How to Design and Implement aConsumer-Driven Health Care PlanApril 30, 2003 9AM to 12PM Presented by:

Consumer Driven Healthcare

“Unleashing the Power of Free Market Economics on the Healthcare Industry”

Workshop Agenda

Note: 50% of this Workshop will be spent on Part IV (below): Designing & evaluating real solutions for real companies taken from the Benemax case files.

Part I: What is CDHC? - The Benemax Perspective Part II: The CDHC Tool Box - Kinder, Gentler

Strategies Part III: Implementing CDHC: Analysis to Evaluation Part IV: Interactive Case Studies of Benemax’ Clients

What a CDHC Plan DOES

Provides member with Targeted Incentives & Tools: to stay healthy to consume health care carefully to shop for health care prudently

Varies member cost based on health care behavior

Rewards members with below median health care costs

What a CDHC Plan does NOT

Shift Cost by: Increasing employees’ premium share Raising members’ co-pays Imposing up-front deductibles

Raise employees’ cost across the board regardless of health regardless of consumption pattern regardless of purchasing decisions

Who needs a CDHC Plan?

National Health Care Cost Increases vs. GDP & Inflation Employee Productivity Corporate Revenue & Household Income

Employer’s Health Care Cost Increases vs. Sales Profits Payroll

Health Benefit Cost Trends

1993 - 1999: 4% per year average

2000 - 2002: 12% per year average

2003: 16% projected

. . . the average company pays 3% of revenue for health care benefits – up 50% in five years

2.0%2.1%

2.2%

2.4%

2.7%

3.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1998 1999 2000 2001 2002 2003

Health care as percent of revenue

CAGR=9%

Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters)

Health care costs are growing much faster than productivity (revenue per employee)

$183,067$187,110

$194,153 $195,994

$205,087

$3,676

$3,963

$4,336

$5,456

$4,778

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

1998 1999 2000 2001 2002

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

Revenue per employee

Healthcare costs per employee

Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters)

CAGR=3%

CAGR=10%

Healthcare increases are rapidly consuming the growth in household income

39%

65%

4%7%

1999 2000 2001 2006

—Annual increase in household income

—Portion used to pay increases in healthcare premiums and out-of-pocket expenditures

* 2002 estimate based on 2001 growthSource: U.S. Census Bureau, Kaiser Family Foundation, UHC Analysis

100% =$2957

100%=$2293

100% =$1073

100% =$1093

Why CDHC Works

Consumerism

The Claim Cost Curve

Incentives & Tools

Why CDHC: Consumerism

Patients shop for quality & price

Providers compete for patient traffic

Patients subject treatment options to cost/benefit analysis

Why CDHC: The Claim Curve

20% of claims = 1/2% of patients 50% of claims = 3% of patients 87% of claims = 31% of patients

69% of patients = 13% of claims

Median patient = $500 non-Rx claims

Member Health Care Expenditure

8%

24%

69%

60%

26%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Healthy Transitional Chronically Ill/High Risk

% Members % of Dollars

($1-$999) ($1,000-$4,999) ($5,000-$100,000)

$30 pmpm

$176 pmpm

$1,259 pmpm

Why CDHC: Incentives & Tools

Patients have incentives & tools to stay healthy

Patients have incentives & tools to consume carefully

Employers have incentives & tools to promote health

2

The Impact of Employee Absence

Fact: Employees absent from work due to disability drivethe majority of your employee medical costs.

UnumProvident Disability & Health Pareto Analyses 2001. Sample size of 225,000 employees of which 22,000 filed disability claims. Dataprovided by Options and Choices, Inc., a UnumProvident Corporation subsidiary that specializes in disability reporting and analysis.

PP-126-39 (02-03)

2

The Impact of Employee Absence

Fact: Employees absent from work due to disability drivethe majority of your employee medical costs.

UnumProvident Disability & Health Pareto Analyses 2001. Sample size of 225,000 employees of which 22,000 filed disability claims. Dataprovided by Options and Choices, Inc., a UnumProvident Corporation subsidiary that specializes in disability reporting and analysis.

PP-126-39 (02-03)

3

STD Claim Duration and Claimant Medical Costs

Based on approximately 4,300 short-term disability claims over 36 months from 1999 through 2001.Costs are adjusted for medical inflation and for claims incurred during the study period but notexpected to be reported until a later date. These adjustments are made using historical experience.

Fact: Employers may impact medical costs by focusing on absencemanagement to reduce the duration of disabilities.

PP-126-39 (02-03)

Part II: The CDHC Tool Box

Wrap Technology: employer funds claims underneath a high deductible plan

Flexible Spending Account: employee funds claims costs with pre-tax dollars

Health Reimbursement Account: employee builds a long term benefit bank with employer funded dollars

The Road to CDHC

The Virtual Indemnity Plan

The Virtual HRA (Health Reimbursement Account)

FSA with Optional Employer Funding

Triple Option Plan

True CDHC: HRA

Blended Approaches

The Virtual Indemnity Plan

Employer buys a high deductible plan: HMO, POS or PPO $500 to $5,000 up front claims corridor Premium Savings from 15% to 50%

Employer “self-funds” the deductible: Employer determines desired ultimate benefit level

Net savings vs. Fully Insured funding: 10% to 20%

The Virtual HRA

Employer buys a high deductible plan: HMO, POS or PPO $500 to $1,000 up front claims corridor

Employer deposits 100% of deductible into HRAs: Employees are fully indemnified against added cost Employees can carry unused funds into second plan year

Employer sets employees’ expectations: Lower HRA contribution in year 2 & beyond and/or higher deductible Gives employees a year’s grace to adjust to new philosophy

Why Consider a Virtual CDHC?

