Plan Design & Contribution Strategies. Bill Rasmussen August 10, 2016

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1 Plan Design & Contribution Strategies Bill Rasmussen August 10, 2016

2 Introductions Moderator Maria Alberts Associate Consultant Alliant Employee Benefits Alpharetta, GA Speaker Bill Rasmussen Lead Consultant Alliant Employee Benefits Alpharetta, GA

3 Today s Discussion Agenda Plan Design and Contribution Modeling..But What Happens First? Consumerism, Behavioral Change and Plan Design Modeling Augus t Who Pays for What? Contribution Modeling Summary and Discussion

4 The Process Begins Understand Workforce Demographics Workforce Analysis Demographic Analysis Turnover Augus t Understand the Health of the Workforce Health Risk Factors Chronic Disease Wellbeing Analysis Workplace Absence Company Objectives Regarding Benefits Culture Benefit Philosophy Benchmarking Industry Geography Size Where Does Your Organization Fit? Budget Planning What Can We Afford?

5 Workforce Analysis Sample Analysis of Work Force Total number of employees 6,783 Gender distribution Average employee age 18% Female, 82% Male 42.2 years Age/Gender Factor Average employment tenure Number of key employees 6.5 years 2% of Workforce Average compensation* $49,832 5

6 Priorities of Workforce Generations Entry Level 20 s 30 s Mid-Career 30 s 40 s Established 40 s 50 s Pre-Retiree 50 s 60 s Career Growth Income Time Off/Flex Time Health & Well Being Income Time Off/Flex time Health & Well Being Savings Recognition Career Growth Savings & Income Protection Career accomplished Financial Priorities fairly low Healthcare and 401(k) not a priority Time with family not as important Financial Priorities Increasing Income increasing Career growth materializing Time with Family Very Important Income Peaking Affordable Health Insurance important Financial Priorities decrease Steady Income Affordable Health Insurance needs decreasing 6

7 Benefits Spend Future Benefits Spend Unsure, 25% Increasing, 45% Neutral, 22% Decreasi ng, 8% Source: Gallagher 2015 National Survey of Employer Sponsored Health Plans 7

8 Emerging Trends 50% 45% 40% Survey Participants Who Offer These Solutions (2015 vs. 2014) 43% 38% 35% 30% 25% 20% 15% 10% 5% 9% 3% 12% 7% 11% 4% 12% 9% 16% 12% 0% Telemedicine ('Online Visits' in 2014) Mandatory specialty Reduced provider pharmacy program network accessibility (limited network) Online enrollment Social media benefits communications Mobile enable benefits communications Source: Gallagher 2015 National Survey of Employer Sponsored Health Plans

9 Market Trends: Plan Type Key Competitor Information 2 plan offerings Base Plan Core Plan (structured as a buy up option) Both plans are PPOs through a national Blues carrier Benefits materials did not reference plans for consumerdriven plan in the future and neither plan s deductible design ($0 deductible in-network) seemed geared toward a move to consumerism. % of employers expecting to offer a CDHP Plan within the next 3 years % of Retail/Wholesale Services employers offering at least one % of Small employers offering at least one % of all employers offering at least one PPO Plan CDHP Plan With HSA HMO Plan Observations While less than 25% of both small employers and all employers surveyed offer an consumer-driven plan with Health Savings Account, over 56% of Wholesale/Retail employers do offer at least one CDHP with HSA Additionally, over 60% of Wholesale/Retail employers plan to offer a consumer driven plan within the next 3 years Alternative Apparel is in line with other employers in both your industry and size in offering a PPO plan type

10 Market Trends: Plan Design Key Competitor Information Competitor does not have an innetwork deductible on either medical plan; does not align with industry or employer size benchmarks Copays for both plans are slightly lower than all comparison groups ($20/$40 and $15/$30) However, coinsurance percentages on base plan are slightly higher than median INN percentages (25%) Observations Alternative s current plan design is in line with other Wholesale/Retail employers, but below all comparison group benchmarks for coinsurance percentage Copays closely align with industry medians Opportunity to increase deductible amounts without being above small employer averages

11 Market Trends: Plan Costs and Contributions Average Annual Cost Per Employee $11,635 $11,204 $10,799 $11,012 $10,394 $9,991 $9,668 $8,981 $8, Wholesale/Retail Small Employers All Employers Observations Based upon most recent rolling 12 month data (2/2015-1/2016) the total actual cost per employee annually is $6,011, significantly lower than the averages for both your industry and size. Alternative paid less than this actual cost in billed premium. However, small groups are more likely to have major cost fluctuations Alliant has requested full reporting data from Aetna to get a more credible picture of annual costs Current non-tobacco employee cost share percentages align with other small groups in the EE Only and EE + Spouse tiers at 26% and 45% cost share, respectively Cost share percentages are slightly higher than benchmarks for the EE + Child(ren) and Family tiers at 51% and 52%, respectively Key Competitor Information Competitor uses a three tier contribution structure (EE only, EE + 1, and Family) Since full premium information is not available, we can only compare employee contribution amounts, not percentages Alternative s EE only monthly contributions are below the competitor s However, Alternative charges more for dependent tiers than the competitor

