1. Value Based Health Benefit Design: more than just waiving copays RIBGH September 20, 2013 Sander Domaszewicz Irvine, CA alexander.domaszewicz@mercer.com

2. © MERCER 2013, all rights reserved 1 September 3, 2015 There are many untapped opportunities –We can address the “hidden” costs associated with poor health (such as at risk, illness, injury) with a comprehensive and integrated approach –Manage total health to achieve total value Reduced cost Competitive advantage, Positive company image Increased productivity Healthier workforce ++= Total Health Management Opportunity 1 – 2% of Payroll + The Hidden Costs of Illness Estimated indirect cost of absences = 2% of payroll + * Assumptions: For an employer with 5,000 employees and average salary of $47,060 * Survey results: Average salary: $47,060 % electing employer coverage: 84% % with dependent coverage: 56% Average employee age: 41 years % females/males: 53%/47% Source: Mercer’s 2008 National Survey of Employer-Sponsored Health Plans and Mercer’s 2007 Survey of Health, Productivity and Absence Management Programs $49M Health & Absence Costs* $235M Payroll* Payroll Direct non-occupational absence costs = 2.7% of payroll Health care benefits costs = 16% of payroll Equals more than 20% of payroll

3. © MERCER 2013, all rights reserved 9/3/2015 Total Health Management Total Health Management includes all of the actions an employer can take to engage and support employees in making good choices to avoid the cost and consequences of poor health Strategic framework Definition Addresses medical benefits, pharmacy and the direct and indirect cost of absence – one-fifth of payroll costs  Creates a sustainable culture of health  Facilitates employee behavior change and commitment  Reduces cost associated with poor health

4. © MERCER 2013, all rights reserved 9/3/2015 Total Health Management Value-based Design Value-based Design (VBD) is an approach to benefit plan design that encourages use of high value services which results in improved health, lower cost and/or increased productivity The “value” derived from VBD focuses on the total return on investment (medical, lost time away from work, productivity savings) and improved health The “design” of VBD spans medical, drug, mental health, behavioral health and disability plans The definition and scope of VBD varies widely across employers and carriers

5. © MERCER 2013, all rights reserved 4 September 3, 2015 Mercer VBD Overview Value-based Designs are part of the next design evolution VBDs aligns with and can take medical consumerism strategies to the next level PPOCDHPVBD Co-pays Low deductibles Broad Access Waived preventive cost-sharing Coinsurance Health accounts High deductibles Targeted waived or increased cost-sharing Incentives (health accounts, plan design, etc.) Behavioral requirements 1990’s 2000’s 2010’s

6. © MERCER 2013, all rights reserved 5 September 3, 2015 Value-based Design Mercer’s Guidelines  Mercer’s clinicians and researchers periodically evaluate nationally recognized research to identify and prioritize VBD ideas  Must demonstrate: Clear impact on health status  Vetting by national entities **  Wide recognition or peer-review in literature  Significant impact: Either people or % of cost  **Center for Disease Control and Prevention (CDC), National Committee for Quality Assurance (NCQA), National Quality Forum (NQF)

7. © MERCER 2013, all rights reserved 6 September 3, 2015 Value-based Design Not all VBD recommendations are created equal Highest VBD value Lower net direct medical spend Reduced lost time cost Either improve or not affect clinical outcome Intermediate VBD value Improve clinical outcome Cost neutral Reduces days away from work Lower VBD value Improve clinical outcome Increased medical cost, but offset by lower indirect cost, such as absence and productivity Example: Diabetes and ACEI/ARB medication High performing networks Shared decision-making required for preference conditions (sensitive knee surgery, prostate, cancer) Example: Immunizations Screenings and preventive care for those with chronic conditions like diabetes and heart disease Chiropractic services for neck and low back pain Comprehensive smoking cessation program Example: Bariatric surgery Greater access to behavioral health services Laparoscopic surgery

8. © MERCER 2013, all rights reserved 7 September 3, 2015 Value-based Design Key Strategic Components Clinical evidence Financial incentive Member education and outreach Vendor administrative capabilities  Incorporates benefit plan provisions that encourage use of high value health services  Focuses on covering and encouraging the use of treatments that provide improved health outcomes and productivity  Includes periodic evaluation of nationally-recognized scientific research to identify and prioritize VBD ideas  Uses targeted/personalized strategies for member education and engagement  Requires progressive plan design administration capabilities by carriers Value-based Design (VBD)

9. © MERCER 2013, all rights reserved 9/3/2015 Clinical EvidenceDesired BehaviorVBD - Actions Impact on Employee Value on Investment High performing specialists are more cost efficient and achieve higher quality Employee chooses high performing specialists Lower copays for high performing specialists Health Plan with HPN Good web tools and marketing campaign Moderate – High ** *** People with preference sensitive conditions who use shared-decision making tend to choose less invasive approaches Consult Health Advisor (HA) before elective surgery $500 penalty for not consulting HA Vendor with HA for shared decision making Marketing campaign to employees Low – Moderate ** High risk diabetics who have eye exams and regular A1c screening have lower cost than those who do not High risk diabetics get preventive screenings Lower copays for screenings Health management vendor outreach and skill building Physician reinforcement Moderate ** Sample Value-based Designs -

10. © MERCER 2013, all rights reserved 9/3/2015 Value-based Design Implementation Considerations Multi-year approach Prioritize benefit design Confirm incentive components Address administrative issues Model cost/benefit Develop communication/education campaign Key metrics

11. © MERCER 2013, all rights reserved 10 September 3, 2015 Discussion

12. © MERCER 2013, all rights reserved 11 September 3, 2015