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Kinder, Gentler CDHC Plans -Strategies for Gradual Implementation &

Minimal Cost ShiftingPresented by: David CowlesVice-President

Benemax - The Benefit Management Co.

Spring

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Seven West Mill St.

Medfield, MA 02052

1-800-528-1530

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Benemax Founded in 1975

First Consumer Directed Health Plan: 1986

First Consumer Directed Dental Plan: 1988

Independent Patient Advocate: 1995

Web Based Benefit Management: 1998

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Who is “The Consumer” in a CDHC Plan?

* Employee> Own Health> Own Money

* Employer> Majority of employee health care cost> Lost productivity (15%) due to disability

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What Makes CDHC Work?

* Consumerism* Tools & Incentives

> to stay healthy or get healthier> to consume cost effectively

* The Claim Cost Curve

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The Claim Cost Curve

* 20% of claims = 1/2% of members* 47% of claims = 3% of members* 87% of claims = 31% of members

* 69% of members = 13% of all claims

* Median non-Rx claim cost = $500

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8%

24%

69%

60%

26%

13%

0%

10%

20%

30%

40%

50%

60%

70%

Healthy Transitional Chronically Ill/High Risk

% Members % of Dollars

($1-$999) ($1,000-$4,999) ($5,000-$100,000)

$30 pmpm

$176 pmpm

$1,259 pmpm

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The Impact of Disability

* 10% of all employees file a disability claim* 55% of all claims come from disabled ees* Absence Management = Return to Work

> 30% reduction in average length of disability> 40% reduction in average health claim cost

* Only employer can manage disability claims

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The Impact of Employee AbsenceFact: Employees absent from work due to disability drivethe majority of your employee medical costs.

UnumProvident Disability & Health Pareto Analyses 2001. Sample size of 225,000 employees of which 22,000 filed disability claims. Dataprovided by Options and Choices, Inc., a UnumProvident Corporation subsidiary that specializes in disability reporting and analysis.

PP-126-39 (02-03)

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STD Claim Duration and Claimant Medical Costs

Based on approximately 4,300 short-term disability claims over 36 months from 1999 through 2001.Costs are adjusted for medical inflation and for claims incurred during the study per iod but notexpected to be reported until a later date. These adjustments are made using historical experience.

Fact: Employers may impact medical costs by focusing on absencemanagement to reduce the duration of disabilities.

PP-126-39 (02-03)

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Kinder, Gentler CDHCStep #1 - The Wrap

* Employer adds a High Deductible to Plan> HMO, POS or PPO> $500 to $5,000

* Employer Self-funds that Deductible

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The Wrap - Results

* Reduces premium by 20% to 50%* Reduces net cost by 10% to 20% * ER benefits from good experience* ER incented to promote health* ER incented to promote consumerism* ER has greater plan design flexibility

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* Employer funds HRAs = New Deductible

* Employer sets Employees’ Expectations:> Deductible increase or HRA decrease in year 2+

* Employer introduces tools:> Promote health> Educate consumption

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Virtual HRA - Results

* 10% to 20% net savings year one* Employees become cost conscious year one* Year of grace before any cost shifting* Year to improve health (using tools)* Year to adjust consumption (using tools)* Year to build-up benefit bank (HRA balance)

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Step #3: FSA

* Employer adds corridor of employee liability* Employer contributes to employees’ FSAs* Employees may also contribute: pre-tax $$* Employer introduces health tools* Funds may be used to pay for:

> employee’s health plan claims liability> dental, vision & alternative care expenses

* Funds unused at year end are forfeited

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Employer Funded FSA - Case Study

* HMO Renewal = +15%; Goal = +5%* Add $500 (2x fam) deductible; Renewal = 0%* Contribute 5% to employees’ FSAs ($300 ea)* Employees may fund additional cost pre-tax* FSA may pay any IRC 213 expenses

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Kinder, Gentler CDHC Step #4: Triple Option Plan (TOP)

* Employer buys a base high deductible plan* Employer self-funds options below deductible* Employees choose: Gold, Silver, Bronze* Employees pay more for richer options* Employer cost = same for all options

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TOP - Sample Employee Options

* Gold = Virtual Indemnity Plan (100% benefit)

* Silver = Base Plan + HRA + FSA

* Bronze = Base Plan + FSA only

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TOP - Case Study

* Renewal = 20%; Goal = 0%; EEs pay 20%* Add $1,000 deductible; Renewal = 0%* Gold: EE cost up 100%; no benefit change* Silver: EE cost up 50%; $500 HRA* Bronze: No EE cost change; $1k deductible

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Kinder, Gentler CDHC Step #5: The Blend

* Employer buys high deductible base plan* Employer sets lower employee deductible* Employer “wraps” the deductible difference* Employer funds HRA @ 50% of ee deduct* Employees may fund net claims cost via FSA

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The Blend - Case Study

* Renewal Rates = $370/980* Employer buys plan with $3,000 deductible* Member deductible = $1,000 (2x family)* Employer “wraps” the $2,000 difference* Employer funds HRA @ $500 ($1k family)* Employees may fund net claims cost via FSA

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The Blend - Case Study Results

* Premiums reduced 40%: $222/588* “Wrap” cost = $0 on 69% of members* HRA pays 100% of cost for median member* HRA + FSA tax savings = 65% of deductible* Wrap + 1st year HRA + Admin = $60/160* Net Plan Cost Savings: 24%

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Summary

* Employers can save $ without shifting cost:> Take maximum advantage of claim cost curve> Provide health & health care tools> Manage absence toward “back to work”> Incent employees to measure health care behavior> Provide employees health & health care incentives

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David CowlesVice President

Benemax – The Benefit Management Company

1-800-528-1530