How to Design and Implement a Consumer-Driven Health Care Plan April 30, AM to 12PM Presented by:

Consumer Driven Healthcare “Unleashing the Power of Free Market Economics on the Healthcare Industry”

Workshop Agenda Note: 50% of this Workshop will be spent on Part IV (below): Designing & evaluating real solutions for real companies taken from the Benemax case files. Part I: What is CDHC? - The Benemax Perspective Part II: The CDHC Tool Box - Kinder, Gentler Strategies Part III: Implementing CDHC: Analysis to Evaluation Part IV: Interactive Case Studies of Benemax’ Clients

What a CDHC Plan DOES Provides member with Targeted Incentives & Tools: to stay healthy to consume health care carefully to shop for health care prudently Varies member cost based on health care behavior Rewards members with below median health care costs

What a CDHC Plan does NOT Shift Cost by: Increasing employees’ premium share Raising members’ co-pays Imposing up-front deductibles Raise employees’ cost across the board regardless of health regardless of consumption pattern regardless of purchasing decisions

Who needs a CDHC Plan? National Health Care Cost Increases vs. GDP & Inflation Employee Productivity Corporate Revenue & Household Income Employer’s Health Care Cost Increases vs. Sales Profits Payroll

Health Benefit Cost Trends : 4% per year average : 12% per year average 2003: 16% projected

... the average company pays 3% of revenue for health care benefits – up 50% in five years Health care as percent of revenue CAGR=9% Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters)

Health care costs are growing much faster than productivity (revenue per employee) Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters) CAGR=3% CAGR=10%

Healthcare increases are rapidly consuming the growth in household income —Annual increase in household income —Portion used to pay increases in healthcare premiums and out-of- pocket expenditures * 2002 estimate based on 2001 growth Source: U.S. Census Bureau, Kaiser Family Foundation, UHC Analysis 100% = $ %= $ % = $ % = $1093

Why CDHC Works Consumerism The Claim Cost Curve Incentives & Tools

Why CDHC: Consumerism Patients shop for quality & price Providers compete for patient traffic Patients subject treatment options to cost/benefit analysis

Why CDHC: The Claim Curve 20% of claims =1/2% of patients 50% of claims=3% of patients 87% of claims=31% of patients 69% of patients= 13% of claims Median patient=$500 non-Rx claims

Member Health Care Expenditure 8% 24% 69% 60% 26% 13% 0% 10% 20% 30% 40% 50% 60% 70% 80% HealthyTransitionalChronically Ill/High Risk % Members% of Dollars ($1-$999)($1,000-$4,999)($5,000-$100,000) $30 pmpm $176 pmpm $1,259 pmpm

Why CDHC: Incentives & Tools Patients have incentives & tools to stay healthy Patients have incentives & tools to consume carefully Employers have incentives & tools to promote health

Part II: The CDHC Tool Box Wrap Technology: employer funds claims underneath a high deductible plan Flexible Spending Account: employee funds claims costs with pre-tax dollars Health Reimbursement Account: employee builds a long term benefit bank with employer funded dollars

The Road to CDHC The Virtual Indemnity Plan The Virtual HRA (Health Reimbursement Account) FSA with Optional Employer Funding Triple Option Plan True CDHC: HRA Blended Approaches

The Virtual Indemnity Plan Employer buys a high deductible plan: HMO, POS or PPO $500 to $5,000 up front claims corridor Premium Savings from 15% to 50% Employer “self-funds” the deductible: Employer determines desired ultimate benefit level Net savings vs. Fully Insured funding: 10% to 20%

The Virtual HRA Employer buys a high deductible plan: HMO, POS or PPO $500 to $1,000 up front claims corridor Employer deposits 100% of deductible into HRAs: Employees are fully indemnified against added cost Employees can carry unused funds into second plan year Employer sets employees’ expectations: Lower HRA contribution in year 2 & beyond and/or higher deductible Gives employees a year’s grace to adjust to new philosophy

Why Consider a Virtual CDHC? Reduces fixed premiums by 15% to 50% Gives Employer a Stake in Employees’ health & behavior Limits Employer Risk ($500 to $5k per member) Gives Employer credit for Employees’ good experience Gets around Community Rating & Small Group Reform Focuses Employees’ attention on health & behavior Incents Employer to introduce health & health care tools Gives Employer unlimited plan design flexibility

