Topics. Switching to a Health Reimbursement Account. Defining Consumer Driven Healthcare and their value proposition.

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1 Switching to a Health Reimbursement Account Bob Keller Vice President, Compensation & Benefits Norwood Promotional Products, LLC Tracey M. Gavin Senior Associate Topics Defining Consumer Driven Healthcare and their value proposition Benchmark Data Norwood Promotional Products 1 1

2 Defining Consumer Driven Healthcare 2 Facts of life Adults don t like to change Adults think learning means change and represents hard work Adult learning only starts after overcoming inertia Adults follow leaders; they follow crowds and early adopters Adults learn not from altruism but self-interest Adults learn personally by pressing flesh and talking to real people Advertisers target 18- to 24-year-olds, not because they buy more, but because adults over 25 are less willing to change buying habits and brands Never underestimate the lack of time available, or overestimate adults desire to overcome laziness and use time wisely There needs to be a Big Bang, which only comes once and can t be wasted Don t start by aiming at the masses; get leaders and influencers up to speed first It s old-fashioned marketing: coupons, discounts, and promises of a better life Web sites and newsletters are not enough; training means door-to-door canvassing, campaign rallies, and real folks on the phone 3 2

3 Two different health benefit programs Both called CDH CDH (Cost-Driven Health) The primary focus: immediately reduce an employer s cost of health insurance (Little investment in helping employees become more informed and involved in their health care. Small or no account contributions, weak provision of tools, information, support, communication and education.) CDH (Consumer-Directed Health) The primary focus: to help employees become more informed and involved in their health care, and control cost over time (Significant investment in resources that support employees in being more informed, involved health care consumers. Meaningful account contributions, strong provision of tools, information, support, communication and education.) Many articles highlight the opportunity and challenges of CDHPs cost-driven health increases the chances for unintended consequences (significant dissatisfaction, avoidance of care, disproportionate impact to chronic/low paid, etc.) 4 COST- driven health 1. Cost savings Little investment in: Employee incentives Employee education Support tools Results: Low enrollment Limited behavior change Limited cost savings 2. Employee satisfaction 3. Quality of care 5 3

4 CONSUMER- directed health 1. Quality of care Major investment in: Employee incentives Employee education Support tools Results: Higher enrollment Increased behavior change Longer range cost savings 2. Employee satisfaction 3. Cost savings 6 Account-based plans Consumer-driven health plans The Value Proposition: Increases employee motivation and demand for information about healthcare services and choice (value & transparency). Provides employee incentive to consider care options and need for services self care and discretionary health care spending. Provides benefit of accumulating unused funds for future needs. Monetizes health benefits via employer-defined contributions to health accounts, increasing employee perceived value of health benefits. 7 4

5 Benchmark Data 8 Growth in CDHP offerings accelerates in 2008 Percent of employers offering/likely to offer CDHP, by employer size Employer size employees % % % 8% Very likely to offer in % % 7% 9% 14% 19% % 7% 6% 11% 16% % 6% 9% 14% 20% 1,000-4,999 4% 12% 16% 22% 28% 5,000-9,999 10% 18% 22% 28% 28% 10,000-19,999 19% 21% 36% 40% 41% 20,000 or more 22% 37% 41% 45% 45% 9 5

6 Big jump in CDHP offerings among large employers Small employers CDHP* offered in: % 5% % % Very likely to offer in % Large employers 5% 11% 14% 20% 25% Jumbo employers 22% 37% 41% 45% 45% * Based on either a health savings account or health reimbursement arrangement. 10 Enrollment in consumer-directed health plans grows in 2008 Percentage of all covered employees enrolled in each plan type % 23% 7% % 8% 23% 5% % 9% 24% % 10% 25% % 58% 10% 27% % 54% 14% 27% Traditional indemnity plan PPO POS PPO/POS HMO CDHP 11 6

7 In existing plans, average CDHP enrollment has grown each year Percentage of eligible employees enrolled in CDHP, among 173 plans offered by large employers as a choice since % 27% 30% HRA-based CDHP HSA-eligible CDHP 13% 15% 10% CDHPs are significantly less costly than PPOs even highdeductible PPOs Average cost per employee $7,815 $6,027 $6,420 $6,661 HSA-based CDHPs HRA-based CDHPs PPOs with deductible of $1,000+ All PPOs 13 7

