It’s hard to believe that it’s been nearly 10 years since my colleagues and I embarked on the journey of creating one of the nation’s first private exchanges. I’ve been privileged to be a part of the revolution as this important new industry has started to become a major force in how employers deliver health care benefits to all of their employee and retiree populations.

It’s been an amazing decade and the time is right for me to retire this blog as I move on to new ventures in health care and technology.

I look forward to continued conversations with many of you in my new venture at SeeChange, which will keep me closely tied to the world of health insurance.

I wish my colleagues and team members at Towers Watson all the best in these exciting times.

Very proud to have the confidence of these 50 employers and all our clients

The OneExchange Blog

OneExchange today marked an important milestone: 50 employer clients have used our private Medicare solution to transition multiple groups of customers.

Workforces can be complex, and changing benefits for multiple groups at once may not always be possible. Union contract negotiation timelines differ. Employers may want to test-drive a new approach like an exchange with a portion of their population first. And newly acquired companies may present an opportunity to streamline benefits administration after an initial group has already transitioned.

These are all reasons why employer clients have come back time and time again to OneExchange in addition to the reasons they chose Towers Watson’s Medicare solution in the first place.

Read first-hand what Phil Belcher, U.S. Health & Welfare Plans Manager for Eastman Chemical has to say about Eastman’s experience with OneExchange.

71% of companies that offer retiree health care report that they already offer retirees access to a private…

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Skyrocketing health benefit costs have made cost management strategies a concern for every company officer. CFOs feel this acutely and are looking for solutions that transcend the traditional.

I spoke with three engineers of the next frontier of benefits delivery – chief actuary Dave Osterndorf, strategist Ben Pajak and active employee exchange expert Cathy Tripp – to get their best advice on how CFOs can leverage health insurance exchanges to tame health benefit costs now and down the road – when the stakes get even higher. 

Here are their best thoughts on what’s driving the savings on exchanges, how much employers can expect to save and the impact on HR and benefits.

  1. What can exchanges really deliver?
  2. What about the Cadillac tax?
  3. What about so-called single-carrier exchanges?
  4. Is it realistic to expect the best health care price in every region?
  5. How can employers fund benefits on exchanges?
  6. What data and reporting can I expect to evaluate exchange effectiveness?
  7. What other issues do I need on my radar?
  8. Are there impacts to employee sentiment?

Key take-aways for CFOs

Download this Q&A as a PDF.

Question 1:
Cost management is the holy grail of health care right now. What can health insurance exchanges really deliver?

Osterndorf: There are significant opportunities for employers to save on health care coverage for active employees, which is why there’s a surge of interest in private health insurance exchanges. We’ve seen employers saving from 3% to 10% in their total spend, relative to their existing approach. Perhaps even more significant: Health care costs for employers using private exchanges are declining faster than costs for other organizations. Four factors are involved.

First, exchanges can offer multiple carriers in almost any geographic area, so employers can count on getting the best-negotiated deals in most locales. That’s quite different from working with one major insurance carrier to cover employees across the country. In that situation, companies could get the best deals in 70% or 80% of the geographies in which they operate, but could lag the market by as much as 5% to 10% elsewhere. In a private exchange, they get the best deals everywhere.

Second is the fact that exchanges have access to high-performance provider networks and can negotiate favorable prices in areas where those deals would be difficult for employers to do on their own.

Third, exchanges can structure plans progressively in the areas of plan design, and pharmacy and care management, and this can bring incremental savings every year.

And finally, joint purchasing efficiencies can help the employer, which benefits from the economies of scale associated with a large purchasing pool.

For example, it’s very challenging for an employer to build a best-in-class pharmacy program. An exchange can build a high-performance drug formulary that provides clinically appropriate drugs for all conditions, while using only the drugs that deliver the best outcomes for the money being spent. It takes market power and deep expertise to do that.

Question 2:
How does the so-called Cadillac or excise tax affect this picture?

Osterndorf: It will add to cost pressures. Starting in 2018, health benefit plans with premiums that exceed $10,200 for individuals or $27,500 for families will be taxed annually at 40% on each dollar above those figures. It’s a nondeductible tax, so even if an employer passes it through to employees, there will be negative tax consequences for the company’s financial reporting. At a minimum, an exchange for active employees must enable the employer to avoid having to pay that excise tax — which means keeping the cost of benefit offerings below the excise tax thresholds.

