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Comparison of Plans and Coverage
Choices Before and After Implementing
Investment
Monitoring
a Private Exchange
Strategy
Josh Rickard,Plan
ASA,Consulting
MAAA
Retirement
Consultant, Financial Analysis and Underwriting
Benefits & Human Resources Consulting
Arthur J. Gallagher & Co.

Comparison of Plans and Coverage
Choices Before and After
Implementing a Private Exchange
Strategy

Table of Contents
Executive Summary............................................................................3
Introduction.......................................................................................3
Approach...........................................................................................4
Summary of Findings.........................................................................5
Analysis of Gallagher Marketplace......................................................6
Comparison of Benefit Levels – Before and After Gallagher Marketplace.................6
Comparison of Plan Enrollment Distribution –
Before and After Gallagher Marketplace...................................................................8
Comparison of Plan Values – Before and After Gallagher Marketplace...................10

Conclusion.......................................................................................11
Summary of Outcomes..........................................................................................11

Appendix A – Definitions of Terms..................................................12
Appendix B – Model Designs for Plan Tiers.....................................12
About the Author.............................................................................13

PRIVATE EXCHANGE SOLUTIONS

ARTHUR J. GALLAGHER & CO. | DECEMBER 2014 :: 2

Comparison of Plans and Coverage
Choices Before and After
Implementing a Private Exchange
Strategy

Executive Summary
Private exchange strategies continue to pick up momentum as a preferred solution
for helping employers contain rising healthcare costs and attract, engage and
retain top talent. Post-implementation, determining the impact of the exchange is
important to assessing its value, and leveraging real data is essential to that process.
The Gallagher Marketplace (Marketplace) private exchange platform, offered by
Arthur J. Gallagher & Co. (Gallagher), is designed to meet the needs of both
employers and employees. This market report addresses how Marketplace is meeting
that objective, based on key insights into employer outcomes gained from past
implementation experiences:
• Are employers able to better meet employees’ needs by offering expanded options
through Gallagher Marketplace?
• When provided choice and a defined contribution buying environment, are employees
exhibiting better consumerism?

To answer these questions, data was collected from approximately 1,700 employees
representing seven Marketplace clients. The actuarial values of the medical plans
were compared before and after Marketplace, as were employee enrollment choices.
Results from this study indicate that employers and employees are realizing positive
outcomes from Marketplace. For example:
• Employers are able to offer significantly more medical plan options to employees.
• Employees have the tools to purchase appropriately from these options.
• On average, employers offered one to two plans prior to entering Marketplace as
compared to seven plans after implementing Marketplace.

In addition to expanded choice for employees, most of the employers analyzed are
seeing decreases in the level of benefits selected by employees when compared to
the options selected prior to the exchange. The average change in the actuarial value
of benefits chosen on Marketplace compared to those chosen before Marketplace
is -4.3%. Some of the employers that were analyzed observed slight increases in
the average level of benefits that employees selected. In a defined contribution
environment, these employees must pay extra to participate in more costly plans.
When they do buy up, it is their choice to pay more to get more if richer plans
better meet their needs.
Therefore, employers are seeing more discerning consumer behavior on Marketplace.
Employees are able to purchase benefits that are adequate for their needs rather than
settle for benefits that offer too much or too little insurance coverage, and at the
same time, control how much they spend.

Introduction
Since its inception, Gallagher Marketplace has been used by several employers
to manage the cost of benefits while offering employees increased choice. These
objectives have been combined with improved decision support to help employees
select coverage that better matches their needs.

PRIVATE EXCHANGE SOLUTIONS

ARTHUR J. GALLAGHER & CO. | DECEMBER 2014 :: 3

Comparison of Plans and Coverage
Choices Before and After
Implementing a Private Exchange
Strategy

Defined contribution
and decision support
allow employers to
set more predictable
budgets.

