Update on Consumer Directed Health

Fidelity Human Resources Services Company

October 5, 2004

© 2004 Fidelity Human Resources Services Company 2

Health & Welfare Consulting

Early HSA growth may come through consumer-directed plans

Relative market share among health plan products

(percentages may not total 100 because of rounding)

Source: Forrester Research, July 2003

3%7%

12%19%

24%

8% 7% 4% 4% 4% 4% 4%4%

4%

4%

4%41%

48% 52% 52% 52% 51% 49%47%

43%

38%35%

22%

22% 18% 18% 18% 18% 18% 17% 16% 15%13%

29%23% 26% 26% 26% 26% 26% 26% 25% 25% 24%

1% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

HMO

POS

PPO

Conventional

Consumer DirectedHealth Plans

© 2004 Fidelity Human Resources Services Company 3

Health & Welfare Consulting

Humana is reporting favorable utilization trends for their CDHP product

SmartSuite 7/02 to 7/03 (Humana Product) Utilization vs. Market Change

Source: Early Experience with Consumer Centric Health Plans, Testimony to the Joint Economic Committee of the US Senate,John M. Bertko, FSA., MAAA, February 2004

Preventive Services in SmartSuite increased by 14% over the prior year

© 2004 Fidelity Human Resources Services Company 4

Health & Welfare Consulting

More Employers are Offering HDHPs as a plan option

Source: Kaiser Family Foundation and Health Research and Educational Trust Survey of Employer-Sponsored Health Benefits: 2003, 2004.

Percentage of Firms Offering Employees a HDHP

27% of all employers surveyed report that they are “very likely” or “somewhat likely” to offer a personal or health savings account option in the next two years

5% 5% 5%

17%

5%

10%

7%

9%

20%

10%

0%

5%

10%

15%

20%

25%

All Small Firms (3-199)

Midsize Firms (200-299)

Large Firms (1,000-4,999)

Jumbo Firms (5,000or More)

All Firms

2003

2004

3.5% offer a personal or Health Savings Account Option along side the HDHP

© 2004 Fidelity Human Resources Services Company 5

Health & Welfare Consulting

The social cost and future value of retiree healthcare are not aligned

Social Programs

Healthy Birth Primary and Secondary Education

Higher Education & Job Training

Active Healthcare

Retiree Healthcare

Future Value Index

0.0

1.0

© 2004 Fidelity Human Resources Services Company 6

Health & Welfare Consulting

Projected Employer Benefit Costs

$1,250 $2,100 $1,900

$37,000$41,420

$3,265 $4,529 $4,098

$79,794

$5,600

Medical Dental, Life,Disability

DB DC Salary

2004

2030

Assumes 5% Trend

Assumes 8% Trend

$19,912

© 2004 Fidelity Human Resources Services Company 7

Health & Welfare Consulting

Financial Security Risk for Employees

When employees retire without medical insurance,

their personal risk dramatically increases

Employee Risk

Age

© 2004 Fidelity Human Resources Services Company 8

Health & Welfare Consulting

No FundingFor Retiree

Medical Plan

More Discretionary

Spending

ComprehensivePlan

FundingFor Retiree

Medical Plan

LessDiscretionary

SpendingHDHP ?

Tradeoffs Will Benefit Employees

© 2004 Fidelity Human Resources Services Company 9

Health & Welfare Consulting

Framework for Constructing an Alternative Program

Guiding Principles:

Pay Equity

Tax Efficiency

Flexibility

Productivity

Transparency

Limit Complexity

Old

Pro

mis

es

Market Pressures

Leg

al Co

nstrain

ts