2013 NATIONAL SURVEY OF EMPLOYER-SPONSORED HEALTH PLANS Kosciusko / Ft. Wayne area

1. 2013 NATIONAL SURVEY OFEMPLOYER-SPONSORED HEALTH PLANSKosciusko / Ft. Wayne area March 11, 2014

2. Oldest Marking 29 years of measuring health plan trends About Mercer’s National Survey of Employer-Sponsored Health Plans  Largest 2,842employers participated in 2013  Most comprehensive Extensive questionnaire covers a full range of health benefit issues and strategies  Statistically valid Based on a probability sample -- only Mercer and Kaiser survey this way  Covers employers of all sizes, all industries, all regions Results project to all US employers with 10 or more employees  Employer size groups in presentation Small: 10-499 employees / Large: 500+ employees / Very large: 5,000+ employees 

3. Who’s in the audience? • Employers (HR, benefits, CFO, etc.) • Recruiters / Employment • Healthcare Providers / Health Delivery Organizations • Vendors / Carriers • Brokers / Consultants • Other category? • Small 10 - 500 • Large 500 – 4,999 • Very Large 5,000+

4. HIGHLIGHTS………… Health benefit cost grew 2.1% in 2013 – a 16-year low Employers warned of a rebound in 2014   Most employers say health reform will increase their spending in 2014 Many take action to counter ACA cost challenges  CDHP enrollment continues to grow, matching enrollment in HMOs Employers use CDHPs to meet cost, choice and compliance goals  Widespread interest in private exchanges as a way to add choice While controlling cost and simplifying administration  Health management programs stress innovation and engagement Most employers that measure ROI see lower trends  Employers remain committed to sponsoring health benefits Sustainable health programs will require workforce planning, proven strategies

5. Cost growth slowed again in 2013, higher increases expected 2014Average total health benefit cost per employee rose just 2.1% in 2013 Cost 2014 rebound? *ProjectedSource: Mercer’s National Survey of Employer-Sponsored Health Plans; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April) 1990-2013; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April) 1990-2013.

6. Cost rose faster among larger employers, but mid-sized employers experienced the highest cost per employee Cost + 3.7% + 2.1% + 1.5% + 0.8% All employers Employerswith 10-499 employees Employerswith 500-4,999 employees Employers with 5,000 or more employees 5

7. Underlying cost trend still high at 8%, but employers plan to hold the average increase in per-employee cost to about 5%Estimated cost increase to renew plans with no changes vs. actual increase after plan changes Cost * Projected

8. Cost shifting has been considerableAverage PPO deductible for individual, in-network coverage Cost 7

9. The typical employer plan still meets the ACA’s plan value requirement of 60% of covered expenses – with room for further cost shifting Large employers Cost Do you know your plan’s actuarial relative value? * Cost sharing for individual, in-network coverage 8 8

10. Most large employers say reform will boost health spending in 2014 – beyond normal cost increases – due to higher enrollment and fees Cost Expected impact due to higher enrollment and fees in 2014 Expect increase of 3% or more due to higher enrollment and fees, by industry No increase in health spending Don’t know Increase of less than 3% Increase of 3-4% Increase of more than 10% Increase of 5-10% Services Finance Wholesale/ Retail Health care Government Manufacturing Transportation/Communic./Utility Last year’s

11. Employers’ success in bringing cost growth under control will be challenged by health reform Employer actions holding cost down • Resetting benefit value • consumer-directed health plans • greater employee cost-sharing • New focus on employee choice • More sophisticated health management programs • Market innovations creating more efficient health care delivery • Individual mandate • Expanded eligibility • Mandated coverages • Conservative pricing by carriers ACA impacts pushing costs up

12. Raise employee contribution percentage for dependent coverage Raise employee contribution percentage for employee-only coverage Other change ACA Managing growth in enrollment by changing contribution strategiesLarge employers 11

13. ACA Employers taking bolder action to steer spouses to other coverageSpecial provisions concerning spouses with other coverage available If you adopt this approach, be certain not to inadvertently discriminate! [HCEs, Civil Rights, Statutory……] Spouses with other coverage are not eligible Spouses with other coverage must pay surcharge Spouses with other coverage are not eligible Spouses with other coverage must pay surcharge Large employers Very large employers

