Automatic Enrollment Beyond the 401k Automatic Enrollment in

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Automatic Enrollment Beyond the 401(k): Automatic Enrollment in Welfare Benefit Plans Before & After

Automatic Enrollment Beyond the 401(k): Automatic Enrollment in Welfare Benefit Plans Before & After Health Reform Jack Towarnicky Employee Benefits Attorney Human Capital Practice [email protected] com [email protected] com

Hueristics – Rules of Thumb Executive Summary �All employee benefit managers are also behavioral

Hueristics – Rules of Thumb Executive Summary �All employee benefit managers are also behavioral economists – even if they do not know it or deliberately ignore it. �Behavioral economics tools and applications are common in the employee benefits marketplace. �The most common biases/issues: Loss Aversion, Social Norming, Hyperbolic Discounting, Heuristics & “Choice Blindness”. �“Choice Architecture” is the most frequently deployed tool automatic (re-)enrollment/escalation, defaults, framing, etc. ) �Absolute Certainty in Employee Benefits: “If you offer employees a choice of benefits, only one thing is certain, some will make the wrong choice. ” Jack Towarnicky �The Behavioral Economics practices we use in employee benefits may not be transferable (ERISA preemption, statutory authority) Page 2

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits �Auto Enrollment In Employee Benefits … Today! ▫ ▫ 401 k Active Employee Medical Retiree Medical HSAs, Long Term Disability, Life Insurance �PPACA Auto Features & DOL Regulatory Considerations ▫ ▫ Public Exchanges Employer Shared Responsibility Eligibility for Taxpayer Financial Support FLSA 18 A �Future Employer Strategies in Deploying Auto Enrollment Page 3

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits �Auto Enrollment In Employee Benefits … Today! ▫ ▫ 401 k Active Employee Medical Retiree Medical Health Savings Accounts, Long Term Disability, Life Insurance �PPACA Auto Features & DOL Regulatory Considerations ▫ ▫ Public Exchanges Employer Shared Responsibility Eligibility for Taxpayer Financial Support FLSA 18 A �Future Employer Strategies in Deploying Auto Enrollment Page 4

The Intersection of Behavioral Economics & Employee Benefits Behavioral Economics – Disrupts classical economics’

The Intersection of Behavioral Economics & Employee Benefits Behavioral Economics – Disrupts classical economics’ “rational man” Page 5

Hueristics – Rules of Thumb Worker’s decision making toolbox – routine, preset, simple, “rule

Hueristics – Rules of Thumb Worker’s decision making toolbox – routine, preset, simple, “rule of thumb” � Good – Some repetitive situations – wellprepared/useful solution, save time & effort, � Bad – In complex issues - often suboptimal, counterproductive and/or damaging outcome � Ugly – Often resort to social interactions, group think, customs. What did you select? Page 6

“Choice Blindness” ”Coffee, Coffee Page 7

“Choice Blindness” ”Coffee, Coffee Page 7

Welfare Plan Annual Enrollment Time Starved Decision Making Source: 2010 Met Life Employee Benefit

Welfare Plan Annual Enrollment Time Starved Decision Making Source: 2010 Met Life Employee Benefit Trend Study Page 8

Welfare Plan Annual Enrollment Time Starved Decision Making 2013 Met Life Study Ø 61%

Welfare Plan Annual Enrollment Time Starved Decision Making 2013 Met Life Study Ø 61% enroll immediately upon receiving data/information Ø 20 minutes – average time employees spend/year on benefits enrollment Ø Only 20% review choices more than once Ø 38% are not very confident they made right decisions Source: 2010 Met Life Employee Benefit Trend Study 2013 Met Life PSB Fall Enrollment Study Page 9

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits �Auto Enrollment In Employee Benefits … Today! ▫ ▫ 401 k Active Employee Medical Retiree Medical HSAs, Long Term Disability, Life Insurance �PPACA Auto Features & DOL Regulatory Considerations ▫ ▫ Public Exchanges Employer Shared Responsibility Eligibility for Taxpayer Financial Support FLSA 18 A �Future Employer Strategies in Deploying Auto Enrollment Page 10

