“Health insurers increasingly are moving away from traditional fee-for-service models toward value-based care under alternative payment arrangements,” according to John Barkett, director of policy affairs at Willis Towers Watson.

In January of 2015, the Department of Health and Human Services (HHS) announced the intention to have 50% of Medicare payments go to providers in alternative payment arrangements by 2018. This marks a seismic shift in how care is delivered and will inevitably change the way providers operate.

As the guest host of a recent Wharton Business Radio show on SiriusXM, Barkett discussed the topic with Seth Frazier, chief transformation officer of Evolent Health, a software and consulting services company that helps health systems transition to value-based care.

(If you are a SiriusXM subscriber, you can listen to the full interview here. If you are not a subscriber, read on for highlights from the interview.)

In their discussion, Barkett and Frazier first offered some background on value-based care and how it is different. Frazier explained that the current system is organized to reimburse by volume. However, as new models emerge that reimburse based on other metrics such as outcomes, quality, and value, the system is transitioning from “paying for volume” to “paying for value.”

Barkett noted that this is not the first time this transition has been attempted, though it is likely to be more successful this time. He recalled a previous attempt at Duke University in the 1990s.

“Thinking back to my policy class days, we discussed the cardiac intervention at Duke University,” said Barkett. “They found a great way to serve patients recovering from cardiac surgery that reduced readmission rates. However, they scrapped the program because it was losing too much money. They couldn’t share in the savings their program created. So why are we talking about this now, when Duke failed decades ago?”

Frazier explained the unique domestic and international circumstances that are driving a renewed look at payment models in the United States. Domestically, health care costs account for a disproportionate share of the GDP, and the growth in the cost of health care is outstripping growth of the GDP. This negatively impacts U.S. businesses global competitiveness, the federal government’s funding of Medicare and support for Medicaid, and state governments’ overall budgets. Internationally, in rankings of health care outcomes by country, the U.S. is “not at the top of heap.” The combination of cost and quality concerns is motivating U.S. private sector leaders and government entities to take action, making change “inevitable.”

So what steps should be taken to achieve this transition? Frazier outlined what providers can do to transition to a value-based path:

1) Physician alignment: Communicate clearly and align physicians currently employed by, as well as those affiliated with, your health system with your goals.

2) Revenue opportunities: Identify specific revenue opportunities connected with population health through federal government programs or through relationships with private payers, or with Medicaid.

3) Infrastructure: Understand what infrastructure is needed to support and share relevant medical information.

4) Business plan: Put together a cohesive business plan around the strategy, with goals and priorities.

Ultimately, Frazier concluded, changing the business model is the key: health systems need to get paid for value, not just providing more services.

Barkett and Frazier agreed that we will have to wait until 2018 to see if the ambitious targets of HHS are met. Even if the targets aren’t met, the shift to quality, not quantity, should result in better health outcomes for patients and cost savings for providers.

Over the next four years, 78% of employers anticipate making moderate to significant changes to their health plan design and vendor strategies. The goal of these changes is to keep cost increases at the current level, 4%, which was the smallest increase in 15 years (but still twice the Consumer Price Index).

These are the findings of the Willis Towers Watson 2016 Emerging Trends in Health Care Survey, which surveyed 467 large employers, collectively representing 12.1 million employees.

The survey also found that while new requirements under the Affordable Care Act have been a source of concern generally, 70% of employers said the recent two-year delay of the Cadillac tax has had a small or even negligible impact on their health care strategies for next year.

Some strategies employers are adopting to manage cost increases include adopting telemedicine, centers of excellence, high performance provider networks, onsite or near-site health centers, and technology to improve employee engagement.

To read more on plans employers have for managing health care costs, click here.

As Millennials account for a larger portion of the workforce, benefits strategies for attracting and retaining them are shifting to match their needs. One benefit growing in popularity is student debt repayment.

According to the Project for Student Debt, in 2014 the average college student graduated $28,950 in debt. This has cascading effects such as delayed homeownership and putting off having children as lingering debt from undergraduate and advanced degrees precludes spending on a home or child.

In a recent article in Workforce Magazine, Amy Hollis, voluntary benefits practice leader at Willis Towers Watson, said, “Employers are noticing more and more the impact of the financial drain and emotional strain on employees who are carrying an enormous amount of student loan debt.”

Other benefits employers are adding to meet diverse needs include identity theft protection and critical illness coverage. While these offerings are less flashy than perks such as ice cream bars or on-campus game arcades, they also are becoming more common as employers tailor their benefits to different segments of the work forces.

