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A Retiree Medical Challenge: ConAgra’s Journey to Success

Sherri BockhorstPrincipal, Health & Productivity Buck Consultants,

A Xerox CompanySt. Louis, Missouri

Bart Karlson, CEBSSenior DirectorBenefits Strategy and Analysis, ConAgra FoodsOmaha, Nebraska

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Bart Karlson, CEBS, EA

Sr. Director of Benefits,Strategy & AnalysisConAgra Foods

Sherri BockhorstPrincipal, Health & ProductivityBuck Consultants,

A Xerox Company

Introductions

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• The Journey Begins• Navigating: Our Process• Detailing the Solutions• Communication to Light the Way• The Results• Lessons Learned on the Journey• Questions?

Agenda

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The Journey Begins

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Where We Were in 2010

• Many acquisitions led to many plans and provisions• 253 post-65 retiree medical plan designs

- 80 plans had only one participant

- 70 plans had two to five participants

• 24 retiree pharmacy plan designs

• 200+ contribution structures, including:- Defined dollar

- Percentage cost share

• Significant complexity, administration and cost

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• Retiree Drug Subsidy (RDS)—in 2013, companies no longer eligible for a tax deduction equal to their federal subsidy for post-65 prescription drug expenses

• This future loss added almost $10 million to our FAS 106 liability in FY 2010, alone

• Recent and new offerings presented opportunity- Medicare Advantage plans

- PPACA provisions and exchanges effective in 2014

- Future loss of RDS opened the door to EGWP (Employer Group Waiver Plan)

Health Reform: Challenge & Opportunity

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• Each person with retiree medical has 2½ active employees working to support those retiree medical benefits

• Unlike DB pension liabilities, no offsetting trust has been funded to pay for future costs

• While general inflation has increased at 2.5%, medical inflation has increased from 7.5% (typical for OPEB) to 8.5% or more

• Without change, retiree medical obligations will be with us for a long time

Projected Fiscal Years Ending (In $ Millions)

May, 2011 May, 2012 May, 2013 May, 2014 May, 2015

P&L Expense 11.7 12.9 18.5 18.4 17.3

Cash Flow 36.4 28.1 29.1 28.7 28.0

Balance Sheet Liability 320.1 307.7 293.5 279.2 264.9

Key Messages to Management

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Navigating: Our Process

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Navigating: Our Roadmap

1. Studied Post-65 Strategy Alternatives

2. Conducted a One-Year Legal Analysis

3. Ran a Six-Month SPD Marathon

4. Catalogued Plan Provisions

5. Color-Coded the Legal Risk of Change

6. Outlined Solutions by Subgroup

7. Consolidated Benefits

8. Conducted Vendor RFP

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1. Studied Post-65 Strategy AlternativesShort-Term Solutions

Long-Term Solutions• Health Care Reform—Align with Health Care Reform Insurance Pools that open in

2014. Study developing trends and shift risk to those pools, where possible• Medical Inflation—Where possible, shift future medical inflation onto the retiree• Quality of Care—Identify and steer participants to Centers of Excellence and

physicians demonstrating better health care outcomes; provide better clinical support on drugs for this high drug using group

Payer Strategy ConsiderationsGovernment Medicare Advantage,

Medicare Supplement, RDS, EGWP + Wrap

• RDS phase-out after 2012• EGWP + Wrap by 2013• Studied Medicare Advantage and Medicare Supplement options

Providers Obtain best pricing on administration services and medical provider products and services

• Optimized for current delivery: Recent RFP concluded on medical and drug providers with 1/1/12 and 1/1/13 effective dates respectively

• Review other TPA solutions specific for retirees, like MMA and UHC

Retiree Cost shift to retiree, subject to legal concerns

• Review carefully to minimize risk in meeting obligations

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2. Conducted A One-Year Legal Analysis

• Internal and external counsel evaluated the risk of making changes- “Low-risk” plans gave us many options to change plan design and lower our costs- Other plans required careful consideration before making changes

• Mitigated risk in the re-design effort by:- Ensuring removed provisions are of little value to the retiree- Improving overall benefits in order to reassure retirees: “as good as, or better

than” current benefits

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3. Ran A Six-Month SPD Marathon

The Challenge:• Create 269 SPDs in six months to

deliver documentation before changes

The Starting Point:• 269 Retiree Medical Plans• 5 medical plan contracts• 269 contract administration guidelines• 70 prescription drug programs• Few existing retiree medical SPDs

