Employers offering employees health coverage through private health insurance exchanges — one of the biggest benefit trends of 2013 — is certain to continue in 2014.
Sensing rapidly growing employer interest, 2013 was the year in which major consulting firms launched or said they planned to launch private exchanges.
Aon Hewitt started its exchange in 2013, Mercer L.L.C. and Buck Consultants L.L.C. geared up to offer exchanges in 2014, and Towers Watson & Co. acquired Liazon Corp. to expand its private health insurance exchange presence.
Early market entrants see rapid growth
Those early movers were rewarded with substantial growth.
The number of employers participating in Aon Hewitt's exchange will leap six-fold in 2014.
In all, 18 employers, including Deerfield, Ill.-based drug store chain Walgreen Co., will participate in Aon Hewitt's Corporate Health Exchange in 2014. That compares with three employers — including U.S. employees of Aon Hewitt parent Aon P.L.C., Orlando, Fla.-based restaurant chain Darden Restaurants Inc. and Hoffman Estates, Ill.-based retailer Sears Holding Corp. — that offered coverage through the exchange in 2013. More than 600,000 employees and dependents of the 18 employers are eligible for coverage through the exchange in 2014.
Meanwhile, Buck Consultants' new exchange starts 2014 with 14 employers, all of which have at least 3,000 employees. They include well-known companies such as Arby's Restaurant Group Inc., Bob Evans Farms, Domino's Pizza Inc. and Buck Consultants' parent company Xerox Corp. In all, about 400,000 employees and dependents will receive coverage through Buck's RightOpt exchange.
“The growth we saw in 2013 will seem very pedestrian to what we will see in 2014 and beyond,” said Alan Cohen, Liazon's chief strategy officer in New York. “In three to five years, exchanges will be the standard way health care coverage will be purchased.”
The widely predicted growth in private health exchanges comes from their dual appeal to employers and employees, experts say.
For employers, the exchange model means predictable costs and an end to the administrative hassles associated with offering health plans. That is because employers agree to provide a fixed premium contribution and employees pay more or less for their share of the premium depending on the level of coverage they choose.
For employees, the exchange model typically means more health plan designs from which to choose compared with previous offerings by their employers.
Consumer-driven health plans
While consumer-driven health plans were barely known a decade ago, that is hardly is the case today. CDHPs have become mainstream employee benefit plans.
This year, for the first time, the percentage of employees enrolled in CDHPs at 18% equaled the percentage enrolled in health maintenance organizations, according to a Mercer L.L.C. survey.
With high deductibles and links to health savings accounts, which can be used to pay for uncovered expenses, CDHPs have powerful financial incentives for employees to become more careful users of health care services.
On average, CDHPs linked to HSAs cost about $1,700 less per employee a year vs. traditional preferred provider organization plans, according to Mercer.
With such cost savings, “There is more and more employer interest in adopting CDHPs,” said Rich Stover, a principal with Buck Consultants in Secaucus, N.J.
Pension de-risking an ongoing effort
“Pension plan de-risking” became pension plan vernacular in 2012 when Ford Motor Co. said it would offer tens of thousands of former employees the opportunity to convert their monthly pension annuity benefit into a cash lump-sum benefit.
Other employers also adopted de-risking strategies in 2012, and such efforts continued in 2013.
In November, SPX Corp. said it had purchased a group annuity from Massachusetts Mutual Life Insurance Co. to provide benefits to about 16,000 retirees and would offer about 7,500 former employees who were vested but not yet receiving benefits a choice of converting their future annuity into a cash lump-sum benefit.
Through the two actions, the Charlotte, N.C.-based manufacturer said it expected to reduce its U.S. pension plan obligations by about $800 million.
“We are having more and more conversations about it with clients,” said Richard McEvoy, leader of Mercer's financial strategy group in New York.
“While 2013 was not a year of great public activity, we have been very busy” planning future transactions, he said.