8 Norwood Promotional Products, LLC Switching to a Health Reimbursement Account (HRA) Plan aka HCA, The Bridge to an HRA 14 Context Who are we? Promotional Products Company Manufacturing, printing $330 million in revenues Multi-state: 7 states (5 today) 2,000+ employees, 80% hourly 1,500 enrolled employees Headquarters: Indianapolis, IN Wholly owned subsidiary of BIC 15 8

9 Norwood Promotional Products 16 Pre-History Prior to 2006 PPO, self-insured Consolidated individual plant plans in 2002 Blue Cross, Aetna, Cigna (current) Three tiers (Gold, Silver, Bronze) In network Annual Deductibles Out-of-pocket Maximums MD Visits Emergency Room Inpatient/outpatient Drugs $750 individual/$2,000 family $3,500 individual/$7,000 family $20/$40 co-pay $100 co-pay, 30% cost share $100 deductible, 30% co-pay 3 tier ($10, $25, $50 co-pay), mail order 17 9

10 2006 Year of Action Reasons 5 years of double digit increase in medical costs in U.S. Increasing deductibles and co-pays was not enough Passing along the overall increases to employees Company restructuring Concerns Communicating / educating our employees HRA Consumer driven selections / decision support tools Achieving real enrollment penetration Needed cost savings/cost avoidance Enabling members to make better healthcare choices HRA knowledge-base Broker/consultant 18 Investigation Tracking HRA s five years Annual Provider Conferences Owens Corning 71% enrollment into CDHP Through voluntary selection New broker/consultant selection Corporate Office move from Austin to Indianapolis Transition to 19 10

11 Plan Development 1. HRA Design Options from our consultant/broker () 2. Premium levels To encourage migration by choice by our employees 3. Communications PowerPoint presentation to employees Medical plan bi-fold Plan Design True HRA too large a leap Blend between HRA and PPO Health Care Account (HCA) Features Of an HRA: Health Accounts $400 individual $800 family Of a PPO: Co-pays for doctor/hospital visits and Rx Annual deductibles increased From $750 to $1,500 per individual From $2,000 to $3,000 per family 21 11

12 1. Plan Design (cont d) From three levels (gold/silver/bronze) to: 2 PPO Plans: Standard and Plus 2 HCA Plans: Standard and Plus (mirror plans) Stressed the sameness of the PPO plans with the prior year PPO plans Stressed the similarity of the HCA plans with the two PPO plans, except for: The $400/$800 placed in their HCA account Lower employee premiums in the HCA plans

13 24 1. Plan Design (cont d) We explained how the HCA dollars would be placed in their HCA account And how this defacto lowers their deductible Called it a true deductible We also added an additional $50 individual/$100 individual & still offering spouse (first year only) for filling our Health Risk Assessments In subsequent years employees received the $400/$800 for participating in biometric screenings, updating Health Risk Assessments, selecting/participating in in Healthy Personal Activities, etc

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15 28 2. Premium Levels Raised PPO plan employee premiums by 45% to 86% over the prior Bronze & Silver Plans No Gold plan equivalent (lowered premium 11%) HCA Std premiums lower than prior plan s rates: 2% HCA premium lower than new PPO rates: 47% to 17% (Standard/Plus Plans) 29 15

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18 3. Communications Simplicity Power points pages just shown One bi-fold" summary 2/3 the size of former tri-folds

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20 3. Communications (cont d) Philosophy Keep employee s aware each Open Enrollment of our thoughts and potential direction for the following plan year We will try to keep the Plan the same each year as long as it stays in the black 38 Results Year 1: 92% selected HCA plans 63% in HCA Standard Plan 29% in HCA Plus Plan Year 3 (today): 98% No increase in employee premiums for 3 years 2009 first increase in 4 years 6% Average 1.5% / year Aetna 2006; Cigna

21 Health Plan Costs Company costs: $6,225 / employee Employee premiums: $1,151 / employee } 18% Employee out of pocket: $1,228 / employee } 20% 40 Next Steps Eliminate both PPO Plans Add true HRA that mirror the 2 HCA Plans Designed in 2009; pending implementation Pre-communicated to our employees Use same premium differential strategy as in

22 Final Comments 42 Things to Remember One size does not fit all Understand your culture and business philosophy Know your employees Engage management Educate Empower decision making Communicate, communicate, communicate 43 22