That won’t be easy. Come 2018, health plan cost trends will need to approximate the CPI, which has never before happened with health care costs. Employers need to feel confident that an exchange can achieve the required level of performance to reduce trend — not just for a single year, but over time. This is really a question of long-term sustainability.

There’s another important point about the excise tax that’s often misunderstood: It will be assessed on the total cost of the plan, including both employer payments and employee contributions. Employers can’t avoid paying the excise tax just by cutting back on their financial subsidy. An organization must be able to manage its plans exceedingly well to avoid the tax.

That’s really the issue finance executives need to quantify. Is their current path sustainable? If the answer is no, the employer must ask its potential exchange partners: How can you help us lower our cost trend for the foreseeable future? Where do the savings come from? And what data can you show us to help us understand the financials?

There is a sense of urgency in taking advantage of savings, since the sooner you can affect the slope of the trend line, the longer it may take to hit excise tax thresholds.

Question 3:
To achieve the cost savings we’ve discussed, employers will need to examine a number of important design elements. One is the carrier model: multiple versus single. Are there circumstances under which employers should consider a single-carrier model?

Pajak: It depends on where their employees are located and which plans are available in those locations. No single carrier offers the best discounts in every U.S. geographic area. But if your entire workforce is based in one location, a single carrier might deliver the best savings there. Even then, employees will appreciate having choice, which single-carrier models may not provide.

Another consideration is long-term cost mitigation. Carriers that cover multiple geographic areas tend to have sophisticated care management and wellness programs to help control costs over time.

Osterndorf: It’s tough to get added value with a single-carrier model, especially for active employees. Those models can provide a degree of additional choice, through networks or the underlying benefit structure, but most employers can provide those choices to employees without using an exchange. To ensure that moving to an exchange is worthwhile for the employer, the solution needs to bring significant incremental value.

Tripp: It’s useful to compare the two models from the employee’s perspective. With multiple carriers, employees choose a plan as well as the carrier with a network that includes the employees’ preferred physicians and services. With a single carrier, those decisions are forced upon them. If the employer switches from carrier A to carrier B, it can wreak havoc on employees who lose access to their physicians.

Question 4:
In a multiple-carrier situation, how can employers be sure they’re getting the best deal in every location where they have employees?

Tripp: As part of due diligence, employers should conduct a detailed cost analysis that shows the impact of the best-in-market pricing in the locations where they have employees. In a multicarrier exchange, this can bring significant savings for both the employer and the employee.

Question 5:
Let’s shift to another important plan element. What are the considerations in choosing a funding model, and what impact will that decision have on long-term health plan costs?

Tripp: Employers can self-fund or fully insure the arrangement. In deciding which approach to take, employers should consider their desired level of purchasing flexibility, their overall cost position and financial goals, and the importance of having predictable costs year after year. Today, the vast majority (94%) of large employers self-fund plans, and they want to maintain this funding model to preserve the purchasing efficiency their plan design affords. Others want the peace of mind that comes from knowing their total outstanding cost in any given scenario.

But shifting from a self-funded to an insured model brings a one-time double whammy. The employer must pay claims that were incurred under the self-funded plan but not paid yet. It also must prepay the fully insured equivalent rate, beginning in January. So in looking at the total cost, cash flow in that first year is a major consideration.

Osterndorf: When you move from a self-insured to a fully insured platform, you are accepting the additional costs of state premium taxes, the PPACA-mandated assessment and some additional administrative costs. The incremental cost of being fully insured, along with the risk-reduction premium that you pay to move from an unknown cost to a fully known cost, will total between 6% and 11% of your total health care spend. For some employers, that’s an acceptable premium. But for many that already have fairly predictable costs, it’s an added cost they don’t need.

One of the downsides of a fully insured approach is that it can be difficult to determine where the real savings are. You must understand how features like network configuration, pharmacy programs and care management work. Finance leaders looking at exchange offerings will want to understand exactly where those savings will come from. They should challenge the exchange operators to give them that information so they can do apples-to-apples comparisons.

