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Subtitle, Arial, 20pt., .75 Line Spacing, .5 Before Paragraph Aon Orientation February 25, 2014 The Affordable Care Act An Opportunity for Response 1 Agenda Aon/Aon Hewitt Overview ACA Overview and Heath Care Reform Whats changing and when? What is an Exchange? Aon Hewitt Corporate Exchange overview Q&A
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AON OVERVIEW 3 About Aon Aon Vision: Aon is universally recognized as the premier global professional services firm focused on risk advice and human capital management Aon plc Aon Risk Solutions Aon Benfield Aon Hewitt Retail Brokerage Captive Management Affinity Programs Select Personal Lines Premium Finance Claims advocacy & Claims Administration Risk Assessment & Advisory Treaty Reinsurance Facultative Reinsurance Investment Banking Analytics Client Services Health & Benefits Consulting Retirement and Actuarial Consulting Investment Consulting M&A Solutions Talent and Rewards Benefits Administration HR Business Process Outsourcing Global Benefits Aon Service Corp. Finance Marketing Human Resources Technology 4 Aon plc Aon plc The leading global provider of risk management services, insurance and re-insurance brokerage, and human resource solutions FY12 Revenue $11.5 billion Aon Revenue Aon Risk Solutions Aon Benfield Aon Hewitt Empowering results for clients on two of the most important issues in todays global economy; risk and people 65,000 colleagues
120 countries
500 global offices HR Solutions 34% Greg Case President & CEO Risk Solutions 66% Aon Risk Solutions Aon Benfield (Reinsurance) Aon Hewitt 5 Aon Overview | History in the Making 6 Aon Overview | Serving Many of the Worlds Best Organizations of top Fortune 500 firms of top P&C insurance firms of top Technology firms of top Healthcare firms of top Consumer firms of top Financial firms of top Energy firms of top Telecom firms are Aon Clients 7 AON HEWITT OVERVIEW 8 The Expansive Reach of Aon Hewitt 30,000 colleagues around the world 330 offices in 90 countries More than 20,000 clients globally Serve 80% of the Fortune 500 9 An Established, Industry-Leading Focus on HR Solutions Most named Top Consultants on Human Resource Executive and Risk and Insurance magazines annual list of Top Employee Benefit Consultants for the past five years Honored with an Outsourcing Excellence Award by the Outsourcing Center in 2012 and 2013 Named one of 20 Institutional Leaders of the Past 20 Years by PLANSPONSOR magazine
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Solutions With Scale, Depth and Breadth 11 Retirement Health Talent Three Focused Solution Lines Consulting Health and Benefits Brokerage and Consulting Absence and Productivity Elective Benefits Global Benefits Consulting Retirement Consulting and Administration Investment Consulting and Delegated Investment Mgmt. Executive Benefits Consulting Broad-Based Compensation Executive Compensation Sales Force Effectiveness Leadership & Assessment Employee Engagement HR Effectiveness Outsourcing Health and Welfare Administration Absence Management Dependent Verification Advocacy Services Reimbursement Account Admin Compliance Services Active Health Care Exchange Retiree Health Care Exchange Outsourcing Defined Benefit Administration Defined Contribution Administration Financial Services AH as Advisor Self-Directed Brokerage and Personal Financial Center Compliance Services
Outsourcing Talent Acquisition & Recruitment Outsourcing HR BPO Global Workforce & Payroll Talent Administration Support Total Rewards + Online Communications 11
Communication, Merger & Acquisition Solutions, Customer Experience 12 Macroeconomic Trends Companies facing huge pension liabilities and need to de-risk Move to fixed income Focus on volatility vs. short term returns Settle pension liability through the insurance markets and lump sums Pressure on defined contribution systems to do more Focus on financial wellness and adequacy Fiduciary rigor and governance Shift to institutional from retail approaches The Industry Leadership to Deliver: Retirement Navigate retirement risk while providing new levels of financial security 12 Market-leading Capabilities #1 DB and #2 DC administrator $2 billion in DC payments monthly; $25 billion in pension payments for 2.7M retirees monthly; $667 million in lump-sum pension checks monthly Investment advice for $4.2 trillion in assets globally; delegated investment management for ~$37 billion in assets