1 © Copyright Life Insurance Company of North America 2005 Intervention & Preventative Programs to Reduce Healthcare Costs Barton Margoshes, MD Chief Medical Officer CIGNA Group Insurance

2 © Copyright Life Insurance Company of North America 2005 Key Points Employee benefits costs will continue to rise Demographic trends will likely create the “Perfect ‘Benefits’ Storm” Healthcare and Disability costs are linked A company’s competitive advantage depends on its workers Keeping employees healthy and at work is a viable and essential business strategy Quality oriented programs that integrate and coordinate patient-centric services such as Disease Management and Behavioral Health/EAP can reduce total costs

3 © Copyright Life Insurance Company of North America 2005 Rising Healthcare Costs Healthcare costs continue to significantly outpace the rate of inflation Health care in U.S. represents 16% of GDP. Estimated to reach 20% by 2015 Since 2000, premiums for family coverage have increased by 59%, compared with inflation growth of 9.7% and wage growth of 12.3% - Kaiser Family Foundation & Health Research and Educational Trust Employer Health Benefits 2004 Survey Total health premiums paid by employers have risen rapidly Hewitt Health Value Initiative™ 2003

4 © Copyright Life Insurance Company of North America 2005 The Aging Workforce In 2010, 51% of labor force will be over 40 - Bureau of Labor Statistics, Monthly Labor Review, Nov In 2003, Americans aged 55 and older made up approximately 12% of the workforce - the highest percentage ever recorded - Bureau of Labor Statistics, Monthly Labor Review, May 2002 Aging labor force is expected to cause 37% increase in incidence of disability - JHA Factbook 2001 Health care costs rise with age Applied Research and Analysis Directorate 2004

5 © Copyright Life Insurance Company of North America 2005 Department of Labor 2004 Workers on Long-Term Disability Labor force grew only by 11% in the same 10 year period 62% increase

6 © Copyright Life Insurance Company of North America 2005 Chronic Conditions Approximately 125 million Americans suffer from at least one chronic condition – expected to reach 157 million by Business and Health 10/20/03 The 5 illnesses where costs increased the most were heart disease, asthma, mental disorders, cancer and hypertension - Health Affairs 8/04 In 2000, U.S. spent $774 billion to treat chronic conditions – that’s 70 percent of the total spend on healthcare Mercer/Marsh survey “The highest rate of increase in medical and disability claims costs is among 30- to 39-year-olds, and both are due to obesity.” - Helen Darling, president of the National Group on Health, a Washington, D.C. consortium of 208 large employers

7 © Copyright Life Insurance Company of North America 2005 Growing Impact of Obesity Obesity drove 27% of medical cost increases between 1987 and The Impact of Obesity on Rising Medical Spending, Health Affairs, Web Exclusive, 2004 For the obese employee population Annual health care costs are 37.4 percent higher Annual hospital inpatient days are 45 percent higher Lost workdays annually due to obesity are 39.3 million - Jacobsen, M. "The Epidemic of Obesity: The Costs to Employers and Practical Solutions" 2002

8 © Copyright Life Insurance Company of North America 2005 Average Cost to Treat Obesity vs. Normal Weight Source: Kenneth Thorpe, Emory University

9 © Copyright Life Insurance Company of North America 2005 Another View of the Cost of Obesity OverweightObeseMore ObeseExtremely Obese up to 30 lbs 30 to 60 lbs over 60 to 100 lbs over more than 100 lbs over Men/Women Medical Costs$169/$495$392/$1,071$569/$1,549$1,591/$1,359 Absenteeism$6/$93$$70/$302$643/$936$436/$805 Total$175/$588$462/$1,372$1,212/$2,485$2,027/$2,164 Source: American Journal of Health Promotion, Sept/Oct. Employer with 1,000 lives: Represents > $285,000 additional costs

10 © Copyright Life Insurance Company of North America 2005 Economic Burden of Painful Conditions White, A, et. al; JOEM, Sept. 2005

11 © Copyright Life Insurance Company of North America 2005 Impact of Chronic Conditions “Disease Management of Chronic Conditions Offers Opportunities for Improved Clinical and Financial Outcomes” Intracorp 2002

12 © Copyright Life Insurance Company of North America 2005 Impact of Mental Health Costs ● More than 85% of primary care physician visits have a psychological component –American Medical Association 2002 ● 40% of disabilities have a behavioral component –Managed Behavioral Health News 1998 ● Mental stress/depression claims are the fastest growing disability claim –Mercer/Marsh Time Off and Absence Survey 2003 ● Depressed workers lose about 5.6 hours of productive time on the job each week, compared with 1.5 hours for non-depressed workers –Journal of the American Medical Association 2003

13 © Copyright Life Insurance Company of North America 2005 Nearly 1 in every 10 adults in the U.S. experiences some form of depression every year. 1 3 of the top 10 most costly prescribed drugs in the U.S. are anti-depressants 2 with other conditions. Depression often co-occurs with other conditions, e.g. heart disease, stroke, diabetes cancer, perinatal, Parkinson’s, HIV/AIDS Untreated or inappropriately treated depression leads to higher medical costs Why Focus on Depression? 1-National Institute for Mental Health, 2004; 2 - Pharmacy Benefit Report 2003 edition;

14 © Copyright Life Insurance Company of North America 2005 Draining Your Company’s Productivity Leading cause of absenteeism and diminished productivity 2 The second leading cause of disability in the U.S. 1 Impact on Productivity National Health Care Quality Report: Mental Health Effectiveness, Substance Abuse and Mental Health Services Administration and National Institutes of Health. Mental Health: A Report to the Surgeon General, 1999.

