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A Deeper Look – HRO and Health Care Exchanges

May 3, 2012

HRO is an ever changing set of services, processes, technologies, and client needs. My HRO colleague Amy Gurchensky recently covered one of the emerging service areas in benefits: health care exchanges. I wanted to know more about active employee exchanges and arranged for educational briefings with Aon Hewitt and Mercer since both are already in this market.

Both of the HRO service providers have found similar reactions from insurers to the exchanges. As with any new concept, some carriers are more progressive and recognize changing market needs. Other carriers are more cautious and methodical and want to know more about how the new models work, how to underwrite the risk, client implications, etc.

Even though health care exchanges offer preconfigured selections with price advantages for employers, exchanges are still group programs and the employer is still the plan sponsor for active pre-65 participants. Aon Hewitt’s corporate exchange offering includes services to help clients meet their obligations as plan sponsors.

Exchanges are a bundled service. Along with structured plans from participating carriers, traditional benefits administration services are also included. Both Mercer and Aon Hewitt have great depth in providing end-to-end participant services, handling escalations, and advocacy. For example, Mercer’s exchange offering includes clinical case management support as well as program oversight and audits. Aon Hewitt includes both tier one and tier two call center support and advocacy services for participants with issues or claims that are more complex and require a greater level of case management and carrier interaction.

Both companies are major league benefits administrators, and I wondered how the exchanges may impact revenues as clients move to an exchange-style service. Mercer sees the revenue impact as neutral initially and additive overall; Aon Hewitt views the exchange markets as an important natural extension of its traditional benefit administration services.

Today, health care exchanges are a very small part of benefits HRO, but there is significant growth potential. Mercer will be testing service models in rolling its Mercer Benefits Choice Exchange (MBCE) for employers with less than 1,000 employees, so expect to see the changes and evolutions that are common with emerging services. It will not be surprising if more HRO vendors launch exchanges, and even a couple large carriers may decide to offer exchange services directly as the market develops.

The future of health care private exchanges is not dependent on whether or not the current U.S. health care reform is amended or survives. Research indicates that up to 90% of employers offering health care coverage intend to continue to offer coverage in 2014.  Employers will continue to need options that help them offer competitive benefits at controllable costs, and innovative HRO service providers will continue to develop new services and options to meet those changing market needs.

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

A Look at Automatic Enrollment in the U.S. to Predict the Success in the U.K. and Potential Opportunities for HRO Service Providers

December 8, 2011

There is currently a global crisis of people failing to save enough funds for their retirement. This reality is faced by those nearing retirement, and it’s affecting millions more. Reasons for this range from a lack of an employer plan to it being too confusing to simply just not getting around to it. In an effort to manage the crisis, legislation has been enacted to facilitate the ease of saving.

 

In the U.K., the primary answer lies in the automatic enrollment (AE) requirement of the Pensions Act of 2008. The AE requirement compels employers to automatically enroll their employees into qualifying pension schemes and to contribute to the pension as well. AE will commence in October 2012 and will be rolled out in stages based on employer size until September 2016 with large organizations (i.e., those with more than 120,000 employees) starting first.

 

Trying to predict the success that AE will have in the U.K. is difficult, but perhaps the Pension Protection Act of 2006 (PPA) in the U.S. can provide some guidance.

 

Recently, Fidelity highlighted the positive impact that the PPA has had on participation rates among other things. Fidelity’s plans that offer AE have increased to 21%, up from 2% in 2006. Furthermore, the AE feature is a part of 63% of plans with more than 50,000 participants, and Fidelity has seen participation increasing as a result of AE.

 

The average participation rate for plans without AE is 55%; but with AE, the participation rate is 82%. More interesting is the effect that AE is having on younger employees, who are typically not too concerned with saving for retirement. For employees between ages 20 and 24 years old, the participation rate for plans with AE is 76% and only 20% for plans without AE.

 

While the PPA in the U.S. does not require AE by all employers, it is proving to be an effective way to encourage participation to actively save for retirement, and it can also provide further opportunities for HRO service providers.

 

In the U.K., for example, Capita has already won business related to the AE requirement of the Pensions Act of 2008. It was awarded a 7 year £105m contract by the U.K. Pension Regulator to support direct communications and transactional processes with employers for AE that began in October 2011. Capita’s responsibilities include:

  • Communicating campaign messages to employers
  • Communicating AE duty dates to employers
  • Ensuring employers register with the regulator
  • Operating a customer contact center
  • Some enforcement activities such as administering compliance notices and penalties for non-compliance.

 

Shortly after Capita’s contract award, Xafinity became the first pension administration provider to launch an AE offering that:

  • Identifies who to automatically enroll and when to enroll them
  • Sets a course of action for all stakeholders
  • Runs financial analysis on different scenarios and take-up rates based on employee data, and selects a strategy that supports corporate objectives
  • Provides AE administrative services including member communications; employee identification; auto-enrolling, opting out, and re-enrolling employees; and reporting.

 

Expect to see more HRO service providers based in the U.K. and others doing business there to launch an AE offering. Some may be late to the game though since the first staging date is less than a year away and compliance can take ~18 months to achieve. It is an area with lots of potential and service providers like Capita and Xafinity are well-poised to gain the first-mover advantage.

 

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

 

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.