HEALTHCARE BENEFIT TRUST. Moderator: Jan Grude July 03, :10 pm CT

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1 Page 1 July 03, :10 pm CT Operator: Ladies and gentlemen, thank you for standing by and welcome to the Healthcare Benefit Trust Business Update conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. At that time if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder this conference is being recorded Tuesday, July 3, I would now like to turn the conference over to Mr. Jan Grude, Chief Executive Officer of Healthcare Benefit Trust. Please go ahead, sir. Jan Grude: Thank you very much. And thank you all for joining us today. Welcome to the HBT regular conference call with our clients. Joining me from the Trust is Sarah Hoffman, our Chief Financial Officer. This call is part of our continued commitment to keep lines of communication open with you, and to provide you with regular updates on our business initiatives and the financial position of the Trust.

2 Page 2 Our agenda for today includes, first, a review of our 2012 priorities; secondly, some early guidance on the 2013 contribution rates; thirdly, highlights from our Annual Report which was distributed a short time back; and finally, updates on investment performance, Long Term Disability experience, exit levy payments and deficit recovery, all of which impact the funded position of the Trust as well as the HEABC and CSSEA employer pools. Following these four items on our agenda there will be a Q&A session to address any questions or comments that you have, and we're always very eager to have your questions. First on our agenda, bargaining and benefits costs, starting with our 2012 priorities. Given bargaining is under way in both the health and the community sectors we serve, much of our attention has focused on plan design and benefits cost analysis. We recognize that this bargaining cycle will once again shine a spotlight on opportunities to manage the costs associated with benefits. Our Benefits Design and Reporting team, in conjunction with our actuarial team, have significantly strengthened the scope and depth of data available, both on a cross-jurisdictional plan language area, as well as comparative plan designs and on claims utilization patterns. We are very well positioned now to provide our clients with relevant information should any changes that result from bargaining potentially impact benefits costs or future contribution rates. Additionally, we'll continue to support the various stakeholder information needs for ongoing and future bargaining initiatives.

3 Page 3 I would encourage all of you to contact our Benefits Design and Reporting team, and to utilize the available expertise they can provide to you to look at options that could assist you in managing your benefits costs, and what impact potential changes coming out of the bargaining environment could have on your rates in the future. Another priority for 2012 was the simplification of our systems, in particular the move of remaining transaction services housed at the Trust over to Pacific Blue Cross, who are our outsourced provider of claims administration for Extended Health and Dental. This transition reinforces our commitment to make our systems and processes simple. By now all of our clients should have received notice of their transition time, the estimated date when you'll transition to PBC systems. To date, client feedback has been positive and the first pilot group has already started the process of transition. They are through, and we're looking forward to working with them to ensure the process continues to be smooth. We do expect that many if not all healthcare and community employers will be transitioned to the new system from mid-2012, immediately following the pilot group, all the way through The Health Authorities will then follow as a group in late We're going to make every effort to ensure that the new enrollment and billing systems processes and services offered by Pacific Blue Cross will be more efficient for all of our clients. Again, I encourage all of you to share your experience or concerns about this initiative so that we can best address any issues or concerns proactively.

4 Page 4 Each of the client cohorts will be going through in six-month periods, so you'll see that change over the next year. Your opinion matters to us and is a crucial component of our operational governance, not just for the PBC transition but also for the management of other service providers. A third priority in 2012 was to assess your satisfaction with Long-Term Disability claims adjudication. We've committed, as part of our service plan, to ensure our service providers meet the needs of our clients, the terms of our service agreements and provisions of the benefits plans that we administer. Over the summer and into the early fall, HBT will be contacting all of you who work directly with LTD claims management and payment on a regular basis to gauge your satisfaction with the services provided by Great-West Life. Great-West Life is our outsourced provider of adjudication services for all Long-Term Disability cases. We're then going to integrate the outcomes of your feedback into our ongoing service provider performance management. Finally, in terms of 2012 priorities or 2013 contribution rates, before heading into the summer I'm pleased to remind you that HBT clients can once again expect to receive your 2013 contribution rates this fall, well ahead of your budgeting schedule. And this is in alignment with our new rate schedule as well. Our rate-setting process for contributions very closely resembles insurance industry practice without the cost of fully-insured product. We set Life, Accidental Death and Disability rates broadly across the Trust, whereas Extended Health, Dental and Long-Term Disability rates are adjusted based on claims experience and demographics.