Perennially Auto 401(k) Pension Protection Act of 2006 & regulations Perennial Annual Enrollment 2013

Perennially Auto 401(k) Pension Protection Act of 2006 & regulations Perennial Annual Enrollment 2013 Eligible For Auto Feature 2012 2011 2010 2009 2008 2007 2006 27, 948 26, 086 27, 466 28, 211 31, 578 14, 067 14, 705 Reject Auto Enroll/Increase 37% 35% 29% 31% 28% 23% Accept Automatic Election - Increase with Match - Increase w/o Match 63% 13% 87% 65% 19% 81% 65% 34% 66% 71% 44% 56% 69% 48% 52% 72% All N/A 77% All N/A 2013 Escalate W/O Match: 13, 941 2013 Opt outs: 1, 080 Eligibles Participation Rate 97+% 74% % Receiving Full Match: 2006: ~59%; 2013: 96+% Page 11

Hueristics – Auto Rules of Thumb Personalized Enrollment Page 12

Hueristics – Auto Rules of Thumb Personalized Enrollment Page 12

Hueristics – Auto Rules of Thumb Personalized Enrollment Retirement 20/20 Proposal: • Multiple employer

Hueristics – Auto Rules of Thumb Personalized Enrollment Retirement 20/20 Proposal: • Multiple employer plan – different plan sponsor role (to allow aggregation, consolidation of all savings into a single plan; minimization of fees), • Perennial automatic enrollment defaults targeting the level at which the full employer match is provided (for those who opt out), • Perennial/auto 401(k) contribution increase/reduction (a self-adjusting default mechanism, with worker opt out): • • Based on projections of retirement income replacement adequacy, Based on projections of existing tax code provisions (as amended) as well as an associate survey - to maximize tax preferences, • Perennial/auto Health Savings Account contribution increase/reduction: • • Based on projections of need for post-employment medical expenses, and Based on projections of existing tax code provisions (as amended) as well as an associate survey – to maximize tax preferences, • Perennial re-enrollment (investment reallocation – anticipate risk of loss of capital, loss of purchasing power, maximization of retirement income) via target maturity model allocations of core investment options. Page 13

Employee Benefits Hueristics – Rules of Thumb Automatic Enrollment �Pension Protection Act of 2006

Employee Benefits Hueristics – Rules of Thumb Automatic Enrollment �Pension Protection Act of 2006 & regulations �Welfare Plans: ▫ DOL Advisory Opinion 2008 -02 A, Feb. 8, 2008, preempt KY state withholding statute ▫ IRS Revenue Ruling 2002 -27, May 20, 2002, cafeteria plans ▫ DOL Testimony Apr. 8, 2011, Mercer study (12%) ▫ DOL Advisory Opinion 94 -27 A, July 14, 1994, preempt New York written notice requirement to allow electronic elections Page 14

Active Employee Informed Enrollment 15 Page 15

Active Employee Informed Enrollment 15 Page 15

Active Employee Informed Enrollment Ø Offered two PPO options – same in all respects

Active Employee Informed Enrollment Ø Offered two PPO options – same in all respects except point of enrollment (contributions) and point of purchase cost sharing (deductibles, copay, etc. ) Ø Post 2009 Plan Year Study: 68% chose wrong option – mostly over-insured 16 Page 16

Retired Employee Informed Enrollment 2004 1234 Page 17

Retired Employee Informed Enrollment 2004 1234 Page 17

Retired Employee Informed Enrollment Page 18

Retired Employee Informed Enrollment Page 18

Guidance & Education Page 19 19

Guidance & Education Page 19 19

2006 Rx Enrollment 2006 HRA Rx (includes individual PDP, No PDP 16% Standard Rx

2006 Rx Enrollment 2006 HRA Rx (includes individual PDP, No PDP 16% Standard Rx (High Option) 84%* * ~ 60% defaulted to Standard Rx in 2006, while ~ 25% affirmatively elected the default, Standard Rx. Page 20

