARE MOVING RAPIDLY TO DEFINED CONTRIBUTION AND PRIVATE EXCHANGES
large employers will be offering
benefits through private
exchanges
100+
In 2014…
exchange offerings
will be in-market 35+
carriers will be
participating on third-
party exchanges
180+
types of products will be
available through private
exchanges
25+
5
0%
5%
10%
15%
20%
25%
30%
35%
40%
2007 2008 2009 2010 2011 2012
CDHP in Large Groups % offering 2007–2012
- More than doubled in 5 years - Despite initial skepticism
HMO Membership 1980–2010
- 90% - Strong growth over 15 years
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1975 1983 1991 1999 2007
IRA % with IRAs 1974–2007
- Slow start - 10% to 23% starting in 1983 - Took financial firms by surprise
PAST ADOPTION RATES
0M
10M
20M
30M
40M
50M
60M
70M
80M
90M
1980198519901995200020052010
6
7
STUDIED PREDICTIONS
• 95% of private exchange lives will be employer-
sponsored
• 65%+ of employees will likely choose different
benefits than they have today
20% OF THE MARKET ON EXCHANGES BY 2018
8
UPS drops coverage for working
spouses and estimates covering
children to age 26 will cost $60M
Petco joined Mercer
Marketplace; a new private
health care exchange for
January 1, 2014
The Hamilton School District
in Trenton, NJ, will be limiting
substitute teachers to four days
per week to avoid 30 hour per
week threshold
Delta Airlines faces an increase
of $100M in medical costs in 2014
between normal trend and ACA
requirements
Walmart has been focusing on
hiring temporary employees to
manage health care costs under
ACA
Clothing retailer Forever 21
announced reclassification of non-
management positions from FT to
PT effective Sept. 2013 based on
a reduction of hours to a
maximum 29.5 hours per week
9
INDIVIDUAL INSURANCE COVERAGE –EXPERIENCE TO DATE:
Americans do not know what
a deductible is
50%
Americans do not know
about healthcare exchanges
42%
Americans do not know that
federal subsidies are
available
33%
Preparedness of Americans for the Affordable Care Act, March 24, 2014, National Academy of Sciences
Americans qualify for federal
subsidies on the public
exchanges 66%
10
THERE IS NO SINGLE MODEL FOR PRIVATE EXCHANGES
-An insurer builds its own exchange
-- Uses either home-grown or a white-label technology platform
Carrier-Owned
Co-Branded Carrier
3rd Party: Customized
3rd Party: Fixed Line-Up
Network Rental
-Insurer builds a co-branded, single-carrier exchange
-Third-party solution provider
-Relationships with multiple carriers
-Employer select the specific lineup shown to employees -Carriers choose groups to which they want to be offered
-Multiple carriers compete side-by-side
-An open and competitive exchange
-Most closely mirrors the public exchanges
-Multiple insurers rent network and claims adjudication services to an exchange vendor that provides its own multi-source, integrated solution
EXCHANGE MODEL
CARRIER
EXCHANGE
OWNERSHIP OF CUSTOMER
RELATIONSHIP DESCRIPTION
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SAMPLE OVERVIEW OF PRIVATE EXCHANGE OFFERINGS
Segments
served
Group active
Yes Yes Yes
between TW and Liazon Yes
Retiree Yes Yes Yes Yes
(Added retiree in Nov ’13)
Individual / part time
Yes (via GetInsured) Yes (via eHealth) Yes Yes
Target clients All sizes (100+) Large employers (5K+) Mid-large ER (1K+) +
small ER w/ Liazon Large employers (3K+)
Funding
model
DB Yes No Yes (via Liazon) Yes
DC Yes Yes Yes Yes
Insurance
model
Full insured
Yes Yes Yes (via Liazon) Yes
Self insured
Yes No Yes Yes
Multi-carrier Yes (via 27 carriers) Yes (via 20 carriers) Yes Yes (but primarily single-
carrier by geo)
Health product
offerings Medical, dental, vision Medical, dental, vision Medical, dental, vision Medical, dental, vision
Voluntary / ancillary
benefits offered
Yes (~20 products
offered) No Yes (life and disability) Yes (life and disability)
Consumer experience 25+ years of direct to
consumer experience
across benefit products
Limited Limited Limited
Collectives offered Yes (MHA, Rx coalition,
stop loss coalition) No Pharmacy-only Np
Technology platforms Licensed through
BenefitFocus Built off benefits admin platform
Acquired ExtendHealth and
Liazon, and are building off those
platforms
Built off ACS benefits admin
platform 12
TOPICS FOR TODAY
• The Exchange Landscape
• Why Employers Move to Private Exchanges
• Mercer Marketplace
• Pondering Points
13
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DRIVING THE NEED FOR PRIVATE EXCHANGES KEY MARKET TRENDS
Health Care Costs
Shifting responsibilities
Individuals Employers $4T
2010 2005 2000 2015F
Rising Benefit Costs Health Care Reform Rise of the Individual
Sources: Centers for Medicare & Medicaid Services, Mercer internal analysis
BENEFIT COSTS CONTINUE TO RISE
17.1%
12.1%
10.1%
8.0%
-1.1%
2.1%
2.5%
0.2%
6.1%
7.3%
8.1%
11.2%
14.7%
10.1%
7.5%
6.1% 6.1% 6.1% 6.3%
5.5%
6.9%
6.1%
4.1%
2.1%
5.2%*
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Workers' earnings
Annual change in total health benefit cost per employee
Overall inflation
Source: Mercer’s National Survey of Employer-Sponsored Health Plans; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation
(April to April) 1990-2013; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April) 1990-2013.
