TOPICS FOR TODAY

• The Exchange Landscape

• Why Employers Move to Private Exchanges

• Mercer Marketplace

• Pondering Points

3

4

PUBLIC VS PRIVATE EXCHANGES

Medical,

prescription

Dental, vision, life,

voluntary, plus more

Government

sponsored

Broker, insurer, TPA

technology firm

Actives, retirees

PUBLIC PRIVATE

Open Closed

Single or

multiple carrier

Individuals Group

plans

Insured or

self-funded

4

STRONG EARLY PRIVATE EXCHANGE ACTIVITY

PRIVATE EXCHANGE GROWTH HAS JUST BEGUN

25

50 Millions of lives

PRIVATE EXCHANGE

0

2013 2014 2015 2016 2017 2018

EMPLOYERS ARE MOVING RAPIDLY TO DEFINED CONTRIBUTION AND PRIVATE EXCHANGES

large employers will be offering

benefits through private

exchanges

100+

In 2014…

exchange offerings

will be in-market 35+

carriers will be

participating on third-

party exchanges

180+

types of products will be

available through private

exchanges

25+

5

0%

5%

10%

15%

20%

25%

30%

35%

40%

2007 2008 2009 2010 2011 2012

CDHP in Large Groups % offering 2007–2012

- More than doubled in 5 years - Despite initial skepticism

HMO Membership 1980–2010

- 90% - Strong growth over 15 years

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1975 1983 1991 1999 2007

IRA % with IRAs 1974–2007

- Slow start - 10% to 23% starting in 1983 - Took financial firms by surprise

PAST ADOPTION RATES

0M

10M

20M

30M

40M

50M

60M

70M

80M

90M

1980198519901995200020052010

6

7

STUDIED PREDICTIONS

• 95% of private exchange lives will be employer-

sponsored

• 65%+ of employees will likely choose different

benefits than they have today

20% OF THE MARKET ON EXCHANGES BY 2018

8

UPS drops coverage for working

spouses and estimates covering

children to age 26 will cost $60M

Petco joined Mercer

Marketplace; a new private

health care exchange for

January 1, 2014

The Hamilton School District

in Trenton, NJ, will be limiting

substitute teachers to four days

per week to avoid 30 hour per

week threshold

Delta Airlines faces an increase

of $100M in medical costs in 2014

between normal trend and ACA

requirements

Walmart has been focusing on

hiring temporary employees to

manage health care costs under

ACA

Clothing retailer Forever 21

announced reclassification of non-

management positions from FT to

PT effective Sept. 2013 based on

a reduction of hours to a

maximum 29.5 hours per week

9

INDIVIDUAL INSURANCE COVERAGE –EXPERIENCE TO DATE:

Americans do not know what

a deductible is

50%

Americans do not know

about healthcare exchanges

42%

Americans do not know that

federal subsidies are

available

33%

Preparedness of Americans for the Affordable Care Act, March 24, 2014, National Academy of Sciences

Americans qualify for federal

subsidies on the public

exchanges 66%

10

THERE IS NO SINGLE MODEL FOR PRIVATE EXCHANGES

-An insurer builds its own exchange

-- Uses either home-grown or a white-label technology platform

Carrier-Owned

Co-Branded Carrier

3rd Party: Customized

3rd Party: Fixed Line-Up

Network Rental

-Insurer builds a co-branded, single-carrier exchange

-Third-party solution provider

-Relationships with multiple carriers

-Employer select the specific lineup shown to employees -Carriers choose groups to which they want to be offered

-Multiple carriers compete side-by-side

-An open and competitive exchange

-Most closely mirrors the public exchanges

-Multiple insurers rent network and claims adjudication services to an exchange vendor that provides its own multi-source, integrated solution

EXCHANGE MODEL

CARRIER

EXCHANGE

OWNERSHIP OF CUSTOMER

RELATIONSHIP DESCRIPTION

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SAMPLE OVERVIEW OF PRIVATE EXCHANGE OFFERINGS

Segments

served

Group active

Yes Yes Yes

between TW and Liazon Yes

Retiree Yes Yes Yes Yes

(Added retiree in Nov ’13)

