Defined Contribution Strategies Using Private Exchanges A Case Study

1. Defined Contribution Strategies Using Private Exchanges A Case Study Barbara M. Watters Vice President, Human Resources February 21, 2013

2. Factory Motor Parts Company • A multi-generational family business founded in 1945. • Grown organically and through acquisitions from 1 location in Minneapolis, MN to 104 in 21 States. • Ford and GM’s largest wholesale distributor of aftermarket Original Equipment (OEM) parts • Serving the Mid-west, Mountain, West including Alaska and Southwest regions along with select products in other markets and overseas. • “A Forever Company”

3. Over 2,000,000 sq ft of Warehouse700 + Delivery Vehicles400 + Sales Professionals - 35 Location in 2001- 104 Locations in 2012

4. A Growth Implication for Human Resources: Need Competitive Rewards Strategy Recruit, Attract and Retain • Our Challenges: • Industry with thin margins • Wage & Benefit Cost Control Critical • Competition = Large Public Employers • Competitive Variations in hire markets • Attractiveness ? -Had 1 HD plan design • BUT • Keep CostsandROI

5. Additional Challenges • Leadership Team –The Message: Provides cost predictability with EE satisfaction & market competitiveness. • Communications – 2000 employees/21 States • Employee Diversity- Age, Ethnicity, language, geography, education, experience, incomes. • Limited Computer Access – or familiarity • Lack of Education/Experience- Little knowledge of plan designs; no experience with choices. Outside support CRITICAL. • Cumbersome Enrollment Process- (paper & automated) • Structuring ER Contribution- To be competitive but not cause large migration.

6. Solution ? A Defined Contribution Strategy in 2012 • Predictable Spend for Company …. full suite of Competitive Plan Options and costs for my employees ! • Chose from 10 Plans on exchange with an array of plan designs. • Chose 3 employer contribution levels – EE/EE+1/Family with careful consideration to minimizing employee migration to Plan. • Self-insured to fully insured for inaugural year; more built-in benefits • Minimal disruption of existing providers with change in networks; overall increase in provider network nationally. • Opportunity to reduce employer spend by 8-12%

7. 2012 Defined Contribution Strategy- The Results • No organic increase in enrollment or level of choice • Employer spend reduced • Employee visibility to spend – seen as “additional pay”. • EE’s very positive to having choices that fit them! • EE’s saw better options for them at less cost than HD Plan. • Attractive to recruits; + retention effect. • Enrollment: 68% Web Tool • 32% Call Center • EE increased • satisfaction with • Medica provider • networks & service in many • geographic areas.

8. Year 2: 2013 Defined Contribution Strategy • Made Voluntary Increase in employer contribution/spend of 8.5%. • Plan designs remained constant – EE’s very happy with the choices. • Added Medica’s Choice Passport ACO network of providers as option for 11-county Twin Cities’ Metro area. • Changed HRIS and implemented its’ benefit on-line enrollment functionality. Medica Customer Call Center for plan enrollment support was big plus.

9. Defined Contribution Strategy with My Plan by MedicaConclusion • Predictable Spend • Cost Savings • Administrative Support • Employee Satisfaction • Flat $ fixed cost for health spend per EE • Ability to offer competitive choices to EE’s and recruits with no administrative hassles. • 10% cost decrease in 2012 vs. 2011 with increase in benefits. • Positioned for spend control going forward. • Dedicated Call Center & web decision tools that provide EE’s an unbiased, user friendly experience - thus minimizing my HR staff time. • Popular Health Plan Options for all EE types, regardless of location. ACO definite + • Medica/UHC network - a value -add nationally • EE’s can choose by purse and individual needs • EE’s appreciated the transparency , support & the empowerment of choice.