for >130 clients Experienced leader in all major de-risking trends and consultant on largest pension de-risking action Only firm with integrated and comprehensive solutions across actuarial (~$1 trillion in global pension liabilities), plan administration, investments and insurance 13 The Industry Leadership to Deliver: Talent Cultivate talent to drive organizational and personal performance and growth 13 Market-leading Capabilities 12 global HR BPO centers; support in 11 languages Large scale transaction capability: 15M payroll transactions, assess 8M candidates and hire 59,000 client positions annually 5,000 talent clients with 17M employees in 40 countries 50 unique comp & performance surveys 17M+ responses in our engagement database Supported ~30% of PE transactions over last 3 years and 25% of corporate M&A deals over $15B in 2011 Macroeconomic Trends 4 out of 10 employees worldwide are not engaged Focus required on culture and engagement to attract next-gen talent Emerging economies are growing faster than available leadership talent Increasing need to build global talent pools New pay philosophies need to align to long-term results Growing interest in SaaS
14 The Industry Leadership to Deliver: Health Macroeconomic Trends Health care costs have risen 52% in past 6 years similar trend expected to continue Health Care Reform actions driving major change and new options Companies searching for global benefit solutions New strategies needed to improve population health
Redefine health & benefits solutions for greater choice, affordability, and wellness 14 Market-leading Capabilities Largest provider of health & welfare admin 10k unique health plan designs Serve more than 9.5 million health and welfare participants Direct $8B in health premiums annually Pioneer in health care exchanges 100,000 employees and their families in our corporate exchange 200,000 retirees in our retiree exchange Provide Health & Benefits consulting covering the health benefits management spectrum 90 locations worldwide 5,000 large and mid-market clients in both public and private sectors Help 108,000 employees return to work annually 15 Affordable Care Act 16 Health Care $2.5 trillion Food $0.9 trillion National Defense $0.8 trillion Clothing $0.3 trillion Total Pre-tax Corporate Profits $1.3 trillion
Spending by Category (2009) Sources: CMS, Bureau of Economic Analysis, 2009 Why Are We Talking About This? Health Care Spending 5.2% 17.6% 0.0% 4.0% 8.0% 12.0% 16.0% 20.0% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009 (% of Gross Domestic Product) 17 About Health Care Reform On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law. The law puts in place comprehensive health insurance reforms that will roll out over four years and beyond.
On March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA) was signed into law. This act contains significant modifications to PPACA.
The combined laws are referred to as the Affordable Care Act or more commonly as Health Care Reform. These two laws together make sweeping changes to existing laws governing employer-sponsored group health plans, individual health coverage, and governmental health programs. 18 Health Reform: Keeping it in the Forefront The Headlines 2012 saw the Supreme Court confirmation of the Health Care Reform Mandate Congressional repeal remains unlikely Major implications for State Governments Federal Government Employers Employees Providers Whats Ahead for Health Reform? 2014 State exchanges open Individual mandate Employer free rider penalty Employer Responsibility to provide Minimum Essential Coverage Limit of 90 Day Waiting Period for Coverage Wellness incentives move to 30% differential 2018 Excise Tax on High Cost Employer Sponsored Coverage (*health insurance issuers and sponsors of self-funded group health plans will be assessed an excise tax on any benefits provided to employees that exceed a pre- determined threshold. aka The Cadillac tax) 19 Health Care Reform Timeline 2010 2011 2012 2013 2014 2018 Lifetime limits prohibited Only restricted annual limits permitted Consumer protections >Preexisting condition exclusions prohibited for children under 19 >Rescission of Coverage >Other protections Coverage for preventive health services Extension of dependent coverage up to age 26 Effective appeals process Early Retiree Reimbursement Program Expansion of adoption assistance program credit Additional reporting to State & Federal governments and Public Over-the-counter