1. Who moved my benefits?
The Future of Employment-based
Benefit Programs

2. What we know
Over the past 12
68% years employment
based overage has
1999 dropped 10
percentage points
58%
2011
Data: US Census Bureau

3. What we know
In the 30 years from
$2600B 1980 thru 2010 there
was a 10x increase
2010 in employer group
medical costs
$256B
1980
Data: US Dept. HHS

4. What we know
In the 7 years from
$10K 2005 thru 2012 there
was an increase of
2012 $3,500 in employer
group medical costs
$7K per employee
2005
Data: Mercer

5. Factors causing cost inflation
• Availability and growth of expensive medical
procedures
• Availability and growth of expensive prescription
drugs
• Employee longevity in active workforce
• Self-funded plans have seen continued
unpredictability in catastrophic claims

6. Financial incentives
• Employees have responded to incentives to take
better care of themselves
• 2012 saw the smallest increase in group medical
coverage in 15 years
• An average increase of 4.1%

7. Private Exchanges to the Rescue!
• Defined Contribution model provides workers a fixed
employer contribution
• Uniform Contribution in lieu of Uniform Benefit
• Self-insured employers can parlay adverse selection
costs associated with COBRA continuants
• Avoid the excise tax (“Cadillac Tax”)
• Greater plan selection may increase worker
satisfaction

8. Have we been here before?
• Managed competition first described in the late 70s
by Alain Enthoven
• Defined Contribution health plans were broadly
discussed over a decade ago – “DC Health”
• Over 62% of health-care leaders predicted DC
Health would takeover employment-based coverage
in 1998
• Interest waned – confusion, tax-free benefits, worker
retention

9. Employee Perspective
Traditional Offering Private Exchange
• Continuity in health plans • Possibly different carrier
offered and access to and plan mix than what was
providers previously offered
• Reduced perceived value of
• Reduced perceived value
benefit offering given
of benefit offering given increased OOP costs
increased OOP costs
• Mixed enrollment
• Singular and consistent experience with medical
experience with enrolling plans enrolled on exchange
in all benefit types platform while other plans
may require use of another
platform

10. Employer Perspective
Traditional Offering Private Exchange
• ERISA-based plan • Defined Contribution based
offering retains certain tax offering may adversely
benefits impact tax exposure
• Reduced perceived value of
• Reduced perceived value
benefit offering given
of benefit offering given increased OOP costs
increased OOP costs
• Mixed enrollment
• Singular and consistent experience with medical
experience with enrolling plans enrolled on exchange
in all benefit types platform while other plans
may require use of another
platform

11. Employers will still…
• Need to decide whether they want to have
involvement in plan selection
• Determine adverse selection implications (risk
adj, exchange open to all employers, min
underwriting provisions)

12. Employers will still…
• Need to answer whether their contributions will
float with inflation
• Need to provide tools to help works avoid plan
choice overload
• Consider varying contributions by geographic
location

13. Other Considerations
• Workers depend on employer plan selection
because they lack confidence (7/10)
• Employers may be better positioned to deploy
group purchasing efficiencies
• Insurers respond to the collective voice and
check book of an employer

14. Sources
• Alain Enthoven, New England Journal of Medicine, March 1978a
• 1998 CIGNA/BenefitAccess National Survey
• Paul Fronstin, EBRI, Private Health Insurance Exchanges and Defined
Contribution Health Plans
• Peter Orzag, Bloomberg, Defined Contributions Define Health-Care Future,
December 2011
• PriceWaterhouseCoopers, HealthCast, 1999
• US Census Bureau,
http://www.census.gov/hhes/www/hlthins/data/historical/HIB_tables.html