High Deductible Health Plans Health Savings Accounts A Benefit Solution October 3, 2007

2 Health Care Cost Inflation Example of Current WNY Carrier Rates * The Local Perspective Change Single$1,924$3, % Family$5,335$9, % *Assumes typical plan design: $10 co-payment; $0 in-patient; $7/15/30 Rx; student age to 23 Note: Average family/single = $6,819

3 Health Care Cost Inflation Example of Future WNY Carrier Rates * Change Single$3,670$7,010 ** + 91% Family$9,969$18,642 ** + 87% *Assumes typical plan design: $10 co-payment; $0 in-patient; $7/15/30 Rx; student age to 23 **Average approx 13% per year during the next 5 years The Local Perspective

4 Future of Healthcare If we do nothing, we can expect continued double- digit rate increases Continued increase of experience rating – a rate determined on the specific company’s health risk. More emphasis on healthy lifestyles HMOs with comprehensive benefits and low co-pays become historic. Consumer Driven Healthcare & HSA’s (Health Savings Accounts) will become the “norm” Emphasis on increased generic use Employees will transition from passive consumers to active consumers

5 Description Community Rate Healthier than average employer groups pay higher premiums than necessary No adjustments are made for individual group experience Health plan is less accountable for group cost management Community rate will become more expensive as smaller groups are experience rated Community pool should be strengthened, not weakened Pros Rates are known and guaranteed for 12 months Attractive premium for groups having higher than average claims experience or an older population Spreads risk over a broader group A fully insured methodology that encompasses the historical claims experience of all groups in the community Risk is allocated across the entire population vs. the groups specific experience Cons

6 Health Savings Accounts (HSA) The Amherst Chamber of Commerce Solution

7 Definitions of the HSA High Deductible Health Plan - A qualified benefit plan defined by the IRS. Guidelines define deductibles, out-of-pocket maximums and annual indexing. Health Savings Account - A savings account established through a financial institution used to cover qualified medical care expenses. Funds can be invested like an IRA, and are owned by the individual.

8 How Do HSAs Work?

9 How do People use their Health care? The following chart shows annual medical expenses for the United States population by percentage: Dollars Spent on Medical Care Annually Percentage of U.S. No Medical Expenses 13% $1 - $50033% $501 - $1,000 19% $1,001 - $2,00017% $2,001 - $5,000 9% $5,001 - $10,000 3% $10,001 - $25,000 3% $25,001 – And Up 2% Health Savings Accounts provide coverage for preventative care, not subject to deductibles or co-pays 65% of Americans spend less than $1,000 annually on healthcare

10 Low Co-Pay vs. HDHP with HSA Scenario An average, healthy family of four who uses their medical plan regularly throughout the year. Their main objectives when selecting the right medical plan is cost, coverage, ease of use and peace of mind. Medical Usage Annually for Average Family 2 Adult Primary Care Sick Visits 1 Gynecological Office Visit 1 Mammogram 4 Chiropractic Visits Monthly Maintenance Drug, Tier 2 6 Pediatric Visits 2 Immunizations 6 Prescription Drugs, Tier 1 1 Emergency Room Visit 1 Diagnostic X-Ray

11 Low Co-Pay (HMO) Plan ServiceCost 2 Adult Primary Care Sick Visits Gynecological Office Visit Mammogram Chiropractic Visits Monthly Maintenance Drug, Tier Pediatric Visits Child Immunizations Prescription Drugs, Tier Emergency Room Visit Diagnostic X-Ray Annual Medical Premium10, Total$11,077.76

12 Health Savings Account ServiceCost 2 Adult Primary Care Sick Visits Gynecological Office Visit Mammogram Chiropractic Visits Monthly Maintenance Drug, Tier Pediatric Visits Child Immunizations Prescription Drugs, Tier Emergency Room Visit Diagnostic X-Ray95.00 Annual Medical Premium HSA Contribution Total$10,074.24

13 Low Co-Pay vs. HDHP with HSA Cost Comparison ServiceHMO CostHSA Cost 2 Adult Primary Care Sick Visits Gynecological Office Visit Mammogram Chiropractic Visits Monthly Maintenance Drug, Tier Pediatric Visits Child Immunizations Prescription Drugs, Tier Emergency Room Visit Diagnostic X-Ray Annual Medical Premium10, , Health Savings Account Deposits3, Total Expenses$11,077.76$10,074.24

14 Low Co-Pay vs. HDHP with HSA Comparison Summary Annual Costs/DepositsHMOHSASavings Premiums10, , , Co-Pays/Costs , Savings Deposits , Total Premium Savings (Premium Savings - co-pays/costs - savings deposits) $ 1, Savings Account Balance$3, TOTAL SAVINGS$4,558.48