Reduces fixed premiums by 15% to 50% Gives Employer a Stake in Employees’ health & behavior Limits Employer Risk ($500 to $5k per member) Gives Employer credit for Employees’ good experience Gets around Community Rating & Small Group Reform Focuses Employees’ attention on health & behavior Incents Employer to introduce health & health care tools

Gives Employer unlimited plan design flexibility

FSA/Optional Employer Funding

Introduces Employees to a corridor of claims cost liability Employees can pre-fund claims liability with pre-tax $$ Employer can “seed” FSAs with uniform contribution Funds not used for medical can be reallocated to the cost of

vision care, dental care or alternative health therapies Employees become aware of costs and behaviors Employees incented to use health & health care tools But funds unused at year end are forfeited

Triple Option Plan

One high deductible base plan (HMO, POS or PPO) Multiple benefit options underneath Gold = Virtual Indemnity Plan (100% benefits &

freedom) Silver = Base Plan + FSA + HRA Bronze = Base Plan + FSA Only Employer sets cost of options to be “revenue neutral” Employees pay cost differential with pre-tax $$ All options Employer cost same for all options

True CDHP: HRA

High deductible plan (HMO, POS, PPO) Employer funds Health Reimbursement Accounts for ees HRA = an employee’s Virtual Benefit Bank Employee’s allowed out-of-pocket medical costs are paid from

that bank until funds are exhausted Any unused “bank balance” at year end can be rolled over and

used in the next plan year

28 Flavors of HRA

May be limited to certain “core” out-of-pocket costs... Health plan deductible only Health plan deductible & co-insurance only

…Or extended to cover other health care expenses: Dental, vision & alternative therapies Health plan co-pays

Rx drugs, well care and/or office visits may be separate May pay before or after FSA

Blended CDHC Approach

Tier One: Employer funded HRA for each employee Tier Two: Employee claim liability corridor FSA: Employee pre-funds liability with pre-tax $$

unused funds may be allocated to vision, dental, alternative therapies

employer may “seed” FSA in lieu of a formal dental or vision plan

Tier Three: Employer claim liability corridor (The Wrap) Tier Four: Fully insured contract with unlimited benefits

Part III: Implementing CDHC

Analyze the Situation Survey Employees Set Corporate Objective

Design the Solution Obtain insurance quotes Optimize claims cost breakpoint(s)

Implement the Plan Communicate, educate & enroll Deliver concierge service Measure results

Analyze the Situation

Current plan cost & proposed increase Employee cost share & cost sharing formula Current pay scale & planned increases Current benefits Industry norms (competitors): pay & benefits Current Labor market

Survey the Employees

Attitude toward benefits Attitude toward health & health care Benefit priorities Satisfaction assessment Identify current health & health care behaviors

Set Corporate Objectives

Acceptable total increase (if any) Acceptable employee cost increase (if any) Acceptable benefit reduction (if any) Immediate savings required (if any) Target employer budgets for next three plan years

Design the Solution

Identify qualified, competitive insurance carriers Inventory carriers’ CDHC - friendly products Analyze Claim Distribution Stats (ER specific or global) Optimize net savings from ‘wrap’ vs. pure insurance Determine optimum HRA/Deductible breakpoint Modify to reflect corporate objectives & survey results

Communicate the Solution

Begin 60 days out (if possible) - no sooner

Explain Company’s Dilemma & its Options

Present CDHC Design & Compare to other Options

Enrolling CDHC

On-site Group meetings of about 15 employees each Individual counseling available

And On-line CDHC tutorial, FAQs, Q&A Web based enrollment

On-going Education & Service

Permanent Web Site (“Virtual Benefit Manager”) Plan Summary CDHC tutorial & FAQs On-line Q&A

Follow-up Meetings 45 days & 120 days after implementation on-site or via web cast/conference call

Call Center (“Independent Patient Advocate”) Staffed by experienced benefits professionals Working for employees, not insurance company Delivering concierge level service to each plan member

Measuring Results

Repeat employee survey annually Note changes in attitudes, priorities & reported behaviors Measure changes in employee satisfaction Solicit and respect design or service suggestions

Measure changes in claims distribution curve Compare actual claims cost & plan cost vs. projections Compare insurer’s renewal vs. prior & national trend Tweak plan design to optimize future year results

Part IV: Interactive Design

Actual Benemax Cases industry, company size, benefits in force current costs & employee cost share proposed renewal & benefit/cost history labor market & employer’s objectives

Interactive Solution Designed by Workshop Group Compare with client’s actual decision

Evaluation of Client’s Plan Client’s implementation problems/issues (if any) Client’s results to date Comparison of client’s experience with Group’s proposal

CDHC: It’s all about Incentives

Incentives for employers to promote employees’ health Incentives for employees to optimize their own health Incentives for patients to avoid unnecessary care Incentives for patients to shop for high value care Incentives for providers to compete for patients

Summary

There are many styles of CDHC CDHC does not mean cost shifting Introducing CDHC can be a gradual process Every employer can take at least one step toward CDHC.

Thank you for your time today. David Cowles Benemax 800-528-1530 X17 Dave@Benemax.com

Version 2.0 12/02/02 10:25am