FSA/Optional Employer Funding Introduces Employees to a corridor of claims cost liability Employees can pre-fund claims liability with pre-tax $$ Employer can “seed” FSAs with uniform contribution Funds not used for medical can be reallocated to the cost of vision care, dental care or alternative health therapies Employees become aware of costs and behaviors Employees incented to use health & health care tools But funds unused at year end are forfeited

Triple Option Plan One high deductible base plan (HMO, POS or PPO) Multiple benefit options underneath Gold = Virtual Indemnity Plan (100% benefits & freedom) Silver = Base Plan + FSA + HRA Bronze = Base Plan + FSA Only Employer sets cost of options to be “revenue neutral” Employees pay cost differential with pre-tax $$ All options Employer cost same for all options

True CDHP: HRA High deductible plan (HMO, POS, PPO) Employer funds Health Reimbursement Accounts for ees HRA = an employee’s Virtual Benefit Bank Employee’s allowed out-of-pocket medical costs are paid from that bank until funds are exhausted Any unused “bank balance” at year end can be rolled over and used in the next plan year

28 Flavors of HRA May be limited to certain “core” out-of-pocket costs... Health plan deductible only Health plan deductible & co-insurance only …Or extended to cover other health care expenses: Dental, vision & alternative therapies Health plan co-pays Rx drugs, well care and/or office visits may be separate May pay before or after FSA

Blended CDHC Approach Tier One: Employer funded HRA for each employee Tier Two: Employee claim liability corridor FSA: Employee pre-funds liability with pre-tax $$ unused funds may be allocated to vision, dental, alternative therapies employer may “seed” FSA in lieu of a formal dental or vision plan Tier Three: Employer claim liability corridor (The Wrap) Tier Four: Fully insured contract with unlimited benefits

Part III: Implementing CDHC Analyze the Situation Survey Employees Set Corporate Objective Design the Solution Obtain insurance quotes Optimize claims cost breakpoint(s) Implement the Plan Communicate, educate & enroll Deliver concierge service Measure results

Analyze the Situation Current plan cost & proposed increase Employee cost share & cost sharing formula Current pay scale & planned increases Current benefits Industry norms (competitors): pay & benefits Current Labor market

Survey the Employees Attitude toward benefits Attitude toward health & health care Benefit priorities Satisfaction assessment Identify current health & health care behaviors

Set Corporate Objectives Acceptable total increase (if any) Acceptable employee cost increase (if any) Acceptable benefit reduction (if any) Immediate savings required (if any) Target employer budgets for next three plan years

Design the Solution Identify qualified, competitive insurance carriers Inventory carriers’ CDHC - friendly products Analyze Claim Distribution Stats (ER specific or global) Optimize net savings from ‘wrap’ vs. pure insurance Determine optimum HRA/Deductible breakpoint Modify to reflect corporate objectives & survey results

Communicate the Solution Begin 60 days out (if possible) - no sooner Explain Company’s Dilemma & its Options Present CDHC Design & Compare to other Options

Enrolling CDHC On-site Group meetings of about 15 employees each Individual counseling available And On-line CDHC tutorial, FAQs, Q&A Web based enrollment

On-going Education & Service Permanent Web Site (“Virtual Benefit Manager”) Plan Summary CDHC tutorial & FAQs On-line Q&A Follow-up Meetings 45 days & 120 days after implementation on-site or via web cast/conference call Call Center (“Independent Patient Advocate”) Staffed by experienced benefits professionals Working for employees, not insurance company Delivering concierge level service to each plan member

Measuring Results Repeat employee survey annually Note changes in attitudes, priorities & reported behaviors Measure changes in employee satisfaction Solicit and respect design or service suggestions Measure changes in claims distribution curve Compare actual claims cost & plan cost vs. projections Compare insurer’s renewal vs. prior & national trend Tweak plan design to optimize future year results

Part IV: Interactive Design Actual Benemax Cases industry, company size, benefits in force current costs & employee cost share proposed renewal & benefit/cost history labor market & employer’s objectives Interactive Solution Designed by Workshop Group Compare with client’s actual decision Evaluation of Client’s Plan Client’s implementation problems/issues (if any) Client’s results to date Comparison of client’s experience with Group’s proposal

CDHC: It’s all about Incentives Incentives for employers to promote employees’ health Incentives for employees to optimize their own health Incentives for patients to avoid unnecessary care Incentives for patients to shop for high value care Incentives for providers to compete for patients

Summary There are many styles of CDHC CDHC does not mean cost shifting Introducing CDHC can be a gradual process Every employer can take at least one step toward CDHC.

Thank you for your time today. David Cowles Benemax X17 Version /02/02 10:25am