1. Are Group Insurance Benefits Becoming Unaffordable?
CPBI
June 2007

2. Agenda Group Insurance Market Overview Health & Dental Trends
Cost Structures
Plan Design
Life & Disability Directions
Cost Management Strategies
Summary

3. Group Insurance Market – By Coverage
MARKET OVERVIEW
Group Insurance Market – By Coverage
LTD – 18%
Life – 9%
AD&D – 1%
STD – 5%
Dental – 24%
Medical – 43%
2005 Premiums - $23.7B
Source: Fraser Group

4. Market Growth – 1997-2005 MARKET OVERVIEW 1997 2001 2005 $12.6B $18.0B
Source: Fraser Group

5. MARKET OVERVIEW
Market Growth –
Source: Fraser Group

6. Agenda Group Insurance Market Overview Health & Dental Trends
Cost Structures
Plan Design
Life & Disability Directions
Cost Management Strategies
Summary

7. Group Insurance Plans – Cost structure
HEALTH & DENTAL
Group Insurance Plans – Cost structure
At the highest level, health and dental costs can be broken down into three major components:
Utilization: How many people use the plan, and how often do they use?
Cost per Claim: How much does each claim cost?
Reimbursement: How much is paid by the benefit plan, and to what extent does this impact the first two cost components (plan management component)

8. x = Healthcare Cost Structure – Claim cost components (Usage x Cost)
HEALTH & DENTAL
Healthcare Cost Structure – Claim cost components (Usage x Cost)
AGE % Claiming Annual Cost Plan Cost (per Claimant)
Age 27 74% $759 $562
Age 42 85% $1,418 $1,205
Age 57 89% $2,138 $1,903
Age 72 87% $1,609 $1,400 x =
Most people use their Healthcare plan, although:
Younger plan members are less likely to use the plan at all
And, younger plan members are lighter consumers of services if they do use the plan
Source: Great-West Life

9. Healthcare Cost Structure – Amount covered by age
HEALTH & DENTAL
Healthcare Cost Structure – Amount covered by age
Costs are a steeply increasing function of age
Age costs are about 4x age 25-29
Or, costs increase about 30% per 5 years of age (before age 65)
After age 65, social insurance programs help offset costs considerably
And, the number of dependents decreases
Source: Great-West Life

10. Utilization – Average # scripts per employee by age
HEALTH & DENTAL: Drugs
Utilization – Average # scripts per employee by age
Source: Emergis Inc.

11. Utilization – Average paid per employee by age
HEALTH & DENTAL: Drugs
Utilization – Average paid per employee by age
Source: Emergis Inc.

12. Utilization – Top therapeutic classifications – 2002 vs 2005
HEALTH & DENTAL: Drugs
Utilization – Top therapeutic classifications – 2002 vs 2005
2002
% Paid by Disease
1) Depression
8.6%
2) Cholesterol disorders
8.3%
3) Blood pressure
8.2%
4) Ulcers
7.5%
5) Antibiotics
6.8%
6) Asthma
5.3%
7) Anti Inflammatory
5.2%
8) Skin disorders
3.7%
9) Birth control
3.1%
10) Angina
3.0%
2005
% Paid by Disease
1) Cholesterol disorders
9.1%
2) Blood pressure
8.5%
3) Depression
7.5%
4) Ulcers
5) Diabetes
6.4%
6) Antibiotics
6.2%
7) Asthma
5.7%
8) Skin disorders
4.0%
9) Birth control
3.1%
10) Narcotic analgesics
3.0%
Source: Emergis Inc.

13. Paramedical Costs by Age – 2005
HEALTH & DENTAL: Paramedical Services
Paramedical Costs by Age – 2005
Source: Great-West Life

14. Utilization – Average annual increase in % employees using parameds
HEALTH & DENTAL: Paramedical Services
Utilization – Average annual increase in % employees using parameds
This slide shows the percent of employees who have visited a paramedical practitioner at least once in Interesting to note are the utilization patterns by age for Chiro and Massage. Chiro is the first bar and utilization remains fairly constant after age 35. This isn't necessarily expected as the incidence of back problems increases sharply as people age. Massage utilization, which is the second bar, shows that utilization tends to drop after the age 35 to 44 age band.
Source: Great-West Life

