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INTRODUCTIONS AND WELCOME

FORUM ON PRE-65 INSURANCE: AN INITIAL VALUE PROPOSITION Emeriti, Aetna, and PricewaterhouseCoopers April 27, 2007. A benefit program of, by, and for colleges, universities, and higher education-related tax-exempt organizations.

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INTRODUCTIONS AND WELCOME

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  1. FORUM ON PRE-65 INSURANCE: AN INITIAL VALUE PROPOSITION Emeriti, Aetna, and PricewaterhouseCoopers April 27, 2007 A benefit program of, by, and for colleges, universities, and higher education-related tax-exempt organizations.

  2. INTRODUCTIONS AND WELCOME PRESENTATION TEAM Kenneth Cool, President, Emeriti Linda Cool, Founding Director, Emeriti Michael Thompson, Principal, PricewaterhouseCoopers Michael Fusaro, Vice President, Aetna 2

  3. AGENDA • MORNING SESSION – 11:00 am (ET) • Strategic Value of Pre-65 Insurance Ken Cool • Results of Pre-65 Insurance Survey Linda Cool • National Content of the Pre-65 Group Mike Thompson and Individual Markets • Embedded Costs of Pre-65 Coverage Mike Thompson • Pre-65 Insurance Concepts for Emeriti Michael Fusaro • Short Question Period Audience • LUNCHEON BREAK – 12:30 pm (ET) • AFTERNOON FEEDBACK SESSION – 1:30 pm (ET) • Dialogue with Participants Emeriti Team • Closing Remarks Ken Cool 3

  4. STRATEGIC LINKAGE OF HEALTH CARE TO RETIREMENT • MOUNTING EVIDENCE • AAUP Survey of Faculty Retirement – 2000 • Mellon College Retirement Project – 2000 • Emeriti Pre-65 Insurance Survey – 2007 • AAUP Survey of Faculty Retirement – 2007 • STRATEGIC ISSUES • Coordination with Retirement Incentive Programs • Coverage Gaps and COBRA Limitations until Medicare • Employer Insurance Expense and Unfunded Liabilities • “Early” Retiree Affordability, Access, and Choice 4

  5. CONTINUUM OF COMPREHENSIVE SUPPORT Age 55 Medicare Eligibility End of Life Savings and Payment Flexibilities Portable Guaranteed Issue Coverage Tax-Free Reimbursement of Qualifying Medical Expenses Integrated Retirement Planning and Education for Participants Outsourced Administrative Services for Employers 5

  6. EMERITI FUNDING FLEXIBILITIES • EMPLOYER OPTIONS • Pre-funded DC Contributions (into Employer VEBA Trust) • Special DC Lump Sums (into Grantor Trust) • Continuing DB Subsidies (on Pay-as-you-go Basis) • PARTICIPANT OPTIONS • Systematic Payroll Contributions (into Employee VEBA Trust) • Periodic Lump Sums (into Employee VEBA Trust) • Monthly Electronic Transfers (Pay-as-you-go Payments) 6

  7. EMERITI INSURANCE CHOICES • Suite of coordinated pre-65 and post-65 insurance options • Comprehensive benefits at varying levels of coverage and cost • Guaranteed issue group coverage (in coordination with plan eligibility criteria) • National access • Annual enrollment choice among plans • Family health security at retirement (retired participant, spouse/partner, and pre-majority children) • Access to other health care benefits 7

  8. THE PRE-65 RETIREE INSURANCE SURVEY 8

  9. THE PRE-65 RETIREE INSURANCE PROJECT • Purpose of the Survey • Explore institutional practices and opinions concerning health insurance for pre-Medicare eligible retirees • Institutions Contacted • 42 current institutional members of Emeriti • 58 institutions expressing interest in Emeriti • 15 institutions with no Emeriti contact Surveys Returned N= 44 (38%) • 26 Emeriti Members • 16 Institutions with Emeriti contact • 2 Institutions with no Emeriti contact 9

  10. INSTITUTIONAL CHARACTERISTICS Size of Active Institutional Workforce Small (under 500) 9 (21%) Medium (500-1,500) 24 (55%) Large (over 1,500) 11 (25%) Type of Institution Private 40 (91%) Public 4 (9%) 10

  11. HOW IMPORTANT IS OFFERING HEALTH INSURANCE TO THE PRE-MEDICARE RETIREMENT DECISION? Very Important 36 (84%) Important (along with pension) 6 (14%) Of Little Importance 1 ( 2%) One survey respondent noted that the institution provides a generous pension contribution so that early retirees should have sufficient resources to buy pre-65 individual coverage. 11

  12. THE PRE-65 RETIREE HEALTH CONTEXT TODAY 12

  13. DOES YOUR INSTITUTION OFFER A PRE-65 RETIREE MEDICAL PROGRAM? 13

  14. DOES YOUR INSTITUTION CONTRIBUTE TO THE RETIREE PREMIUM COST? 14

  15. PREMIUMS CHARGED FOR PRE-65 RETIREE INSURANCE Same premium as actives 29 (76%) Higher premium than actives 9 (24%) NOTE: A statistically significant relationship was found between when an institution assigned the same premium to pre-65 retired participants as the blended active employee rate and when the employer chose to pay all or part of the pre-65 retiree’s premium. 15

