Data released today by Aon Hewitt suggests that when companies join a private health-insurance exchange that gives employees more health-plan options from which to choose, they will overwhelmingly choose something different from what they selected previously.
Sears, Darden Restaurants, and Aon Hewitt itself were announced last fall as the first customers of the consulting firm’s Corporate Exchange. Among almost 100,000 employees who enrolled in 2013 health benefits through the exchange, 42% chose a plan that cost less and provided fewer benefits than the plan they’d used the previous year. Twenty-six percent elected a higher-cost plan with better benefits.
For 2012, just 12% of the employees were enrolled in consumer-driven health plans (CDHPs). For this year, that figure leaped to 39%.
CDHPs are advantageous to people who expect their health-care expenses to be low. They typically come with a three-tier structure of payment for health care: an employer-funded, tax-exempt coverage for health expenses up to a certain amount; high-deductible insurance that pays for expenses over the deductible; and a gap between those two in which employees pay any expenses out of their own pocket.
But why did three times as many employees choose CDHPs through the Aon Hewitt exchange than they had the previous year? Mainly, says Ken Sperling, the firm’s national health-exchange strategy leader, it’s because the advantages of CDHPs were clearly spelled out during the enrollment process. “Everyone had to make a new election, because their prior coverage options weren’t available anymore,” he says. “And when people are forced into spending more than six minutes on enrollment, and using the exchange’s decision-support tools, and thinking about what kind of coverage they need, they tend to make more economic choices.”
Sperling adds that the enrollment data is “a message” for employers that are considering CDHPs. When companies simply offer a CDHP as an option alongside their traditional plan or plans, typically about 10% of participants select it. That rate can be doubled through aggressive communications and pricing. To get significantly greater participation than that, companies actually have to eliminate non-CDHP options, in which case, of course, the participation rate becomes 100%.
“This shows you don’t have to do a total replacement from what you were offering to a CDHP,” Sperling says. “You can offer it in a more consumeristic way, where people make the choice themselves.”
Private exchanges in general support consumerism, opines Christopher Condeluci, an attorney with law firm Venable who counts multiple private-exchange vendors (though not Aon Hewitt) among his clients. “When employers are given more choice, they become better consumers of health care,” he says.
So far, customers of Aon Hewitt’s exchange have chosen to offer fully insured health plans, which pay out on claims and assume the risk of higher-than-normal claims volume, rather than self-insured plans, where companies pay all claims directly. Most large companies, with large insured pools across which to spread risk, choose self-insurance because on average it’s about 8% less expensive, Towers Watson consultant Ron Fontanetta told CFO in January. Insurers charge fully insured plans a risk premium as well as various fees that don’t apply with self-insurance.
But Aon Hewitt analyzed how the 19 companies that sent in requests for proposal for its new exchange would have fared costwise by providing employees the same benefits through the exchange on a fully insured basis that they had been providing on a self-insured basis. The exchange rates in aggregate were 1% less, Sperling said at the time.
Condeluci says costs for fully insured plans can indeed drop when companies use exchanges. First, as the Aon Hewitt data shows, when employees are given greater choice they are, on average, likelier to choose lower-cost plans. Second, employers that use exchanges generally make predetermined, direct contributions to accounts that workers use to buy health insurance. While health-care costs have been rising an average of 7% per year for many years, with exchanges most employers will guarantee to raise their contributions each year but less than that amount: say, no more than 3% or 4%.
For employees who choose a plan that costs no more than what the company is contributing, which may be the case for a CDHP or other low-cost plan, the company then saves that 3% or 4% per year, Condeluci says.
Condeluci has a good measure of credibility on the topic. He formerly worked with the Senate Finance Committee when the Affordable Care Act was being created. Working directly for committee member Sen. Charles Grassley (R-Iowa), he helped draft early versions of the health-reform legislation before deliberations “went partisan in September 2009” and Democrats solely took over the drafting duties.
Early on in the drafting process, he says, Republicans looked at private exchanges as a model for the public exchanges that were to be created under the law. The Democrats instead chose as a model the public-health-care plan in Massachusetts, which ironically had been signed into law when Mitt Romney was governor there.
Aon Hewitt competitors Towers Watson, Mercer, and Buck Consultants have all jumped into the private-exchange game this year.