15. HEALTH & DENTAL: Paramedical Services
Utilization – Average annual increase for those that claim
This slide shows the percent of employees who have visited a paramedical practitioner at least once in Interesting to note are the utilization patterns by age for Chiro and Massage. Chiro is the first bar and utilization remains fairly constant after age 35. This isn't necessarily expected as the incidence of back problems increases sharply as people age. Massage utilization, which is the second bar, shows that utilization tends to drop after the age 35 to 44 age band.
Source: Great-West Life

16. Paramedical Costs- Average annual increase 2002 - 2005
HEALTH & DENTAL: Paramedical Services
Paramedical Costs- Average annual increase
Source: Great-West Life

17. x = Dentalcare Cost Structure – Claim cost components (Usage x Cost)
HEALTH & DENTAL
Dentalcare Cost Structure – Claim cost components (Usage x Cost)
AGE % Claiming Annual Cost Plan Cost (per Claimant)
Age 27 63% $774 $488
Age 42 83% $1,385 $1,150
Age 57 78% $1,223 $954
Age 72 76% $1071 $814 x =
Consistent with healthcare, younger employees are less likely to make use of the dentalcare plan
And, overall the dentalcare plan is not used as much as the healthcare plan for all ages
Source: Great-West Life

18. Dentalcare Cost Structure – Amount covered by age
HEALTH & DENTAL
Dentalcare Cost Structure – Amount covered by age
Unlike Healthcare, costs peak at age 45-49
This is good news, given that the Canadian population age “bubble” is currently centered near this age band
Source: Great-West Life

19. Demographics – Canadian population past and future
HEALTH & DENTAL
Demographics – Canadian population past and future
A population “bubble” is working it’s way through the Canadian (working) population…
What has this meant in the past?
What will this mean for the future?
Source: Statistics Canada

20. Demographics – Change in labour force
HEALTH & DENTAL
Demographics – Change in labour force
1996
2001
2006*
2011*
2016*
2021*
2026*
2031*
Low Growth Rate
38.46
39.35
39.71
40.24
40.62
40.93
41.11
41.24
Medium Growth Rate
40.22
40.58
40.85
40.95
40.94
High Growth Rate
40.20
40.53
40.77
40.82
40.72
Average Labour Force Age
* Projected
Source: Statistics Canada

21. Healthcare Cost Structure – Retiree ages
HEALTH & DENTAL
Healthcare Cost Structure – Retiree ages
Source: Great-West Life

22. Healthcare Cost Increases - Retiree ages – 2002-2005
HEALTH & DENTAL
Healthcare Cost Increases - Retiree ages –
Source: Great-West Life

23. HEALTH & DENTAL
Dentalcare – Impact of retiree coverage - Relative costs by age
The effect of getting dental work done before retirement indicated in the earlier slide is explored a little more fully in this slide. The slide shows that the pre-retirement utilization effect occurs from about age 50 (as this is when people are expected to begin retiring).
It is also interesting to note just how much patients can influence their dental costs. There is a 10% difference at 50-54, 25% at and a 40% difference in experience at 60-64!
Source: Great-West Life

24. HEALTH & DENTAL
Observations
Demographics continue to be a contributing factor, but the effect is lessening.
In recent years, cost increases are largely driven by utilization as well as increases in cost per service.
On Healthcare, drugs and paramedical use are the main services driving the increase, and trends are expected to continue.
Dentalcare costs are most expensive for employees in their 40’s – this is as a result of dependent claims, where children incur a significant portion of the costs.
Increasing cost of retiree coverage is driven by the number of retirees, not the cost per retiree.
Employees may “pre-purchase” certain dental services prior to retirement.
Healthcare cost increases per retiree at older ages is largely driven by hospital use within Canada.