  16. ARE EARLY RETIREES KEPT IN ACTIVE PLAN UNTIL MEDICARE ELIGIBILITY? 16

  17. PROPOSED PROGRAM CHANGES FOR PRE-65 MEDICAL INSURANCE 17

  18. WHAT IS YOUR INSTITUTION’S CURRENT THINKING ABOUT THE FUTURE OF YOUR PRE-65 RETIREE HEALTH PROGRAMS? 18

  19. MANAGING EMPLOYER COSTS 19

  20. MANAGING COSTS THROUGH PROGRAM DESIGN CHANGES 20

  21. MOST FREQUENTLY MENTIONED PROGRAM CHANGES UNDER CONSIDERATION • Reduce/Eliminate Employer Premium Subsidy • Cap Future Employer Subsidies at Current Level • Find Alternative Employer Funding without FAS/GAS Liabilities • Remove Retirees from Active Employee Insurance Pool • Re-introduce a “Viable” Pre-65 Retiree Health Program 21

  22. CONCLUDING COMMENTS FROM RESPONDENTS • Lobby for universal health care before Medicare eligibility • Recognize that continued health care is a major concern of those considering early retirement • Develop a voluntary product (“…that allows individuals to fund and then purchase retiree health coverage and that does not require the employer to assume…significant legal, financial, and administrative obligations…is the ideal solution. Unfortunately we all know that this is not practical at this time...”) • Thank Emeriti for this preliminary exploration 22

  23. THE PRE-65 RETIREE MEDICAL DESIGN 23

  24. Factors Influencing Retiree Medical Design • Employers are increasingly unwilling or unable to incur an expense and liability that cannot be sufficiently controlled • Increasingly, access to healthcare coverage during retirement affects an employee’s decision to leave the workforce or re-enter the workforce • Employers want to avoid “retiree burden,” financial and administrative • Current movement toward healthcare consumerism • “Double-edged sword” – Current active employees are foregoing voluntary 403(b) or 401(k) contributions to pay for increased healthcare coverage costs today, further eroding future ability to pay for retiree coverage • Emerging active health plan designs (e.g. HSAs, HRAs) with spillover feature for retirement 241

  25. RETIREE HEALTH ACCESS*RHA Consensus Objectives “Pre-65 is the Key” * Sponsored by Health Care Policy Roundtable (HR Policy Association & Pacific Business Group on Health) 25

  26. RETIREE HEALTH ACCESS*Employer Options: Pre-65 and Post-65 Coverage Retiree Health Access • RHA Group • Group, ERISA Plan • Guaranteed Issue • RHA Hybrid • Group, ERISA Planfor Pre-65 • Individual and Group • for Post-65 • Guaranteed Issue • RHA Direct(Individual) • Non-ERISA • Individual Policies • Subject to Medical • Underwriting • Guaranteed issue and re-entry underwriting to enable phased retirement • Total health advocacy and support geared toward retirees • Suite of retiree health options available nationally • Consortial “risk sharing” among plan sponsors and plan options * Sponsored by Health Care Policy Roundtable (HR Policy Association & Pacific Business Group on Health) 26

  27. Emerging Goals for Retiree Health Benefits • Controlled expense and liability for sponsored health plan • Shared responsibility for health and health security • Joint ability to plan for and “fund” the benefit during active years • Flexible coverage/access for retirees’ personal situations • Measurable value of benefit during working lifetime • Reduced barrier to employees’ retirement decision • Added security against devastating financial risks and long life 27

  28. $ $ Next Generation RetireeHealth Strategy Pay premiums/ medical expenses from other retirement income Fund accountwhile working Subject to eligibility and vesting requirements Health & Security Planning Tools Employee Retiree $ $ Pre-65 and Post-65 Retiree Health Account (RHA) Retiree Health Plan(s) Out of Pocket Expenses Part B and D Premiums Long term care $ • Active Health Account • Spillover excess into Retiree RHA • Incentives for Consumerism/Wellness Gradual Draw Down AnnuityPayouts • Retiree Health Account • Discretionary, matching, or fixed dollar contributions • Investment direction, interest only, or no interest • Incentives for Consumerism/Wellness $ Employer Pre-funded Contributions Employer Pay-as-you-go Subsidies 28

  29. EMBEDDED COSTS OF PRE-65 HEALTH COVERAGE 29

  30. The Hidden Costs of Pre-65 Health Coverage • Pre-65 Retiree Healthcare Costs are not always what they seem • Pre-65 retiree healthcare can cost 1.5-2 times those of a typical active health premium ……. But may be included in a “composite active rate” • Pre-65 retirees may elect COBRA at the “active rate” ….…. But the institution is indirectly picking up the excess cost • Pre-65 retiree utilization may be buried in composite retiree rate ….…. But net costs for pre-65 retirees may be 2-3 times those of post-65s eligible for Medicare reimbursement • FAS 106/GASB 45 require recognition of the true cost of Pre-65 • Implicit Pre-65 subsidies can be extracted and redirected toward true Pre-65 costs 30

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