14. ACA But the shared responsibility requirements are just the beginningMajority of large employers in danger of getting hit with excise tax by 2022 …but almost a third said avoiding the tax influenced health plan decisions for 2014 Percent of employers that would be subject to the excise tax if they made no changes to their current plan… Avoiding the excise tax influenced health plan decisions for 2014 Excise tax did not influence 2014 decisions Source: 2011 National Survey of Employer-Sponsored Health Plans

15. ACA Taking steps now to avoid the excise tax in 2018Large employers

16. Consumer-Directed Health Plans have become mainstream! CDHPs seen as central to meeting the challenges of health reform Provide a low-cost plan to newly eligible employees Encourage employees to use the health care system wisely Avoid the excise tax

17. CDHP Use of consumer-directed health plans is likely to accelerate over the next three yearsLarge employers By 2016, 64% of large employers expect to offer a CDHP

18. CDHP CDHPs typically pass the 60% “test” and cost about 17%-20% less than PPO and HMO coverageMedical plan cost per employee per year PPO HMO HSA-eligible CDHP (Includes employer contributions to HSA accounts)

19. CDHP Employers working to build enrollment in CDHPsLarge employers Expect to offer a CDHP as full replacement 3 years from now HSA-based CDHP enrollment rises over time % choosing CDHP when offered w/other medical plans Employer HSA funding drives enrollment . . . % choosing HSA when offered with other medical plans . . . but extensive communication is also important % choosing HSA when offered with other medical plans Employer does not have contribution to HSA Employer HSA contribution of $800+

20. Reducing cost by adding choice – a win-win approach Under health reform all individuals must have health insurance, so employers face rising enrollment and more diverse needs Choice promotes efficiency by allowing employees to buy only what they need Private exchanges add choice without adding administrative burden Eases transition to sustainable program

21. PUBLIC VS PRIVATE EXCHANGES PUBLIC PRIVATE Open Closed Medical, prescription Dental, vision, life, voluntary, plus more Government sponsored Broker, insurer, TPAtechnology firm Single or multiple carrier Insured or self-funded Actives, retirees Individuals Group plans

22. Private health care exchanges poised for rapid growth Choice One-fourth of employers are considering switching to a private exchange within two years, and 45% would consider switching within five years Considering for pre-Medicare-eligible retirees Considering for Medicare-eligible retirees Considering private exchanges for either actives or retirees Considering for active employees 21

23. Mercer Marketplace Efficient solutions for employers Carriers Election Data Payroll Deductions HR Profes-sionals Reporting and Premium Data

24. Choice Early results from Mercer MarketplaceEmployers’ top three reasons for moving to Mercer Marketplace Simplified administration and compliance 63% Ability to better manage future costs, defined contribution facilitation 47% Achieve immediate cost savings 41% Note: Reflects % of early adopters ranking reason as a significant factor in their decision to move to Mercer Marketplace; for most clients, more than one reason played a significant role.   

25. Choice Right-sizing: Reduced number of over-insured Typical range of value in current medical plans: to 2% 5% 61% 92% 75% 85% Mercer Marketplace range of value: to Impact of right-sizing on total cost (estimated): in year 1, and growing over time to

26. Choice Early results from Mercer MarketplaceMedical right-sizing in first year Average value of medical plans pre-Marketplace 80.4% Average value of medical plans post-Marketplace 71.9% Per employee cost reduction from right-sizing $800

27. Choice Early results from Mercer Marketplace Most employers providing at least three plan options

28. More employers using voluntary benefits to maintain employee benefit options as core benefit plans changeLarge employers Choice Profile of a successful voluntary program • Employee-valued products • User-friendly platform • Multi-faceted enrollment solutions • Robust education and communication program • Program coordination Why employers offer a voluntary benefits program To maintain employee benefit options as core benefit plans change Accommodate employee requests Offer additional benefits at no cost to the employer Give employees opportunity to fill gaps in employer-paid benefits Help employees take advantage of group purchasing power

29. Choice Expanding employees’ view of the whole benefit packageMeeting diverse needs without driving up employer costs Percent of large employers offering the benefit 90% 60% 30% 0% *Data on work/life benefits (with the exception of fitness centers) is from Mercer’s 2012 survey 28

