Health Insurance Benefit Design 2016 by Oliver Wyman Group

Health Insurance Benefit Design 2016: Insurer Strategies for Large Groups Spring 2015

Todd Van Tol Partner â&#x20AC;&#x201C; Health Services Practice Lead todd.vantol@oliverwyman.com

ÂŠ Oliver Wyman

The world is changing…will health insurers thrive, survive, or fade away?

By 2018, 1

in 3 Americans will be buying a

different insurance product than they do today, through a channel that didn’t

exist three

years ago, receiving 30% of their care outside of a traditional health system.

Contents

• Private Exchanges • Alternative Product and Network Designs • Ancillary Offerings • Consumer Experience

What is defined contribution and what is a private exchange? Defined Contribution

Private Exchange

• Defined contribution is a funding mechanism that provides predictability to employer CFOs

• Private exchanges offer a shopping marketplace where employees can purchase health benefits similar to how you make travel purchases

• Like the switch from pensions to 401Ks, employers are moving to defined contribution to shift healthcare costs to employees • The employer provides a fixed subsidy to each employee to purchase their health benefits

A Proprietary / single-carrier

B Multi-carrier with brand disclosed

C Multi-carrier with brand hidden

The pace and scale of private exchange adoption remains a point of debate… “2015 enrollment has “We’ve seen exponential growth. Last year, we installed more than 2,500 customers and about 60% of those customers came to us in the fourthquarter, during the open enrollment season. That’s more than double what we saw in 2013.Based on the business that we have contracted and what we foresee going into 2015, we see that more than doubling”

“Employers are still reluctant to be the first employer to make a drastic change. They’re afraid of employee fallout. 34% are waiting for someone else to switch”

increased 5x since 2014” -Mercer 11/14

“Aon Hewitt’s exchange is expected to grow by 60% to 1.2 million enrollees in 2015” -Forbes 12/14

-Towers Watson 12/14

“Time Inc. moves active employees to private exchange”

-OW Interview

EBN, Feb 2015

“As the private exchange market continues to expand, contraction via M&A is not surprising”

“As many as 93% of 144 industry insiders thought more employers will use the defined contribution funding model that drives private exchanges. The survey also noted that nearly 70% of the respondents believed it will happen by 2018”

-EBA 12/14 -Array Health 2014

“As Health Insurance Evolves, Traditional Brokers Claim They Still Have a Role” -EBN12/14 4

â&#x20AC;Świth high uncertainty regarding rate of uptake Projected private exchange market share of employer-sponsored health insurance Independent survey forecasts from 2012, 2013, and 2014

ÂŠ Oliver Wyman

While we are in the early stages of private exchanges, there is already significant activity…

In 2015… 100+ 35+

large employers offer benefits through private exchanges

180+

carriers participate on third-party exchanges

25+

types of products are available through private exchanges

exchange offerings are in-market

Sources: Oliver Wyman Private Exchange Market Model, primary research © Oliver Wyman

…and indication that private exchanges change behavior MERCER MARKETPLACE ENROLLMENT EXPERIENCE

60%

chose plans with deductibles of $1,500 or higher (3x the market average)

35%

of those electing a $1,500 or higher medical deductible bought accident, critical illness, and / or hospital indemnity insurance

24%

bought supplemental health

$800

employer cost reduction per employee

AON ACTIVE HEALTH EXCHANGE ENROLLMENT EXPERIENCE

42% +27 pts. -23 pts. © Oliver Wyman

of employees selected cheaper health plans percentage increase in employees selecting consumer-directed plans percentage decrease in employees selecting PPO plans 7

Contents

• Private Exchanges • Alternative Product and Network Designs • Ancillary Offerings • Consumer Experience

Deductible levels continue to rise Average plan deductible versus legal definition of “high deductible” $1,500