Individual / part time

Yes (via GetInsured) Yes (via eHealth) Yes Yes

Target clients All sizes (100+) Large employers (5K+) Mid-large ER (1K+) +

small ER w/ Liazon Large employers (3K+)

Funding

model

DB Yes No Yes (via Liazon) Yes

DC Yes Yes Yes Yes

Insurance

model

Full insured

Yes Yes Yes (via Liazon) Yes

Self insured

Yes No Yes Yes

Multi-carrier Yes (via 27 carriers) Yes (via 20 carriers) Yes Yes (but primarily single-

carrier by geo)

Health product

offerings Medical, dental, vision Medical, dental, vision Medical, dental, vision Medical, dental, vision

Voluntary / ancillary

benefits offered

Yes (~20 products

offered) No Yes (life and disability) Yes (life and disability)

Consumer experience 25+ years of direct to

consumer experience

across benefit products

Limited Limited Limited

Collectives offered Yes (MHA, Rx coalition,

stop loss coalition) No Pharmacy-only Np

Technology platforms Licensed through

BenefitFocus Built off benefits admin platform

Acquired ExtendHealth and

Liazon, and are building off those

platforms

Built off ACS benefits admin

platform 12

TOPICS FOR TODAY

• The Exchange Landscape

• Why Employers Move to Private Exchanges

• Mercer Marketplace

• Pondering Points

13

14

DRIVING THE NEED FOR PRIVATE EXCHANGES KEY MARKET TRENDS

Health Care Costs

Shifting responsibilities

Individuals Employers $4T

2010 2005 2000 2015F

Rising Benefit Costs Health Care Reform Rise of the Individual

Sources: Centers for Medicare & Medicaid Services, Mercer internal analysis

BENEFIT COSTS CONTINUE TO RISE

17.1%

12.1%

10.1%

8.0%

-1.1%

2.1%

2.5%

0.2%

6.1%

7.3%

8.1%

11.2%

14.7%

10.1%

7.5%

6.1% 6.1% 6.1% 6.3%

5.5%

6.9%

6.1%

4.1%

2.1%

5.2%*

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Workers' earnings

Annual change in total health benefit cost per employee

Overall inflation

Source: Mercer’s National Survey of Employer-Sponsored Health Plans; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation

(April to April) 1990-2013; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April) 1990-2013.

15

UNPRECEDENTED, SYSTEMIC CHANGES IN HEALTHCARE

TRANSFORM THE ROLES OF KEY PLAYERS

• Government assumes

a new, powerful role in

providing health

benefits

• Employers can no

longer go it alone

• Scale and

standardization offer:

– Cost reductions

– Efficiencies

– Innovation

• 2/3 of Americans

qualify for subsidy

• Gives employers new

strategic options

• Individuals ‘own’ their

benefits, even when

employer sponsored

Employers Employees US/State Governments

16

INTEGRATION, CONVENIENCE, AND A BETTER EMPLOYEE

EXPERIENCE

The cost, complexity, and risk of providing health benefits are greater than ever...

…a private exchange provides an integrated, turnkey solution that addresses those challenges

17

• Employers are reducing coverage to:

• avoid excise tax

• align with new benchmarks

• Employers may discontinue coverage for dependents

• DC ranges from small supplemental “top-ups” to flat subsidies

• 60% of employers are using or considering using a DC model

• ACA’s 30-hour-per-week eligibility requirement allows for workforce segmentation

• For part-time employees, employers are weighing the cost of coverage against labor market competion

BENEFIT VALUES

DEFINED CONTRIBUTION

WORKFORCE SEGMENTATION

COST SHIFTING IS ALSO A FACTOR

18

WHAT A WELL RUN PRIVATE EXCHANGE ACCOMPLISHES

• ENABLES ONGOING ABILITY TO BEND THE COST TREND

– Right sizes benefits

– Drives cost out of the health care system

• Creates carrier and provider competition

• Optimizes medical networks without internal resource burden

• Enables new market entrants

• IMPROVES SERVICE QUALITY

– Vetted carriers/products and negotiated Service Level Agreements

– Standardized benefits = fewer errors

• OFFERS HIGH TOUCH CUSTOMER SUPPORT

• ALLOWS FOR FLEXIBILITY WITH ABILITY TO PIVOT OVER TIME (NO “LOCK IN”)

