Judging by newly released data on health-care choices made by employees at companies offering insurance through private exchanges, most people would rather save money than have better insurance.
Aon Hewitt, one of four large human-capital consulting firms that offer private exchanges for active employees, on Thursday revealed the 2014 selections by employees of the 18 corporate customers of its exchange. More than 600,000 of those companies’ employees and their family members are covered this year by insurance available through the exchange.
Among the four pricing tiers (designated as platinum, gold, silver and bronze) in Aon Hewitt’s exchange, 73 percent chose one of the two lowest-priced ones (see chart, “Going for the Silver”).
For both Aon Hewitt and some of the other exchange vendors, the metallic levels are generally defined the same as they are by the public exchanges, created under the Affordable Care Act, which started enrolling people this year.
A “silver” plan, for example, has an “actuarial value” of 70 percent (plus or minus a couple of percentage points), which means the plan pays for that share of health-care costs while enrollees pay the rest through some combination of deductibles, copayments and coinsurance. The actuarial values of bronze, gold and platinum plans are 60 percent, 80 percent and 90 percent, respectively. A plan with a value of, say, 85 percent might be called “gold-plus.”
Generally, the more employees pay for deductibles, copays and coinsurince, the less comes out of their paychecks for the insurance itself. An employee choosing a bronze plan, say, may be making a bet that he will stay healthy and thereby avoid the costs of deductibles and copays.
“We had postulated that private exchanges would accelerate the movement toward consumerism in employer-provided health care, where people have more to say about the cost of care they receive, and these results validate that to some degree,” says Michael Thompson, a principal in the health-care practice at PricewaterhouseCoopers. “Overall, these are encouraging results. We’re seeing a lot of people right-sizing their coverage when they fully understand the trade-off between the cost of coverage and what they’re getting.”
(PwC is part of the Private Exchange Evaluation Collaborative, a broad-based group that aims to provide unbiased information and insight on the private-exchange industry. PwC does not offer an exchange of its own.)
Two of the three initial clients that Aon Hewitt signed up for its exchange for 2013, Darden Restaurants and Sears Holdings (the third was the consulting firm itself), employ large numbers of low-wage workers. Among large companies, they’re of the type that was thought at first to be the most likely source of clients for private exchanges.
But the other 15 companies Aon Hewitt brought into the stable this year represent a diversity of industries, including wholesale trade, business and professional services, hospitality, health care, technology, communications, financial services and manufacturing. Its competitor Mercer, which is serving at least 33 companies with its private exchange this year, has a similarly varied client list.
Interestingly, among the first-year participants in Aon Hewitt’s exchange — a large majority of them being those low-paid Darden and Sears workers — fewer actually opted for the silver and bronze tiers than did the employees in Aon’s full customer base. And that tendency was more pronounced this year than last (see chart, “Second Time Around”).
That’s not surprising to Thomas Mangan, CEO of United Benefit Advisors, a benefits consultancy. “The people who can least afford it often are the ones most willing to pay more for a richer plan,” he says. “Even though hospitals generally will negotiate payment plans for such people, they are worried that a hospital stay will bankrupt them.”
Overall, the second-year selections by the three original clients show a slight proclivity for less-rich plans in the second year. “One of the primary goals of our exchange is to bring down the rate of increase in health-care costs to something that looks more like the general inflation rate,” says Ken Sperling, Aon Hewitt’s national exchange strategy leader.
There is room for improvement there: The firm’s three original exchange clients are paying an average 5.1 percent higher premiums this year, while the U.S. inflation rate was 1.5 percent in 2013 and is trending at 1.6 percent this year, according to USInflation.org.
Notes Thompson, “That 5.1 percent increase in health-care costs is in line with what many companies are seeing,” he says. “But it’s still good news for the exchanges. It shows that the insurance carriers that are in the exchanges are still competing hard for members.”
Some observers had expected that carriers would entice companies with artificially low rates for the first year of exchange participation and ratchet up the pricing in future years. “This is a positive sign for the sustainability of those initial rates,” Thompson says.
The carriers in Aon Hewitt’s exchange didn’t all have the same approach to cost hikes for the second year, Sperling notes. Some increased all the tiers by the same percentage, and some hiked the platinum and gold tiers by more than the bronze and silver tiers, he says.
Hours after Aon Hewitt released its data, Towers Watson communicated some corresponding information to CFO. For this year, its first serving active employees with a private exchange, 16 percent of participants chose a gold plan, 29 percent picked silver, 28 percent bronze and 27 percent what the firm calls “safety net” coverage. Towers Watson doesn’t offer a platinum option.
While Aon Hewitt offers only fully insured plans through its exchange, Towers Watson offers self-insured plans (as well as fully insured). For that reason, the actuarial values of its tiers don’t perfectly correspond to those of the public exchanges, says Cathy Tripp, leader of OneExchange Active, Towers Watson’s exchange for active employees. The consulting firm’s values are in the mid-80 percent range for gold plans, and the high 70s, high 60s and low 60s for silver, bronze and safety-net plans, respectively.
“Employees can optimize their health-care dollars from their take-home pay by buying up and buying down compared to their previous group plans,” says Tripp. “Many were over-insured and can now get perfectly adequate coverage for less. But actually, more than expected bought up to get better coverage than before.”
Neither Mercer nor Buck Consultants, the other two consulting firms with exchanges for active employees, provided by press time information on pricing-tier selections.
Meanwhile, Aon Hewitt’s exchange participants liked having greater choice among carriers even more than having greater choice among plan types, notes Sperling. Eighty-seven percent of them said they liked plentiful carrier options. Participants in the firm’s exchange can choose from among three or four options, depending on where they are located. With some other exchanges, there are only one or two carrier options.
“That result was a bit of a surprise,” Sperling says. “But what it tells us is that when companies drop their employees into new carriers, it’s pretty disruptive. With multiple carriers available, people can get their old doctors back.”
It’s less surprising to Thompson that carrier choice outweighs plan choice. “Often people have a coverage level in mind, so being able to choose from other coverage levels may not matter to them,” he says. Anyway, he notes, many large companies already offered plans from multiple carriers.