To read the complete article in Workforce Magazine, click here.

Our research shows that U.S. employers are more confident than ever that they will be providing health care coverage to their employees for many years to come. That being the case, most are continually looking at new ways to manage cost and improve the value of their benefit offerings, including private exchanges.

Three senior consultants recently offered their perspectives on the evolution of private exchanges and their impact on employer-sponsored health care, based on findings from the 2015 Best Practices In Health Care Survey Report, in a recent Willis Towers Watson Viewpoint Q & A:

  • Randall K. Abbott, senior strategist for health and benefits
  • Sherri Bockhorst, managing director for group exchanges
  • Craig Jannino, senior consultant for health and benefits

The wide-ranging discussion focused on drivers of employer interest, what employees like about exchanges, and the nature of employer involvement. Participants also offered their views on risk factors in moving to a private exchange.

Here are some excerpts from the Q&A.

Drivers of interest

Many employers look at exchanges first from a cost perspective: can exchanges help them save money. But once they take a step back and look more holistically, they are intrigued by the opportunity to have more flexibility in the benefits they offer and more choice for employees.

Abbott: “Many of the employers we work with see an exchange as an opportunity to design programs that are more responsive to the Gen Y population — the millennials in the workforce today — as well as the even more tech-fluent Gen Z coming behind them.”

Jannino: “[Employers] are interested in leveraging the technology, the innovation and the choice available within the private exchange to enhance their ability to attract and retain the newer generations of employees.”

Bockhorst: “An exchange allows the employer a much more streamlined path to achieving the company’s specific benefit goals through a single source. It relieves the Benefits team of the burden of managing the RFP [request for proposal] carrier search every three years, doing their best to choose the right national carrier for their employees regardless of an employee’s health status and location….

What employees like best

OneExchange satisfaction surveys show that the number one reason employees give for liking an exchange is choice. But sometimes employers worry that too much choice can be overwhelming.

Jannino: “[Many employers] wonder whether employees will be able to make the right decision for themselves based on all of the new options that suddenly become available to them when they join an exchange. What we find is the private exchange technology makes the employee experience of choice so much easier than a self-managed plan, it’s not a problem. The tools enhance employees’ understanding of their benefits and their ability to select the benefit package that makes the most sense for them.”

Bockhorst: “What’s great is that we’ve evolved our exchange to allow choice for both the employer and the employee. We have the responsibility for creating the warehouse of available carriers and plan designs, then the employer chooses from that warehouse what they want to offer to their employees. Then, their employees get to shop from those choices, using the technology and call-center support provided by the exchange. The degree of choice for both the employer and the employee is really popular.

Employer involvement

In the early days of private exchanges, many employers thought they would lead to a reduction in the HR staff. In fact, that has rarely turned out to be the case.

“As with any major benefit strategy or administration change, HR needs to do significant implementation work, especially in the first year of the move to the exchange. For one thing, HR usually acts as the liaison with other employer functions, for example, IT and finance, that are also critical to successful implementation.”

Abbott: “… our experience has been that employers continue to be very much vested in their overall program management. They have an active interest in participating in that process. They of course remain the plan sponsor, the plan administrator and risk fiduciary for legal purposes, and still have accountability for any requirements under the ACA. So the employer role is as vital as ever — maybe even more so — to the success of the overall process with the active exchange team complementing HR and providing even more support and resources to enable more effective program delivery.

Bockhorst: “…after a company moves to an exchange, we have seen [HR] roles become more strategic in nature.”

Risk factors

Moving to a private exchange must align with organization’s business goals and benefits strategies. Beyond that determination, implementing an exchange is no more or less risky than any other benefits decision.

Abbott: “I see no more risk in the private exchange model when it is properly structured and properly vetted than in continuing a self-managed program. The greatest risk is not dealing with the issue at all. In judging risk, employers need to make a conscious evaluation of their current state, consider the private exchange premise and determine yes or no, it does or doesn’t make sense, and — if there are certain circumstances under which the employer would move forward with a private exchange in the future — identify what are those criteria and when will they know that they are triggered.”

Bockhorst: In fact, an exchange will oftentimes be a much less risky path to deliver benefits than self-managed, in the sense that the exchange is investing tremendous resources in technology, call centers, communication, vendor contracting, network strategy, data warehousing and integration. The employer gets to take advantage of all of that intellectual capital when they are ready at no additional fee — it’s just part of what the exchange delivers.”

To read the complete Viewpoint Q&A, click here.