2008 “Re-Frame” Change Default 2008 2006 HRA Rx (includes individual PDP, No PDP 16%

2008 “Re-Frame” Change Default 2008 2006 HRA Rx (includes individual PDP, No PDP 16% Standard Rx (High Option, 2006 Default) 84%* Individual PDP, No PDP 32% Aetna Rx (Low Option, 2008 Default) 64%** Anthem Rx (High Option) 3% * ~ 60% default to Standard Rx in 2006, ~ 25% affirmatively elected default ** ~ 44% default to new, lower coverage, ~ 20% affirmatively elected default Page 21

Increasing Coverage Annual Enrollment Choice Architecture – At Annual Enrollment, At Hire Health Savings

Increasing Coverage Annual Enrollment Choice Architecture – At Annual Enrollment, At Hire Health Savings Account Annual Enrollment Default to HDHP Issue: Eliminating option, change default to HDHP Pre-2009 HSA Default = 0 n New HSA Default: Sum of Worker & company match = HDHP deductible n Rationale: HSA Unfamiliar n Result: Declines in HSA Participation: 97% of HDHP enrollment to 87%, Average Deferrals: ~ 15% Page 22

Increasing Coverage Annual Enrollment Choice Architecture – At Annual Enrollment, At Hire Health Savings

Increasing Coverage Annual Enrollment Choice Architecture – At Annual Enrollment, At Hire Health Savings Account Annual Enrollment Default to HDHP Long Term Disability Default to Coverage at Hire Issue: Eliminating option, change default to HDHP Issue: Less than 50% enrolling at hire Pre-2009 HSA Default = 0 Default = No Coverage n New HSA Default: Sum of n New LTD Default: After- Worker & company match = HDHP deductible n Rationale: HSA Unfamiliar n Result: Declines in HSA Participation: 97% of HDHP enrollment to 87%, Average Deferrals: ~ 15% tax coverage at hire n Rationale: Opt out possible if after-tax n Result: Up 49% (from 51. 2% ’ 08; to 76. 9% ‘ 09) n 73% have higher, after-tax coverage Page 23

Increasing Coverage Annual Enrollment Choice Architecture – At Annual Enrollment, At Hire Health Savings

Increasing Coverage Annual Enrollment Choice Architecture – At Annual Enrollment, At Hire Health Savings Account Annual Enrollment Default to HDHP Long Term Disability Default to Coverage at Hire Life Insurance Default to Coverage at Hire & Annual Enrollment Issue: Eliminating option, change default to HDHP Issue: Less than 50% enrolling at hire Issue: 15% no coverage Pre-2009 HSA Default = 0 Default = No Coverage n New HSA Default: Sum of n New LTD Default: After- n New Life Default: 1. 5 x pay, Worker & company match = HDHP deductible n Rationale: HSA Unfamiliar n Result: Declines in HSA Participation: 97% of HDHP enrollment to 87%, Average Deferrals: ~ 15% tax coverage at hire n Rationale: Opt out possible if after-tax n Result: Up 49% (from 51. 2% ’ 08; to 76. 9% ‘ 09) n 73% have higher, after-tax coverage with. 5 x pay contributions n Rationale: Cheap, high value. Age 40, $150, 000 @ $2. 31/biweekly/pretax n Result: Waivers down 75% from 15% to 4%, coverage up from 85% to 96% Page 24

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits �Auto Enrollment In Employee Benefits … Today! ▫ ▫ 401 k Active Employee Medical Retiree Medical HSAs, Long Term Disability, Life Insurance �PPACA Auto Features & DOL Regulatory Considerations ▫ ▫ Public Exchanges Employer Shared Responsibility Eligibility for Taxpayer Financial Support FLSA 18 A �Future Employer Strategies in Deploying Auto Enrollment Page 25

