2. MERCER
CONTENTS
Evolution of health care benefits environment
Exchange environment
• Public exchanges
• Private exchanges…and defined contribution
Strategic opportunity for employers
1
3. MERCER
Managed care Consumerism Reform
17.1%
12.1%
10.1%
8.0%
-1.1%
2.5%
0.2%
6.1%
8.1%
11.2%
14.7%
10.1%
7.5%
5.5%
5.2%*
2.1%
4.1%
6.1%
6.9%
6.3%6.1%6.1%6.1%
7.3%
2.1%
-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 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Workers' earnings Annual change in total health benefit cost per employee Overall inflation
*Projected
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.
EVOLUTION OF HEALTH CARE BENEFITS ENVIRONMENT
2
4. WHAT IS A PUBLIC EXCHANGE?
• Created by ACA
• Structured marketplace to sell and purchase health insurance
• Subsidies provided for those who qualify based on income
• Goal: Insure all Americans
5. MERCER 4
State-run exchange Partnership exchange Federally Facilitated
Exchange
State operates all exchange activities
(subject to federal guidelines)
State takes responsibility for activities
related to plan management, consumer
assistance or both.
State plan management partnership
exchange. State recommends plans for
QHP certification, manage QHP issuer
accounts and day-to-day administration
and oversight of QHPs.
State consumer partnership exchange.
State manages navigators and the in-
person assistance program. HHS
operates call center, website; and funds
and awards navigator grants. States
may also manage outreach and
education efforts.
HHS operates all exchange activities
State maintains role as enforcer of
market reforms inside and outside
exchange
STATE PUBLIC EXCHANGE OPTIONS
Sources: National Conference of State Legislatures; HHS.gov
6. MERCER 5
STATE PUBLIC EXCHANGE DECISIONS FOR 2014
(AS OF JULY 2, 2014) Declared state exchange (15)
Planning partnership exchange (8)
State SHOP/Federally Facilitated Individual (3)
Default to federal exchange (25)
*Nevada residents will be directed to Healthcare.gov until the Silver State Exchange
infrastructure is repaired, expected to occur in late 2015.
Source: Kaiser Family Foundation
7. MERCER 6
WHAT DO THE PUBLIC EXCHANGES DO?
Provide financial management
Ensure plan accountability
Assist consumers
Determine eligibility,
enroll individuals
Manage plan activities
8. MERCER
WHO IS ELIGIBLE FOR SUBSIDIZED GOVERNMENT INSURANCE?
ASSUMES STATES EXPAND MEDICAID TO 138% FPL1
Household income <138% FPL
Eligible for Medicaid.2
Federal Poverty Level
(FPL) 2015 eligibility threshold3
Family size of 2014
Medicaid
138% FPL
Exchange
400% FPL
1 (single) $11,670 $16,105 $46,680
2 $15,730 $21,707 $62,920
3 $19,790 $27,310 $79,160
4 $23,850 $32,913 $95,400
5 $27,910 $38,516 $111,640
6 $31,970 $44,119 $127,880
7 $36,030 $49,721 $144,120
8 $40,090 $55,324 $160,360
Household income between
138% and 400% FPL.
Could be eligible for
subsidized exchange coverage.
1. Most adults will be eligible for Medicaid up to 138% of FPL.
2. Health reform legislation specifies income threshold of 133% FPL but also requires states to apply an “income disregard” of 5% of FPL in meeting income test;
effective income threshold for eligibility is 138%.
3. Based on 2014 FPL (note that some states may use 2013 FPL ($11,490) for Medicaid eligibility in 2014).
7
9. MERCER
2014: PRODUCTS OFFERED IN EXCHANGES
EXCHANGE PRODUCTS WILL DIFFER FROM GROUP PLANS
Plan options in public exchange are named after metals.
Public exchanges
Large ER |
Group
Bronze Silver Gold Platinum
Catastrophic
age <30 and
those eligible for
a hardship waiver
Plan
design1Features
Plan value 60% 70% 80% 90% under 60% >60%
• Silver – second-lowest cost plan – is baseline for calculating government subsidy.
• Government subsidy and member contribution requirement calculated based on
income, vary by level between 100% FPL and 400% FPL.
• Once subsidy determined for silver plan, can use for gold plan (pay more) or
bronze plan (pay less).
• No subsidies are available for catastrophic coverage.
8
1.Some provisions apply differently for grandfathered and non-grandfathered plans. Employer plans generally must offer coverage of at least 60% value to full time
employees to avoid shared responsibility payments.