Two key components of using an exchange platform are defined contributions and
decision support. A defined contribution approach allows employers to set the
amount they pay for medical benefits and shift the decision to pay more for richer
benefits to employees. Decision support systems provide recommendations to
employees that align medical plans with their specific needs and personal budgets.
The combination of defined contribution and decision support allows predictable,
manageable budgets for employers and increased consumerism from employees.
Together, these components also allow employers to expand their coverage options
using Marketplace as an information tool and defined contribution as a risk
management strategy.
While defined contribution strategies are not the focus of this report, they are
important to maximizing the value of an exchange solution. As an intelligent risk
management strategy, defined contribution helps to mitigate unsustainable growth
in benefit costs.
The purpose of this report is to summarize the choices that employers and
employees have made related to medical insurance benefits as part of Marketplace,
in comparison to traditional medical plan offerings. From this data, the potential for
Marketplace to offer expanded medical plan options and encourage consumerism
among employees can be assessed.
Specifically, this report addresses the ability of employers to deliver expanded health
plan options while increasing consumerism for their employees using Marketplace
as a vehicle for choosing benefit plans. In doing so the following questions are
answered:
• How do the plans offered before Marketplace compare to the plans offered on
Marketplace?
• What types of plans are employees choosing through Marketplace and how do they
compare to their choices before Marketplace?
• What are the levels of medical benefits (actuarial value) selected by employees on
Marketplace and how do they currently compare to their choices before Marketplace?

Approach
This report is meant to be more informative than conclusive. It aims to illustrate
Gallagher Marketplace-based outcomes that some clients have realized in the
solution’s early stages.
Data for the study of seven clients, comprising a total sample of 1,735 employees,
was collected before and after they implemented the Marketplace solution. Each
of these employers implemented a defined contribution strategy and also offered
decision support tools to employees.
The data collected included information on enrollment by plan as well as plan
design (deductibles, coinsurance, etc.). Plan design information was then converted
to an actuarial value and used as a measure of benefit costs. For an explanation of an
actuarial value, see Appendix A. This data was summarized in different ways to help
provide answers to the objectives presented in the beginning of this report.

PRIVATE EXCHANGE SOLUTIONS

ARTHUR J. GALLAGHER & CO. | DECEMBER 2014 :: 4

Comparison of Plans and Coverage
Choices Before and After
Implementing a Private Exchange
Strategy

With Gallagher
Marketplace, clients
are providing increased
choice and realizing
better consumerism
from employees.

Summary of Findings
The analysis of clients enrolled in Gallagher Marketplace illustrates that clients are
realizing positive outcomes from the platform. These outcomes include increased
choice for employees and better consumerism from employees. See below for a
summary of findings from this study.

Intended Outcomes
Increased options for employees

Findings
• On average, the clients analyzed
were only offering one to two plans
before implementing Gallagher
Marketplace.
• After implementing Marketplace,
the average number of plans offered
increased to seven.
• Most clients offered medical plan
options that are both richer and
leaner than those offered prior to
Marketplace. In addition, all clients
offered an HSA-compatible medical
plan through Marketplace.

Increased consumerism from
employees

• Most clients saw a reduction in
the level of benefits selected when
employees were given expanded
options, decision support and
the choice to purchase benefits
commensurate with their needs.
• In most cases employees purchased
leaner benefits than before. In some
cases employees purchased richer
benefits.
• The outcomes are positive;
employees are able to select
medical plans that work for them,
and employers are indifferent
because they pre-set their budget
using a defined contribution
strategy.

PRIVATE EXCHANGE SOLUTIONS

ARTHUR J. GALLAGHER & CO. | DECEMBER 2014 :: 5

Comparison of Plans and Coverage
Choices Before and After
Implementing a Private Exchange
Strategy

Employers can offer
more plans through
Gallagher Marketplace
without burdening
employees with too
much choice.