But there are some scenarios where an employer may be willing to pay more to have the predictable costs that come with fully insured models. This can be true for small employers, those with business models that are less able to support the volatility of
self-funding and those for whom stop loss doesn’t offer enough certainty.

Question 6:
The ability to assess results is clearly crucial, in both selecting an exchange and monitoring its performance. What should employers expect in terms of data and metrics to ensure an exchange is delivering on its promises?

Tripp: Employers should expect standard financial reporting and reconciliation from a data warehouse containing information from all plans, at a minimum. However, a well-performing exchange should be able to show the choices employees are making in plans, how the health status of the overall workforce is changing and whether the promised savings are being realized.

The employer should ask the exchange: Are the plans delivering savings at the projected levels? Is Rx spending dropping as people make better choices? Is there less spending on people with chronic diseases because they’re getting better support?

Question 7:
When an employer considers moving to an exchange, what issues beyond cost come into play?

Osterndorf: Moving to an exchange is often both a health plan cost-control decision and a benefits administration outsourcing decision. For the CFO in particular, it comes down to the most effective deployment of resources: Can many things being done internally be done better externally? If they’re being done externally, can the employer redeploy internal resources for greater effectiveness? What do we give up, and what do we get?

CFOs commonly consider whether using external resources would improve quality and efficiency. Would that work for health care benefits? We think so.

An exchange provides many advantages, but employers do lose some control. Exchanges reduce the customization possibilities to the extent that they come with preset options. Some organizations are uncomfortable relinquishing control over health plan elements, and this can create tension between financial and administrative goals. This is where close collaboration between the organization’s finance and HR executives will make a difference in both making the right decision and facilitating an effective transition to an exchange.

Tripp: There’s a trust issue involved as well. Moving from an employer’s self-managed plan to an exchange-managed solution typically means shifting from a one-to-one relationship with a carrier you’ve come to trust to a one-to-many relationship with the exchange and its array of carriers. That array is part of why the exchange can leverage its purchasing power across multiple clients. But it also means the exchange makes most of the design and carrier decisions to benefit all of its members, not just one employer.

Pajak: Exchanges allow the employer to rethink its use of resources and reconfigure plan administration. This could include anything from technology to who takes on day-to-day plan management. Employers need to examine the promised value and opportunities associated with each exchange operator. And then explore combining those elements with their management approach to improve the value proposition for the organization and its constituents, and to reduce the hard- and soft-dollar costs of delivery.

Question 8:
Some employers are concerned about possible employee reactions. What are the issues and risks in this regard?

Pajak: The most important thing is to ensure that employees have access to appropriate levels of care, as well as financial protection in the case of an unfortunate personal event. With those elements in place, there’s typically minimal negative impact on workforce morale and productivity. The experience for employees will be similar to what it is today, but with added choice. And if the exchange’s efficiencies reduce costs for all parties, the message is even more positive.

Osterndorf: Another consideration is how the employer will interact with its workforce. For example, when you transition Medicare-eligible retirees to private exchanges, you move them from the world of group health insurance to the individual marketplace. You discontinue many ongoing conversations you’ve been having with that workforce segment. For many employers, that’s good because they aren’t (and don’t want to be) Medicare experts. And devoting time and focus to the retiree population doesn’t help leaders manage the business.

It’s different when you move active, full-time employees to an exchange. While you no longer manage the program’s daily operations, you still play a significant role in various other aspects of employee health and health care benefits, including communication and providing supportive programs.

A crucial goal for any health care program is to effectively address the health needs of the active population. An exchange must help you minimize the business risks of an unhealthy workforce and maximize employee health and productivity. If it can’t do those things, that exchange probably won’t help you run your business more effectively.

Here’s what CFOs need to remember:
This reinforces the importance of considering exchanges in the context of your organization’s business strategy. Judging an exchange’s value comes down to three questions:

  1. Can the exchange help you achieve the desired financial outcomes in the short and long terms?
  2. Where will the savings come from?
  3. Does the exchange promise enough value to justify making the change?

Check out our new look as Towers Watson’s OneExchange.

The OneExchange Blog

OneExchange on Find out more about OneExchange

Welcome to our new look! The OneExchange blog.

The blog’s new name and face reflect changes that began over a year ago when Towers Watson launched OneExchange.

