CBO MENTOR PROJECT

1. CBO MENTOR PROJECT VRT Insurance Services, Inc. Presented by: Terri Ezaki, Managing Director, Sacramento Employee Benefits September 13, 2008

2. Employee benefits are... “any type of plan sponsored or initiated unilaterally or jointly by employers and employees in providing benefits that stem from the employment relationship that are not underwritten or paid directly by government.” Martha Remey Yohalem, “Employee Benefit Plans-1975,” Social Security Bulletin 40, no.11 (November 1977),p.19.

3. Purpose • Benefits in General • Touch on Hot Topics • Leave You With Food for Thought

4. What does “premium” mean? a) utilization b) demographics c) trend d) benefits

5. Medical • Indemnity • PPO (Preferred Provider Organizations) • + Utilization Management • HMO (Health Maintenance Organizations) • Fee-for-Service • Capitation • POS (Point-of-Service) • Consumer Drive Health Plans (CDHP) & High Deductible Health Plans (HDHP) • HSAs • HRAs

6. Managed Care Managed Health Indemnity Provider Centered Member Centered Plan Sponsored Centered Evolution of Health Plans 2008 2002 Today Yesterday Source: The Handbook of Employee Benefits, “Understanding Managed Care Health Plans: Understanding Costs and Evaluating Plans”, Phillip D. Pierce, pg. 190.

7. Medical • Fully Insured versus Self-Insured • Stop Loss- specific, aggregate • Third Party Administrator (TPA) • Reserves- Incurred but not reported(IBNR), Stabilization Reserve • Trend

8. Medical • Benefit Designs - What’s important? • Cost = Price x Utilization • Co-insurance (100%, 90%, 80%) • In Network, Out of Network (Usual, reasonable & customary) • Copays (office visits, ER, in-patient hospital, etc) • Prescription Cards • generic, brand, non-formulary, deductibles

9. Prescriptions • What is a formulary? • Open: patient has no financial penalty for using non-formulary drug. • Incentive-based: patient pays a higher copay for using non-formulary based drug. • Closed: if patient uses non formulary drug the charge is not covered.

10. Prescriptions • What is the goal of a formulary? • Affect drug selection • Lower cost through lower average wholesale prices & manufacturer rebates for large quantity purchases

11. Alternative / Complimentary Medicine “The health of my body, mind and spirit are related, and whoever cares for my health should take that into account.”

12. Dental • Indemnity • PPO (DPO) • DHMO

13. Dental- Benefit Designs • Incentive vs “Commercial” • CYM • Preventative • Basic • Major • Ortho • Prosthodentic • Implants

14. Vision • 66% of the Population Needs Corrective Eyewear • HMO + Hardware Only • Stand Alone

15. Vision - Benefit Designs • Frequency & Copays • Exam • Lenses • Frames • 12/12/12; 12/24/24; 24/24/24

16. Employee Assistance Program (EAP) • Preventive vs. Curative

17. What is an EAP? Services used to address and respond to employees whose personal, emotional, or behavioral problems interfere directly or indirectly with work performance by providing confidential and or professional information, care or referral to appropriate sources of help. (H. Schmitz, 1982. The Handbook Of Employee Counseling Programs.)

18. Employer Services • Workplace Resolutions • Conflict Mediation • Supervisory/Management Trainings • Critical Incident Debriefings/Defusings • Wellness/Brownbag Seminars • Management Consultations

19. Employee Services • Assessments, Referrals, Brief Treatment • 3, 5, Or 8 Visits - Standard • Drug And Alcohol Dependency • Marital, Divorce And Family Issues • Legal And Financial Services • Available For Crisis/Emergencies • Childcare, Eldercare And Parenting Issues • Bereavement/Retirement Assistance • Utilizes Community Resources • AND Much More….

20. Cafeteria Plans - the Law • Revenue Act of 1978 • created two new sections to the Internal Revenue Code: • Section 401(k) permits deferred compensation for retirement programs • Section 125 enables employers to create a "Cafeteria Plan" which allows employees to pay for certain benefits on a pre-tax basis

21. Why Create a Cafeteria Plan? Reduces income equal to the cost of the benefit Employees realize an increase in take-home pay Lowers Taxable Income Employee Benefits Reduces state income taxes paid HSA Reduces FICA taxes paid Employee satisfaction

22. Components of a Cafeteria Plan- Premium Reduction Plan • Cornerstone of a Cafeteria Plan • Offers a benefit to virtually all employees and is the easiest to administer • Employees elect to reduce their income by an amount equal to their cost for benefits.

