Employer Risk Management with Financial Efficacy All Kersh Wellness materials are privileged and confidential and cannot be distributed without consent of Kersh Wellness

Current Healthcare Economics

National Health Expenditures ($ in billions; figures for 2003 and beyond are projections) Source: CMS: cms.gov/statistics/nhe

National Health Expenditures per Capita (Figures for 2003 and beyond are projections) Source: CMS: cms.gov/statistics/nhe

Constellation of Financial vulnerabilities surrounding the typical employer. Legend 75th percentile Median 25th percentile Participant Total dollars per employee Workers’ Compensation Group Health Unscheduled Absence $1,550 $237 Non-Occupational Disability $955 $62 Workers’ Compensation $1,805 $201 Unscheduled Absence $6,752 $3,179 Group Health $3,698 $951 Turnover Non-Occupational Disability Turnover

Insurance Negotiation & Procurement Navigating the Typical Employers Healthcare Delivery: Highlighting Potential Loss Interactions Plan Design Benefits Broker Legal Compliance PHARMCO Physician’s Network Network Hospital Insurance Negotiation & Procurement Case Management Pre-Certification Insurer Health Fully Disability Employer TPA or ASO Re-Insurance Self Claims Ajudication Pay vs non-pay Wellness Provider Network Hospital Physician Network Employee TPA Re-Insurance LTD/STD

Insurance Negotiation & Procurement Navigating the Typical Employers Healthcare Delivery: Highlighting Potential Loss Interactions Benefits Broker Plan Design Legal Compliance Insurance Negotiation & Procurement Physician Network PHARMCO Disability TPA or ASO Pre-Certification Health Re-Insurance Case Management Network Hospital Physician’s Network LTD/STD TPA Fully Self Insurer Benefits Broker PHARMCO Physician’s Network Network Hospital Plan design acceptance Employee/Employer morale Case Management Pre-Certification What drug Compliance? Generic? Where? Communication? Risk Defined Participation vs non-participation Intervention compliance Perceived incentive Participant satisfaction Who to choose? How to communicate? When to go? Employer Communication? Compliance? What procedure? In Network or out? Claims Ajudication Pay vs non-pay Wellness Provider Wellness Provider Employee Employee

Most Successful Methods for Controlling Benefits Costs by Number of Employees 1 to 99 100 to 500 500 2007 Overall 2006 Overall Increased copays/deductibles/lifetime limits 47% 59% 55% 56% 56.3% Increased premium cost sharing by employees 32 53 66 54 59 Started a wellness program 21 41 38 37 36 Added/Enhances employee health education programs 16 24 30 18 Changed to a 2-, 3-, 4-, or more-tier prescription drug program 26 19 23 27 Added/Enhanced employee health education programs 5 33 Adopted a mail order prescription drug program 11 29 20 20.3 Set up flexible spending accounts 17 Automated benefits functions (Intranet, Web-based benefits administration) 9 Self-insured one or more benefit programs (i.e. health, dental, workers’ comp) Introduced a consumer driven health plan 14 12 Changed type of health plan offered N/A *IOMA – February 2008

Most Successful Methods for Controlling Benefits Costs by Industry Fin. Services Health Care Manu-fact. Non-Profit Other Services Tech-nology Transp./ Utilit/ Comm Whole-sale/ Retail Increased copays/deductibles/lifetime limits 31% 57% 80% 48% 50% 100% 86% Increased premium cost sharing by employees 54 71 64 70 48 33 50 75 57 Started a wellness program 46 29 43 60 28 - 25 Added/Enhances employee health education programs 38 7 10 34 8 14 Changed to a 2-, 3-, 4-, or more-tier prescription drug program 15 21 30 Added/Enhanced employee health education programs 23 24 Adopted a mail order prescription drug program 20 17 Set up flexible spending accounts Automated benefits functions (Intranet, Web-based benefits administration) Self-insured one or more benefit programs (i.e. health, dental, workers’ comp) Introduced a consumer driven health plan Changed type of health plan offered *IOMA – February 2008

Costs vs. Strategy XYZ Corporation

Employers Offering Wellness and Disease Management Programs Who is Offering Wellness Programs? Employers Offering Wellness and Disease Management Programs

Industry Players

What Defines a Successful Program? (in order of importance) Program participation Participant satisfaction Improvement in clinical metrics Return on investment Reduced costs for absenteeism, disability, and workers compensation

Critical Success Factors Communication of program goals and components 64% * Incentives for participation 59% Management support 55% * Strong internal champion 52% * Strong partnership with vendor, vendor satisfaction with services screenings 48% * Leadership role of supervisors and co-workers 32% * ROI data 29% Other 5% * Education & communications

How do we find the risk?

What do we understand about risk factor accounting?