• LEVERAGES FLEXIBLE, SCALABLE TECHNOLOGY

– Highly configurable and cost effective

– Seamless integration between employer sponsored, public exchange and Medicare offerings

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80.4% 71.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Pre-Marketplace Post-Marketplace

Average Value of Medical Plans

Of all employees bought supplemental health 24%

35% Of employees electing $1,500 or $2,500

deductible medical bought supplemental health

49%

13%

38%

Supplemental Health Purchases

Accident

Hospital Indemnity

Critical Illness

Supplemental Benefits Support Right-Sizing

RIGHT-SIZING: MERCER MARKETPLACE RESULTS

$800 Per-employee cost reduction

from right-sizing benefits

$250 EE/ $550 ER

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TOPICS FOR TODAY

• The Exchange Landscape

• Why Employers Move to Private Exchanges

• Mercer Marketplace

• Pondering Points

21

MERCER MARKETPLACE OVERVIEW AN END-TO-END SOLUTION

Carriers

Payroll

HR Professionals

Election Data

Deductions

Reporting & Premium

Data

Funding DC or DB

Standard Plan

Designs Choice among multiple, pre-

screened plans

Employee Communication

& Education

Administration • Eligibility

Determination • Data-driven

Events • Election

Management • Contribution

Calculation

Enrollment

22

MERCER’S PRIVATE EXCHANGE ENABLES BENEFITS STRATEGY

DESIGN FOR ONE OR MORE SEGMENTS

Retiree Group Active Part-Timers, Pre-65

Retirees, COBRA

Medicare Plans Group Plans

Employer Subsidies Federal Subsidies

Individual Plans

On/Off Exchange

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OUR VALUE PROPOSITION PROMISING EARLY RETURNS

TO DATE:

• Enrolling:

• Active Employee Exchange

• Transition Assist, age 65+ retirees

• Individual lives with GetInsured

100 – 33,000 employee size groups across more than 15 industries

75% fully insured, 66% defined benefit

93% of participants are satisfied or very satisfied with their experience

Choice Matters

Consumer Experience

Cost Savings

24

COUNSELORS MUST PROVIDE TOP NOTCH MEMBER SERVICE

25

Professionalism

Promptness

Resolution of Inquiry

Overall Satisfaction

95%

94%

95%

93%

MERCER MARKETPLACE FUTURE ENHANCEMENTS DELIVERING VALUE TO EMPLOYERS AND EMPLOYEES

Cu

rren

t Fe

atu

res

Futu

re E

nh

an

cem

ents

Simple, clean shopping experience

Computer and responsive mobile education

Benefit counselors Online decision support tools and videos

Integrated application for individuals to purchase medical through public exchange

Integrated application for Medicare individuals to purchase medical through Transition Assist acquisition

26

LESS BURDEN FOR HR

People-related Issues

Mercer takes most of the administrative responsibilities off of HR’s

hands, freeing up time to handle other people-related issues

HR

Employee Inquiries

Open Enrollment Management

Carrier Reporting

Employee Communications

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QUESTIONS TO CONSIDER

1. How successful have you been in bending the trend cost curve?

2. How much planning have you done around restructuring your programs for long term cost management, including avoiding the 2018 ACA Excise Tax?

3. How would you characterize the level of employee satisfaction with your current plan?

4. What’s the best description of your workforce — one predominant segment with uniform benefits needs or multiple segments with diverse needs?

5. How much do you expect the composition of your workforce to change over the next 3‒5 years?

6. Do you want to continue to sponsor group coverage for retirees?

7. Value of your administrative time spent on enrollment, paperwork, eligibility, education? Better spent on strategic work?

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