University of Arkansas, Health Plan Discussion January

The University of Arkansas System Health Plan Covers 36,261 individuals: 17,031 employees + 19,230 spouses and dependents (UAF represents approximately 21% of the plan enrollment) Participants are dispersed across the state and nationally but primarily reside in two markets: Central Arkansas, NWA Campus membership is diverse Self insured health plan University bears the risk of the insured pool Stop-loss coverage renews annually with individual catastrophic claims figured into renewal proposals, per-claimant $1 million deductible 2

University of Arkansas System, Consolidated Plan Funding 3 Consolidated plans, all campuses, Cash, Liability Reserve and Cash-Basis Surplus/Deficit March JanuaryJuly November Cash In Bank $35,285, $17,608, $16,852,467 $23,481, Termination Reserve ($15,232,000.00) ($19,464,000.00) ($20,801,000.00) ($21,002,000.00) Surplus (Deficit) $20,053, ($1,855,070.38) ($3,948,532.54) $2,479, on Cash Basis Termination Liability Reserve is an actuarially estimated amount set aside to provide for claims incurred prior to a specific date that are expected to be paid after that date.

UA Fayetteville, Loss History July 2013 Forward 4

Catastrophic Claims Definition: claims in excess of $100,000 Also referred to as “shock claims” Primary diagnoses: ◦ Newborns and Premature Infants ◦ End Stage Renal Disease ◦ Cancers ◦ Heart Disease 5

Catastrophic Claims Counts 6

Aon Hewitt Actuarial Analysis December 2014 “Loss rate accelerated and continues to increase…” “unprecedented large claims intensity on a significantly higher number of large claim events” Rate increase of 24% based on assumption plan continues to experience high cost claims at current level 7

ACA Expenses (examples of) Transitional Reinsurance Fee For 2014 the fee was $63 per covered plan member, a cost of about $1.8 million to the plan. In 2015 the fee declined to $44 and costs the plan $1.3 million. The fee supports insurers selling plans in the marketplace (offsetting the high cost of that previously uninsured population). It is scheduled to decline each year and will be reviewed for continuation in PCORI Fee A tax to support the Patient Centered Outcomes Research Institute which is intended to develop improved care delivery and coordination processes. The fee was $2 per covered member in 2014 and $2.08 in 2015, adding $144,000 in plan expenses for 2014 and 2015 combined. Expansion of $0 Preventive Services to include Birth Control Prescriptions, Devices and Procedures Regulations require plans to cover at least one each of the available approved methods of birth control for both women and men. Initial additional costs to the plan are approximately $208,000 per year but trending upward to as much as $400,000. Accrual of all pharmacy and medical copayments toward the OOP maximum All plan-covered out of pocket prescription copayments and medical copayments accrue toward the member OOP maximum, adding approximately $2.8 million per year in plan expenses. As well as SBC expenses, additional eligibility reviews, expanded preventive immunization schedules and the upcoming 1095 reporting. 8

Plan Design Changes to Mitigate Premium Increase: (Reducing a 24% recommended increase to 19%) July 1, 2015: ◦ Increase office visit co-pays by  $10 for primary care (to $35)  $5 for specialists (to $50) ◦ Increase Rx co-pays for Tier 2 Drugs by $10 (to $50) ◦ Apply deductible and coinsurance to procedures performed in association with Office Visits (in-office surgery, labs, x-rays) ◦ Reduce Co-insurance from 80% to 70% January 1, 2016: Increase Deductible from $750 to $1250 9

Projected Value of Plan Changes Increasing coinsurance, the application of deductible and coinsurance for Office Visit procedures, increasing PCP and Specialist copayments, increasing T2 prescriptions and the related plan design changes: Projected annualized savings $5,252,000 (not fully achieved until 7/1/16) Increasing the Deducible for 1/1/16: Projected annualized savings $5,855,000 (not fully achieved until 1/1/17) While these changes are projected to save approximately $11 million plan-wide on an annual basis, Fayetteville alone had over $4 million in catastrophic claims expenses in the first six months of 2015 and has another $5.7 million in projected claims for 20 existing known catastrophic cases. 10

Plan Design Changes Relative to Others Kaiser Health Survey ◦ 81% of employer plans apply a deductible, for 2015 that average deductible is $1,318 ◦ As recently as 2006 only 55% of plans applied a deductible ◦ In 2014 for the UAS Plan ◦ The total average deductible paid per member was $ and the average coinsurance paid was $ For the same period the UMR book of business average deductible paid was $299 and the average coinsurance paid was $208. ◦ Of all UAS health plan members, less than 9% met their deductible in 2014 ($750) or the OOP Maximum. ◦ Historic premium allocations have made the University the employer of choice for dependent coverage. The plan still provides a subsidy of approximately 78% for all tiers of coverage. The health plan was an outlier in the scope of services covered under the fixed Office Visit copayment. The look-forward/look-backward timeframe assigned to “associated with” an Office Visit was a particular outlier and required special handling by the TPA (QC and UMR) and slowed claims processing. Plan design changes offset a premium increase-only approach by shifting some expenses to those who are actually using the plan. The campus-paid premium subsidy averages 78%. How much premium increase can campuses absorb? Design changes were required. All preventive services as identified in the CDC and ACIP guidelines remain at $0 out of pocket expense for plan members. 11

Example Impact of Plan Design Changes 12

Communicating Plan Performance and Changes August 5, 2014, distribution to Chancellors, update on status of plan performance, proposed changes in premiums for January 2015, with notice of further changes in 2015 as performance may require. February 12, 2015, President’s meeting with Chancellors, detailed Health Plan Update with specific plan performance and plan design recommendations for July 2015 and January In the following week the complete presentation document was ed to the Chancellors. July 9, 2015, distribution to Chancellors, status of plan in 2015 to-date, proposed plan changes for January 2016 August 18, 2015, distribution to Chancellors, UA Benefits document as presented to the Board on August 5, 2015 addressing status of health plan and other benefits programs and planned changes. 13

Recent History of Premium Increases July 2010: No increase Employee Only; 5% increase in family rate July 2011: No increase July 2012: No increase UAF and UAMS; 10% increase all other campuses July 2013: No increase July 2014: No increase January, 2015: 3% Rate Increase UAF & UAMS July, 2015: 19% UAF and UAMS, 12% all other campuses (based upon the dispersion of claims, loss histories and prior rate increases, all campuses are now at the same total premium rate (within $5 or less )) 14

Sampling of Health Premiums, Other Universities Employee Employer PaidPercentPaidPercent University ofEmployee Only % % OklahomaEmployee Spouse % % Employee Children % % Family % % University ofEmployee Only % % TennesseeEmployee Spouse % % Employee Children % % Family % % University ofEmployee Only % % GeorgiaEmployee Spouse % % Employee Children % % Family % % LSUEmployee Only % % Employee Spouse % % Employee Children % % Family % % University ofEmployee Only % % MissouriEmployee Spouse % % Employee Children % % Family % % University of Texas - 100% employee only coverage, up to 50% subsidy of premium on dependent coverage University of Mississippi - 100% employee only coverage, no subsidy for dependent coverage 15

The Future?  Dependent Audit- will begin January 2016  Documentation of New Participant Eligibility – will begin in coordination with Audit  Working Spouse Exclusion – will begin January 2017 Annual Premium Increases? Mandated Ceiling on Dependent Subsidy? High-Deductible Plan Option with a Partially Funded Health Spending Account? Premium or Deductible-based Wellness Incentive? Tobacco Use Surcharge? 18