In Early 2000s A Benefits Approach to Health Care Resulted in Double Digit Health Care Trends

1. Scoring Savings: How Can Quality Improvement Reduce Health Care Costs?Janet M. Marchibroda, IBM CorporationAlliance for Health Reform Briefing, July 13, 2009, Washington, D.C.

2. In Early 2000s A Benefits Approach to Health Care Resulted in Double Digit Health Care Trends • Benefits strategy with excessive employee choice was costly (>210 HMOs available) • Indemnity based plans/limited network features costly • Vendor contracting strategy not optimized for quality, service, efficiency or price • Population health status and prevention, clinical care needs for chronic diseases, coordination of care absent • Accountability and transparency were non-existent for consumer decision making—real costs, prices and subsidies hidden • Fixed dollar co-payments prevalent • Cross subsidization by single employee IBM Per Capita Gross Medical Costs Exceed Market $8,000 Benchmark IBM $6,000 $6,448 $4,000 $6,168 $5,982 $5,388 $5,286 $4,766 $4,756 $4,319 $2,000 2000 2001 2002 2003 Sourcefor benchmarks: Average of survey results from Kaiser Family Foundation, Hewitt Associates, and Towers Perrin

3. IBM Developed New Approach to Health Care Vision: Healthy people for high performance IBM Health Care Strategy …  Value (quality and cost)Meaningful choiceSustainable cost structures Prevention  Primary Care Smart decisions Privacy & HIT • We invest in health care to realize the productivity and innovation of people • Recognizes the importance of health care partnerships and accountability Examples: • Helping employees take responsibility for healthy behavior • Employee involvement in treatment decisions • Information that helps individuals choose health plans that offer optimal value and improve efficiency in the system. • Technology-enabled, smart delivery of innovative health care services

4. Key Components of Strategy EMPLOYEE-CENTERED INVESTMENT INCENTIVES FOR HEALTHY CHOICES • $300 in cash rebates for: • Participating in physical activity or nutrition program • Executing on a preventive care plan • Participating in the Children’s Health program (for obesity children/youth) • One no-contribution medical and dental option • “Per-person” pricing for dependents • Preserve access and choice • “No coverage” cash back Commitment to Quality & Prevention Employee-centered FOCUS ON PREVENTION AND VALUE IN MEDICAL CARE HEALTH CARE REFORM Foundation in Prevention & Primary Care • Free coverage for preventive care • Deductible-free routine care • Aggressive support for chronic illness • Personalized electronic health management tools, content and Personal Health Record • Building quality into medical plans/provider relationships • Business coalition for the uninsured and retirees • Leader for Patient-centered Primary Care & Medical Home • HIT, clinical decision support and administrative efficiency Voice for Health Care Reform

5. Aggressive Health Care Management Consistent with our Strategy 2004 2005 2006 • IBM defines contribution for healthcare (50/50 share of trend) • Employee-centric subsidy allocation strategy • “Free” PPO & Buy-Up options • Focus on prevention: no deductible, disease management, healthy living rebates: smoking cessation, physical activity • Move toward strategic plan mix: eliminate Indemnity Plan, opt out credit • Dependent de-subsidization • Improve purchasing efficiency via best in market vendor strategy • Reach strategic plan mix (all PPO based) • Introduce Health Savings Account • Enhanced web-based total health management portal with quality, plan/provider and self-managed tools • Offer 100% coverage for prevention benefits (no co-pay) • Primary Care: deductible-free • Introduce new Healthy Living Rebate driving preventive care • Update dollar features of plans (Deductibles, Out-of-Pocket Maximums, etc.) in keeping with cost inflation Result: Trend 2.2% Result: Trend 7.0% Result: Trend 5.6% Health care strategy focused on…  Value (quality and cost)  Meaningful choice Sustainable cost structures  Prevention  Primary Care Smart decisionsHIT& privacy

6. Aggressive Health Care Management Consistent with our Strategy 2009 2008 2007 • Care coordination program to assist with rapid, effective services access • Behavioral health care advocacy program • Expanded Healthy Living Rebate program • Maintain full coverage for routine preventive services • Patient-centered primary care pilot in Mid-Hudson Valley NY • Children's Health Rebate, helping parents & families with healthy nutrition, meals, physical activity for healthy weight • Women’s and Men’s Health resources optimizer tool added to Preventive Care Rebate Program • Expanded flu shot coverage • Patient-centered primary care (medical home) pilots in Arizona, Vermont • Generic drug incentive program • Generics Advantage program drives efficient use of generic pharmaceuticals • Program introduced to optimize safe usage of specialty medications Result: Trend 4.5% Result: Trend 3.7% Result: Trend 4.8% Health care strategy focused on…  Value (quality and cost)  Meaningful choice Sustainable cost structures  Prevention  Primary Care Smart decisionsHIT& privacy