30. Choice Integrating voluntary + core benefits improves employee up-takePercent of large employers reporting increase in up-take in last 2 years Voluntary benefits sponsors with integrated platforms reporting growth in take-up Voluntary benefits sponsors without integrated platforms reporting growth in take-up

31. Taking health management to a new level Employers are banking on health management to control long-term costs. In 2013, employers took steps to: Promote engagement as well as participation Create a supportive work environment Measure results

32. Health Fewer employers are willing to offer only their health plan’s standard servicesLarge employers More employers are contracting with specialty vendors and purchasing optional services from their health plans Through health plan – standard services only Through health plan – some optional services Contract with one or more specialty vendors

33. Health Health management now the norm, addressing a full range of needsPercent of employers offering program End-of-life case management Case management Disease management Nurse advice line Health advocate Lifestyle management Health assessment Addressing the continuum of health needs PROACTIVE REACTIVE

34. Financial incentives are becoming the norm in health management programs, and participation rates are rising as a result Health More employers are driving engagement through financial incentives, most often cash or contribution reductions Large employers Very large employers Large employers using incentives report higher participation rates *Average % of identified persons actively engaged in program Health assessment completion rate Lifestyle management program participation rate* Validated biometric screening rate 33

35. Health Engaging employees to improve health habitsGroup activities and technology-based tools offered

36. Continued growth in use of outcomes-based incentives More large employers linking incentives to what employees do about their health Health Provide incentives for achieving or maintaining targets for BP, BMI, cholesterol Offer lower premium contributions to non-tobacco users 35

37. Measuring health management ROI can be challenging, but results are encouragingVery large employers Health …with 79% reporting a positive impact on medical plan trend 38% have formally measured ROI … Substantial positive impact on medical cost trend No Yes Small positive impact on medical trend No improvement in medical trend was found so far

38. The largest employers lead the way with innovations that reward high-quality, efficient providers Health Value-based design Surgical centers of excellence High-performance networks Collective purchasing of medical benefits Telemedicine Medical homes Reference-based pricing

39. Health reform has employers re-thinking workforce strategies Building a sustainable health program in the post-reform world means looking at workforce issues as well as benefit plan design Should we use more part-timers to limit the number of eligible employees? Does a segmentation strategy make sense? Stay in the game – or exit?

40. Requirement to extend coverage to all employees working 30 or more hours per week will hit some industries harder than others Percent of large employers that currently do not offer coverage in a qualified plan to all employees working an average of 30 or more hours per week Takes effect 1-1-15! Retail / wholesale Transportation / Communication / Utility Government Health care Services Financial services Manufacturing

41. Likely response to ACA’s requirement that all employees working 30 or more hours per week be eligible for coverageBased on large employers that do not currently offer coverage to all employees working 30 or more hours per week Make all employees eligible for the full-time employee plans(s) Add a new lower-cost option for all employees Use segmentation strategy: Offer a lower-cost plan to newly eligible employees and….. Pay shared responsibility penalty as necessary 40

42. About one in ten large employers will reduce some workers’ hours to limit the number of newly eligible employees Will have fewer employees working 30 hours or more per week Will make some other change in workforce strategy Will make no adjustments Already in compliance (no change needed)

43. Large employers remain committed to offering health coveragePercent of employers that say they are “very likely” or “likely” to terminate plans within the next five years Employers with fewer than 50 employees Employers with 500 or more employees Employers with 50-199 employees

44. Employer profile

45. About the Survey • The employer groups shown in this presentation are: • The map below shows which states fall into each of the four major geographic regions: 44

46. Demographics Generally, every 1 year of age = +3% increase in cost And women incur more cost than men, until around age 50…. the the reverse is true. Unions tend to negotiate for richer (more expensive) plans. 45

47. Medical plan prevalence

48. Type of medical plan offeredPercent of employers offering each type of medical plan 47

49. Employee enrollmentPercent of all covered employees enrolled in each type of medical plan Kosciusko - Ft. Wayne Indiana 500+ 50-499 Employees 500-4,999 Employees 48

50. Total health benefit cost