10. MERCER
ELIGIBILITY FOR EXCHANGE PREMIUM TAX CREDITS
BASED ON SECOND-LOWEST COST SILVER PLAN IN 2014
Maximum monthly contribution to avoid employer penalties if using FPL safe harbor
($11,670 x 9.5% ÷ 12 = $92.39 (based on 2014 FPL; safe harbor for 1/1/15 calendar year plans)
Other options for affordable contribution safe harbor are: W-2 earnings and rate-of-pay.
% Poverty
level
Annual
household
income
Plan value with
cost-sharing credit
Maximum monthly employee
contribution in exchange
% Household
income Dollars
<100% <$11,670 Medicaid / Access gap N/A N/A
<138% <$16,105 Medicaid (if expanded) N/A N/A
138% $16,105 +24% to 94% 3.00% $41
150% $17,505 +17% to 87% 4.00% $59
200% $23,340 +3% to 73% 6.30% $123
250% $29,175 70% 8.05% $196
300% $35,010 70% 9.50% $278
400% $46,680 70% 9.50% $370
>400% >$46,680 70% No maximum Full cost
Individual in 2015 (Based on 2014 FPL of $11,670)
9
11. MERCER 10
2014: FAMILY COVERAGE IN A PUBLIC EXCHANGE
PREMIUMS AND SUBSIDIES WILL DETERMINE APPEAL
Total monthly premium for
second lowest cost silver plan2
Family of 4 Average TN NJ
$912 $659 $1,033
Full Premium
at 100%
$912/month
Individual premiums may be
higher than in group plans.
Individual product costs will
vary by state
1.Mercer Survey of Employer-Sponsored Health Plans, 2012 – Average monthly employee contribution for PPO coverage: Employers 500+ = $111/month
for individual; $391/month for family; All employers = $148/month for individual; $544/month for family
2.Straight-average of second lowest cost silver plans from each rating area across the state. Based on federally-facilitated exchange states.
$47,000$35,000 $100,000
Family of 4 average household income
$391
Average
group
plan total
premium1
$
Second
lowest cost
silver plan
12. MERCER
EMPLOYERS AND PUBLIC EXCHANGES
HOW WILL IT WORK WHEN EMPLOYEES APPLY FOR SUBSIDIES?
Individual applies
to Exchange
Provides & attests to certain
info, including:
• Income and family size
• Lowest cost employer
plan option that meets
minimum value (employee
only cost)
Exchange
verification
• Verifies income and other
information
• Verification process for
employer coverage
(statistical sample only)
• Individual can enroll during
verification process
Exchange Eligibility
Notice
• Notice to individual of
eligibility determination
after verification complete
• Notice to employer if
individual determined
eligible for exchange
subsidies after verification
complete
1 2 3
Employer Appeal
IRS reporting &
reconciliation
After close of calendar year,
IRS has at least three
sources of info to confirm
subsidies were provided
correctly:
• Employer reporting
• Exchange reporting
• Individual tax filing
• Employer requests appeal
within 90 days of notice
described in step 3
• Exchange tells employee
of appeal request
• Written appeal decision
w/in 90 days of receipt of
appeal request
IRS Employer Shared
Responsibility
process
IRS has said, after
employee tax returns for
coverage year are due:
• IRS will contact
employer about possible
liability
• Employer opportunity to
respond
• IRS notice & demand for
payment
4 5 6
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13. MERCER 12
NAVIGATING PUBLIC EXCHANGES
COMPLEX FOR EMPLOYERS AND EMPLOYEES
Employee
communications
Requirement to communicate model
exchange notice to employees
Likely intense confusion based on
public/press information
Inform employees
how to make their selections
Data
requirements
Paper/electronic environment
Erroneous enrollments
on public exchanges
Rolling enrollment all year if change
in status
Multi-state
employers
Public exchange options and
Medicaid expansion – and therefore
employer coordination
– will vary by state
System
requirements
Technology and tools to
track employee hours
Reporting and disclosure
requirements
Cost to upgrade and implement
14. WHAT IS A PRIVATE EXCHANGE?
Marketplace with core and voluntary product offerings across
many benefits and services
Exchange sponsor stocks products and manages end-to-end
consumer experience
15. MERCER 14
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
Small Group
Group plans
Insured or
self-funded
16. MERCER 15
GROWING INTEREST IN PRIVATE HEALTH CARE EXCHANGES
25%
45%
In 2 years In 5 years
Percent of employers that
would consider offering a
private exchange
Employer advantages
§ Cost control
§ Choice for employees
§ Streamlined management
and administration
Employee advantages
§ Cost-efficient, convenient
buying
§ Comprehensive coverage
§ Personalized portfolios
Source: Mercer’s National Survey of Employer-
Sponsored Health Plans 2013.
