Companies Mull Ways to Improve Health Care Strategies

June 6, 2013 (PLANSPONSOR.com) – To mitigate rising health care costs, more companies are considering strategies to improve how they pay for health care services, according to a survey.

In a survey by Aon Hewitt, 53% said moving toward provider payment models that promote cost effective, high-quality health care results will be a part of their future health care strategy, and one in five identified it as one of their three highest priorities.

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“As health care costs continue to rise, a growing number of employers want to ensure that the health care services they are paying for are actually leading to improved patient outcomes,” said Jim Winkler, chief innovation officer for Health at Aon Hewitt. “Just as employers are requiring more of their employees to take control of their health, employers are seeking to hold providers more accountable. They are beginning to work directly with health plans to embrace more aggressive techniques to reduce unnecessary expenses and create more efficiency in the way they purchase health care.”

Employers are looking at focusing more on pay-for-performance models. Thirty-one percent of employers said they decrease or increase health care vendor compensation based on specific performance targets, and another 44% are considering doing so in the next three to five years. Additionally, while just 14% of employers currently use integrated delivery models, including patient-centered medical homes, to improve primary care effectiveness, another 61% plan to do so in the next few years.

”Vendor accountability models are moving beyond process-based metrics, such as customer service call answering speed, and shifting to ones that focus on fees at risk for clinical health risk improvement and overall medical spending increases,” said Tim Nimmer, chief health actuary for Aon Hewitt.

While utilization is low today, the survey revealed a growing number of employers also are interested in adopting reference-based and value-based pricing models in the next three to five years. These findings include:

  • While just 8% of companies today limit plan reimbursements to a set dollar amount for certain medical services where wide cost variation exists, almost two-thirds (62%) are considering adopting this type of reference-based pricing model in the future. According to Aon Hewitt, this type of approach has been commonplace for prescription drug coverage, with many employers requiring participants to pay the full cost difference between a brand name drug and its generic substitute.
  • Fifty-nine percent of employers plan to steer participants—through plan design or lower cost—to high-quality hospitals or physicians for specific procedures or conditions.
  • Thirty-eight percent of companies plan to participate in cooperative purchasing efforts with other employers or groups (coalition-based pricing). Twenty-one percent do so today.

”Employers are increasingly gaining comfort with the notion that they do not need to pay for the wide cost and quality variations that exist in today’s health care system,” Winkler said. “Their efforts to reduce inefficiency and shift the payment focus toward services and providers that produce higher quality outcomes are only just getting started. It is a shift that our health care system certainly needs.”

The Aon Hewitt survey polled nearly 800 large and mid-size U.S. employers and covered more than 7 million employees.

BNY Mellon Recommends Expanding Investment Options

June 6, 2013 (PLANSPONSOR.com) – Expanding investment options for defined contribution (DC) plans could improve risk-adjusted returns, according to a white paper.

The white paper, from investment management firm BNY Mellon, examines the broadening of investment options available to DC retirement plans to include real assets, emerging market equities and debt, and liquid alternatives and how that could improve risk-adjusted returns while reducing volatility and providing better protection against inflation.

“Traditional DC plans do not provide the level of diversification and risk balance that plan participants require to achieve their retirement goals,” said Robert G. Capone, executive vice president, BNY Mellon Retirement Group, and the author of the paper, titled “Retirement Reset: Using Non-Traditional Investment Solutions in DC Plans.”

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Capone attributed the limited range of investment options included in DC plans as the primary reason for their inability to match the performance of defined benefit (DB) plans, which tend to incorporate a range of non-traditional assets. Capone noted that non-traditional approaches could enhance the success of investors in the current environment, which he expects to be characterized by lower long-term expected returns, higher volatility and heightened inflation risk.

If DC plans were constructed more similarly to DB plans, approximately 20% of plan assets would be allocated to non-traditional strategies such as real assets, total emerging markets (which combine equities and fixed income) and liquid alternatives, BNY Mellon said.

 

“Equities comprise a higher percentage of the DC portfolios than they do of DB portfolios,” Capone said. “We believe that applying the best DB practices to DC plans would reduce equity risk and home country bias as well as thoughtfully incorporating alternative investments to increase diversification, return potential and downside risk management.”

The real asset portion of the DC portfolio proposed by BNY Mellon is designed to hedge against inflation and would include Treasury Inflation-Protected Securities (TIPS), real estate investment trusts (REITS), commodities and natural resource equities.

The combination of emerging markets equity and fixed income would provide a more blended and balanced approach than allocating only to emerging markets equities, according to Capone. The more balanced approach has the potential to reduce portfolio volatility and diversify country and currency risks than could be accomplished with emerging markets equities alone.

BNY Mellon sees liquid alternatives as a way to provide DC participants with strategies that have a low correlation to equities markets. “There is a wide range of liquid alternative strategies,” said Capone. “So, we are using three hedge fund indices as proxies for this asset class.”

 

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