Mercer Seeks Medicare Retiree Clients in Exchanges in Challenge to Extend Health

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.

By Patrick Connole, Editor

December 24, 2012 Volume 22 Issue 45

Mercer is entering the private health insurance exchange market with an offering for Medicare-eligible retirees of U.S. companies. Stakeholders say the expanding niche market for retiree defined-contribution benefits offers health plans an opportunity to get new members where they previously could not, since retired workers looking for coverage on an exchange are free agents, not tied to their former company’s group plan. And, market players say, once a carrier lands a member in an exchange, they are more likely to stick and remain members for life.

Health plans will have another market to consider, then, starting in 2013, when Mercer says its myCustomHealth will do battle for retiree lives against fellow consultant and rival Towers Watson, which recently acquired Extend Health, the market leader in the Medicare-eligible retiree exchange space. Connextions, a unit of UnitedHealth Group’s Optum division, will actually run the Mercer exchange. Other consultants are also active in the private exchange world. Aon Hewitt late in 2011 launched a multi-carrier insurance exchange aimed at employers with at least 1,000 employees, targeting non-Medicare eligibles in the under-age-65 population (HPW 12/19/11, p. 5).

In response to the new market entrant, the head of Extend Health laid down the gauntlet to Mercer and other competitors in an interview with HPW by detailing what makes his operation the top dog in the field. Bryce Williams, founder of Extend Health and managing director of exchange solutions for Towers Watson, says what his company does is not as simple as finding health insurance carriers for retirees over the phone.

Mercer Joins With Connextions

“Everybody underestimates how hard this is. They see 10% of the iceberg, but there is 90% below water,” he says. This unseen part of the Extend Health business involves a number of activities, notably making sure insurers are in compliance with government regulations, training staff and running its own call center.

Extend Health Won’t Outsource

He says Mercer’s decision to outsource its call center to Connextions is not something his company would do. “We are not big on outsourcing….You invite disaster with outsourcing,” Williams adds. He stresses that Extend Health’s way of doing things, with its inside company training of technical staff for telephonic consults with members, is validated by the growth in the market and competition entering the field. Extend Health, he says, has 1,400 benefit advisers, many with licenses to sell insurance in 10 to 25 states. But even with his company’s success, Williams says the market is largely untapped, with some 12 million lives potentially able to move through the Medicare-eligible retiree market, counting both public and private employers.

While new market players may see the health-reform-law created network of state-based health insurance exchanges as the impetus for starting more private Medicare exchanges, the opening for forming Extend Health in 2004 came from previous reform legislation. “It was related to health care reform, but not the Affordable Care Act [ACA] — it was the Medicare Modernization Act of 2003,” Williams says. The creation of Medicare Advantage, individual Part D and Medicare supplemental plans enabled his startup to leverage its expertise in the expanded Medicare health plan sector to grow to a business that now counts more than 250 clients, 45 of which are FORTUNE 500 companies, and 400,000 exchange customers. Williams adds that Extend Health gained 68 new accounts in 2012, with the next largest competitor garnering four.

He listed two benefits for health plans in working in private exchanges for Medicare-eligible retirees. One is that “there are not a lot of oxes being gored….A Blue Cross Blue Shield plan or regional HMO could get Medicare members that were formerly locked up in a group plan.” The second is that once a carrier lands a new member, they are likely to be “sticky,” not leaving for a new carrier unless there is a very good reason. “If a carrier can attract a member through an exchange, they are a member for life so long as the carrier does a good job,” Williams says, adding the major issues are that carriers get membership cards out on time and pay claims promptly.

“U.S. employers are struggling under the burden of ever-increasing retiree medical insurance costs. They’re looking for a mechanism that allows them to offer coverage in a way that carefully manages their financial obligations while offering retirees affordable options based on individual needs,” said Julio Portalatin, president and CEO of Mercer, in a statement released on Nov. 29. “A market shift is taking place that employers need to explore.”

A 2011 survey conducted by Deft Research found 36% of midsized employers and 41% of large employers are likely to move their health benefits to a private insurance exchange. Nationwide, that would translate to about 15 million employees (HPW 10/1/12, p. 1).

Mercer Gives Employees Options

Bruce Richards, chief actuary at Mercer, tells HPW that the effective date for new policies will be July 1, 2013. Employers will contract with the exchange, which will handle all enrollment and operational issues. Like other exchanges in the Medicare arena, most consultations with members will be by telephone, but there will be an online presence as well.

“All telephone work will be done by Connextions. They have a rather sophisticated, large back-office solution and have enrolled 1 million Americans in these types of programs,” Richards says. There are 7,000 chairs at eight Connextions call centers around the country and 400 licensed insurance agents, he says.

Carriers that will take part in the new exchange will include Aetna Inc., Cigna Corp., UnitedHealthcare and others, with all AARP plans available as well. Richards says products for sale to retirees will be selected based on their CMS Star Rating and other factors, like geographic location, to meet member needs.

He sees the health reform law and its start of public exchanges on Jan. 1, 2014, as a kind of spur to what Mercer is starting next year. “The ACA expedited all of this quite a bit — everybody is using the word exchange,” Richards relates. The movement to defined-contribution models of health benefits has also played a role.

To differentiate Mercer’s exchange, the presence of UnitedHealth’s family of companies will allow members to benefit from related health care purchases, Richards says. “At Mercer, we understand that Medicare doesn’t have great hearing aid benefits, but the UHG unit does, and members can get a 75% to 80% discount through Optum’s Hi HealthInnovations business,” he adds. That savings on a product like a hearing aid, which can cost from $4,000 to $8,000, is a big deal.

http://aishealth.com/archive/nhpw122412-01