$1,250

Legal definition of high deductible Deductible

$1,217

$1,050 $1,000

Average plan deductible

$584 $500 2006

2007

2008

2009

2010

2011

2012

2013

2014

Year © Oliver Wyman

Payers need to manage across dual objectives Medicare Advantage

Individual

Private Exchange

Small Group

Middle Market

Jumbo

Increasing need for affordability, value, and choice

• Consumer choice markets are growing • Consumer-level decision making brings an increasing willingness to trade off network access for price • Local networks are becoming increasingly valuable as individual choice becomes more prevalent Continued need for broad, national networks

• Many large sponsors continue to prefer broad network, open access products • Need broad solutions that harness the value of local market innovation © Oliver Wyman

Employers are increasingly demanding more innovative network and product solutions Increasing member engagement and accountability

Product Innovation

1 • Member engagement: Benefit

Future products

designs, incentives, and programs to increase member activity and accountability 2 • Performance-based contracts:

Contracts that require providers participating in networks to achieve target performance levels

3 • Network management: Referrals

and other tools to support and reinforce member and provider activities

Current products 0

Increasing network performance 2

Performance-based contracts

Network management 11

Interest in alternative care delivery channels will continue to grow…insurers are working to address Percent Willing to Consider

Q: Would you consider receiving these health and wellness services in the following locations?

<10%

10-25%

25–49%

50%+

Physical

Routine

Minor Episodes

Diet/ Nutrition

Fitness/ Wellbeing

Chronic Management

Interested in receiving care in at least one alternative location

44%

64%

79%

66%

64%

50%

A health and wellness clinic in a grocery store (such as Kroger, Publix, Safeway)

10%

17%

20%

22%

21%

11%

A health and wellness clinic in a discount retail store (such as Wal-Mart, Target)

11%

20%

24%

25%

13%

A health and wellness clinic in a drug store (such as Walgreen's, CVS, RiteAid)

15%

30%

36%

35%

33%

19%

A walk-in clinic or urgent care center

35%

46%

61%

30%

33%

Remotely via phone, voice chat, or video chat

11%

13%

32%

33%

19%

Source: 2013 Oliver Wyman Consumer survey © Oliver Wyman

Contents

• Private Exchanges • Alternative Product and Network Designs • Ancillary Offerings • Consumer Experience

Significant opportunity for further ancillary penetration Product offering incidence among employers who offer benefits By employer size segment Micro (2-20 EEs) Health Dental Vision Long-term Disability Short-term Disability AD&D Term and Universal Life Accident Critical Illness Cancer Medical Indemnity Long-term Care Legal Services Travel Discount Merchandise Auto Identity Theft Pet Homeowners

Small/Medium (21-500 EEs)

ÂŠ Oliver Wyman

95%

96% 91% 87%

84% 74%

56% 48%

57% 56% 51% 45%

27% 27% 27% 25%

67% 66% 61% 51%

34% 29% 22% 17% 17% 11% 8% 6% 5% 5% 4% 2%

17% 14% 11% 9% 7% 4% 6% 4% 5% 3% 1% 3%

0 10 20 30 40 50 60 70 80 90 100 Offering (% of respondents)

Large (501+ EEs)

39% 31% 20% 18% 26% 22% 13% 14% 11% 6% 8% 8% 60

Offering (% of respondents)

100

Offering (% of respondents)

The employee benefit product suite will continue to expand Emerging Opportunity

Market Maturity

Diversified Plays Core Group/ Voluntary Extended Health Core Health Protection  Medical

 Dental  Vision  STD

 Critical Illness  Medical Indemnity  LTD  Group Life

           

Voluntary P&C Travel Pet Concierge Coaching Financial Services Caregiver Support Eldercare Auto Insurance Mortgage Insurance LTC Behavioural Health



Significant opportunity exists in untapped core group/voluntary and diversified plays



Core medical is an anchor product in the employer / employee decision set



Benefits purchasing across all categories is converging as players attempt to integrate choice across product types

Total risk protection value proposition can expand and deepen customer relationships Today: Disconnected, Fragmented Products and Experiences Retiree supplemental

Critical Illness / Accident

How do we optimize risk protection…?