Analysis of Gallagher Marketplace
The remainder of this report explains the supporting evidence for the above
outcomes using client data collected on Gallagher Marketplace. First, the report
compares benefit levels of plans, before and after Marketplace, to explain how the
plan options that employers offer are impacted by the Marketplace model. Next,
enrollment information is analyzed by benefit level to understand employees’
benefits selection in an exchange environment. Lastly, the report compares the
average benefit level before and after Marketplace to illustrate how the purchase of
benefits through Marketplace affects consumer behavior.
Comparison of Benefit Levels – Before and After Gallagher Marketplace
The first issue to be addressed is how the medical plan benefits offered by clients
before Gallagher Marketplace compare to the medical plan benefits offered on
this private exchange. A significant advantage of Marketplace is its ability to offer
multiple plans, along with a decision support system that guides employees toward
medical plans that make the most sense for their individual needs. Employers
are able to offer many more plans through Marketplace than previously possible
without overwhelming employees with a significant burden of choice.
To help illustrate the breadth of plan offerings through Marketplace, the actuarial
values of plans before and after Marketplace were compiled. Figure 1 compares the
range of benefits, measured using the actuarial value, before utilizing Marketplace
and after. This graphic also uses levels of coverage from most rich to least rich –
Platinum, Gold, Silver and Bronze – to help better compare the types of plans
offered. For a description of the coverage levels, see Appendix A. For an illustration
of what types of plans fall into each level, see Appendix B.

Figure 1. Actuarial Value
of Plans Before and After
Gallagher Marketplace
Summary of Figure 1:
• Five of the seven clients
offered expanded benefits after
Marketplace, with medical plans
both richer and leaner than the
medical plans offered before
Marketplace.
• Two of the seven clients offered
benefits at or below the richness
of their medical plans before
Marketplace.
• The average spread in actuarial
value between plans offered on
Marketplace, calculated by client,
is about 3%. This would likely
result in larger premium spreads
when considering the impact of
utilization, network differences
or other aspects impacting costs
between plans.

PRIVATE EXCHANGE SOLUTIONS

Actuarial Value
100%
95%

Platinum
Plan

90%
Gold Plan
85%
80%
75%

Silver
Plan

70%
65%

Bronze
Plan

60%
Client 1

Client 2

Client 3

Client 4

Client 5

Client 6

Client 7

Before Gallagher Marketplace
After Gallagher Marketplace

ARTHUR J. GALLAGHER & CO. | DECEMBER 2014 :: 6

Comparison of Plans and Coverage
Choices Before and After
Implementing a Private Exchange
Strategy

To further illustrate the expansion of options made available to employees using
Marketplace, Table 1 summarizes the number of benefit plans offered before and
after Marketplace for each client analyzed.

Table 1. Number of Plan Offerings Before
and After Gallagher Marketplace

Plan Tiers
Before
Marketplace

Client 1

Client 2

Client 3

1

1

1

Client 4

Client 5

2

2

# of Gold Plans

1

1

# of Bronze Plans
Total Plans

1

1

2

2

# of Platinum Plans

1

1

1

1

# of Gold Plans

4

5

4

# of Silver Plans

5

3

Total Plans
Summary of Table 1:
• Three of the seven clients
offered one medical plan.
• Three offered two medical
plans.
• One offered three medical
plans.
After
Marketplace

• Two of the seven clients
offered six medical plans.
• One offered eight medical
plans.

2

1

# of Bronze Plans

Before
Marketplace

Client 7

# of Platinum Plans
# of Silver Plans

After
Marketplace

Client 6

10

3

1

2

4

2

1

5

5

2

3

5

2

2

2

2

2

3

11

12

12

6

6

8

As shown in Table 1, clients on Marketplace offered noticeably expanded medical
benefit options, which included at least three of the tier options in nearly all cases.
Before Marketplace, no client offered plans in three different levels.
Marketplace also allowed clients to offer HSA tax-incentivized plans in more cases.
Prior to Marketplace, only three of the seven clients offered an HSA-compatible
medical plan. After Marketplace, all seven clients offered at least one HSAcompatible medical plan to employees. This illustrates that Marketplace permits
expanded choices in medical plan benefits beyond the choice of deductibles and
coinsurance levels.

• Four offered 10 or more
medical plans.

PRIVATE EXCHANGE SOLUTIONS

ARTHUR J. GALLAGHER & CO. | DECEMBER 2014 :: 7

Comparison of Plans and Coverage
Choices Before and After
Implementing a Private Exchange
Strategy

Gallagher Marketplace
allowed clients to offer
HSA tax-incentivized
plans in more cases.