The Solution:• Xerox AutoSPD content management

tool

The Results:• Created 5 master templates from which all

SPDs were built • Plus created text unique to each plan• Created individual SPDs in a top-down

fashion citing all text, then deleting inapplicable options per each plan

• Resulting content segmentation (approx. % out of total content):- 50% is shared text across all plans- 30% is option text (pick ‘n choose)- 20% text is unique to individual plans

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CAG Number

Plan Type

ERISA Plan #

Rx Plan Type

(Medco Copay,

etc)

Rx OON

ClaimsRx

code

Rx Creditable Code (SAC, UHC)

Pre/Post 65

trigger

About the

Plan Option

Copays? (Yes or No)

Deductible Library #

Coinsurance Library #

TBM --say "no" if no limit

Out-of-Pocket Max Library #

BSA Number

MJ19UCAG 30-018 PP0 536 M - PT Yes ? UHC N n/a Yes 3 2-D 1 2

ASE11385-347CAG 30-018 PPO 536

M -Copay Yes

ASERET2 UHC N n/a Yes 8 2-E 1 2

ASE11385-348CAG 30-018 PPO 536

M -Copay Yes

ASERET2 UHC N n/a Yes 8 2-E 1 2

ASE11204-396CAG 30-018 PPO 536

M -Copay YES

ASERET3 UHC N n/a No 8 1-B 1 1

ASE11204-397CAG 30-018 PPO 536

M -Copay YES

ASERET3 UHC N n/a No 8 1-B 1 1

ASE11204-398CAG 30-018 PPO 536

M -Copay YES

ASERET3 UHC N n/a No 8 1-B 1 1

ASE11204-466CAG 30-018 PPO 536

M -Copay YES

ASERET3 UHC N n/a No 8 1-B 1 1

4. Catalogued Our Plan Provisions

• Lengthy “Chart of Variable Provisions” supported the SPD process• Helped zero in on key differences

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• Included only Medicare-eligible plans and enrollment in the analysis, as Health Care Reform in 2014 could resolve pre-65 needs

• Goals of the review included:- Consolidate plan designs to reduce plan administration cost and complexity

- Reduce retiree medical plan liability and expense

- Phase out and potentially exit from retiree health care defined benefit obligations

- Better define and manage retiree medical subsidies to a fixed, predictable amount

- Promote consumer choice

- Shift retiree benefits from the company to individual responsibility

Group Color Codes Number of Current Plans

Current Medicare-Eligible Member Enrollment

Green/Bright Yellow: Able to make changes to current plans 11 1,023

Red/Black/Dark Yellow: Legal risk of making changes to current plans 242 6,755

5. Color-Coded the Legal Risk of Change

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6. Outlined Solutions by Subgroup

Groups Solution When Highlights of Strategy

Individual Market

1/12012

• Terminate the ConAgra Foods retiree medical group plan

• Provide access to individual Medicare products administered by a third-party connector/exchange

• Continue subsidy (if offered today), but via a customized Retiree Reimbursement Account (RRA) at a defined dollar amount for all, based on the value of each retiree’s 2011 company subsidy

Medical & Pharmacy

Plan Consolidation

1/12012

• Consolidate similar plan designs to an actuarial value “at least as good as” the current design

• Convert consolidated Medical plans to a group Medicare Advantage product, where available

• Maintain current ConAgra Foods subsidy for group product offerings

EGWP + Wrap

1/12013

• Move above consolidated pharmacy plans to Employer Group Waiver Plans (EGWP + Wrap) to gain additional savings when Part D tax benefits subside

• To reduce disruption, mimic EGWP design starting 1/1/2011

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7. Consolidated Benefits

Color 3 3Participant 7 1Dependent 0 0Total Premium $5,381.51 $5,365.94Retiree Contribution $96.00 N/ASpouse Contribution $96.00 N/AMedicare Coordination Carve‐out Carve‐out Carve‐outTotal Medical Plan Ratio 96.5% 91.4% 95.9%

OVERALL BENEFIT  (Plan Pays Per Covered Person)

In‐Network Providers In‐Network Providers In‐Network Providers

Total Benefit MaximumHospice (per cause)TMJOrgan Transplant

CALENDAR YEAR DEDUCTIBLE (You pay)

In‐Network Providers In‐Network Providers In‐Network Providers

Individual Membership $50  $50  $100 Family Membership $100  $100  $200 

BCPUNIT12‐859 NEW BCPUNIT03‐844 BCPUNIT00‐D‐865

$5,000,000 Unlimited

$2,500 NoneNone

None

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8. Conducted Vendor RFP

• Insured group Medicare Advantage PPO- Access- Cost- Plan design match

• Individual “connector” model- Retiree experience- Dedicated resources- Customized tool- Retiree Reimbursement Account functionality- Fees- Integration

• EGWP administration- Within scope of multi-year contract with Medco

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Detailing the Solutions

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ConAgra Foods’ Resulting Solution

253 Different Group Plans Covering ~8,356 Medicare Eligible Retirees & Dependents

“Group to Group” Solution(with Humana & Medco)

6,370 toHumana Medicare

Advantage Plan

920 toSelf-Insured Group Plan

(ASO)

“Group to Individual” Solution(Medicare Advantage, Med Supp, PDP, etc.)