Building on our private Medicare exchange roots, this blog has expanded to include news, research, trends and insights for all workforce populations – from full-time and part-time employees to pre-65 retirees in addition to our original Medicare perspective.

See OneExchange everywhere

You can see the new OneExchange look at all our sites, including:

  • On Twitter:
    • @OneExchange– Check out the new face of our tweet stream.
    • @brycewatch

      On Twitter at @OneExchange & @BryceWatch Follow us on Twitter at @OneExchange & @BryceWatch

      Check out the latest from our managing director, Bryce Williams, at his tweet stream.

  • Online:
    • Check out the new face of our private Medicare exchange

      Towers Watson's private Medicare Exchange Towers Watson’s private Medicare Exchange

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Jim Foreman to lead Exchange Solutions, Carl Hess to succeed Foreman as managing director of Americas Region

In a move designed to help employers better navigate the dynamic health care environment, global professional services company Towers Watson announced plans to unite the company-wide expertise and resources dedicated to health care exchanges and administration within its Exchange Solutions segment.

My thoughts: “Health insurance exchanges will play a significant role in how employers deliver health care benefits to their employees and families in the future. And as the marketplace evolves, I look forward to continuing to work with the Exchange Solutions team to deliver the best possible solutions to our clients.”

>> Read the press release

Health Business Group President David Williams and I met by phone this week to talk private exchanges. David asked questions that are on everyone’s mind – or should be – with the launch of exchange open enrollment this week. 

All the attention exchanges have been getting lately comes hand-in-hand with confusion and misconception.

Ever heard of “BushCare,” for example? While the move to private Medicare exchange has been hailed by many as a result of Obamacare, the legislation that paved the way for us to start the nation’s first private Medicare exchange was enacted by President George W. Bush in 2003. That law made the first wave of private exchanges possible and enabled the mass personalization of Medicare benefits for their users.

Click here to listen in on David William’s Health Business Blog as we hash out:

  • Why the notion of exchanges stirs up so much angst
  • Some common misconceptions about exchanges
  • The different types of private insurance exchanges – for active employees, part-timers/seasonal workers and early retirees, and Medicare-eligible retirees
  • The relationship between private and public exchanges
  • The analogy between exchanges for retiree health benefits and 401ks for pension benefits
David E Williams

David Williams – President of the Health Business Group, strategy consultant in technology enabled health care services, pharma, biotech, and medical devices. MBA (Harvard), BA (Wesleyan)

February 21, 2013

This epic piece is a MUST READ for anyone who makes health care purchasing decisions on an individual or organizational scale or influences the health care and insurance industries in any way. It’s a great example of how transparency can slice through the fog and shine a light on things that don’t add up and that must be addressed in order to move health care forward in our nation.

Health & Family

Corrections Appended: February 26, 2013

1. Routine Care, Unforgettable Bills
When Sean Recchi, a 42-year-old from Lancaster, Ohio, was told last March that he had non-Hodgkin’s lymphoma, his wife Stephanie knew she had to get him to MD Anderson Cancer Center in Houston. Stephanie’s father had been treated there 10 years earlier, and she and her family credited the doctors and nurses at MD Anderson with extending his life by at least eight years.

Because Stephanie and her husband had recently started their own small technology business, they were unable to buy comprehensive health insurance. For $469 a month, or about 20% of their income, they had been able to get only a policy that covered just $2,000 per day of any hospital costs. “We don’t take that kind of discount insurance,” said the woman at MD Anderson when Stephanie called to make an appointment for Sean.

Stephanie was then…

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The Rubber Meets the Road

November 20, 2012

Exchanges are the new vehicle for health care reform changes coming down the road, and the on-ramp is coming right up

With elections and this past summer’s SCOTUS decision behind us, the major events that could have altered the macro course of the Patient Protection and Affordable Care Act (PPACA or ACA) are behind us.

The health care providers, insurers and those closely tied to getting health care benefits into the hands of consumers – particularly employers – now face a series of milestones, not all clearly defined, through  Jan 1, 2014 – when 30 million previously uninsured Americans could begin new health care coverage – and beyond.

Just how these different interests– consumers, insurers, providers and the law – converge is where the rubber meets the road.