23. Components of a Cafeteria Plan Dependent Care Reimbursement Plan • Allows employees to pay for eligible dependent care expenses (i.e child daycare) on a pretax basis. • Employees decide each year how much they want to contribute through payroll reductions to their account • Eligible receipts are submitted to the Plan Administrator & employee is reimbursed with their untaxed dollars

24. Components of a Cafeteria Plan Medical Reimbursement Plan • Allows employees to create an account to pay for benefits not covered under the insurance plan • deductibles, coinsurance, copayments • Employees decide amount to contribute to the plan at the beginning of each plan year • Eligible receipts are submitted to the Plan Administrator & employee is reimbursed with their untaxed dollars

25. Pros and Cons Employee Disadvantages • Generally, employees may not change their election DURING the plan year • Any remaining end of year balance is forfeited to the employer (“use-it-or-lose-it”)

26. Retirees • Under 65 • Over 65 • Require Medicare A and B • Medicare Eligibility- who pays first? • Medicare Advantage

27. Enacted Legislation • COBRA/Cal COBRA (AB 1401) • Domestic Partners (AB 205/AB 2208) • Same Gender Marriages • Medicare Part D • HDHP/HSA

28. COBRA/CAL COBRA • Health Care Continuation Coverage • Qualifying Events coupled with loss of coverage • Duration of 18 - 36 months (Federal) • State additional 18 months through Cal COBRA (AB 1401) • Full insured medical only • January 1, 2003 and beyond • Must exhaust Federal COBRA • 110% of premium

29. Medicare Part D (In Brief) • Medicare Modernization Act of 2003 • Created a prescription drug program for members enrolled in Medicare A and/or B • Employers could file for subsidy or allow carriers to provide Part D • Reduction in prescription premium • Some benefit modifications have been noticed • Medicare Advantage plans (MA-PD) versus PDP • MAPD – Health Net Seniority Plus, Kaiser Senior Advantage, PacifiCare Secure Horizons • PDP – Blue Cross, generally HMO COB plans • Some have no Part D (Health Net out of state) • Creditable Coverage Notices

30. Domestic Partners (AB 205/ 2208) • AB 205 • Treats registered domestic partners (RDPs) the same as spouses under California law, effective January 1, 2005 • Must file a declaration of Domestic Partnership with the California Secretary of State (Family Code 297) • Dissolution similar to divorce • AB 2208 • Insurance carriers in the State of CA are required to provide group or individual coverage to RDPs • RDPs are not taxed for State but are on Federal • Fair Market Value unless qualify as IRC Section 152 dependent • RDPs expenses are not reimbursable through a Section 125 Flex Plan or HAS • Same gender marriages-California Only

31. CDHP is... • Consumer Driven Health Plans (CDHP) generally combine a medical plan (with a higher annual deductible) and a funding instrument (HSA) • CDHP are designed to change consumers behavior by giving them opportunities to control their health care costs • Individuals can determine how they would like to spend their health care dollars • Taking a more direct approach and control over their individual health care • Choosing their preferred therapeutic regimens

32. HDHP/HSA-the Short Version • HDHP-the medical plan • Certain components are dictated by the legislation for 2009: • Individual Deductible $1,150; Family $2,300 • Maximum OOP $5,800; $11,600 • All services with few exceptions (preventative) applies to deductible • HSA (Health Savings Account) • To contribute, must be enrolled in a HDHP (and no other health plan) • 2009 limits are: $3,000 individual; $5,950 Family

33. Negotiations & Benefits • Costs are going up- “whose fault is it?” • Education, communication • Use of insurance committee • “Caps” • Consumer is forced to share in cost • Move toward member management • Appreciation of benefits

34. Negotiations & Benefits – cont’d • Plan changes = Cost Sharing • Deductibles • Office Visit Co-Pays • OOP Maximums • Need for decision making tools • Leverage what is available through carriers/vendors • Wellness versus Disease Management • 80/20 rule – who is the audience? • Community Resources • Other • Eligibility audits • Spousal Surcharge • Outsourcing Administrative Duties • Voluntary benefits • Short term disability • Long term disability • Long Term Care

35. QUESTIONS…..