1,000 to Individual Medicare Plan

with RRA & MMA

65 to Individual Medicare Plan

with MMA (no RRA)

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Medicare Advantage: Group Offering

Group Product• Consolidated medical plan offered through a Group Medicare Advantage

product• Fully insured products replaced our self-funded BCBS plan

- Allows taking advantage of government subsidies available via Medicare Advantage

- ConAgra Foods holds the contract with selected vendor- Rates insured for a 12-month period and renewed based on experience

• Retirees were “mapped” from current plan to the new consolidated Medicare Advantage plan- Similar to prior, retirees did not have a choice in plan design or vendor- Retirees continued to receive prior subsidy level- If retirees opt out of the ConAgra Foods plan, they no longer receive the subsidy

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Medicare Advantage: Individual Offering

Individual Market• Each retiree selects a unique plan best suited to their individual needs

- Plan is selected from market basket of available individual insured medical plans offered through multiple carriers

- Available plan designs and vendors vary by geography

• ConAgra Foods provides a defined dollar subsidy amount through a Retiree (Health) Reimbursement Account (RRA)

• Third-party administrator (My Medicare Advocate) provides Web and phone-based resources- Assist in selecting the most appropriate individual product - Based on retiree’s health status, prescription drugs, geographic location, etc.

• The retiree holds the contract with the insurance carrier and elects his/her plan annually

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Communication to Light the Way

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The Communication Challenge

• Many retirees in their 80s and 90s; confusion is understandable• National survey data per the National Council of Aging and UHC:

- Over half see Medicare as confusing, or don’t understand at all- Just a third know Part A helps cover hospital care- Under 25% know Part B helps cover doctor visits- 12% know about Part C; 7% know about Medicare Advantage- Most don’t know about Part D and Rx cost savings

• But at ConAgra Foods and elsewhere, retirees worry about losing what they have—even if they don’t understand it

• And legal action by individuals or groups can occur with or without a strong basis—posing financial and P.R. risks

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• Confirmed objectives and guiding principles for transparency• Prepared key leaders in their roles: talking points, FAQs, updates• Detailed a timeline with key communication milestones

- Announcement that will trigger financial savings- Wall Street reporting requirements (10-Q)- Communication strategy to address needs of key groups:

– Leadership, HR, local plant managers– Industry analysts; media– Retirees (post-65 and pre-65); many subsets/versions– Active employees – Bargaining unit representatives– Consumer Products call center—just in case!

Implementation Planning: Communication

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Announcement Newsletter: Easy as 1, 2, 3

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PIN Letter

Workbook

Workbook and PIN/Subsidy Letter

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Postcard

Website

Web Tool; Reminders

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The Results

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Dramatic Financial Results

• Plus SG&A administration costs reduced $180,000 a year

• Plus cash flow changes based upon:- Moving from self-funded to fully insured

- Moving from multiple plans to consolidated group Medicare Advantage plan

• Plus important intangibles:- Reduced compliance risks and less reporting

- Relief for staff to focus on strategic, value-added assignments

Savings In Millions

APBO Reduction ($46.0)

Expense Reduction ($9.0)

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Positive Retiree Feedback

It’s not easy to get through all these channels. There are so many things we have to do and options to look at. I can’t imagine doing this on

my own. I would be so lost if I didn’t have MMA to assist. Thank

you!- Marvin H.

I feel so much better knowing that my parents are in your hands.

- Rick B. (son of ConAgra Foods retirees)

“”

I wouldn’t be able to do this without you.- Albert W.

Thank you. You have been so helpful for my wife and I. You are

so patient. - William S.

“”

“ ”

“

”

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Lessons Learned on the Journey

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Lessons Learned on the Journey

• Management (and Finance) must be involved—understanding both the risks and the opportunities

• Internal legal counsel endorsement and engagement is a must

• Once you have the design strategy, you’ve only begun

• Data integration should be addressed early and often

• Communication must be well orchestrated to address needs of multiple stakeholders

• Retirees have a lot of time on their hands (when you can find them)!

• Have patience; retired former leaders and influencers will speak out and surprises will happen

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A Retiree Medical Challenge: ConAgra’s Journey to Success

Questions?

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