There is a direct relationship between the number of risk factors an individual has and their propensity to be a low, medium or high spender of the health care system. 0 – 1 risk factors = low risk 2 – 4 risk factors = medium risk 5 or more risk factors = high-risk Source: University of Michigan Health Management Research Center

Master List of Risk Factors Current tobacco use Reported use of medications Sedentary lifestyle Rate Health as poor or fair Absent 5 days or greater in the past year Blood pressure 130/85 or greater Cholesterol 220 or greater Greater than 20% over ideal body weight Report high stress on the health risk appraisal Glucose 110 or greater HDL less than 40 mg/dl LDL greater than 100 Triglycerides 150 or greater Family history of heart disease Family history of diabetes High fat intake Current Diabetes Alcohol use

Learning’s With Regards to Risk Factor Accounting Wellness program opportunities are in preventive services, low- and high-risk interventions, and disease management High-risk persons are high cost Low-risk maintenance Is an important program strategy Absenteeism shows the same relationship as medical costs Changes in costs follow changes in risks 1990 1991 1992 1993 1994 1995 1996 1997 1998 Excess costs are related to excess risk. Risk combinations are the most dangerous Wellness scores are highly correlated with medical costs Source: D. Edington, Worksite Wellness: 20 Year Cost Benefit Analysis Report: 1979 to 1998

Additional validation of risk factor accounting and predictive power with regards to absenteeism, medical costs, productivity, short-term and long-term disability. (Remember excess risks equate to excess costs)

Excess Medical Cost Due to Excess Risks $5,520 $3,460 $3.039 $2,199 Source: University of Michigan Health Management Research Center

Excess Disability Cost Due to Excess Risks $1,248 $783 $666 $491 Source: University of Michigan Health Management Research Center

Excess On-The-Job Loss Due to Excess Risks Source: University of Michigan Health Management Research Center

Change in Costs Follow Change in Risk Cost Increased Cost Reduced 3 2 1 1 2 3 Risk Reduced Risk Increased Cost per risk reduced Cost per risk avoided Overall $215 $304 Actives $231 $320 Retirees < 65 $192 $621 Retirees > 65 $214 $264 Source: University of Michigan Health Management Research Center

Case Studies with Regards to Wellness Financial Efficacy

Mean Amount Paid by Participant Company I Mean Amount Paid by Participant In Wellness versus Employee Non-Participant in Wellness Versus Dependent 1997-2003 n= 13,139 n= 9,580 n= 5,115 Total savings across years = $4,595,907

Mean Amount Paid by Participant Company II Mean Amount Paid by Participant In Wellness versus Employee Non-Participant in Wellness Versus Dependent 2001-2003 n= 315 n= 1,344 n= 796 Total savings across years = $1,080,858

Mean Amount Paid by Participant Company III Mean Amount Paid by Participant In Wellness versus Employee Non-Participant in Wellness Versus Dependent 1999-2002 n= 1,517 n= 309 Total savings across years = $474,735

Validity of Savings Accounting for Variance Mean Amount Paid by Class Status and Gender For Years 1997 - 2003 Participation in Wellness/Non Participation in Wellness Relative Proportion of Individuals for Each Class Status within Risk Level For Years 1997 - 2003

Shift in Level of Risk 2000 - 2003 Low Medium High

Data Mining Determines Wellness Template

Total and Mean Amount Paid by Year Sum Mean 2006 2,708 13,451,831 $4,967

Chronic Illness (without complications) Spending Distribution and Risk Management Opportunity Greater than 50% - $9,375,387 30% - $2,242,044 5% 53% Employee 47% Spouse/Dep 21% 0 – 4 Risk Factors 45% Chronic Illness (without complications) 29% Clinical Behaviors Smoking Blood Pressure Elevated Cholesterol Sedentary Lifestyle Obesity 20% - $1,834,400 Risk Management Opportunity Sectors

Relational Database Biometrics HRA Data Employee KAM Counseling Height Weight BP Chol Trig Employee Employee Name DOB Address ID # Work Loc … HRA Data Exercise Nutrition Smoke Family History KAM Counseling KAM Activity Date KAM Points Counseling Date Goals Goal Met Notes KAM Model SN KAM Activity

Kersh Relational Database

Interventions Absence Manager Counselors KAM HRA and Biometrics Health Station

Analyze Data and Risk Stratify Population The Process Capture HRA Data Biometric Data Utilization Data Analyze Data and Risk Stratify Population Outcomes are reported to the employer by reporting an ROI associated with TLC interventions and the financial saves that were associated with early preventative screening. Drive population to appropriate TLC (therapeutic lifestyle change) interventions and drive the population to gender/age specific preventative screenings (compliance enhanced by employer incentive plan)