Short and Long Term Strategies for Controlling Health Insurance Costs

1. Short and Long Term Strategies for Controlling Health Insurance Costs Chet Rhoads The HDH Group November 19, 2014

2. Percentage of Firms Offering Health Benefits • 83% of firms with 25-49 employees offer health insurance • 91% of firms with 50-199 employees offer health insurance • 98% of firms with 200-999 employees offer health insurance • 100% of firms with 1,000 employees or more offer health insurance

5. Human Capital • Most important Asset comes with a price • Best talent in Labor Pool • Innovation • Competitive Advantage • Compete with Global Markets • Relationship Pipeline • Competitive Wages are Comprised by unsustainable healthcare costs • Competitors that can control healthcare cost will have the advantage of attaining/retaining best talent

7. Short Term Strategies • Will not sustain healthcare costs over time • Typically transfers more of the burden on employee • Carriers and legislation can impose limits • Engagement of employee workforce limited

8. What are the Short Term Strategies? • Higher deductibles, versus higher employee contributions • Implement coinsurance for in-network services • Higher ER co-pays • Health Reimbursement Account (HRA)/Health Savings Account (HSA) • Spousal Mandate/Surcharge (Working Spouse Provision) • Prescription Drug Programs • Mandatory Generic • Mail Order • Formulary

9. Long Term Strategies • Sustain healthcare costs over time • Encourage employees/dependents to make better healthcare decisions • Encourage employees/dependents to conduct better behavioral lifestyles • More latitude with carriers and legislation • Over time, a culture is created for invested and engaged workforce

10. What are the Long Term Strategies? • Alternative Funding Arrangements • Self-Funding – Cost Plus, Administrative Services Only (ASO) • Captive • Prescription Drug Carve-Outs • Defined Contribution/Private Exchange Model • Wellness • Data Integrity

11. Fully-Insured • Remit monthly premium to insurance carrier • Carrier in turn will pay: • Claims • Administration • Reinsurance

12. Fully-Insured: Pros & Cons • Pros • Predictable budget • Less volatile compared to self-funding • Carrier pays PPACA fees on client’s behalf • Client not responsible for run-out claims • Cons • Carrier uses past claims experience to determine future rates • Premium payments do not reflect real-time claims changes • Carrier sets the pooling level ($125K) • Administration built into the rates is higher than a self-funded arrangement • 2-3% annual fee on health insurance providers only applies to fully-insured plans (2014) • Premium taxes

13. Self-Funding • A trade off of short term stability for long term cost savings • Assume more risk/opportunity for more reward • Pay carrier a monthly or weekly administrative fee for claims adjudication, billing, eligibility, customer service, etc… • Purchase Stop Loss Insurance • Specific: Protects client when claims incurred during policy year on any one member exceed specific liability • Aggregate: Protects client when claims incurred during policy period exceed a certain corridor above expected claims • Pay actual claims less stop loss reimbursements monthly • Reserves – Held by Carrier or Client • Settlement – Annually if carrier hold reserves

14. Self-Funding: Pros & Cons • Pros • Good years; ABC Company experiences immediate savings • ABC Company chooses the amount of risk to retain via the specific deductible • Carrier does not profit as a result of good claims • ABC Company holds onto excess reserves instead of paying them to a carrier • Avoid 2-3% fee on health insurance providers (2014) and premium taxes • Administration of the plan less expensive • Carrier renewal rates irrelevant (used for COBRA and budgeting) • Cons • Bad years; possibility of spending more than fully-insured rates • More volatile compared to fully-insured (volatility a function of stop loss specific deductible) • Client responsible for run-out claims in the event of a carrier change/termination of plan/layoffs • Carriers do not remit PPACA fees on client’s behalf – Employer pays fees annually based on members

15. What is a “captive”? • Captive • A member-owned insurance company • Initial captive structures were created for the Fortune 500 (e.g. Exxon, IBM, Xerox) • Group Captive • Provided the advantages of a captive to small and mid-market employers • Over 50% of mid-sized employers are in an alternative risk program

18. Prescription Drug Carve-Out • Plan sponsor chooses a Pharmacy Benefit Manager (PBM) to administer and manage prescription drug benefits separate from the PBM contracted with the health plan • Plan sponsor ends up paying less in administrative fee by contracting directly with a PBM on a carve-out basis • Plan sponsors are able to remove fees that bear no relationship to the performance of their plan or the cost of providing a pharmacy benefit • Negotiating contract terms and conditions • Audit rights • Clinical management • Risk management programs

19. Prescription Drug Carve-Out • Allows for aggressive price negotiations • Governs pricing, discounts and rebates • Allows for carve-out specialty Prescription Drugs • Customized Clinical Programs • Medical Program must be self-funded to have ability to carve Prescription Drug Program out • Caution! – It is important that data feeds between PBM and medical carrier/administrator take place for integration of pharmacy benefit claims and medical claims

20. Defined Contribution Private Exchange Model Private Exchange Model Video

21. Affordable & Sustainable Cost • Employer Defines their Contribution (flexible choices to fit your management philosophy and budget). • Offers employees multiple benefits choices. • Employees value choice and the ability to create a benefit plan that fits their needs. New Model: Employees get to select the benefits that make sense for their lives • Chris & Family • Previously $1,000Now is $750

22. Invested Consumer=Engaged Employee Defined Contribution Helps Create Engaged Employees by: • Providing choice • Providing decision making tools • Creating a purchasing venue that is easy for the employee to evaluate the options and enroll in plans that make sense for them

23. Wellness Programs & ACA Summary

24. Data Integrity • Delivering available, complete, accurate data on time • Transforming information into actionable knowledge that empowers the continuum of patient care • Significantly enhances patient and population health • Control cost • Creates venue to: • Optimize care • Improve outcomes • Control Costs

25. Data Integrity • Trust & Secure – Cleansing, Archiving, Safeguarding, and Controlling Data • Visibility – Online financial and clinical dashboards, population health trends and analysis • Insight – Data driven underwriting analysis, benchmarking and modeling for plan design • Optimize – Financial Risk Pools driven by predictive analytics

28. Thank you for your attention. Questions…?