Its Not Just Health Care anymore for Small Employers

Sue Eskedahl, Vice PresidentEmployers Association, Inc.

June 21, 2007BHCAG Summit

INTEGRATING REWARD STRATEGIES1. Current market conditions

– General economic conditions– Wages decreasing– Healthcare costs increasing– Total benefits costs increasing

2. Small businesses are changing their rewards programs in response to changes in the market

3. To compete for talent it needs to feel like a big business offering while balancing it with the cost of doing business

MERIT PAY – EA Survey (Excluding Zeroes)

3

4

5

6

2001 2002 2003 2004 2005 2006 2007

Year

% In

crea

se

Production non-union Clerical & TechnicalSupv/Prof/ Mgmt Executive

Source: EA Wage & Salary Trend Surveys, 2001-2007

% Increase in Health Insurance Compared to Other Indicators

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1996 1999 2000 2001 2002 2003 2004 2005 2006

% C

hang

e

Health Insurance Premiums Overall Inflation Workers' EarningsSource: Kaiser Health Benefits Survey 2006; KPMG Survey of Health Benefits 2006; Bureau of Labor Statistics seasonally adjusted data 1996-2006

WAGES VS BENEFITS COSTS

• Structure movement & merit increases have not kept up with an increase in inflation

• At the same time, the cost of health insurance has increased

• The increase in the cost of health insurance has pushed the total benefits cost upwards

NATIONAL HEALTH EXPENDITURES (NHE) 2002-2015

$1,608 $1,741 $1,878 $2,016$2,170

$4,04415.4% 15.9% 16.0% 16.2% 16.5%

20.0%

$0

$1,000

$2,000

$3,000

$4,000

$5,000

2002 2003 2004 2005 (p)* 2006 (p)* 2015 (p)*

NHE

in B

illio

ns

0.0%

10.0%

20.0%

National Health Expenditure (NHE) NHE as Percent of GDP

•Projected by Centers for Medicare & Medicaid Services.

•Source: Centers for Medicare & Medicaid Services (2006)

OTHER FACTORS CONTRIBUTING TO CHANGING TRENDS IN PLAN DESIGN

1. Smaller Workforce

2. Demographic Shift & Changing

Attitudes

3. Competitive Advantage

4. Employers need to

reinvest in their companies

ORGANIZATIONAL RESPONSE-BENEFITS

1. Stage One: Control costs through basic plan design changes

2. Stage Two: Perform deeper analysis and make larger plan design changes

3. Stage Three: Try a new angle• Consumer-directed healthcare• Value-based benefits

KEEPING BENEFITS COSTS DOWNSTAGE ONE:• Raise employee premiums, deductibles, or co-

pays• Raise the employee out of pocket maximum• Reduce or eliminate coverage for certain services• Implement tiered plans with 3 or 4 levels [single,

employee/spouse, employee/child(ren), family] • Take plans out to bid – try different vendors • Consider self-funding• Offer an inexpensive base plan with less coverage,

and allow employees to buy-up for higher coverage levels

KEEPING BENEFITS COSTS DOWNSTAGE TWO:• Analyze where the most healthcare dollars were spent

in your plans, eliminate inefficient plans, and target interventions for specific conditions

• Educate & Communicate: – Improve your benefits communications to get the

biggest bang for your buck– Educate all employees about the cost of their health

care and the impact of their health care decisions– Provide health plan designs that include incentives and

decision-support tools• Provide an incentive for non-participation in medical

plans• Consider a benefits carve-out, spousal carve-out, or

surcharge• Adopt a formal wellness plan

KEEPING BENEFITS COSTS DOWN

STAGE THREE:

• Make the switch to consumer-directed

healthcare: offer a high-deductible

health care plan with a HRA or HSA

• Adopt value-based benefits

TOTAL REWARDS MODEL

CULTURE

COMPENSATION BENEFITS

WORK EXPERIENCE

PERSONAL DEVELOPMENT

TRENDS

• We’ve seen an increase in a few trends/best practices under the Total Rewards umbrella:

– Compensation: Emphasis on incentive pay– Work Experience: Emphasis on work-life

benefits / work-life balance– Benefits: Consumer-directed healthcare

and Value-based benefits

CONSUMER-DIRECTED HEALTHCARE

• Designed to put employees in control of the first dollars spent on health care each year.

