Wednesday, July 1, 2015

qotd: Sound the alarm: The private insurance exchanges are coming!

The Washington Post
June 30, 2015
Towers Watson merges with London-based consulting firm in $18 billion deal
By Aaron Gregg

Towers Watson, the Arlington-based professional services company that
operates a private health insurance exchange covering about 1.2 million
people, announced an $18 billion all-stock merger with Willis Group
Holdings, a London-based insurance and benefits firm.

The merger is the latest in a series of what Willis chief executive
Dominic Casserley called "carefully targeted mergers and acquisitions"
to expand his company's international footprint. Last month, Willis
Group acquired Evolution Benefits Consulting, a Pennsylvania health and
welfare benefits advisory firm, and in late April it announced it would
fully acquire Gras Savoye, one of France's largest insurance brokerage

Casserley said in a news release that the new company "will advise 80
percent of the world's top-1,000 companies," operating as a one-stop
shop for large employers managing complex aspects of their human
resources mix, benefits such as employer-provided health insurance and a
range of other costs that affect companies' bottom lines.

Because the new company will be based in Ireland, Towers Watson's
corporate tax rate will drop from 34 percent to a projected 25 percent.

This merger "is driven by business purpose, not from a tax planning
standpoint but from serving customers," said John Greene, chief
financial officer of Willis. "The tax benefits that are derived just
happen to be a nice consequence of the transaction."

Towers Watson Chairman John Haley will lead the new company as chief
executive, and Casserley will serve as president and deputy chief
executive of the new company, which will operate under the name Willis
Towers Watson.

Casserley said in a conference call that the merger was first conceived
while Willis worked in partnership with Towers Watson on a health exchange.

The exchange "has rapidly grown to serve more than 1 million members in
the United States," Casserley said. "Many independent analysts believe
that this is just the start, and that the business is at an inflection
point, with the total market likely to grow significantly within five to
seven years."


Comment by Don McCanne

This mega-merger of benefits consulting firms is designed to capture the
rapidly expanding market in private health insurance exchanges. Why
should we be concerned?

The Affordable Care Act (ACA) was designed to protect the sectors of
health care coverage that allegedly were functioning well - especially
employer-sponsored health care plans. The greater changes enacted in ACA
were aimed at the much smaller sector of dysfunctional individual and
small group plans, plus expanding Medicaid for low-income individuals
and families.

So how has it gone for the stable, well functioning employer-sponsored
plans? Not so well. Even though there has been some slowing in the
increase in health care costs, the increases have been in excess of
inflation, and there appears to be a return to an accelerating pace of
cost increases. Most employers are very concerned about the costs of
their employee benefit packages, and they are already taking action to
slow their nominal portion of the increases (though most economists
contend that the employers' portion is actually paid by the employees in
forgone wage increases).

The most important measure already taken by many employers is to
increase cost sharing, especially by requiring high deductibles that
must be paid before most benefits kick in. This reduces the insurance
premiums (or the contributions to the self-insured health trust) for the
employer-sponsored plans since a significant portion of actual health
care spending is shifted to the employees and their families. Other
innovations such as tiering of drugs also shift more costs away from the
employer. Plan beneficiaries also are reducing their utilization of
beneficial health care services when they are exposed to high
deductibles - a perverse disincentive that reduces spending.

The use of narrower provider networks also helps to reduce the
employers' contribution to health care payments. The employers'
representatives are able to contract for lower provider rates in
exchange for a promise of oligopolistic exclusivity. Also the
responsibility for payment of costs for care obtained outside of the
networks is shifted almost entirely to the employees. In addition,
providers known for managing expensive chronic disorders can be excluded
from the networks, impairing the ability of patient beneficiaries to
obtain the care that they need.

The employers are still not satisfied. Some are now beginning to
implement the use of private insurance exchanges. In this model, the
employer no longer offers an employer-sponsored health plan but instead
provides the employee with a voucher or voucher-equivalent to purchase
from a selection of plans in the private insurance exchanges. Since the
value of the voucher is fixed, the employee must bear the additional
costs of plans that have greater benefits. Thus this is a shift from a
defined benefit program to a defined contribution program; by
controlling the value of the voucher, the employer is able to shift much
of the future health care cost increases onto the employees.

If you look at the insurance exchanges set up by ACA, you will see that
the standard plans are low actuarial value plans. The benchmark silver
plan has an actuarial value of 70 percent - the patient is responsible
for paying an average of 30 percent of the costs (though many qualify
for subsidies). The bronze plans have an actuarial value of only 60
percent. Employer-sponsored plans formerly had an actuarial value closer
to 90 percent, but with the plans offered in the private exchanges,
employees usually will select plans that the voucher will cover. This is
a great opportunity for employers to gradually shift the value of the
voucher so that it would cover 60 or 70 percent actuarial value plans,
just like in the ACA exchanges (except that no government subsidies
would be available for the private exchange plans).

This move to private insurance exchanges represents a tremendous
business opportunity for benefits consulting terms, as today's article
indicates (not to mention offshoring to Ireland!) That's just what we
need: more administrative complexity and costs in our system already
tremendously overburdened with administrative excesses. These benefits
consulting firms are selling health insurance products without bearing
any of the insurance risk of those products. The private insurers, with
all of their administrative waste and insurance product perversions,
remain prominent players in the system.

These benefits consulting firms tout choice. The employees are free to
upgrade to a high actuarial value Cadillac health plan if they so
desire. Little does it matter that most of them have hardly enough funds
to be able to purchase a low actuarial value roller-skate health plan.

As if the deterioration in employer-sponsored plans has not already been
enough, this switch to using a defined contribution voucher in private
insurance exchanges will be a disaster for affordable health care for
employees and their families.

Rather than accelerating the move toward private health insurance
exchanges, we need to accelerate the transition to a single-payer
improved Medicare for all program. Or do we just sit back and watch
people go broke and suffer?

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