how to stop health care from being a profit killer

Copyright © 2009 McGraw Wentworth, Inc. All rights reserved.

1Benefits Stewardship Through Knowledge and Know How

Perspective

Growth in employers’ health care costs will continue to outpace the Consumer Price Index Increases erode company profit margins and crowd

out wage increases

Affordability and access a growing concern Employers’ total health care costs have increased by

29% and employees’ by 40% over the past five years

Companies struggling with balancing “culture and beliefs” with health care benefit costs

Source: Towers Perrin 2009 Health Care Cost Survey



Labor Cost and Managing Trend

Below table compares 3 years of employer and employee cost metrics to benchmark:

2007 2008 2009 YTD

Employer Metrics (thru June) Manufacturing Small

Annual Gross Cost per Covered Employee $8,321 $9,685 $8,433 $8,107 $7,746

Difference from Benchmark ($) $214 $1,578 $326 Annual Net Cost per Covered Employee (Net of Employee Contributions – Not Out of Pocket Costs)

$7,326 $8,411 $6,472 $6,080 $4,493

Difference from Manufacturing Benchmark ($) $1,246 $2,331 $391 (est. 25% contrib) (est. 42% contrib)

Difference from Manufacturing Benchmark (%) 20% 38% 6%

Employee Cost Sharing MetricsEmployee out-of-pocket cost (% of claims spent on deductible, coinsurance, copays)

16% 14% 16% 16%-24% 16%-24%

Employee payroll deduction (% of gross plan cost excluding out of pocket expenses)

12% 12% 22% 23%-25% 31%-54%

Total Employee Costs 28% 26% 38% 39%-49% 47%-78%

ABC BenchmarkMercer 2008

Source: 2008 Mercer Manufacturers (500+ Employees) and Small Employers (<500)



High Performers

Recognize link between health of workforce and business results

Engage employees, promote culture of health

Invest in wellness and disease management

Design and price plans to create incentives (i.e., CDHP more common)

Measure programs and vendor performance against results

Senior management involvement



High Performers: Focus on Engagement



TrendBenders™ average cost decreased (1%) over last two years

Overall costs are less for TrendBenders™

PPO plan costs approximately 9% less

HMO plan costs approximately 15% less

CDHP costs approximately 4% less

No TrendBenders™ offer employees a “free” plan

TrendBenders™ have lower contributions in dollars, similar percents

TrendBenders’™ median PPO plan design is 80% in network/60% out of network

Where TrendBenders™ Differ



TrendBenders™ more committed to CDHP: Tend to use HSAs (83%)

More frequently fund a portion of the HSA (58%)

More employees (28%) enroll in the CDHP when it is offered in a choice environment

Wellness continues to be an area TrendBender™ organizations invest in and have success with: 69% offer Health Risk Assessments

55% do biometric screenings

TrendBenders™ have higher average spousal surcharges - $134 per month and tend to characterize the cost savings of spousal limitations as significant (46%)

Where TrendBenders™ Differ



What Drives Up Cost?

Medical cost inflation or change in the unit price

Utilization changes: Increase in number of services

influenced by:• Demographics• Health status• Advertising • Advances in technology/treatment• Prevalence of insurance

Leveraging

Changes in administrative costs



Underlying Components of Benefit Plan Costs

(Price x Quantity) + Insurance+ Administration = Benefit Cost

Price and Mix of Health Care

Services including inpatient and

outpatient facility costs, physician,

lab and Rx

All Fixed Fees to cover the cost of Administering the

plan, including claims processing,

id cards, and customer service.

Also Includes INTERNAL costs for compliance

and benefit administration.

Quantity of Services Used By

Enrolled Population

Claims/Variable CostsUsually Account for 75-90% of Total

Fixed CostsUsually Account for 10-25% of Total

All Fixed Fees to cover the cost of insuring the plan

against large losses, includes pooling charges

and margin



Cost Management Opportunities

Quantifiable Savings

Tim

ing

of R

etur

n on

Inv

estm

ent

Now

Later

IntuitivePredictable

Quick and Verifiable Options

Systematic Structural Approaches

Strategic InvolvementOpportunities



Eligibility strategies Spousal limitations Dependent audits New hire strategies Part-time benefits

Plan management Health plan strategy Vendor management

Plan changes Plan design Contribution changes

Quick and Verifiable Options



Does Your Strategy Still Make Sense?

Should you maintain all your plan options?

More plans, more administrative work, more adverse selection

Consider dropping the richest plan

Use contribution strategies to drive enrollment to the most cost-effective plans

Does it make sense to continue offering an opt-out bonus?Plan Design Changes (split copays, imaging copays, ER copays)



Monthly Contributions in $ and %

$0

$100 $92

Am

ount

in D

olla

rs

National 2008 2008 MW Survey

$98

$322

$273

$69

2009 MW Survey

$200

$300

National Source: Mercer, 2008

Single PPO Family PPO Single HMO Family HMO

$92

$212

$68

$213

$289

$98

$351

23% 24% 24%

Contribution as a Percent of

Premium in Red

30%

25% 26%

22%20% 20%

33%

24% 23%

Employers are looking at increasing contributions: Savings associated with contribution increases are immediate Model contribution strategies in a choice environment



Plan Design - What is it Worth?

Projected Medical/Rx CostsCurrent Plan Design

Single122

Couple130

Family53 Monthly Cost Annual Expected Cost

2009 Plan Costs: $234,770 $2,817,238

Summary of 2009 Potential Alternatives:Estimated Difference from

Annual 2009 Medical/Rx Gross Costs:

Medical Plan Design Alternatives

Plan Options

1 Increase Office Visit from $10 to $15 ($35,309) -1.3%

2 Increase Office Visit from $10 to $20 ($69,725) -2.5%

3 Increase Emergency Room Copay from $50 to $75 ($19,219) -0.7%

4 Increase Emergency Room Copay from $50 to $100 ($34,862) -1.2%

5 Implement $100/$200 Deductible to Services Covered @ 100% ($46,036) -1.6%

6 Implement 90% coinsurance with $500/$1,000 out of pocket max. ($96,095) -3.4%

7 Increase Rx copays from $5/$15 to $10/$20/$40 ($36,696) -1.3%

8 Increase Rx copays from $5/$15 to $10/$30/$50 ($45,608) -1.6%



Health Management: A Key Focus

Source: Towers Perrin 2009 Health Care Cost Survey



Concluding Thoughts

Are you using a combination of short term and long term cost management opportunities?

Can you leverage lessons learned from high performing organizations?

What is your employer role in offering benefits and how do you envision that role in the future? What changes are you making today to move toward

your future role?

You can do it – You Can Bend the Trend!

how to stop health care from being a profit killer

Business

employers health care

health care cost survey

small employers

labor cost

employee cost metrics

years of employer

years companies

consumer price index