Mid-Market Employer Perspective Elaine Coffman McGraw Wentworth

Health Care Perspective: Mid-Market Employers What Mid-Market Employers have in Common: Health care costs driven primarily by claim experience Available health care solutions driven by carrier products /networks Complex compliance environment, communication challenges Annual evaluation of appropriate solutions to manage costs Where Mid-Market Employers are Unique: Culture (paternalistic, union presence) Financial situation Fit of available market products/solutions (geographic, technology, wellness) Annual health care budget challenges

Labor Cost of Health Care Average Annual Health Insurance Premiums and Worker Contributions for Family Coverage, 1999-2009 $13,375 131% Premium Increases $5,791 128% Worker Contribution Increase Note: The average worker contribution and the average employer contribution may not add to the average total premium due to rounding. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2009

Labor Cost Advantage: Difficult in Global Environment Trendline of countries’ expected spending according to wealth, 2006 United States United States is far above the expected level, even after adjusting for relative wealth Switzerland Austria Canada Health care spending per capita, USD France Iceland Germany Denmark Portugal Spain Finland South Korea Poland Czech Republic 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 GDP per capita, USD Source: McKinsey & Co.

Short-Term Opportunities to Improve Quality and Lower Costs Leverage new product innovations offered by carriers Consumerism & Wellness products, pharmacy initiatives Need replacement for “PPO” Focus on Employer-Based Wellness Increasing “High level vitality” workforce improves productivity & lowers costs Employer is only stakeholder with both incentive AND access to employee to fundamentally change lifestyle Hiring practice changes “Stick” approach to health habits emerging “Culture of Health”

Long-Term Opportunities to Improve Quality and Lower Costs Will I maintain my group coverage? Employers will consider both cost & quality in decision making Impact of Mandate Testing and other Penalties Shift into Exchange environment Will allow certain employers to lower costs and improve quality by taking advantage of government subsidies in the individual market Lower cost to employer and employee Higher benefit level than employer coverage Dynamics of Exchange should drive more people into higher quality/lower cost delivery systems

Exchange Subsidies (2014): What are they? Premium assistance based on Federal Poverty Level (FPL) Those earning under 133% of FPL generally eligible for Medicaid Premium assistance to those from 133% to 400% of FPL Cap on individual premium cost for 2nd-Lowest Cost Silver Plan 70% Plan - MW benchmark plan is 74% value, so similar to current medians Likely to drive enrollment into different plans than group market Combined with price sensitive buyers and subsidies based on 2nd lowest cost plans, likely to drive market share to new types of plans than today Potential for new products to be much less than employer market (Innovation in provider reimbursement methodology/Regional focus) In addition, those with lower incomes get better benefits (Cost Sharing) 100-150% of FPL 70% value raised to 94% 150-200% of FPL 70% value raised to 87% 200-250% of FPL 70% value raised to 73% 7

Exchange Subsidies (2014): Premium Subsidies CAP Monthly Cost of Health Care for Most Americans People in Household: 1 2 3 4 % of FPL Income Threshold for Premium Subsidy 133% $14,404 $19,378 $24,352 $29,327 150% $16,245 $21,855 $27,465 $33,075 200% $21,660 $29,140 $36,620 $44,100 250% $27,075 $36,425 $45,775 $55,125 300% $32,490 $43,710 $54,930 $66,150 350% $37,905 $50,995 $64,085 $77,175 400% $43,320 $58,280 $73,240 $88,200 Maximum Monthly Premium in Exchange for 2nd Lowest Cost Silver Plan 133% $36 $48 $61 $73 150% $54 $92 $110 200% $114 $153 $192 $232 250% $182 $244 $307 $370 300% $257 $346 $435 $524 350% $300 $404 $507 $611 400% $343 $461 $580 $698 Premium Cap as % of Income 3% 4% 6.30% 8.05% 9.50% Cost Sharing/ Better Benefits Value Plan 70% Cost in range of employer contributions and much less than actual premiums

Exchange Subsidies (2014): Number of Michigan Households Eligible for Assistance 63% of Michigan households would qualify for assistance based on 2007-08 income data (more today?) Many employers have high concentrations of lower income workers who would receive better benefits at subsidized cost Dropping coverage may lower overall labor costs for SE MI Employers by moving indivduals into Exchange market 22% 41% 37% Source: Center for Healthcare Research & Transformation (CHRT) Eligible for Medicaid Eligible for Premium Subsidies

Dynamic New Environment: Potential Threats and Opportunities Public Pay Private Pay Medicare ½ of reform funded by reductions in Medicare (efficiency, reimbursement changes) Patients Carriers Launch of Exchanges Premium Subsidies (Public $) Mandates Guarantee Issue Individual Market Patients Carriers Providers Hospitals/Physicians Enrollment Medicaid 46% increase to enrollment (CBO) Benefit coverage close to 100% Shift in use of services/provider mix, and level of demand Patients Carriers Employer Market Launch of Exchanges Mandates Cadillac Tax IMPACT OF PATIENT SHIFT?? Carriers Patients

Collective Bargaining Employers will “Grind it Out” to find ways of Improving Quality and Lowering Costs = ? HR Issues Other Intangibles Collective Bargaining Exchange Coverage Intangibles Data Assumptions Exchange Vendors Exchange Subsidies Exchange Price Exchange Plans Exchange Networks “Second Low” Silver Employee Age Household Income Enrollment Choices Current Benefits Current ER Premiums Current EE Premium Enrollment Shift Risk Shift Other Assumption 11