Consumer-Directed Health Plans BlueAdvantage ® A Presentation to the Delaware Health Care Commission Tim Constantine March 3, 2005 Blue Cross Blue Shield of Delaware and CareFirst, Inc., are independent licensees of the Blue Cross and Blue Shield Association, an association of independent Blue Cross and Blue Shield Plans.

Background Health care costs are projected to increase 14% annually Employers will absorb 9% and pass the rest on Employee contributions will triple unless affirmative steps are taken to curb these increases Employers are confronted by a weakened economy and significant health care cost increases Intense competition in many industries makes it difficult to pass cost increases along to customers As a result, a greater portion of premium costs are being shifted to employees

Background Health plans have been increasing premiums in response to rising health care costs. Annual health insurance premium increases are dramatically outpacing earnings growth for the average U.S. worker. These expenses are expected to nearly double by % 16% 14% 12% 10% 8% 6% 4% 2% 0% Health Insurance Premiums Overall Inflation Worker’s Earnings Increases in Premiums vs. Other Indicators Source: The Wall Street Journal, June 21, 2004, Kaiser/HRET Survey of Employer Sponsored Health Benefits

Potential Solution - CDHPs Employee AdvantagesEmployer Advantages  Empowers employees with more control over health spending and health decisions  Preventive coverage  Easy access to health care decision tools  Possible roll-over of unspent funds  Ongoing education helps promote appropriate use of consumer-directed health funds  Friendlier way of cost shifting  Provides a mechanism for more prudent purchasing decisions by employees  Helps to stabilize medical spending  Higher employee satisfaction with self-service features  Continued education helps keep employees involved, informed and motivated

Primary driver behind consumer-directed health plans (CDHP) is the premium savings, through plan design change, which is shared with employees - in part or in full. Example Example:ABC Corp. – 260 Employees (HSA) Current Plan Annual Premium$1,819,980 Proposed High Ded. Plan Premium$1,301,784 (HSA 100/80 PPO, $1,000/$2,000 Ded.) Savings through Plan Design Change Alone$ 518,196 HSA Funding by ABC Corp (50% of Ded.) - Individual (188 employees x $500)$ 94,000 - Family or 2-party (72 employees x $1,000)$ 72,000 Total HSA Funding$ 166,000 ABC Corp’s Savings after HSA funds have been fully distributed ($477,384 - $166,000) $ 352,196 CDHPs

Health Insurance Coverage Health Care Accounts Health Care Accounts * Online Tools and Resources *HSA: Health Savings Account *HRA: Health Reimbursement Arrangement Components of CDHPs

BlueAdvantage ® CDHP BlueAdvantage ® Plans: Based on popular PPO, EPO and prescription drug plans Offered with either a health savings account (HSA) or a health reimbursement account (HRA) option Freedom to choose in-network doctors without a referral Product designs include preventive health benefits such as: – Routine physicals – GYN exams – Mammograms – Well-child care – Vision and hearing exams ®Registered mark of the Blue Cross and Blue Shield Association

BlueAdvantage ® Large, national network of providers through BlueCard ® – 6,100 hospitals – 600,000 providers – Out-of-country coverage in 200 countries Options Discount Program – Discounts on health-related products and services such as: Acupuncture Chiropractic care Fitness centers Laser vision correction

HSA - How Does it Work? HSA Plan Design (Example: $1,000 deductible PPO plan) Can be funded by employer, employee or both * Employees contribute monies into a tax- sheltered savings account, using payroll deduction Employees can pay the provider using a debit card and receive the Blue discounts (after receiving provider’s bill; Rx paid at time of service) or save HSA funds for future use Once the deductible is met, claims are processed through the health plan Unused HSA balances are rolled over from year to year Preventive Coverage - 100% Content, Tools & Care Management Services PPOInsurance $1,000 Health Savings Account * (Tax Sheltered) High Deductible Health Plan $1,000 Deductible

HSA Basics Health care account is solely-owned by the employee Unused balances roll over to following years Accounts are portable – always belong to the member Tax shelter for qualified medical expenses Contributions are tax-free, growth is tax-deferred and qualified distributions are tax-free Needs to conform to IRS guidelines for a “qualified high deductible health plan” Cannot generally be combined with a flexible spending account (FSA) Instills employee accountability Plan design governed by IRS guidelines and regulations

Employer Control Once money is given to plan participants, the employer loses control over their contribution Employer can make contributions into members’ HSA accounts in any number of installments (e.g., monthly, quarterly, annually) Employee Accountability and Control Employees maintain control of their HSA funds from day one Employees become more educated due to the nature of HSA concepts and spending accountability Plan Flexibility Deductibles, coinsurance and contribution parameters are set and monitored by the IRS on an annual basis Cannot generally be combined with a FSA Our BlueAdvantage ® HSA

No application or setup fees Low monthly administration fees – free for first three months Competitive interest rates paid from day one Free, no fee AdvantageHSA debit card Free initial order of checks Online account access – through bcbsde.com or myAdvantageHSA.com Powered by The Bancorp Bank (Wilmington, DE) 24/7 customer service Ability to invest balances above $2,500 HSA Account Features

Cost Calculator Sample - HSA

438,000 HSAs established nationwide as of September 2004 – 346,000 individuals – 79,000 small businesses Small businesses that previously did not offer health-care coverage purchased 16% of the HSAs in small group market Overall, 30% of HSA purchasers previously did not have health insurance Industry Trends

BCBSD CDHP Use Began selling products January 1, 2005 To date, 97 HSA accounts (330 members) and 11 HRA accounts (89 members) have been sold Most common HSA product is EPO 100 Plan – 63 plans sold HSA products have been sold to medical practices, attorneys and other small businesses ranging from 1 to 42 employees 41 of the 108 accounts represent new business

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