A New Strategy for Group-Sponsored Health Care: The Competitive Marketplace Model

1. A New Strategy for Group-Sponsored Health Care: The Competitive Marketplace Model September 27, 2012 Kraig Koester, SVP of Outsourcing Business Development Linda Van Howe, SVP and Local Practice Leader

2. Affordable Care Act—Your Compliance Timeline • 2011 Plan Year • 2011 • 2012 • 2013 • 2014 • 2018 • Lifetime dollar limits on Essential Health Benefits (EHB) prohibited1 • Preexisting Condition Exclusions Prohibited for Children under 191 • Overly restrictive annual dollar limits on EHB prohibited1 • Extension of Adult Child Coverage to Age 261 • Prohibition on Rescissions1 • No Cost Sharing and Coverage for Certain In-Network Preventive Health Services2 • Effective Appeals Process2 • Consumer/patient protections2 • Nondiscrimination requirements on fully insured plans2 (DELAYED) • Certain Retiree Medical Claims Reimbursable (ERRP) • Retiree Drug Plan FAS Liability Recognition • Over-the-Counter Medicines Not Reimbursable Under Health FSA, HRAs, or from HSAs Without a Prescription, Except Insulin • HSA Excise Tax Increase • Public Long-term Care Option (CLASS Act)—No Longer Supported by HHS • Medicare Part D Discounts for Certain Drugs in “Donut Hole” • Employer Distribution of Summary of Benefits and Coverage to Participants1 • Comparative Effectiveness Fee • Employer Quality of Care Report2 • Medical Loss Ratio rebates (insured plans only)1 • Employer Reporting of Health Coverage on Form W-2 (due January 31, 2013) • Notice to Inform Employees of Coverage Options in Exchange • Limit of Health Care FSA Contributions to $2,500 (Indexed) • Elimination of Deduction for Expenses Allocable to Retiree Drug Subsidy (RDS) • Medicare Tax on High Income • Addition of women’s preventive health requirements to No Cost Sharing and Coverage for Certain In-Network Preventive Health Services2 • Individual Mandate to Purchase Insurance or Pay Penalty • State Insurance Exchanges • Employer Responsibility to Provide Affordable Minimum Essential Health Coverage3 • Preexisting Conditions Exclusions Prohibited1 • Annual Dollar Limits on EHB Prohibited1 • Automatic Enrollment • Limit of 90-Day Waiting Period for Coverage1 • Employer Reporting of Health Insurance Information to Government and Participants • Increased Cap on Rewards for Participation in Wellness Program2 • Cost-sharing limits for all group health plans, not just HDHPs/HSA (deductibles and OOP maximum)2 • Excise Tax on High-Cost Coverage 1 Denotes group/insurance market reforms applicable to all group health plans. 2 Denotes group/insurance market reforms not applicable to grandfathered health plans. 3 This requirement applies to full time employees (e.g., 30 hours per week) and will require coverage that is affordable and satisfies a certain actuarial value to avoid the penalty. Guidance forthcoming. Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

3. Reform. Rising Costs. Declining Health. What now? Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

4. Leveraging/Subsidizing Exchanges • Key Questions Employers are Asking About Exchanges • Will the state exchanges happen? And if they do, will that work for any of my population? • What are private or “corporate” exchanges? • How do they work? • What is my role as the employer? • How will they affect my cost? How about my employees’ cost? • What are the reform compliance implications if I pursue this path? Play on a New Field Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

5. What is an Exchange? • An exchange is a competitive marketplace that consists of suppliers and buyers Suppliers Buyers Exchange Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

6. Disruptive Exchange Models Changed the Travel Industry Sustained Outcomes Driven by the Exchanges One in two US leisure travelers purchase airfare online today Improved consumer-oriented shopping experience enables price-conscious buyers to select from comparable travel options Cascading changes drove innovation through value chain, creating a more efficient marketplace Travel agents were forced to adapt their value proposition or went out of business Airlines that are able to drive reduced cost, improved outcomes, and a superior customer experience will flourish Where Has This Worked Before? • Corporate Exchange innovation can have a similar affect on the supply side of the healthcare value chain by transferring accountability to insurers in a competitive marketplace • Faced with a consumer-based, price-sensitive environment, insurers will be forced to compete for membership to a degree they have not experienced in the employer market Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

7. Corporate Exchange: How It Works 6 Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

8. Corporate Exchange Plan Designs * Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

9. How Can We Gain Predictability and Risk Transfer Without Cost Increases? Insurers will have accountability for managing care; price becomes critically important With competition mitigating trend, plan sponsors can move to a DC approach without long-term cost-shifting to associates Insured Plans In every consumer market, competition reduces cost Defined ContributionSubsidy Competition Reduce Trend Remove Volatility Ensure Employee Sustainability Choice and Flexibility Best-in-MarketEfficiencies Consumerism Freedom of movement across insurers will keep costs low and, service levels high, generating more control and increased satisfaction Regional rating bands allows market-specific insurer strengths to emerge Consumers will make economic choices if they can reap the full economic benefit No “Silver Bullet”: Six Key Levers Working in Concert Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

10. Benefits for Key Stakeholders Employer Employee Carrier • Group contracts, economies of scale • Administrative efficiencies • Market share opportunity (and risk) • Better risk than individual and small group market in state exchanges • Risk adjustment mechanism to mitigate adverse selection • Reduced overhead • More limited “hands on” management role • Ability to control liability through fixed subsidy (DC) • Short-term cost reduction through best-in-market contracting • Transfer of risk to insurers • Focus on wellness and health/productivity • Ability to effect gradual transitions to an individual market, true defined contribution model • Greater autonomy and choice of carriers and plan options • Ability to tailor benefit/contribution trade off • Eventual portability from individually owned policies • More affordable coverage than what would be available through state exchanges • Superior customer experience over state exchanges; includes advocacy function 9 Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

11. Employers Will Join a Corporate Exchange if They: • Are philosophically aligned with “monetizing” their commitment in the form of a defined contribution • Do not want to be involved in plan design or vendor relationships, but still want to own health promotion • Do not believe that health benefit plan design should differentiate in Total Rewards • Want to move toward a compensation-like rate of cost growth in the long term without cost-shifting to employees • Are comfortable with employees accessing information and support from a third party Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

12. Corporate Exchange Timeline September–NovemberEmployee rollout and annual enrollment Binding RatesReturned January–February Letter of Agreement to secure ratesfrom insurers; RFP in February June Final ratesfrom insurers March–AprilRFP results, business case, and go/no-go decisions Build corporate exchange modelwith employersand insurers Q3 2012 Q1 2013 Q2 2013 Q3-Q4 2013 Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012

13. Aon Hewitt • Kraig Koester, SVP, Outsourcing Business Development • 614/284-9313 • Kraig.koester@aonhewitt.com • Linda Van Howe, SVP, Detroit Health and Benefits Practice Leader • 248/936-5238 • Linda.van.howe@aonhewitt.com Consulting | National Health Care Exchange Proprietary & Confidential |Michigan Purchasers Health Alliance's Annual Conference, September 2012