12 Financial Projection Process Claim Experience of the Group Large Claim Analysis and Predictive Modeling Stop Loss Markets and Trends Pharmacy Analysis Fixed Cost Projections Wellbeing Engagement and Financial Impact Risk Management Changes ACA Compliance and Financial Analysis 12

13 Impact of Large Claims Year Large Claim Level Projected Number of Claims ABC Corp Actual Claims Total Claim Dollars 2016 $300, N/A N/A $150, N/A N/A Total N/A N/A 2015 $300, $1.163M $150, $1.851M Total $2.695M 2014 $300, $1.510M $150, $2.846M Total $4.356M 2013 $300, $3.703M $150, $1.174M Total $4.878M 13

14 Cost Year over Year Cost Component Budget Medical Claims $ 19,266,248 $ 20,627,732 $ 15,828,223 $ 16,068,820 $ 21,326,481 RX Claims $ 4,792,332 $ 4,433,156 $ 4,372,194 $ 4,082,103 $ 5,716,506 Fixed Costs $ 3,270,306 $ 2,452,174 $ 2,414,116 $ 2,366,004 $ 2,904,292 Total Costs $ 27,328,886 $ 27,513,062 $ 22,614,533 $ 22,516,927 $ 29,947,279 Total Employee Premium $ 13,280,521 $ 11,913,062 $ 11,068,533 $ 12,652,083 $ 14,165,995 Total ABC Corp Cost $ 14,048,365 $ 15,600,000 $ 11,546,000 $ 9,864,844 $ 15,781,284 % Change Total Employee Premium over Previous Year 10% 7% 14% 12% % Change Total ABC Corp. Cost over Previous Year 11% 26% 15% 60% Avg Medical Enrollment 4,020 3,617 3,382 3,908 4,931 PEPM Cost $ 567 $ 634 $ 557 $ 480 $ 506 % PEPM Change over Previous Year 2.0% 11.9% 12.1% 13.8% 5.4% Total Employee Premium PEPM $ 275 $ 274 $ 273 $ 270 $ 239 % Change Employee Premium PEPM over Previous Year 0.05% 0.05% 0.10% 11.5% Total ABC Corp. Cost PEPM $ 291 $ 359 $ 284 $ 210 $

15 Financial Projections Analyze Strategize Develop Assess Pre-Renewal Pricing Negotiations Deep knowledge of revenue requirements Advanced knowledge of stop loss pricing o Underwriter to Underwriter negotiations An offset to carrier Shadow pricing Multi year terms possible Leveraging market conditions Best in class results Turnover 15

16 Plan Design Strategies Core Principals In keeping with corporate culture and philosophy oconsumerism obehavioral Change owellbeing strategy orisk Management Should be part of a long term benefit strategy Support provider network strategies that are in place or planned for the future Exotic plan designs can be a challenge otough to administer omore expensive administration fees omore administrative errors and member complaints 16

17 Plan Design Strategies Core Principals (continued) Private Exchanges can create opportunities o More options for employees o Defined contribution approach (more on this later) Easy to understand and communicate Written, diverse multi-media communication strategy o Frequent and repetitive Priced appropriately.don t give away too much corporate savings ACA Compliant o Minimum Value Plan o Essential Benefit State selected 17

18 Contribution Strategy Concepts ACA Affordability Percentage of salary Tiered salary percentages Traditional flat dollar amounts o Per coverage tier or for employee only Traditional percentage of funding rates for each tier o Per coverage tier or for employee only Must be non-discriminatory 18

19 Contribution Strategy Concepts Wellness Intended to promote participation in wellness programs offered Arguably the most effective related to behavioral change Incentives or surcharges (depending on corporate philosophy) Wellness participation can t incent or surcharge more than 30% of total funding cost Tobacco use can t be penalized more than 50% of total funding cost No more than 50% combined wellness and tobacco Incentives or surcharges can be applied to employee and spouse rates 19

20 The Defined Contribution Concepts Are Simple But There a Lot of Considerations You give employees a set amount of money to spend on benefits Stop picking people s plans Gain financial predictability & control Exchange provides technology support online and on the phone. We consolidate and handle administrative tasks. Employees shop at online store and guided to personalized benefits selections. 20

