TODAY S PRESENTERS. Page 2

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2 TODAY S PRESENTERS Page 2

3 An employer would NEVER let this happen Sorry, Sir. We seem to have lost $500,000 in the fog of accounting. Page 3

4 But THIS happens all the time Sorry, Sir. Our health plan expenses have increased by another $500,000 per year. We re told this is competitive with the overall market. Page 4

5 Keys to obtaining hero status Don t automatically resign yourself to another increase in costs. Start the renewal process early. Best to start at least 120 days out 180 days best for self-insured plans Take a proactive role in understanding and managing costs and plan design. Demand more from your carriers and brokers. More information, more analysis, and more time to make changes Page 5

6 Key areas influencing renewals Significant swings in utilization patterns Significant increases in inpatient care, large claims, and ongoing catastrophic claims can raise Red Flags. What about pharmacy and professional? What about outpatient care? In-network vs. out-of-network claims In-network utilization will reduce provider charges and require provider contracts to be followed. Accurately measuring realized discounts for in-network claims Are employees using in-network providers? Are the in-network discounts aggressive? Page 6

7 Key areas influencing renewals Large claimants above pooling or stop loss levels Your administrator s ability to truly manage claims Identifying potential loss leaders and modifying behavior/lifestyle Do your participants know their Metabolic Syndrome Risk Factors Triglycerides Blood pressure Waist HDL Fasting glucose A member with 3 of these conditions will contribute 70% additional costs to a health plan, excluding price inflation Page 7

8 Key areas influencing renewals Wellness programs and their ability to make a difference In an employer with 500 employees, 23 enrollees have to have $0 in claims to offset 4 enrollees affected by Type 1 DIABETES at a savings of $69,812 annually. 105 enrollees have to have $0 in claims to offset 27 enrollees affected by Type 2 DIABETES at a savings of $312,633 annually. 296 enrollees have to have $0 in claims to offset 85 enrollees affected by Cardiovascular Disease at a savings of $886,380 annually. Page 8

9 Heroic opportunities to improve your renewal Page 9

10 If you re fully insured Understand and review your renewal worksheets for accuracy! Monitor discounts between insurance carrier networks. Ask for early renewal but continue to monitor claims. Remember you pay pooling charges to eliminate large fluctuations in experience, so pay attention to pooled claims at renewal! Be wary if a carrier uses more than most recent 12 months of claims data. Retention is a percentage of premium and increases significantly as trend drives up claims cost. Page 10

11 If you re self-funded Understand and review your renewal worksheets for accuracy! Network changes/direct contracts Performance guarantees administration and discounts Negotiate administration charges Remember reinsurance can be a pooled product Unbundled services to be considered Reinsurance shop outside markets Pharmacy rebates, education, pricing Specialty pharmacy injectable program Specialty contracts lab/x-ray Other disease management, predictive modeling, etc. Page 11

12 Evaluating your options: fully insured or self-funded? Page 12

13 Typical components of fully insured premium Carrier administration plus margin Claims State premium taxes and broker fees Page 13

14 Typical components of self-insured plans Administrative fees Stop loss rates Claims Page 14

15 The similarities Claims will be claims either way. Carriers will handle all services for either fully insured or self-funded. Fully insured uses pooling; self-funded uses stop loss. Network performance and plan efficiency are vital to the plan s optimal performance. Both have inherent fixed costs. Page 15

16 Advantages: fully insured Consistency of premium for budgetary purposes. Smaller groups community or pool rated. No liability today beyond paid premiums. Page 16

17 Advantages: self-funded Greater flexibility Cash flow Lower administration charges Eliminate risk charges Unbundled services Eliminate taxes on 90% of plan costs Eliminate requirement of many benefits mandated by the state Page 17

18 Steps involved in funding analysis Fact-finding review Risk tolerance Fiduciary liability Philosophy Determine fixed costs Plan design development Predictive modeling Stop loss negotiations Weigh the current fixed costs to projected savings Decide Implement Page 18

19 Reports you should expect: fully insured Up to 100 lives Premium to claims Annually Large claims reports Annually lives Premium and claims Annually Utilization reports Annually Program reports (disease mgmt, maternity, etc) - Annually 300+ lives Premium and claims Annually Utilization reports Quarterly Program reports - Quarterly Page 19

20 Reports you should expect: self-funded Administrator Reporting Banking reports monthly Paid claims reports monthly Outside stop loss vendor reports monthly Utilization reports quarterly Lag report quarterly Program reports - quarterly Independent claims management system Allow employers to generate standard and/or ad hoc reports at will and can generate customized reports at own desired frequency You own your own data and can establish history and continuity of year-over-year reporting regardless of payer. Page 20

21 Internal underwriting empowers employers Page 21

22 Why internal underwriting is so important to employers Checks and balances Markets get busy Mistakes happen Stronger negotiating power Helps you know when an increase is warranted and when it isn t. Helps you know when a provider is buying your business and when the rates are in check Page 22

23 Taking control through internal underwriting Understand basic assumptions and considerations made by your underwriters Identify key areas that influence any plan s renewal Identify opportunities to improve the renewal position of your plan Understand which makes better financial sense for your company: fully insured orself-funded? Page 23

24 Basic underwriting considerations Prior carrier persistency Rate history Claims experience Large claimants Client s enrollment stability Current percentage participation Page 24

25 Basic underwriting considerations Current and future employer contributions Client s financial stability Composition of the group Industry represented by the group Reason for group s existence Geographic location of the group Page 25

26 Internal Underwriting Examples Page 26

27 Fully insured renewal - $100k pooling point Page 27

28 Fully insured renewal - $50k pooling point Result: Reducing pooling point from $100K to $50k reduced rate change from 3.9% to 1.8% Page 28

29 Self-funded renewal Page 29

30 Plan Design Modeling Example Page 30

31 Key benchmarking observations Design Feature Inpatient Hospital Copay Outpatient Surgery Copay Specialty Physician Copay Benchmarking Data Current Plan Source $148 was the average in-network copay among small employers $118 was the average in-network copay among small employers 20%of employers nationally offered specialty copay of $45 or more in 2011 $0Copay $0Copay $20Copay WatsonWyatt Survey on Employee Benefit Policies & Practices WatsonWyatt Survey on Employee Benefit Policies & Practices AON Hewitt Benefit Studies 2010 Page 31

32 Plan design modeling Page 32

33 Strategic medical plan design opportunities Design Ideas Estimated Plan % Impact Estimated Plan $ Impact $150 Inpatient Hospital Copay -1.50% -$23, $75 Outpatient Surgery Copay -1.20% -$19, $35 Specialty Physician Copay -1.50% -$23, Total -4.2% -$67, Page 33

34 Case Study: Does it work? Self-insured municipality in negotiations with police and fire union. Union requested that physician copays are reintroduced in the plan at renewal. The city was convinced that this plan change would dramatically increase utilization and, therefore, claim costs. Internal underwriting showed no utilization increase with a $40 copay. RESULT: Union happy with copays. Municipality happy with no increase in claims. Page 34

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