Hueristics – Rules of. Features Thumb PPACA Automatic 1. Federal & State Exchanges –

Hueristics – Rules of. Features Thumb PPACA Automatic 1. Federal & State Exchanges – Three notices 8+MM (Nov. 15 – Feb. 15) � Insurer – Auto enrollment confirmation of default to current option � Exchange – Notice on how to update financial information to improve accuracy of taxpayer financial support credits (86%) � Insurer – Special notice concerning loss of cost-sharing improvements if silver plan discontinued and not replaced Page 26

Hueristics – Rules of. Features Thumb PPACA Automatic 1. Federal & State Exchanges –

Hueristics – Rules of. Features Thumb PPACA Automatic 1. Federal & State Exchanges – Three notices 8+MM (Nov. 15 – Feb. 15) � Insurer – Auto enrollment confirmation of default to current option � Exchange – Notice on how to update financial information to improve accuracy of taxpayer financial support credits (86%) � Insurer – Special notice concerning loss of cost-sharing improvements if silver plan discontinued and not replaced 2. Employer Shared Responsibility – IRC 4980 H � Prior year choice continues each succeeding plan year unless affirmative employee election � Must provide an effective opportunity to accept or decline coverage (not required where offer Minimum Value coverage with contribution <= 9. 5% of federal poverty level / 12) Page 27

Hueristics – Rules of. Features Thumb PPACA Automatic 1. Federal & State Exchanges –

Hueristics – Rules of. Features Thumb PPACA Automatic 1. Federal & State Exchanges – Three notices 8+MM (Nov. 15 – Feb. 15) � Insurer – Auto enrollment confirmation of default to current option � Exchange – Notice on how to update financial information to improve accuracy of taxpayer financial support credits (86%) � Insurer – Special notice concerning loss of cost-sharing improvements if silver plan discontinued and not replaced 2. Employer Shared Responsibility – IRC 4980 H � Prior year choice continues each succeeding plan year unless affirmative employee election � Must provide an effective opportunity to accept or decline coverage (not required where offer Minimum Value coverage with contribution <= 9. 5% of federal poverty level / 12) 3. Eligibility for Taxpayer Financial Support – IRC 36 B � Deemed not to have employer-sponsored coverage for those automatically enrolled where coverage terminates prior to the latest of: ▫ The end of the employer’s opt out period, ▫ 1 st day of 2 nd calendar month of that plan year, or ▫ Pursuant to DOL regulations. Page 28

Hueristics – Rules of. Features Thumb PPACA Automatic 4. FLSA 18 A (PPACA §

Hueristics – Rules of. Features Thumb PPACA Automatic 4. FLSA 18 A (PPACA § 1511) • • • Employer subject to FLSA 200+ full-time employees Automatically enroll new full-time employees in health coverage Continue enrollment of current employees Adequate notice and opportunity to opt out Preempt state laws to extent they prohibit automatic enrollment 29 U. S. C. § 218 a - Automatic enrollment for employees of large employers “In accordance with regulations promulgated by the Secretary, an employer to which this chapter applies that has more than 200 full-time employees and that offers employees enrollment in 1 or more health benefits plans shall automatically enroll new full-time employees in one of the plans offered (subject to any waiting period authorized by law) and to continue the enrollment of current employees in a health benefits plan offered through the employer. Any automatic enrollment program shall include adequate notice and the opportunity for an employee to opt out of any coverage the individual or employee were automatically enrolled in. Nothing in this section shall be construed to supersede any State law which establishes, implements, or continues in effect any standard or requirement relating to employers in connection with payroll except to the extent that such standard or requirement prevents an employer from instituting the automatic enrollment program under this section. ” Page 29

PPACA Automatic Features Before you get started, know Senator Isakson has introduced: S. 2546,

PPACA Automatic Features Before you get started, know Senator Isakson has introduced: S. 2546, The Auto Enroll Repeal Act • June 26, 2014 • Committee on Health, Education, Labor, and Pensions • “To repeal (Section 18 A of the Fair Labor Standards Act (29 U. S. C. 218 a), as added by section 1511 of the Patient Protection and Affordable Care Act) the requirement that new employees of certain employers be automatically enrolled in the employer’s health benefits plan…” • Repeal? Automatic Enrollment, certainly. Automatic renewal, ?