medication not reimbursable through Flexible Spending Account Health Savings Account excise tax increased Medicare Part D discounts for certain drugs in the doughnut hole Medicare Annual Enrollment period changes Employer distribution of summary of benefits and coverage to participants Employer quality of care report Employer reporting of health coverage on W-2 Comparative effectiveness fee* Notice to inform employees of coverage options in exchange Limit of Health Care Flexible Spending Account contributions Medicare Part D subsidy to employer no longer tax-free Tax on high-income individuals Comparative effectiveness fee* Individual mandate to purchase insurance or pay penalty State/Federal insurance exchanges Employer to provide minimum health coverage Preexisting condition exclusions prohibited Annual limits prohibited Automatic enrollment (delayed) Limit of 90 days on waiting periods for coverage Employer reporting of health insurance information to participants & Government Increased cap on rewards for wellness programs Transition Reinsurance Program Excise tax on high-cost coverage 20 Business Opportunity & Drivers Note: Aon Hewitts 2013 Health Care Trends survey of more than 800 employers Aon Hewitts 2013 Retiree Health Care Trends survey of more than 500 employers The Facts: 122 million+ active employees with employer- sponsored group coverage 94% of employers plan to continue offering health benefits to active employees Retiree market poised to grow at 4.5 million per year Around 48 million people qualify for Medicare today. 26% of those have employer-sponsored coverage 28% of employers plan to move to a corporate exchange model in the future. 66% of employers use or plan to move to an individual market strategy for retiree health care 21 Four Paths for Employers 22 House Money, House RulesRising Cost and Worsening Health Risk Source: 2010 World Economic Forum Chronic illness accounts for 60% - 65% of all health care spending 23 Changing Health Behavior Top Challenges Desired Outcomes Top Tactics Motivating participants to promote behavior change65% Increase utilization of wellness and prevention70% Offer incentives or disincentives to motivate sustained behavior change61%
Government compliance and regulations35% Increasing participant decision making related to health issues62%
Promote a culture of health in the workplace48% Managing the health of an aging workforce 30% Lower health risk of population58% Move to rewarding improved health results or outcomes 44% Source: Aon Hewitt 2012 Health Care Survey, available at aon.com/betterhealthresults 24 Play on a New Field 25 Play on a New Field 26 Aon Hewitt Corporate Exchange Survey Results 10% 4% 4% 77% 7% 8% 8% 44% 31% 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Other No Employer Plan, Employees Access Individual Market Joins Corporate Exchange, Provides Fixed Dollar Subsidy Provides a Few Options, Employee Pays Percentage Provides Single Plan; Pays 100% Current Future (3-5 Years) Source: Aon Hewitt, 2011 (n=562) 44% of companies believe they will adopt a Corporate Exchange form of health benefits delivery over the next 3-5 years
Employer Responsibility for Health Care Coverage 27 It Is About Managing Through Reform The Situation: Employers with modest impact will see costs rise 2% to 5% in 2014 Employers with low-paid workers, long waiting periods, 30+ hour employees with no coverage or low value coverage could see costs increase 20% to 60% in 2014 Some employers will continue to make incremental changes to health care programs and will offer more traditional decision-making tools and resources to employees For other employers, 2014 will mean radically redefining their health care offerings and helping employees optimize their coverage and cost through: Employer plan, Exchanges, Medicaid These choices will be heavily influenced by federal subsidies and state Medicaid entitlement rules as well as the influx of fully insured lives into state and federal exchanges Employers need to continue to monitor legislative and regulatory changes 28 What is an Exchange? An exchange is a competitive marketplace that consists of suppliers and buyers
