Presentation from the 2015 Private Health Insurance Exchange Conference

1. Determining Which Private Exchange is Best for
Your Organization: A Case Study
October 2015
The Conference Board
The 2015 Private Health Insurance
Exchanges Conference

2. Introductions
October 15, 20152The 2015 Private Health Insurance Exchanges Conference
Don Biron
Director, Benefits Consulting - ISG
Kari Heerdt
Chief People Officer, MSC Industrial Supply Company

3. Discussion Overview
• About MSC
• Current Benefits Structure
• The need for change and options explored
• Goals established
• Running the search process
• Outcomes
• Lessons learned
3The 2015 Private Health Insurance Exchanges Conference

4. STRONG CONSISTENT GROWTH
About MSC
As we grow, we continue to invest in
our business to deliver innovative
solutions and offer expertise that enables
customers to drive productivity,
efficiency and savings.
BY THE NUMBERS
1941 Year
founded
$2.8B In fiscal
2014 revenue
1,000,000+ Industrial
products
99% In-stock
availability
99.9%
Next-day delivery
on qualified
orders
#41
Global 500
eCommerce
Engine
12 Fulfillment
centers
6,600+ Trained
associates
MSC is one of
the largest value-
add distributors
of MRO products
and solutions.
We help
customers get
their products to
market faster with
our expertise and
quick delivery of
more than 1
million items.
10/19/20154

5. Current Benefits State
• Offer associates 3 health plan options (all equate to gold)
− 69% enrolled in the “Platinum” Plan
• Independence BCBS is carrier in all U.S. markets
− Provider network and discounts
− Claims administration
• Mercer- benefit consultant and actuary
• All benefits administration is managed by MSC manually
− Associate inquiries and support
− Data management (HRIS integration, payroll reporting, dependents, survivors, beneficiaries)
− Assigning, reconciling and distributing PeopleSoft profiles
− Enrollment (annual, new hire) and life events, dependent verification
− Plan information (SPDs)
− 5500 preparation, testing & compliance
− COBRA administration is partially outsourced
− Spending account administration
5The 2015 Private Health Insurance Exchanges Conference

6. MSC Historical Medical Expense
• Total gross medical claim cost per
participant is $11,500
− CAGR (FY07-FY15) is 3.9%
− Significant variation year-over-
year with increases ranging
from -3.9% to 14.2%
October 15, 20156The 2015 Private Health Insurance Exchanges Conference
Adjusted plan design and associate contributions to address continuous
increases in healthcare costs.
2007 2008 2009 2010 2011 2012 2013 2014 2015
MSC HW Cost Per Participant v. Total
Cost Change

7. Four Reasons To Make A Change
• Administrative Burden
− Need benefits administration system to reduce manual/paper administration
− Few tools for associates (web, service center)
− Current system limits plan design options
− Not able to scale for future growth
• MSC plans are very narrow and offer very limited choice
− Options are not competitive, all MSC plans have actuarial value between 84-88%, most
companies have offer plans ranging from 65-90%
− E.g. No high-deductible plan with HSA or mid-level PPO
− One provider (Independence/BCBS) may not be the best carrier in all markets
• Limited ability to manage healthcare cost
− Consumerism
− Wellness, disease management
− Analytics and reporting
− Defined contribution (optional)
• ACA – excise tax for Cadillac plans in 2018
− 40% excise tax on benefits above designated cost levels
− MSC plans at risk for Cadillac threshold at several tiers
7The 2015 Private Health Insurance Exchanges Conference

8. Options
Build It
Ourselves
Pros:
• Ability to control plan design
and maintain status quo
• Ability to control
administration
• Allows for gradual change
Cons:
• Resource constraints, costly
• Not a core competence of
MSC
• Distracts from more strategic
priorities
• Takes time to build, can’t
build for 2016
| 19-Oct-158| Confidential | Exchange Overview.pptx
Traditional
Outsource Model
Pros:
• Proven model
• Ability to control design and
maintain status quo
• Removes administration
burden
Cons:
• Does not remove plan
design burden
• Al a carte approach will
likely cost more than
exchange
• Significant challenge to
implement for 2016
Private
Exchange
Pros:
• Plan design and
administration burden
removed
• Bundled approach provides
more options/services for
amount spent
• Fully available for 2016
Cons:
• New model, only available
since 2013 and relatively
few clients
• Standardized plan design,
limited choice
• Significant change
Private Exchange Is Lowest Cost Option And Only Option Available for 2016

9. Private Exchange Market
| 19-Oct-159| Confidential | [Insert>Header and
Footer>Name of Presentation]
Exchange Owner Launch Date Clients/
Members
Corporate Exchange Aon Hewitt 2013 18/ 600,000
(note: 33/ 850,000 for 2015)
Right Opt Buck/Xerox 2014 3/ 225,000
Mercer Marketplace Marsh 2014 27/ 115,000
One Exchange Towers Watson 2014 3/ 45,000
Bright Choices Liazon/ Towers 2007 500/ 100,000
Bloom HCSC, Anthem,
BCBSM, private
2009 240/ 90,000
Benefit Focus Benefit Focus 2001 280, 30+/ 20m
bSwift bSwift 2000 200, states/ 3m
Aetna, Cigna, UHC Aetna, Cigna, UHC Mid-2014
Source: Private Exchange Evaluation Collaborative, May 14, 2014
Note: While private healthcare exchanges are a relatively new concept (began in 2012-2013 in response to the development of
public exchanges), exchanges have been in place in the retiree space for over a decade. Plus, all of the top 4 players have been
leaders the benefit administration/outsourcing market for many years in addition to operating retiree exchanges.