DOL Regulatory Considerations

DOL Regulatory Considerations

DOL Regulatory Considerations 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

DOL Regulatory Considerations 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Conference Committee Reports Committee Debates and Bill Mark-ups Committee Reports The Status of the Person Speaking—Sponsor, Committee Chairman, Floor Leader, Etc. Accepted and Rejected Amendments Floor Debates Planned Colloquy Transcripts of Discussions at Committee Hearings Prepared Statements on Submission of a Bill, in Committee Hearings, and at the Time of Floor Debates Revised and Amended Statements Actions on and Discussions About Separate Bills on the Same Topic Prior Relevant Administrative Action or Judicial Decisions, with or without Congressional Acknowledgement Executive Branch Messages & Proposals (from the President, Cabinet Secretaries, or from Independent Agencies) Analysis of Bills Legislative Counsel Analysis of Bills by Relevant Executive Departments Related Statutes, Provisions, and Terms Dictionaries Statements by Executive Branch Administrators Statements and Submissions by Lobbyists Subsequent or Prior Unrelated, but Conflicting Legislation Recorded Votes Source: Nicholas J. Waggoner, Top 21 Sources of Legislative History (1= most important, 21 = least important)

Hueristics –DOL Rules of Thumb Regulatory Considerations Why the delay? 1. Many terms not

Hueristics –DOL Rules of Thumb Regulatory Considerations Why the delay? 1. Many terms not defined; many provisions not specified ▫ ▫ ▫ Definition of full-time employee Default election selection process Adequate notice & opportunity to opt out Page 33

Hueristics –DOL Rules of Thumb Regulatory Considerations Why the delay? 1. ▫ ▫ ▫

Hueristics –DOL Rules of Thumb Regulatory Considerations Why the delay? 1. ▫ ▫ ▫ Many terms not defined; many provisions not specified Definition of full-time employee Default election selection process Adequate notice & opportunity to opt out 2. Past practice of phased implementation for PPACA changes Page 34

Hueristics –DOL Rules of Thumb Regulatory Considerations Why the delay? 1. ▫ ▫ ▫

Hueristics –DOL Rules of Thumb Regulatory Considerations Why the delay? 1. ▫ ▫ ▫ 2. Many terms not defined; many provisions not specified Definition of full-time employee Default election selection process Adequate notice & opportunity to opt out Past practice of phased implementation for PPACA changes 3. Cautious about “mandates”* - despite broad acceptance in 401(k)s* and modest take up rates in employer sponsored plans * American United Life Insurance Company (55% favor, 29% unsure, 19% opt out, July, 2014 Page 35

Hueristics –DOL Rules of Thumb Regulatory Considerations Why the delay? 1. ▫ ▫ ▫

Hueristics –DOL Rules of Thumb Regulatory Considerations Why the delay? 1. ▫ ▫ ▫ 2. 3. Many terms not defined; many provisions not specified Definition of full-time employee Default election selection process Adequate notice & opportunity to opt out Past practice of phased implementation for PPACA changes Cautious about mandates – despite broad acceptance in 401(k) plans – 55% favor, 29% unsure, 19% opt out 4. Demands by stakeholders to influence result – calls to “maximize flexibility”, “offer extended period of advance notice” (at least 18 months after regulations finalized). Page 36

Hueristics –DOL Rules of Thumb Regulatory Considerations April 8, 2011 - Testimony Focus: �Definition

Hueristics –DOL Rules of Thumb Regulatory Considerations April 8, 2011 - Testimony Focus: �Definition of full-time employee �Default election selection process �Adequate notice & opportunity to opt out “HOLD OFF” Source: Department of Labor Transcript, April 8, 2011 Page 37