How do we keep our employees healthy…?

Future: Total Risk Protection

Core Medical, Rx

Vision Life Insurance

Disability

How do I plan for the future…?

What does my family need…? Dental

Educate customers on the need for Total Risk Protection Create integrated purchasing experience

Provide tools for product selection guidance

Offer a complete portfolio of innovative products

Contents

• Private Exchanges • Alternative Product and Network Designs • Ancillary Offerings • Consumer Experience

The healthcare consumer experience remains very challenging… I only seek care when I have no other alternative

Doctor’s hours don’t match real life hours

My doctor controls my referrals, and I don’t know who provides the best care

I am the only person coordinating my care – doctors don’t talk to each other and don’t think about me once I leave their office

I avoid my healthcare because it’s too confusing and inconvenient

I feel lost and overwhelmed

I feel rushed during doctor visits I have no idea how my insurance works – it’s so confusing

â&#x20AC;Świth the typical health consumer experiencing many frustrations Frustrations per respondent Mode = 3 100

Median = 7.4

Average = 9.1

Number of respondents

80 70

Most frequent frustrations

Freq

1) Staying on track with health-related goals

30%

2) Understanding what medical care will be covered

29%

3) Finding a solution that works for me to lose weight

28%

4) Being able to afford healthy foods

28%

5) Getting bills that I expected insurance to cover

27%

60 50 40 30 20 10 0 0

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 >30 Frustrations selected

ÂŠ Oliver Wyman

Hassles can be clustered and prioritized 6.5

Niche frustrations Getting access to Substance abuse treatment

Frustration severity

6.0

5.5

Systemic issues

Finding out a visit won’t be covered

Not knowing who to appeal to

Paying out of pocket Unexpected costs

Access to Rx isn’t covered Getting conflicting info Getting claims from doctor/insurance (Unexpected) Nichereimbursed &Information Rx Authorization Claims resolved Bills for something I Paperwork issues (health + Costs of care expected insurance to cover Doctor no info on hassles Finding the info I previous visits Enrolling in a process) need from insurance health plan Access to mental Higher co-pays Finding out the specialist Admin health treatment doesn’t have info on

Test costs previous visits Figuring how Understanding I have to pay Not needing much for premiums Unwanted Getting Finding a solution care substitutions Figuring out how Doctor’s visit cost a referral to lose weight much for a visit Getting enough time with a Getting time Understanding what Finding a solution specialist Comparing w/doctor is covered Figuring out to quit smoking Getting an Info to manage health plans prescription options Being able to appointment health conditions afford healthy Solution to maintain a Accessing health Getting access to Finding info on foods healthy weight other insurance records & Accepts doctor/specialist quality Too early Learning insurance Seeing a doctor Staying on track for refill Getting enough about when convenient Transportation with goals time with a Getting timely the resources to hospital Finding tools to motivate results specialist available me to exercise Finding healthy foods Running Scheduling Getting a follow up out of tests Preparing healthy meals refills Accessing Paying alternative electronic bills treatments

Scheduling & Referrals

5.0

Managing Health & Wellness

4.5

Keeping track of Rx

4.0

Occasional bothers 0%

Frequent irritants 10%

15%

20%

25%

30%

35%

Insurers are focusing on product and consumer experience innovation Configurable benefits, networks, pricing

Organized consumer solutions market

Technology puts benefits management in the palm of the hand and is simple to use

Employees can select product bundles that are suitable to their needs and price points

Exchanges serve as one-stop-shop

Transparent value-based shopping

Integrated rewards â&#x20AC;&#x201C; tied to actions

Health Plan Peer Reviews

Affordable, anytime access .

Personalized recommendations

Cost

$ XXX

Health Plan

Retailer

$ XX $ XX

Engagement yields tangible rewards tied to action Decision Support Tools

ÂŠ Oliver Wyman