Defined Contribution Healthcare Benefits The HealthCast 2010 Series SM

1 Defined Contribution Terminology Many terms in the marketplace to describe “DCHB” approaches: consumer-driven consumer-enabled self-directed and many other terms also being used

2 What Employers want from DCHB: – 3 key concerns addressed for ideal solution – financial mechanism with predetermined investment – additional transfer of responsibility to employee Two Key Features: What Is Defined Contribution?

Understanding Drivers, Enablers, Barriers, and Accelerators

4 Drivers Escalating Healthcare Costs – Medical and pharmaceutical – Consumer insulation Burden of Administration and Vendor Management – not core to business Potential Exposure to Liability Experience with Defined Contribution Retirement Plans

5 Market Enablers Consumerism – 70% satisfaction high enough? – Changing workforce with changing values E-health – dot com offerings – more info and efficient systems via internet Emerging treatments/Genomics – increasing demand and availability – what is “medically necessary?” Growing public policy interest

6 Barriers Employee Relations and Retention – Any change is bad change – Employer connotation of “exiting” system Communications and Education – Requires an increase in resources and cost Regulations and Tax Laws – Patients Bill of Rights not passed – MSA option - unclear tax regulations – ERISA Questions of Insurance products – cost increases and underwriting unclear “ Here's a check. Now go buy your own health insurance.” — USA Today, July 27, 2000

7 Accelerators Downturn in the economic market Adverse judicial decisions on employer liability Passage of onerous Patient Bill of Rights or other regulations Changes in the tax law Structural changes to the insurance industry creating a more favorable climate for individual insurance A high profile employer — or Medicare — implements a DCHB approach and has a success story to tell Successful market penetration by a new economy company

8 How an Employer Could Offer A Defined Contribution Option

9 One Plan Offered Employer Delegation Employee Responsibility Choice of Plans Choice of Plans + PHA* + Exchange Catastrophic Plan + PHA + Exchange Low High Wages Only Account Only Catastrophic + PHA *No rollover Continuum of Defined Contribution Approaches

10 Insurance 100% Personal Health Account $1,500/year/employee Good Medicine Corridor Deductible $2,000 $1,500 $1,000 $500 Flexible Spending Account High Deductible + PHA

11 Regulatory and Tax Issues Funding Constructs Insurance Constructs Administration Employee Responsibility for Healthcare Purchasing DCHB MODEL DCHB MODEL Employer Considerations

12 Potential of DCHB Help employers: – Reduce administrative burden – Improve budgetability – Increase employee choice Reduce disruption of coverage and care Empower consumers and increase accountability Attract employer funding and encourage employee savings – Uninsured – Retirees

13 DCHB Does Not Make it Easier to Limit Contributions Because... Healthcare benefits have always been voluntary Employers face barriers to limiting contributions – must attract and retain employees – collective bargaining – minimum participation requirements – tax incentive – paternalism

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