10. MSC’s 2016 Benefit Objectives
1. Provide quality and affordable benefit plan designs to meet the needs of
associates and their families in order to:
− Attract and retain talented associates
− Provide flexibility and choice, at multiple price points
− Better tools and resources for informed decision making
− Be competitive
2. Outsource benefits administration including online enrollment, plan design
and service center support
3. Have a scalable benefits platform that allows for growth in the Associate
population
4. Manage MSC’s healthcare costs over the long term
October 15, 201510The 2015 Private Health Insurance Exchanges Conference

11. Why Choose to Work with an Advisor
The 2015 Private Health Insurance Exchanges Conference 11 October 15, 2015
• Process
• Experience with providers
• Analysis expertise
• Allowed internal team to focus on getting their questions answered,
listening and understanding v. running the process.
• Why ISG
− Demonstrated benefits experience
− Great set of tools, templates and process
− ISG helped get to an apples to apples comparison
− Really helped normalize offerings, pricing, SLAs and terms and helped sort
through the very different offerings of each provider
− Helped us to understand the financial impact of the different approaches

12. Our Experience with The Process
The 2015 Private Health Insurance Exchanges Conference 12 October 15, 2015
• November 2014 - internal HR team formed to review benefit
administration providers
• January - Engaged ISG to consult on RFP process
• February - RFP released to:
− Xerox – RightOpt
− Mercer – Mercer Marketplace
− Aon Hewitt – Aon Active Health Exchange
• March - Providers submitted proposals
• March – Site visits
• March — Financial presentations and re-bid
• April – Aon Hewitt and Xerox/Buck selected as finalists
• May – Finalized selection of Aon Hewitt

13. Service Provider Considerations
Evaluation Criteria
Implementation and
Conversion
Company Profile
Account
Relationship
Management
The MSC team
evaluated all
providers based
on site visits,
financial reviews,
proposals and
scored based on
this evaluation
criteria.
Aon Hewitt and
Xerox were the
leaders
- however -
scores were
very close in
almost every
category.
Systems,
Technology,
Infrastructure
H&W
Administration
Participant
Servicing
Contract Terms
[Subjective only;
not scored]
Fees
[Subjective only,
not scored]
Service Levels
[Subjective only,
not scored]
Health Care Platform
The 2015 Private Health Insurance Exchanges Conference • 1
3
October 15, 201513

14. Enhancements to Services
Included in cost analysis are added services and enhancements to delivery:
• State of the art Health &Welfare
administration platform
− Flexibility to handle change:
acquisitions, plan design, increased
growth
− Extremely well designed associate
engagement portal
− Robust tools for plan and carrier
selection
• Ability to integrate associate wellness
programs
• Fully trained, staffed and supported
associate call center
• Strong data management and interface
processes
• Outsourced additional functions:
− MCSO qualification and management
− Communications Support
− FSA /HSA/HRA Administration
− Ongoing Dependent Verification
− Carrier Premium Payment
− Retirement and Survivor Counseling
− Signature-Ready 5500s
− Public Exchange Support
− Safe Harbor Hours Tracking Tool
− Section 6055/6056 Employer Reporting
− Reporting and calculation/payment of:
• PCORI fees
• Transitional reinsurance fees
• Excise tax on "Cadillac" plans
The 2015 Private Health Insurance Exchanges Conference
14
October 15, 2015

15. Save both the company and associates money… AND keep them healthier!
Looking Ahead
• 2016 – Introduce New Benefits Platform
 Manage change
 Help associates understand choices and how to utilize the new resources (web, service
center, advocates, etc.)
• 2017 – Start to Influence
 Communications and portal based engagement
 Educate on consumerism and how to best use benefits
 Add initial wellness programs: smoking cessation, lose weight, exercise, etc.
• 2018 – Further Influence
 Initiate more robust wellness programs – biometrics screenings, “carrot or stick”
incentives
 Ramp up disease management programs: diabetes, heart disease, stress
 Incent move to HDHP - seed an HSA
• 2019 and beyond – Platform for Change and Future Growth
The 2015 Private Health Insurance Exchanges
Conference 15 October 15, 2015

16. Allow enough time to do the analysis and work through the decision!
Lessons Learned
• Define up front:
 Acceptable plan designs
 Contribution strategy and levels
 Wide set of carriers or narrower
• Meet the providers early in process
 Mutual discovery sessions
• Utilize independent consultants
 Benefits administration sourcing specialist with broad HW administration experience
 Actuary
• Actuarially equivalent ≠ same plan design
• Engage Legal early as there are a lot of contracts
The 2015 Private Health Insurance Exchanges
Conference 16 October 15, 2015

17. Thank You
The 2015 Private Health Insurance Exchanges
Conference 17 October 15, 2015