Perspective Growth in employers’ health care costs will continue to outpace the Consumer Price Index Increases erode company profit margins and crowd out wage increases Affordability and access a growing concern Employers’ total health care costs have increased by 29% and employees’ by 40% over the past five years Companies struggling with balancing “culture and beliefs” with health care benefit costs Source: Towers Perrin 2009 Health Care Cost Survey

Growth in employers’ health care costs will continue to outpace the Consumer Price Index

Increases erode company profit margins and crowd out wage increases

Affordability and access a growing concern

Employers’ total health care costs have increased by 29% and employees’ by 40% over the past five years

Companies struggling with balancing “culture and beliefs” with health care benefit costs

Labor Cost and Managing Trend Below table compares 3 years of employer and employee cost metrics to benchmark: Source: 2008 Mercer Manufacturers (500+ Employees) and Small Employers (<500)

Below table compares 3 years of employer and employee cost metrics to benchmark:

High Performers Recognize link between health of workforce and business results Engage employees, promote culture of health Invest in wellness and disease management Design and price plans to create incentives (i.e., CDHP more common) Measure programs and vendor performance against results Senior management involvement

Recognize link between health of workforce and business results

Engage employees, promote culture of health

Invest in wellness and disease management

Design and price plans to create incentives (i.e., CDHP more common)

Measure programs and vendor performance against results

Senior management involvement

High Performers: Focus on Engagement

TrendBenders ™ average cost decreased (1%) over last two years Overall costs are less for TrendBenders ™ PPO plan costs approximately 9% less HMO plan costs approximately 15% less CDHP costs approximately 4% less No TrendBenders ™ offer employees a “free” plan TrendBenders ™ have lower contributions in dollars, similar percents TrendBenders’ ™ median PPO plan design is 80% in network/60% out of network Where TrendBenders ™ Differ

TrendBenders ™ average cost decreased (1%) over last two years

Overall costs are less for TrendBenders ™

PPO plan costs approximately 9% less

HMO plan costs approximately 15% less

CDHP costs approximately 4% less

No TrendBenders ™ offer employees a “free” plan

TrendBenders ™ have lower contributions in dollars, similar percents

TrendBenders’ ™ median PPO plan design is 80% in network/60% out of network

TrendBenders ™ more committed to CDHP: Tend to use HSAs (83%) More frequently fund a portion of the HSA (58%) More employees (28%) enroll in the CDHP when it is offered in a choice environment Wellness continues to be an area TrendBender ™ organizations invest in and have success with: 69% offer Health Risk Assessments 55% do biometric screenings TrendBenders ™ have higher average spousal surcharges - $134 per month and tend to characterize the cost savings of spousal limitations as significant (46%) Where TrendBenders ™ Differ

TrendBenders ™ more committed to CDHP:

Tend to use HSAs (83%)

More frequently fund a portion of the HSA (58%)

More employees (28%) enroll in the CDHP when it is offered in a choice environment

Wellness continues to be an area TrendBender ™ organizations invest in and have success with:

69% offer Health Risk Assessments

55% do biometric screenings

TrendBenders ™ have higher average spousal surcharges - $134 per month and tend to characterize the cost savings of spousal limitations as significant (46%)

What Drives Up Cost? Medical cost inflation or change in the unit price Utilization changes: Increase in number of services influenced by: Demographics Health status Advertising Advances in technology/treatment Prevalence of insurance Leveraging Changes in administrative costs

Medical cost inflation or change in the unit price

Utilization changes:

Increase in number of services influenced by:

Demographics

Health status

Advertising

Advances in technology/treatment

Prevalence of insurance

Leveraging

Changes in administrative costs

Underlying Components of Benefit Plan Costs (Price x Quantity) + Insurance+ Administration = Benefit Cost Price and Mix of Health Care Services including inpatient and outpatient facility costs, physician, lab and Rx All Fixed Fees to cover the cost of Administering the plan, including claims processing, id cards, and customer service. Also Includes INTERNAL costs for compliance and benefit administration. Quantity of Services Used By Enrolled Population Claims/Variable Costs Usually Account for 75-90% of Total Fixed Costs Usually Account for 10-25% of Total All Fixed Fees to cover the cost of insuring the plan against large losses, includes pooling charges and margin