25. Agenda Group Insurance Market Overview Health & Dental Trends
Cost Structures
Plan Design
Life & Disability Directions
Cost Management Strategies
Summary

26. Managing Costs – Distribution of employee contribution levels
HEALTH & DENTAL
Managing Costs – Distribution of employee contribution levels
Source: Great-West Life

27. Managing Healthcare Costs – Distribution of coinsurance levels
HEALTH & DENTAL
Managing Healthcare Costs – Distribution of coinsurance levels
Source: Great-West Life

28. Managing Healthcare Costs – Distribution of deductible levels
HEALTH & DENTAL
Managing Healthcare Costs – Distribution of deductible levels
Source: Great-West Life

29. Managing Costs – Deductible leveraging
HEALTH & DENTAL
Managing Costs – Deductible leveraging
Deductible leverage will increase the cost to the plan sponsor over time. Assume:
14% Trend Factor
$50 deductible
Annual Claims Annual Claims Percent Deductible
Year 1 Year 2 Increase Leveraging
Gross Net Gross Net Gross Net
$ $350 $ $ % % %

30. Plan Design Observations
HEALTH & DENTAL
Plan Design Observations
Although employers are increasingly concerned about escalating costs, trends suggest that employers continue to bear most of the cost burden:
Our data suggests that average coinsurance levels on overall health and dental have been fairly constant between 2001 and 2005.
Healthcare average deductibles have actually decreased by 5.5% to 8.5% per year.
Dentalcare deductibles have seen average increases of 7 -8% per year, but this increase is dampened by deductible leveraging.
Over the same period, employee contribution levels have decreased by approximately 5 - 6% per year, with the employer paying the difference.

31. Agenda Group Insurance Market Overview Health & Dental Trends
Cost Structures
Plan Design
Life & Disability Directions
Cost Management Strategies
Summary

32. Improving Mortality Rates
LIFE & DISABILITY
Improving Mortality Rates
Source: CIA Mortality Tables

33. Life expectancy at birth (years)
LIFE & DISABILITY
Canadian Life Expectancy
Year
Life expectancy at birth (years) 59 61 65 69 71 73 75 78 80
Life expectancy rates have been steadily improving over the past several decades.
Source: Statistics Canada

34. Long Term Disability – Cost structure
LIFE & DISABILITY
Long Term Disability – Cost structure
Source: Great-West Life

35. Annual Growth in Incidence Rate
LIFE & DISABILITY
Long Term Disability – Cost structure
Annual Growth in Incidence Rate
00-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
6.8%
4.0%
1.6%
1.8%
2.8%
2.0%
0.3%
-2.6%
Source: Great-West Life

36. Long Term Disability - Claim Cost Versus Incidence
LIFE & DISABILITY
Long Term Disability - Claim Cost Versus Incidence
Source: Great-West Life

37. Drivers of Long Term Disability Cost
LIFE & DISABILITY
Drivers of Long Term Disability Cost
Age/gender (demographics)
Interest rates
Benefit Plan design
Elimination Period
Definition of disability
Offset/coordination method and level
Replacement ratio/flat benefit
Tax status
Industry/salary level
Region (including rural vs. urban)
Existence of short term disability or salary continuance benefits
Employee relations
Business environment
Claims submission process

38. Mental Health and Benefit Costs – Claim study
LIFE & DISABILITY
Mental Health and Benefit Costs – Claim study
Is there a relationship between disability and other benefits?
Duration: Does the use of depression drug therapy or psychologist counseling have an impact on the length of a depression-linked long-term disability claim?
Cost: How does the cost structure change when drug and psychologist counseling costs are included with disability costs?

39. Mental Health Disability - Duration
LIFE & DISABILITY
Mental Health Disability - Duration
Source: Great-West Life

40. Agenda Group Insurance Market Overview Health & Dental Trends
Cost Structures
Plan Design
Life & Disability Directions
Cost Management Strategies
Summary

41. Large claim protection
COST MANAGEMENT STRATEGIES
Co-insurance
Benefit maximums
Drug formularies
Benefit levels
Large claim protection
Plan Design
Wellness programs
Absence management
Education/awareness
Legislative shifting
Benefit formulas
Cost Avoidance
Employee/member contributions
Flex benefits
Health care spending accounts
Cost Sharing

42. SUMMARY
Summary Observations
Overall benefit costs likely increasing in the 6-8% per year range.
Cost impact of demographics is reducing.
Benefit cost circumstance will vary widely by plan.
Employees/Plan members place a higher dollar value on their benefits plan than the actual dollar value of those benefits.
Costs ideally managed at the benefit/benefit service level vs overall plan.
“Integrated” approach to managing benefits may be beneficial from an overall business cost perspective.
With appropriate cost and risk management strategies, Group Insurance can remain affordable.