To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Hewitt Associates LLC. Health Care Reform Happened …Now What? International Association of Black Actuaries | August 2010

DG02.ppt/331-J /2010 Aspects of Health Care Reform Health Insurance Exchanges with Reformed Rules Expanding/Improving Coverage Paying for Expanded Coverage Medicaid and Affordability Credits Employer Responsibility Individual Responsibility Medicare/Medicaid Payment Changes Administrative Simplification High-Cost Employer Coverage Taxation Increase Other Taxes = direct impact to employers = indirect impact to employers = direct and indirect impact to employers

DG02.ppt/331-J /2010 Timing of Key Reform Provisions and beyond2011 Early Retiree Reinsurance (2010) Lifetime Limits Prohibited Extension of Dependent Coverage to Age 26 Preexisting Conditions Exclusions Prohibited for Children under 19 Only Reasonable Annual Limits Permitted Effective Appeals Process Over-the-Counter Medicines Not Reimbursable Under FSA HSA Excise Tax Increase Employer Reporting of Health Coverage on Form W-2 Phase-out of Part D Donut Hole Medicare Advantage payments lower Coverage for Preventive Health Services* 105(h) Non-discrimination rules apply to insured plans* Employer Distribution of Uniform Summary of Benefits to Participants Quality of Care Report Limit of Health Care FSA Contributions Notice to Inform Employees of Coverage Options in Exchange Automatic Enrollment for 2014** Medicare Tax on High-Income Individuals Medicare Part D Subsidy No Longer Tax-Free Employer Responsibility to Provide Minimum Health Coverage Free Choice Vouchers Individual Responsibility to Purchase Insurance or Pay Penalty State Insurance Exchanges Preexisting Condition Exclusions Prohibited Annual Limits Prohibited Automatic Enrollment** Limit of 90-Day Waiting Period for Coverage in Plan Increased Rewards Cap for in Wellness Participation Employer Reporting of Health Insurance Information to Participants and the Government Excise Tax on High-Cost Coverage (2018) *Grandfathered **Effective date unclear

DG02.ppt/331-J /2010 The Price Tag CBO Estimate of Combined H.R and H.R. 4872, 2010–2019 Medicare Advantage Cuts Reduction in Medicare Growth Rate Excise Taxes System Savings $517 billion New Revenue $564 billion $32 billion Other Net Savings Total Cost of Expanded Coverage: $938 Billion Net Budget Impact: $143 billion reduction to the deficit (without “doc fix”) $65 billion Penalty Payments CLASS Act $136 billion $196 billion $115 billion $70 billion $107 billion Industry Fees $210 billion Medicare Taxes $150 billion Other Net Revenues

DG02.ppt/331-J /2010 Potential Impact on Employers Design Must create design structure that meets minimum coverage criteria Must change design to meet expanded coverage requirements Short-Term/ImmediateLong-Term Administration/ Communication Need to develop appropriate communication, reporting, and administrative infrastructure Will continue to increase given absence of true delivery system reforms Likely to increase depending on organization’s characteristics Active Plan Costs FAS Liability Immediate and long-term cost impact Strategy Should address broader health and productivity as well as benefit philosophy May be more compliance focused

DG02.ppt/331-J /2010 Compliance – What am I required to change?

DG02.ppt/331-J /2010 Plan Design Requirements Increased Benefits for Participants Lifetime limits must be removed “Unreasonable” annual limits not permitted – Annual limits will be phased out by 2014 Preventive benefits must be covered at 100% Children must remain eligible for the plan until they turn age 26 Financial barriers to out-of-network emergency care are limited Barriers to PCPs, pediatricians and OB/GYNs are not permitted Deductibles and out of pocket maximums will be limited beginning in 2014 Plans must meet 60% minimum actuarial value beginning in 2014

DG02.ppt/331-J /2010 Other Requirements Increased Protection for Individuals Minimum loss ratios for insured plans Prohibition of rescissions in most cases Guaranteed issue and renewal rules Waiting periods limited to 90 days No discrimination based on health status Limited age and tobacco rating Expanded communication and documentation requirements Expanded appeals policies and procedures Affordability and nondiscrimination rules for employer-sponsored plans Excise tax on high cost employer-sponsored insurance

DG02.ppt/331-J /2010 Compliance Strategy Compliance will increase the cost of health insurance – …but does it have to? Employers and insurance companies will be searching for ways to mitigate cost increases and limit new risks – Grandfathering delays some new costs, but limits flexibility – Losing grandfathering forces bigger strategic decisions…and vice versa Step out of the silo – Long term strategic thinking must guide all decisions – Opportunities abound and can influence strategy as much as risks > New retiree programs and funding > Changing market dynamics

DG02.ppt/331-J /2010 Something about opportunities? Overview ERRP New Medicare Part D funding New competitive landscape Changing market dynamics Changing employer perceptions Changing public expectations

DG02.ppt/331-J /2010 Looking Ahead – What really needs to change?

DG02.ppt/331-J /2010 Health Care Reform’s Impact New 2020 Realities Exchanges Federal Subsidies Insurance Reform Employer Responsibility Individual Mandate Delivery Reform Employers Refine and redefine commitments Regulation and taxation Government Insurance Industry Competition based on volume and innovation Individuals Increased responsibility with the power of knowledge The employer-sponsored system will endure…the federal budget depends on it

DG02.ppt/331-J /2010 Five Employer Realities by Employer health care cost will rise over 60% on a “stand still” basis; employer actions will mitigate this increase to 40% 2. Very few, if any, large employers will exit health care benefits, but the market trend to move from DB to DC will have begun 3. Plan designs will be leaner and meaner 4. The explosion of technology-enabled information will (finally) trickle down to our world, but will not lower employer cost 5. Employer-sponsored retiree medical benefits will cease to exist, except for collectively bargained and some grandfathered plans

DG02.ppt/331-J /2010 Employer costs will rise 60% on a “stand still” basis Downward Pressures ↓ Plan design value ↓ Discretionary purchasing ↓ Uncompensated care ↓ Brand drug patent expirations ↓ Focused care management programs Annual gross trend of 10% per year; net trend of 7% per year Upward Pressures  Demographics  Obesity-related chronic illness—including children  New therapies  Cost shift from Medicare  Industry fee pass-throughs  New coverage provisions  Individual mandate These rates of increase are unsustainable; there needs to be a “new normal”

DG02.ppt/331-J /2010 Consumers Government Providers Employers What Needs to Change Reset and Prioritize Liability, Payment, and Delivery System Reform (via Medicare) Embrace IT and P4P Pay Attention and Take Action