Comparison of Plan Enrollment Distribution –
Before and After Gallagher Marketplace
With the understanding that clients are able to offer an expanded range of medical
plans on Gallagher Marketplace, it is important to note the choices that employees
made in this new environment. As part of the analysis, the distribution of enrollment
before and after Marketplace was evaluated to help determine if expanded options,
combined with a defined contribution structure, induces consumerism.
Plan enrollment information is presented by client in Table 2. The cells highlighted
in red represent the enrollment rates for plans that are richer than the richest plan
that was offered before Marketplace. The white cells represent the enrollment for
plans equal to the richest plan that was offered before Marketplace. The green cells
represent enrollment rates for plans that are leaner than the richest plan that was
offered before Marketplace.

Table 2. Enrollment Distribution by Actuarial Value
Before and After Gallagher Marketplace

Actuarial Value
Before
Marketplace

Client 1

Client 2

100%

100%

Client 3

Client 4

Client 5

72%

36%

28%

43%

Client 6

Client 7

90% - 100%
85% - 89%
80% - 84%

80%

75% - 79%

20%

70% - 74%

100%

65% - 69%

100%

21%

60% - 64%
After
Marketplace

90% - 100%

3%

13%

2%

2%

85% - 89%

3%

13%

8%

80% - 84%

30%

28%

11%

15%

23%

13%

75% - 79%

64%

26%

62%

67%

31%

42%

12%

70% - 74%
65% - 69%
60% - 64%

2%
19%

22%
41%

9%

13%

18%

42%

8%

2%

15%

4%

36%

Summary of Table 2:
• For clients offering only one plan prior to
Marketplace (Clients 1, 2, 6 and 7), the
average percentage of employees who chose a
plan with lower benefits on Marketplace was
83%.
• For clients offering two or more plans prior to
Marketplace (Clients 3, 4 and 5), the average
percentage of enrollment in plans lower in
value than the richest plan offered was 37%
before Marketplace. For these same clients,
the average percentage of enrollment in plans
on Marketplace with benefits lower than the
richest plan offered prior to Marketplace was
43%.

PRIVATE EXCHANGE SOLUTIONS

Clients who only offered a single plan prior to the exchange had a significant
number of employees choose less expensive plans when enrolling through
Marketplace. On average, clients who offered multiple plans prior to Marketplace
realized only a modest increase in employees who bought down, compared to those
who bought the richest plans. This would indicate that Marketplace can be effective
at encouraging consumerism. It also indicates that employees are willing to pay more
to get more medical coverage when the option is available.

ARTHUR J. GALLAGHER & CO. | DECEMBER 2014 :: 8

Comparison of Plans and Coverage
Choices Before and After
Implementing a Private Exchange
Strategy

To further illustrate the shift in enrollment occurring through Marketplace,
a summary of enrollment by coverage level aggregated across all clients was
considered. A summary of the distribution is shown in Figure 2.

70%

Figure 2. Distribution by Plan Tier Before
and After Gallagher Marketplace

60%

Summary of Figure 2:

• Silver plan enrollment rates dropped by
about 20%.
• Bronze plan enrollment rates increased by
about 18%.

50%
% Enrollment

• Enrollment for Platinum and Gold plans
increased about 1% in each level.

40%
30%
20%
10%
0%
Before
After

Gallagher Marketplace
permits expanded choice
in medical plan benefits
beyond deductibles and
coinsurance levels.

PRIVATE EXCHANGE SOLUTIONS

Platinum

Gold

Silver

Bronze

0%

22.9%

66.5%

10.6%

1.3%

24%

46.1%

28.6%

Platinum plans were not present before Marketplace for any of the seven clients,
and so the increase in Platinum plans is purely due to a few employees placing
value on very rich benefits when given the option to buy up. There was a significant
reduction in Silver plan enrollment rates corresponding with a significant increase in
enrollment rates in Bronze plans.
Table 2 and Figure 2 support the concept that when employees are given expanded
options, useful plan purchasing information and greater control over their benefits
cost, they choose less expensive plans more often. Hence, consumerism is increased
and employees are choosing plans that create less economical waste caused by
excessive insurance coverage.

ARTHUR J. GALLAGHER & CO. | DECEMBER 2014 :: 9


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