Full Time Employee Hueristics – Rules of Thumb Definition �Separate applications: �“Large employer” determination,

Full Time Employee Hueristics – Rules of Thumb Definition �Separate applications: �“Large employer” determination, �“Full time” employee determination �“Full time” not defined by statute – PPACA, FLSA, ERISA �Coordinate with IRC § 4980 H 30 hour rule? �No requirement to use “monthly measurement”, “look back” �Clarify - not intended to drive eligibility, but enrollment �Consider a “look forward” test: ▫ “Reasonably expected to work”, or ▫ “Regularly scheduled to work” �Change in status, re-evaluation (avoid churn from turnover) �Turnover – avoid churn New hire only Source: Department of Labor Transcript, April 8, 2011 Page 38

Default Election Selection Hueristics – Rules of Thumb Process Timing �Offer/notice date versus effective

Default Election Selection Hueristics – Rules of Thumb Process Timing �Offer/notice date versus effective date of coverage �Typical 30 days vs. 91 st day (coordinate with waiting period) �Coordinate with other communications �Summary of Benefits and Coverage �Public Exchange Notice (14 days) Default Option �ERISA fiduciary rules apply? �Single, not dependents �Misunderstandings �All employers do annual enrollment �HDHP/HSA “eligible individual” – IRS Notice 2008 -29, Q&A 16 Source: Department of Labor Transcript, April 8, 2011 Page 39

Adequate Hueristics – Rules. Notice of Thumb Opportunity to Opt Out Notice Characteristics �Easily

Adequate Hueristics – Rules. Notice of Thumb Opportunity to Opt Out Notice Characteristics �Easily understood �Linguistically appropriate �Coordinate with other notices, enrollment processes � 1 st class mail not always effective �Concerns: �“COBRA-like” “free-look”, “free bite” �Incorporating a mandate to explain Individual Mandate �Obtain confirmation receipt notice was received �Opt out refund of contributions – confusion about whether “coverage was used” Source: Department of Labor Transcript, April 8, 2011 Page 40

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits

Hueristics. Agenda – Rules of Thumb �The Intersection of Behavioral Economics & Employee Benefits �Auto Enrollment In Employee Benefits … Today! ▫ ▫ 401 k Active Employee Medical Retiree Medical HSAs, Long Term Disability, Life Insurance �PPACA Auto Features & DOL Regulatory Considerations ▫ ▫ Public Exchanges Employer Shared Responsibility Eligibility for Taxpayer Financial Support FLSA 18 A �Future Employer Strategies in Deploying Auto Enrollment Page 41

Future Employer Hueristics – Rules. Strategies of Thumb in Deploying Auto Enrollment Risk Exposure

Future Employer Hueristics – Rules. Strategies of Thumb in Deploying Auto Enrollment Risk Exposure – Change coverage, worker eligibility � Change to offer “bare minimum” coverage designed to avoid penalty taxes ▫ bare Minimum Essential Coverage (b. MEC) – 63 preventive services, employee pay all ▫ bare Minimum Value Plan (b. MVP) – full time employee and adopted/natural children up to age 26 (excluding spouse, step and foster children), $6, 250 (embedded deductible), 99%/1% coinsurance up to $6, 600/$13, 200 out of pocket expense maximum, single contribution of 9. 5% of wages ($120/mo @ minimum wage/40 hours a week), employee pay all if cover a child � Freeze full time employment (29 ers’s and 49 er’s) – Gallup 2013 small business survey showed 41% held off hiring, 19% reduced staffing, 18% reduced workers to part time: ▫ < 50 – to avoid all penalty taxes, or ▫ < 100 – to minimize penalty taxes � Expand the “contingent workforce” ▫ ↑ 50% after recession end (6/09) ▫ Kelly = Worlds 2 nd largest private employer (538 k) ▫ Coupled with a change in the nature of “temp” jobs: ▫ More skilled workers (JD, MD, IT) ▫ More “indefinite” temps ▫ As a placement tool ▫ In lieu of “probationary” periods Only 48% of working age adults are employed full time Page 42

