CIA Annual Meeting Assemblée annuelle de l’ICA

1. CIA Annual MeetingAssemblée annuelle de l’ICA June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006 Ottawa, Ontario Session GRP-1 : Added Value of TPA /TPP

2. CIA Annual Meeting ŸAssemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP Pricing Reserves & Accounting Legal Tax Session GRP-1 : Added Value of TPA /TPP

3. CIA Annual Meeting ŸAssemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP Pricing (see Example) Administration Charges of TPA / TPP General administration Charge Claims administration Charge May be Higher than the corresponding Insurer’s charge Equal to the corresponding Insurer’s charge Lower than the corresponding Insurer’s charge Charges made by drug card network providers may differ between a large insurer and a TPA/TPP Session GRP-1 : Added Value of TPA /TPP

4. CIA Annual Meeting ŸAssemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP Pricing (see Example) Employer can save money by going ASO Insurer’s Risk Charge is gone Can save Premium Tax outside Quebec, Ontario and Newfoundland & Labrador Insurer’s Profit Charge goes down No MCCSR  No alternative cost of capital Employer can lose some money by going ASO Insurer’s Sales discounts may be lost Insurers may quote below cost on insured groups Employer takes the experience risk Risk can be mitigated by using stop-loss Session GRP-1 : Added Value of TPA /TPP

5. CIA Annual Meeting ŸAssemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP Reserves If Employer goes ASO IBNR Reserves Not held by the insurer (since no insurer) No CICA 3461 Requirement for IBNR on Health & Dental No obligation to pre-fund IBNR Reserves are still a liability for the employer (may be off-balance sheet) DLR reserves on LTD must be recognized under CICA 3461 No obligation to pre-fund  Remember Eaton’s Need for an actuarial valuation (to be paid for by Employer) If Employer is registered at the SEC, documentation requirements of Sarbanes-Oxley would apply Session GRP-1 : Added Value of TPA /TPP

6. CIA Annual Meeting ŸAssemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP Legal Designation of beneficiary under Quebec Civil Code Section 2451: designation remains revocable until received by the insurer Impact depends upon whether TPA is mandated by Insurer or by Employer If TPA is mandated by Employer, a normally irrevocable beneficiary could remain revocable  may sue if revoked Self-Insured plan with TPA does not have automatic access to pooling under Quebec Drug Insurance Act Need to negotiate with the Société de Compensation Session GRP-1 : Added Value of TPA /TPP

7. CIA Annual Meeting ŸAssemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP Tax TPA/TPP services are subject to 7% GST, 8% Ontario sales tax and 7.5% QST if the plan is self-insured TPA/TPP services are subject to 8% Ontario sales tax and the 9% Quebec tax if the plan is partially or totally insured and the insurer pays the TPA/TPP TPA/TPP services are subject to 7% GST, 8% Ontario sales tax and 7.5% QST if the plan is partially or totally insured and the employer pays the TPA/TPP Session GRP-1 : Added Value of TPA /TPP