Exchange 29 Exchange Benefits to Employers, Enrollees, and Carriers Employers Trend mitigation through competition, efficiency and best-in-market contracting Cost predictability Risk transfer Focus on health and productivity Enrollees Greater choice of plans and carriers Flexibility to tailor benefit/contribution trade-offs Superior customer experience Carriers Market share opportunity Earnings potential (full premiums vs. administrative fees) Product innovation and control Attractive risk pool 30 Corporate/Private Exchange Goals Create a competitive market in health care benefits at a retail/consumer level Will drive efficiency and mitigate trend through competitive forces Facilitate the movement to a defined contribution model for those employers who are aligned with this philosophy Jump off the health care trend curve to a compensation-like rate of increase Treat health benefits as an element of total rewards Expand choice, drive efficiency and simplicity, but allow consumer selections that could not be driven unilaterally at the employer level For example, narrow networks, select formularies Provide an alternative to state exchanges for large employers before 2017, and transition to an individual model when the market is ready Consolidate purchasing power in the private sector to drive systemic reforms of the health care delivery system 31 Aon Hewitt Health Care Exchanges Aon Hewitt Navigators I n d i v i d u a l
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Medicare Eligible Non- Medicare eligible individuals (i.e., pre-65 retirees, active employees) Aon Hewitt Corporate Exchange G r o u p
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Non- Medicare eligible individuals (i.e., pre-65 retirees, active employees) Aon Hewitt State Exchange I n d i v i d u a l
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Individuals eligible for government programs such as Medicaid and Childrens Health Insurance Program (CHIP) Employees of Small Business I n d i v i d u a l
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Employees of Large Business (over 100) Now Future Now Now Future Future Private Exchange Public Exchange 32 Aon Hewitt Health Care Exchange Initiatives Individual Exchange Post-65 Retirees Aon Hewitt Navigators Pre-65 Retirees Aon Hewitt Navigators Actives Aon Hewitt Navigators Group Exchange Active + / or Pre- 65 Retirees Aon Hewitt Corporate Exchange State/Federal Exchange Active + / or Pre- 65 Retirees H&B Consulting Aon Hewitt Health Care Exchange Portfolio In development 33 Navigators We Make it Easy EDUCATION ENROLLMENT CHOICE ADVOCACY EMPLOYERS Significant Cost Savings Financial Predictability Turn-key Implementation Proven network, all major carriers Integrated HRA RETIREES Free access to personalized healthcare advisors Medicare expertise 80 Carriers and 3300 products Advocate to navigate issues Over 240,000 retirees served with over 92% satisfaction With Aon Hewitt Navigators, employers can realize significant cost savings by seamlessly transitioning retirees to the individual market while still providing the support they need to navigate the complex Medicare market. 34 Corporate Exchange: How It Works 35 Value PropositionMaking This Work for All Stakeholders
Employees Greater choice of plans and carriers Superior customer experience Flexibility to tailor benefit/contribution trade-offs Clients Risk transfer and predictability Trend mitigation through competition, efficiency, and best-in-market contracting Focus on health and productivity Carriers Market share opportunity Earnings potential Product innovation and control Attractive risk pool 36 Corporate Exchange Shopping Experience 37 Gain Predictability and Risk Transfer without Cost Increases Insured Plans Consumerism Competition Choice and Flexibility Defined Contribution Subsidy Best-in-Market Efficiencies Reduce Trend Remove Volatility Ensure Employee Sustainability In every consumer market, competition reduces cost Regional rating bands allows market- specific insurer strengths to emerge Consumers will make economic choices if they can reap the full economic benefit Freedom of movement across insurers will keep costs low and service levels high generating more control and increased satisfaction Insurers will have accountability for managing care; price becomes critically important With competition mitigating trend, plan sponsors can move to a DC approach without long-term cost-shifting to associates No Silver Bullet: Six Key Levers Working in Concert 38 Q&A Aon and ACA: Trivia 1) Who is the CEO of Aon? 2) What does Aon mean? 3) How many people do we administer benefits for? 4) How many colleagues do we have globally? 5) What is an Exchange? 6) Which company did Aon Hewitt contract for the Corporate Exchange for benefits in 2014?