• Idea is that by giving consumers control of these dollars, and by providing information about health care costs & quality, that they will shop and think about value of health care the same way they make purchases of other goods and services

ADVANTAGES OF CONSUMER-DIRECTED HEALTHCARE

• Reduced cost for employers • Consumers become more cost-conscious as

responsibility for medical choices shifts to the consumer and away from the plan sponsor

• Eliminates waste in the system – less inappropriate care

• Better communication and emphasis on preventative health care means better overall health behaviors

CHALLANGES OF CONSUMER-DIRECTED HEALTHCARE

• Limited resources for consumers to gather information regarding cost and quality of health care choices– Online choices are on the rise– Health care providers must get used to

discussing cost (M.S.A. 62J.82)

• These types of plans may attract the healthiest employees, which could lead to a highly divided risk pool for other plans

• Small employers often can only offer one health care option

Integrating Healthy Measures• More than just Health Care Cost Control

– Healthier employees/ dependents on the job and off– Affects productivity– Allows companies to balance pay and benefit

programs– Allows small companies to compete for talent with

competitive programs

• The concept is to focus less on short-term cost fixes and emphasize long-term health issues that cost a great deal over time

Source: National Business Coalition on Health: Promoting Consumerism Through Responsible Health Care Benefit Design November 2006

Our Story

• Traditional fully insured plan with major insurer– Went through stages 1 & 2, higher deductibles, higher

premium sharing trying out some of the tactics• Explored MEWA for EA membership with concept

of CDHP, group self insured, incentives for members to stay in the group

• Through exploration process changed our plan to a CDHP/HRA (Health Reimbursement Account) self insured model through a local TPA and national reinsure and offered a Population Health Management program

Source: National Business Coalition on Health: Promoting Consumerism Through Responsible Health Care Benefit Design November 2006

Our Approach

• Started Employee focus groups a year in advance

• Changed model on 1-1-2006 • CDHP/HRA (Health Reimbursement Account)

First year held employee premiums steady• Offered a voluntary Population Health

Management program• Invited spouses/significant others in to learn

about the plan changes as well

Population Health Management?

• New term for wellness or much more?• Limited resources to do a full blown RFP• Our TPA and Reinsurer willing to look at

results and rates as we continue in the program

• Initial rollout – easy and simple to understand with rewards tied to our CDHP

• Compelling case studies

A TURNKEY SOLUTION

Comprehensive & integrated, results-driven,fully measurable

• Actuarial Analysis

• Comprehensive Health Assessment

• Population Health Screening

• Customized Individual Action Plan

• Healthy Lifestyle & Disease Coaching

• Individual & Group Reporting

• Health Plan Linkage

• HIPAA Compliant Platform

Year 33:1

Year 56:1

Year 11:1

Year 22:1

RETURN ON INVESTMENT

Parties shall agree to the tools to measure the Return on Investment ratio, but typically the following information to calculate ROI:

• The total claims experience of Participants versus Non-Participants in the SimplyWell program, which includes a comparison based on all paid benefits and then risk adjusted benefits.

• The Claims are adjusted based on Age, Gender and Plan design of the enrollees.

• The claims experience difference is then calculated and the SimplyWell price is subtracted to identify the ROI on the program.

• We don’t provide individual patient information only group summary data as well as general reports on the number of critical and healthy lifestyle reports. The group reports include: demographics, major health risks, health status, health age summary, recommended actions, intervention strategies and economic impact of major risks

Source: Actuarial Associates of Omaha

Parties shall agree to the tools to measure the Return on Investment ratio, but typically the following information to calculate ROI:

The total claims experience of Participants versus Non-Participants in the SimplyWell program, which includes a comparison based on all paid benefits and then risk adjusted benefits.

The Claims are adjusted based on Age, Gender and Plan design of the enrollees.

The claims experience difference is then calculated and the SimplyWell price is subtracted to identify the ROI on the program.

We don’t provide individual patient information only group summary data as well as general reports on the number of critical and healthy lifestyle reports. The group reports include: demographics, major health risks, health status, health age summary, recommended actions, intervention strategies and economic impact of major risks

Source: Actuarial Associates of Omaha

METHOD FOR CALCULATING ROI

• Participants: 4,800

• Period: 2000-2004

• Benchmark: Employees not participating

• Results: 6:1 ROI

• Average Claim CostIn SimplyWell: $2,650

• Average Claim CostNot Participating: $4,742

• Participants: 4,800

• Period: 2000-2004

• Benchmark: Employees not participating

• Results: 6:1 ROI

• Average Claim CostIn SimplyWell: $2,650

• Average Claim CostNot Participating: $4,742

CASE STUDY

$0$500

$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500$5,000$5,500$6,000$6,500

2001(Y1)

2002(Y2)

2003(Y3)

2004(Y4)

2005(Y5)

2006(Y6)

Non-HealthScreeningParticipants

Health ScreeningRepeatParticipants

Non Health Screening vs. Repeat Health Screening Participant (PPO only)

Medical cost is med+drug

Mean Annual Total Medical Cost Comparisons:

Next Steps

• Review of first year with health risks of population identified

• New employees sign up at a rate of 80% vs. current at 50% for Simply Well

• Doubled incentive to current participants this year from $100 to $200 into Health Reimbursement Account for successful completion

• Next year look at premium reduction incentive program and mandatory HRA(health risk assessment) & lab draw participation

CHALLANGES OF AN INTEGRATED PROGRAM

• Fairly new – impact on consumer behavior is not yet known

• Limited resources for consumers to gather information regarding cost and quality of health care choices – this year gaining access to MedCare Compare for our employees and our members

• Administrative challenge for employers & brokers–it takes time and staff to analyze data

• Provider relationships – employees are still new at asking questions regarding quality and cost and to fully appreciate the value equation