Future Employer Hueristics – Rules. Strategies of Thumb in Deploying Auto Enrollment �Risk Exposure

Future Employer Hueristics – Rules. Strategies of Thumb in Deploying Auto Enrollment �Risk Exposure – Offer of coverage (many eligible but not currently enrolled)* - no reduction in coverage offered by large firms, 20+% reduction at small firms: �Risk Exposure: � Increase part time, common law employment – new, all time high (27+MM) www. bls. gov/news. release/pdf/empsit. pdf � Reduce hours – 450+ known examples of voluntary/involuntary reductions to < 30, including 100+ school districts http: //news. investors. com/politics-obamacare/090514 -669013 -obamacare-employer-mandate-a-list-of-cuts-to-workhours-jobs. htm � Add Incentives to Opt Out: Spousal surcharges, spousal waivers, spousal eligibility, financial opt out incentives � Redefine eligibility: Part time who are currently eligible, Spouse, Others (household members, domestic partners, etc. ) * Kaiser/HRET Annual Survey of Employer-Sponsored Insurance, 2014 Page 43

Future Employer Hueristics – Rules. Strategies of Thumb in Deploying Auto Enrollment Where continue

Future Employer Hueristics – Rules. Strategies of Thumb in Deploying Auto Enrollment Where continue to offer coverage �Private Exchange: 25 options, five levels of coverage, five TPA’s/insurers �Full Replacement: 1 or 2 HDHP/HSA options �Encourage enrollment in other available options (spouse’s, parent’s, or former employer’s plan, Medicaid, Medicare, Public Exchange, etc. ) via spousal surcharge/waiver/ineligibility, opt out financial incentives Page 44

Hueristics – Rules of Thumb Executive Summary �All employee benefit managers are also behavioral

Hueristics – Rules of Thumb Executive Summary �All employee benefit managers are also behavioral economists – even if they do not know it or deliberately ignore it. �Behavioral economics tools and applications are common in the employee benefits marketplace. �The most common biases/issues: Loss Aversion, Social Norming, Hyperbolic Discounting, Heuristics & “Choice Blindness”. �The most frequently deployed tool is “choice architecture” automatic (re-)enrollment/escalation, defaults, framing, etc. ) �Absolute Certainty in Employee Benefits: “… If you offer employees a choice of benefits, only one thing is certain, some will make the wrong choice. ” Jack Towarnicky �The Behavioral Economics practices use in employee benefits are not transferable (ERISA preemption, other statutory authority) Page 45

Learn More Reading: �Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions,

Learn More Reading: �Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions, Harper Collins, 2008. �Cass Sunstein and Richard Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness, Yale University Press, 2008. �Daniel Pink, Drive: The Surprising Truth About What Motivates Us, Canongate Books, 2011 �Barry Schwartz, The Paradox of Choice: Why More is Less, Harper. Collins, 2004. �Daniel Kahneman, Thinking Fast and Slow, Farrar, Straus and Giroux, 2011 TED/Others: �Pink: http: //www. ted. com/talks/dan_pink_on_motivation. html �Ariely: http: //www. mentalfloss. com/blogs/archives/25702 �Thaler: http: //www. youtube. com/watch? v=3 MV 8 db. Pe. Hxs&feature=fvw �Schwartz: https: //www. youtube. com/watch? v=VO 6 XEQIs. Co. M Page 46

PPACA Automatic Enrollment • We seek: ▫ Behavioral economics guidance for the DOL ▫

PPACA Automatic Enrollment • We seek: ▫ Behavioral economics guidance for the DOL ▫ Partners looking for opportunities to: �Study PPACA auto enrollment outcomes �Partner with Willis clients to improve outcomes from deploying behavioral economics tools Jack Towarnicky Employee Benefits Attorney Willis Human Capital Practice [email protected] com [email protected] com Page 47

QUESTIONS

QUESTIONS