Circle these dates on your calendar

  • Dec 14, 2012 – States can declare whether they will run their own state health care exchange, let the Feds run it for them or partner with the Feds.
  • 2013 –Medicare payroll tax increases for higher-wage employees. Employee pre-tax contributions to health flexible spending accounts get capped at $2,500.
  • Feb 15, 2013 – States must declare if they would prefer to partner with the Feds
  • March 1, 2013 – Employers must notify employees of exchange-based coverage options
  • Fall 2013 – State and private health benefit exchanges will be operational for people to begin signing up for new Jan 1, 2014 health plan start-dates.
  • 2014 – The mother lode of rules comes online: individual mandate, play-or-pay mandate, premium and cost-sharing subsidies, Medicaid eligibility expanded in some states and additional group health plan mandates.
  • 2016 – Sales of health insurance across state borders permitted if neighboring states agree.
  • 2017 – States can choose to open exchanges to large employers.
  • 2018 – Cadillac tax kicks in.

Pieces of the regulatory puzzle that have to be filled in

  • Just out today – Proposed rules on essential health benefits, guaranteed issue and employment-based wellness programs were published by Health and Human Services.
  • Full-time vs. part-time – More specifics distinguishing full-timers and part-timers will be clarified for the purpose of applying penalties for not offering health benefits.
  • Premium tax credit – How this will be calculated by the IRS.

Stay tuned for a shift in focus in these areas

  • Fix-it – Look for a PPACA-fix bill to be proposed in early 2013. There are some provisions that will need to be adjusted, where costs or incentives don’t necessarily promote the best behaviors.
    • Look for adjustments in how health savings accounts and health reimbursement accounts are capped and taxed.
    • Expect health insurers to be more vocal on the Feds minimizing the health care premium tax and on states taking up ACA’s Medicaid expansion.
    • At issue in the Senate will be the Independent Payment Advisory Board (IPAB) and the medical device tax among other negotiations.
  • Providers take on new gravitas in the cost arena – Accountable care organizations will be going full-steam ahead. Over 80% of the ACOs created to date have been created by hospital and doctor groups, which could signal a shift in control away from the health insurance carriers to providers. The jury is still out on whether ACOs will lower total health care costs, but hospitals are certainly now incented to hold down preventable readmissions and hospital acquired conditions.
  • Entitlement reform – Medicare will continue to evolve according to the plan laid out in the ACA and will be a big part of talks during grand bargain negotiations in 2013. With both sides of the political spectrum far apart on reform, this will be interesting.

Stay tuned for a shift in focus in these areas

As these timeline, rule and structural developments start coming online, there will be a lot to keep track of and many calculations to make. I pay close attention to these and will write on new trends in the health care and insurance space as they break.

Read more

For regular commentary on developments and trends in health care, technology and insurance, follow @brycewatch and @ExtendHealth on Twitter and check out

BenefitView screen shot

Extend Health’s BenefitView dashboard gives employers instant, up-to-the-minute access to measures of retirees contacted, appointments completed, average call wait times, average length of calls and more

Extend Health has just launched a new tool in our suite of industry-leading exchange features. BenefitView™ is the first real-time, interactive Medicare exchange dashboard for employers.

There are a lot of moving pieces when moving to the individual market on an exchange. BenefitView gives companies transitioning to the Extend Health exchange more insight into how their retired employees are doing than ever before.

BenefitView is Extend Health’s GPS for a smooth transition, giving employers a clear view of retiree enrollment status at every point in the process. It lets us both work together more effectively to make sure no retiree is left behind. It’s like inviting employers to sit down at one of our internal monitoring stations and giving them the password to look up whatever measures they want: how many retirees have received communications, how many have made and competed appointments, how many have enrolled and how long it all took.

It’s an unprecedented level of access and transparency, and we know from employers who have come to us from other exchange platforms that it’s more than some providers know about their own process, let alone can share with employers.

Find out more about BenefitView in the HR trade publication Employee Benefit News article “Retiree Medicare exchange previews improved transparency” and on the Extend Health blog “New BenefitView Dashboard Lets Employers Track Retirees’ Medicare Enrollment Progress.See an online demo of BenefitView.

Extend Health will operate as Exchange Solutions, one of four Towers Watson business segments that include Benefits, Risk and Financial Services, and Talent and Rewards. We will continue to operate in the market under the Extend Health brand.

Read the press release.