15 © Copyright Life Insurance Company of North America 2005 What Can We Do About It? Integrated Health Management

16 © Copyright Life Insurance Company of North America 2005 Integrated Health Management Rationale Health and disability are inextricably linked Enhancing health can lead to lower medical and disability costs IHM addresses the largest segment of benefit costs: medical, absence, lost productivity Optimal use and integration of existing programs promotes better health and productivity Prevention of illness and disability should be primary goal Health and Disability follow the same continuum

17 © Copyright Life Insurance Company of North America 2005 The Health and Productivity Continuum Health Risk Acute Illness Recovery Chronic Fully Productive Productivity Risk Absence Return to Work Long Term Disability

18 © Copyright Life Insurance Company of North America 2005 An Integrated Health & Productivity Management Model Should Consider… Health related systems: ● Healthcare ● Incidental absence & FMLA ● Short and long term disability ● EAP/Behavioral health ● Pharmacy ● Wellness and disease management ● Workers compensation Non-health related systems : ● Corporate culture ● Policies and procedures ● Benefit plan designs ● Alignment of incentives ● Training and human resources ● Employee communication ● Data integration

19 © Copyright Life Insurance Company of North America 2005 An Integrated Health Management Model Disability & HealthCare Connect Confidential, unpublished property of CIGNA. No unauthorized duplication or distribution.

20 © Copyright Life Insurance Company of North America 2005 Integrated Health Management Impact 20% of employees were responsible for 91% of employee medical costs Employees on short term disability represented only 5% of employees but were responsible for 35% of employee medical costs Most of the top cost drivers are the same for both disability and medical Disability claimants with chronic conditions experience longer durations whether or not the disability was primarily due to the chronic condition Short term disability (STD) durations and return to work percentages are consistently better Employees engaged in Disease Management - Cardiovascular Disease and Low Back Pain programs - experience shorter disability durations and a lower incidence of short term disability EAP interventions resulted in a decrease in lost productivity

21 © Copyright Life Insurance Company of North America % Shorter STD durations 6% Higher Return to Work rate 0% 5% 10% 15% 20% For a 10,000 life employer this represents between $300,000 and $600,000 in direct disability cost savings per year IHM Results in Shorter Disability Durations Confidential, unpublished property of CIGNA. No unauthorized duplication or distribution.

22 © Copyright Life Insurance Company of North America 2005 Why Disease Management? Chronic conditions drive a significant portion of total health care expenses ● Higher medical claims ● Higher pharmacy claims ● More frequent disability claims ● Reduced productivity Better management improves outcomes; can deliver significant savings Source: CIGNA HealthCare Distribution of Cost By Disease Type

23 © Copyright Life Insurance Company of North America 2005 Admission Rate Reduction Medical Cost Savings Asthma Diabetes Cardiac Low Back COPD Total: 9% 8% 15% 20% 5% 12% 5%-6% 7%-9% 8%-12% 14%-17% 9%-10% 9%-11% Disease Management Delivers Cost Savings Condition Improved health lowers cost

24 © Copyright Life Insurance Company of North America 2005 Disease Management Reduces Both Medical and Disability Costs Confidential, unpublished property of CIGNA. No unauthorized duplication or distribution. ConditionAdmission Rate Reduction Medical Cost Savings Disability Incidence Rate Reduction Disability Duration Reduction Cardiac15%8-12%3%7.7% Low Back20%14-17%1%18%

25 © Copyright Life Insurance Company of North America 2005 Does EAP Make a Difference? Do EAPS Make a Difference? General Motors reported that use of EAP generated a 72% reduction in dollars paid for accident and disability benefits for employees with substance abuse problems Ford and GM reported their EAP’s generated a 9:1 ROI LA Department of Water and Power reported their EAP generated a 2.5:1 ROI EAPA reports effective EAP programs resulted in: ● 27% few workers comp claims ● 57% improvement in absenteeism ● 48% improvement in employee retention ● 58% decline in employees reporting on the job physical health problems

26 © Copyright Life Insurance Company of North America 2005 What We All Would Like to See! Average Medical & Disability Costs for Employees Confidential, unpublished property of CIGNA. No unauthorized duplication or distribution.

27 © Copyright Life Insurance Company of North America 2005 Questions?