21 Considerations When Looking at Defined Contribution Developing a financial strategy Where are you today? A discussion about an 80%/20% cost share is different then one that is a 50%/50% What are your expectations around benefits costs over the next three years? Five years? What are your feelings about the implications of holding the employer contribution flat, or below trend, while employee s pick up the balance? Can employees afford the plans that potentially they ll have to migrate to as costs continue to rise? Retention issues? 21

22 Considerations When Looking at Defined Contribution The initial contribution budget setting Will the employer piece make everyone whole initially? Are you trying to drive employees to a certain plan? Will the contribution budget include other coverage's? Will everyone get the same amount? What about single versus family? What about the 9.5% affordability test? 22

23 Other Contribution Strategy Considerations Spousal exclusions or surcharges Many employers eliminating or surcharging spouses that have coverage elsewhere Required affidavit from spouses employer and/or employee Per person contribution strategy Employee and spouse have rate specific to their class Each child participating in the plan is charged Sometimes capped at a maximum number of children Contribution strategy tied to Public Exchange See table 23

24 Contribution Modeling Tools Salary Band Contribution Analysis

25 Contribution Modeling Tools ABC Company Funding Rate Projections Current Projected Employee Employee Medical Enrollment Enrollment Rates EE ER Rates EE ER Cost Share Cost Share Base EE Only $ $42.00 $ $ $42.00 $ % 9% EE + Spouse $ $ $ $ $ $ % 31% EE + Child(ren) $ $ $ $ $ $ % 28% EE + Family $1, $ $1, $1, $ $1, % 20% Annual Costs $1,815,387 $367,224 $1,448,163 $1,815,387 $367,224 $1,448,163 PEPM Costs $ $ Buy Up EE Only $ $ $ $ $ $ % 25% EE + Spouse $1, $ $ $1, $ $ % 45% EE + Child(ren) $1, $ $ $1, $ $ % 39% EE + Family $1, $ $ $1, $ $1, % 45% Annual Costs $1,788,927 $722,796 $1,066,131 $2,008,814 $811,639 $1,197,175 PEPM Costs $1, $1, CDHP EE Only $ $70.00 $ $ $74.27 $ % 17% EE + Spouse 5 5 $ $ $ $ $ $ % 45% EE + Child(ren) 1 1 $ $ $ $ $ $ % 44% EE + Family 3 3 $1, $ $ $1, $ $ % 50% Annual Costs $169,296 $61,140 $108,156 $179,624 $64,870 $114,754 PEPM Costs $ $ Total Annual Costs $3,773,609 $1,151,160 $2,622,449 $4,003,824 $1,243,733 $2,760,092 Total Annual $ Increase $230,215 $92,573 $137,642 Total Annual % Increase 6.1% 8.0% 5.2% HSA Contribution (CDHP Participants) EE Only $37.50 $0.00 $37.50 $37.50 $0.00 $ % 0% EE + Spouse 5 5 $75.00 $0.00 $75.00 $75.00 $0.00 $ % 0% EE + Child(ren) 1 1 $75.00 $0.00 $75.00 $75.00 $0.00 $ % 0% EE + Family 3 3 $75.00 $0.00 $75.00 $75.00 $0.00 $ % 0% Annual Costs $13,500 $0 $13,500 $13,500 $0 $13,500 PEPM Costs $53.57 $53.57 Grand Total Annual Costs $3,787,109 $1,151,160 $2,635,949 $4,017,324 $1,243,733 $2,773,592 Grand Total Annual $ Increase $230,215 Grand Total Annual % Increase 6.1% *Employee contributions shown are based on Wellness rates

26 Impact of ACA Excise Tax # Enrolled EE s at Each Salary Tier Salary Tier Flat Excise Single EE 2.5% Lowest Salary 2.5% Highest Salary ABC Corp Base Model EE Rate National Average Bronze Plan on Exchange 1496 < 30K $695 $695 $750 $911 $3, K $695 $750 $1,250 $1,095 $3, K $695 $1,250 $1,875 $1,280 $3, K $695 $1,875 $2,475 $1,464 $3, K $695 $2,475 N/A $1,845 $3, >200 $695 $4,975 N/A $2,214 $3,096 The above table plus feedback received at annual enrollment indicates that ABC Corporation employees without insurance are doing the math and making the decision to elect insurance over being responsible for penalties, buying individual insurance or buying from healthcare.gov 26

27 Questions? 27

28 Thank You! Please remember to complete your evaluation form. Contact: Bill Rasmussen Lead Consultant Alliant Employee Benefits