Cost Management Opportunities Quantifiable Savings Timing of Return on Investment Now Later Intuitive Predictable Quick and Verifiable Options Systematic Structural Approaches Strategic Involvement Opportunities

Eligibility strategies Spousal limitations Dependent audits New hire strategies Part-time benefits Plan management Health plan strategy Vendor management Plan changes Plan design Contribution changes Quick and Verifiable Options

Eligibility strategies

Spousal limitations

Dependent audits

New hire strategies

Part-time benefits

Plan management

Health plan strategy

Vendor management

Plan changes

Plan design

Contribution changes

Does Your Strategy Still Make Sense? Should you maintain all your plan options? More plans, more administrative work, more adverse selection Consider dropping the richest plan Use contribution strategies to drive enrollment to the most cost-effective plans Does it make sense to continue offering an opt-out bonus? Plan Design Changes (split copays, imaging copays, ER copays)

Should you maintain all your plan options?

More plans, more administrative work, more adverse selection

Consider dropping the richest plan

Use contribution strategies to drive enrollment to the most cost-effective plans

Does it make sense to continue offering an opt-out bonus?

Plan Design Changes (split copays, imaging copays, ER copays)

Monthly Contributions in $ and % $0 $100 $92 Amount in Dollars National 2008 2008 MW Survey $98 $322 $273 $69 2009 MW Survey $200 $300 National Source: Mercer, 2008 Single PPO Family PPO Single HMO Family HMO $92 $212 $68 $213 $289 $98 $351 23% 24% 24% Contribution as a Percent of Premium in Red 30% 25% 26% 22% 20% 20% 33% 24% 23% Employers are looking at increasing contributions : Savings associated with contribution increases are immediate Model contribution strategies in a choice environment

Employers are looking at increasing contributions :

Savings associated with contribution increases are immediate

Model contribution strategies in a choice environment

Plan Design - What is it Worth? Projected Medical/Rx Costs Current Plan Design Single 122 Couple 130 Family 53 Monthly Cost Annual Expected Cost 2009 Plan Costs: $234,770 $2,817,238 Summary of 2009 Potential Alternatives: Estimated Difference from Annual 2009 Medical/Rx Gross Costs: Medical Plan Design Alternatives Plan Options 1 Increase Office Visit from $10 to $15 ($35,309) -1.3% 2 Increase Office Visit from $10 to $20 ($69,725) -2.5% 3 Increase Emergency Room Copay from $50 to $75 ($19,219) -0.7% 4 Increase Emergency Room Copay from $50 to $100 ($34,862) -1.2% 5 Implement $100/$200 Deductible to Services Covered @ 100% ($46,036) -1.6% 6 Implement 90% coinsurance with $500/$1,000 out of pocket max. ($96,095) -3.4% 7 Increase Rx copays from $5/$15 to $10/$20/$40 ($36,696) -1.3% 8 Increase Rx copays from $5/$15 to $10/$30/$50 ($45,608) -1.6%

Health Management: A Key Focus Source: Towers Perrin 2009 Health Care Cost Survey

Concluding Thoughts Are you using a combination of short term and long term cost management opportunities? Can you leverage lessons learned from high performing organizations? What is your employer role in offering benefits and how do you envision that role in the future? What changes are you making today to move toward your future role? You can do it – You Can Bend the Trend!

Are you using a combination of short term and long term cost management opportunities?

Can you leverage lessons learned from high performing organizations?

What is your employer role in offering benefits and how do you envision that role in the future?

What changes are you making today to move toward your future role?

You can do it – You Can Bend the Trend!