15
UNPRECEDENTED, SYSTEMIC CHANGES IN HEALTHCARE
TRANSFORM THE ROLES OF KEY PLAYERS
• Government assumes
a new, powerful role in
providing health
benefits
• Employers can no
longer go it alone
• Scale and
standardization offer:
– Cost reductions
– Efficiencies
– Innovation
• 2/3 of Americans
qualify for subsidy
• Gives employers new
strategic options
• Individuals ‘own’ their
benefits, even when
employer sponsored
Employers Employees US/State Governments
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INTEGRATION, CONVENIENCE, AND A BETTER EMPLOYEE
EXPERIENCE
The cost, complexity, and risk of providing health benefits are greater than ever...
…a private exchange provides an integrated, turnkey solution that addresses those challenges
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• Employers are reducing coverage to:
• avoid excise tax
• align with new benchmarks
• Employers may discontinue coverage for dependents
• DC ranges from small supplemental “top-ups” to flat subsidies
• 60% of employers are using or considering using a DC model
• ACA’s 30-hour-per-week eligibility requirement allows for workforce segmentation
• For part-time employees, employers are weighing the cost of coverage against labor market competion
BENEFIT VALUES
DEFINED CONTRIBUTION
WORKFORCE SEGMENTATION
COST SHIFTING IS ALSO A FACTOR
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WHAT A WELL RUN PRIVATE EXCHANGE ACCOMPLISHES
• ENABLES ONGOING ABILITY TO BEND THE COST TREND
– Right sizes benefits
– Drives cost out of the health care system
• Creates carrier and provider competition
• Optimizes medical networks without internal resource burden
• Enables new market entrants
• IMPROVES SERVICE QUALITY
– Vetted carriers/products and negotiated Service Level Agreements
– Standardized benefits = fewer errors
• OFFERS HIGH TOUCH CUSTOMER SUPPORT
• ALLOWS FOR FLEXIBILITY WITH ABILITY TO PIVOT OVER TIME (NO “LOCK IN”)
• LEVERAGES FLEXIBLE, SCALABLE TECHNOLOGY
– Highly configurable and cost effective
– Seamless integration between employer sponsored, public exchange and Medicare offerings
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80.4% 71.9%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Pre-Marketplace Post-Marketplace
Average Value of Medical Plans
Of all employees bought supplemental health 24%
35% Of employees electing $1,500 or $2,500
deductible medical bought supplemental health
49%
13%
38%
Supplemental Health Purchases
Accident
Hospital Indemnity
Critical Illness
Supplemental Benefits Support Right-Sizing
RIGHT-SIZING: MERCER MARKETPLACE RESULTS
$800 Per-employee cost reduction
from right-sizing benefits
$250 EE/ $550 ER
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TOPICS FOR TODAY
• The Exchange Landscape
• Why Employers Move to Private Exchanges
• Mercer Marketplace
• Pondering Points
21
MERCER MARKETPLACE OVERVIEW AN END-TO-END SOLUTION
Carriers
Payroll
HR Professionals
Election Data
Deductions
Reporting & Premium
Data
Funding DC or DB
Standard Plan
Designs Choice among multiple, pre-
screened plans
Employee Communication
& Education
Administration • Eligibility
Determination • Data-driven
Events • Election
Management • Contribution
Calculation
Enrollment
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MERCER’S PRIVATE EXCHANGE ENABLES BENEFITS STRATEGY
DESIGN FOR ONE OR MORE SEGMENTS
Retiree Group Active Part-Timers, Pre-65
Retirees, COBRA
Medicare Plans Group Plans
Employer Subsidies Federal Subsidies
Individual Plans
On/Off Exchange
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OUR VALUE PROPOSITION PROMISING EARLY RETURNS
TO DATE:
• Enrolling:
• Active Employee Exchange
• Transition Assist, age 65+ retirees
• Individual lives with GetInsured
100 – 33,000 employee size groups across more than 15 industries
75% fully insured, 66% defined benefit
93% of participants are satisfied or very satisfied with their experience
Choice Matters
Consumer Experience
Cost Savings
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COUNSELORS MUST PROVIDE TOP NOTCH MEMBER SERVICE
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Professionalism
Promptness
Resolution of Inquiry
Overall Satisfaction
95%
94%
95%
93%
MERCER MARKETPLACE FUTURE ENHANCEMENTS DELIVERING VALUE TO EMPLOYERS AND EMPLOYEES
Cu
rren
t Fe
atu
res
Futu
re E
nh
an
cem
ents
Simple, clean shopping experience
Computer and responsive mobile education
Benefit counselors Online decision support tools and videos
Integrated application for individuals to purchase medical through public exchange
Integrated application for Medicare individuals to purchase medical through Transition Assist acquisition
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LESS BURDEN FOR HR
People-related Issues
Mercer takes most of the administrative responsibilities off of HR’s
hands, freeing up time to handle other people-related issues
HR
Employee Inquiries
Open Enrollment Management
Carrier Reporting
Employee Communications
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QUESTIONS TO CONSIDER
1. How successful have you been in bending the trend cost curve?
2. How much planning have you done around restructuring your programs for long term cost management, including avoiding the 2018 ACA Excise Tax?
3. How would you characterize the level of employee satisfaction with your current plan?
4. What’s the best description of your workforce — one predominant segment with uniform benefits needs or multiple segments with diverse needs?
5. How much do you expect the composition of your workforce to change over the next 3‒5 years?
6. Do you want to continue to sponsor group coverage for retirees?
7. Value of your administrative time spent on enrollment, paperwork, eligibility, education? Better spent on strategic work?
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