17. MERCER 16
HOW DOES DEFINED CONTRIBUTION RELATE TO EXCHANGES?
With private exchanges, employers can successfully
implement defined contribution
• Offer employees an array of choices
• Encourage employees to “buy down” to lower-cost medical
coverage and use remaining dollars for other purchases
Best achieved when employees can purchase other
attractive products (life, accident, disability, critical illness, auto, etc.)
• Better meets employees’ personal needs
• Helps manage their benefit spend
Defined contribution = Funding arrangement where employers manage their year-
over-year increase in health and welfare benefits spend to a pre-defined amount
18. MERCER
HOW DO PRIVATE EXCHANGES WORK?
Funding
DC or DB
Standard Plan
Designs
Choice among
multiple, pre-
screened plans
Employee
Communications
and Education
Online
Call Center
Print and email
Election Data
HR
Profes-
sionals
Carriers
PayrollDeductions
Reporting and
Premium Data
Administration
• Eligibility
determination
• Data-driven
events
• Election
management
• Contribution
calculation
Enrollment
17
19. MERCER 18
§ Comprehensive, one-
stop benefits
management
§ Purchasing strength
§ Defined contribution
facilitation
§ Proactive project
management and
accountability
§ Compliance with
evolving legislation
Employer
Experience
§ All insurance needs met
with one-stop, on-line
shopping
§ Personalized experience
and portfolio
§ Multi-channel, targeted
messaging
§ Call center with
experienced, objective
benefits counselors
§ More benefits value for
the money
Employee
Experience
§ Core & supplemental benefits
§ Vendor Management
§ Financial Projections
§ Open Enrollment
§ Ongoing Event Management
§ Payroll Reporting
§ Carrier Eligibility Reporting
§ Premium Reporting
§ Member Service Center
§ Member Communications
§ Compliance
§ FSA administration
§ Health Savings Accounts
§ COBRA administration
Comprehensive Solution
MERCER MARKETPLACE… EMPOWERING BENEFITS
WHAT WE DELIVER
20. MERCER
PRIVATE EXCHANGE
VALUE TO EMPLOYERS
Resources required to manage
benefit programs
79% of US employers cite one-stop shop for
all administration as reason to integrate
core and voluntary benefits
Health care reform
How to address increased costs plus
design, communication, and administration
implications
Cost of providing benefits
Employers’ costs continue to outpace
earnings and inflation by three times
EMPLOYER CHALLENGES
Choice for employees
Expanded plan options and tools to help
make decisions
Streamlined management and
administration
End-to-end process for delivering benefits
Cost control
Innovative ways to control costs instead of
cost-shifting
HOW MARKETPLACE HELPS
19
21. MERCER
PRIVATE EXCHANGE
VALUE TO EMPLOYEES
Low satisfaction with current benefits
24% think that their benefit program is “very
good”
Flexibility to choose benefits that fit their
needs
Almost half would like to have flexibility to
reduce the value of some benefits and
increase the value of others
Importance of benefits as
attraction/retention factor
53% say benefits play a significant role in
their decision to stay with their employer
EMPLOYEE ISSUES
Comprehensive coverage
Wider range of coverage options
Personalized benefit portfolios
Customized benefit plans to meet
employee and family needs
Cost-efficient, convenient buying
Informed benefits buying decisions
HOW MARKETPLACE HELPS
20
24. MERCER
DIFFERENT INDUSTRIES,
CHALLENGES AND DIRECTIONS
Group
Self-
insured
Individual
InsuredRISK
ControlNone Total
Decision variables include
Carrier
Design
Cost
Contribution
Messaging
Wellness
23
26. MERCER
DELIVERED EFFECTIVELY, BIG IDEAS WILL…
25
…control the rate of increase
year-over-year
Reduce administrative
burden of managing
benefits – and optimize
your investment
Improve per-capita
costs and…
ValueBenefit
resources
More effectively engage
all of your people and –
meet their individual needs
27. Securities offered through MMC Securities Corp., Member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036; Phone 212 345 5000.
Variable insurance products distributed through Marsh Insurance & Investments Corp., MIIC Insurance Services in California and Marsh Insurance Agency & Investments Corp. in New York.