5 Page 5 Simply put, your contribution rates are closely aligned with your expected cost of claims, while still providing you with the benefit of the Trust's pooling and collective purchasing power of healthcare benefits by way of selfinsurance. We're always available to review with you our rate-setting process and your rates in more detail as they come out in the full. The Trust has also implemented funding policies that will provide for greater stability and rates over time. These funding policies set out to protect clients against large changes due to LTD experience and investment performance fluctuations in the future. In the context of 2013 contribution rates, the continued stability in LTD experience as well as better-than-expected claims experience for Extended Health and Dental benefits should assist us, for some, to provide relief in rate changes. Additionally, HBT will be providing accompanying information on average rate changes as well as benefit utilization trends. This information is intended to support our clients and further discussion on what we know to be the major drivers of benefits costs, including plan design, benefits utilization and Long Term Disability management, where I believe all of you know that early intervention is the key. With those four themes, reflective of our 2012 priorities reviewed with you, I'd like to now pass the call over to Sarah Hoffman, Chief Financial Officer for the Trust, for her financial update. Sarah Hoffman: Thanks Jan. Good afternoon, everyone. As you may know we recently sent out the 2011 Annual Report, and I'd like to take an opportunity to review a

6 Page 6 few items in the report with you. The report is available on our web site for anyone who did not have a chance to review it when it was ed out. The Trust is audited on an annual basis by KPMG, and the audit concluded in March of this year. And the audit report is included in the front of our Annual Report. The result was an unqualified audit opinion which is the same as previous years, which means that there were no significant financial issues that were found that were of any concern to the auditors. This year we did have some reporting changes in our financial statements. Along with a lot of other organizations, we have transitioned to new accounting standards called IFRS, which is International Financial Reporting Standards, which did require some additional note disclosure. You will see in the financials that the previous year's results were required to be restated to reflect these reporting changes, but there was no financial impact as a result of this change. The format of the report was the only thing that changed, slightly. HBT's admin costs are outlined in Note 13 of the statement, and we're very close to our spending levels for The expenses for the Trust came in at 6.3% of contributions, which is down slightly from last year. The Annual Report also contains our actuarial valuation. This year we made some changes to the assumptions that underpin the valuation, and we do want to draw your attention to these. They are located on Page 17 of the valuation report. The most significant of these changes was the change in the discount rate, from 6% down to 5%. This change was implemented to more accurately reflect the expected returns of the Trust, and to build in some margins for

7 Page 7 unforeseen circumstances. And this is aligned with our aim to provide more stability in rates over time. The next slide here is an excerpt of our balance sheet at the end of As you can see, the Trust now has over $1 billion in assets, and has reached a 98.8% funded position. This is a significant improvement over a short period of time. In 2008 we were 69% funded, so you can see the significant increase. This change reflects a confluence of four factors, including consistent contributions, appropriate deficit recovery and exit levy payments, solid investment performance and LTD experience that I'll address shortly. The mechanics of the funded position of the Trust are quite simple, it's just the total assets divided by the total liabilities of the Trust, but there are a lot of moving parts to both of those drivers. I wanted to address a number of questions relating to the funded position of the overall Trust, and more specifically the funded position of the community employer pool and the health employer pool, which excludes the Health Authorities, as they relate to the respective deficit and exit levy. The funding policies at HBT are set out to achieve 100% funding at the Trust, and at this time the overall Trust approaches this goal. However, some pools in the Trust are over-funded, and some are under-funded, and the result is $12 million in aggregate in deficit for the Trust. As you can see from this slide, on their own, the CSSEA pool is at 65% funded, and the HEABC employer's pool is 74% funded. This means that each pool is carrying a deficit which is paid down one of two ways: either through the deficit surcharge, which is included in your LTD rates, or through an exit levy upon termination.

8 Page 8 I mentioned that HBT's funding policy aims for these pools to achieve 100% funded position, and that aim is to be fully funded within the next 10 years. This does assume that the current positive activities are maintained with solid investment performance and good LTD experience. This next slide shows a movement in the deficits for these two pools over the last three years. As the deficit in each of these pools decreased in 2010 due to good claims experience and positive investment performance, in 2011 there was a slight increase in these deficits. This was driven through claims experience, allocation of assets to the pools, lower than expected investment performance and those actuarial changes that we highlighted earlier. As long as these pools are under-funded, this means that a deficit does exist, and the amounts of funds available to pay for future benefits are not at the level that are required. This means that an exit levy payment would still be required should an employer terminate membership or make changes in the number of employees that receive benefits from HBT. As I mentioned earlier, there are four key factors that impact the financial position of the Trust, the active claims of the participating members in the Trust, the performance of the invested assets under management, contribution rates, particularly for LTD and payments made towards deficit recovery and exit levies. I'd like to take a few minutes just to review the latest LTD performance, which is a critical piece of information for all of our members to monitor. When we look at LTD active claims, what we can see here can positively now be called a trend. I ask you to look at the Total line on the bottom of this

9 Page 9 slide, which shows the increasing total claims year-over-year up until 2010, and then you'll see the count begins to decrease. This improving trend in claims, in experience impacts the actuarial liability of the Trust and rates. We are optimistic that this performance will continue, and we recognize the hard work that's being done by all parties, you the employer, Rehab Services through HBT, and the staff at Great-West Life who manage many of these cases. Like many organizations, we also felt the impact of the international market collapse, and we did not come out of 2011 unscathed. Our current long-term investment return expectation is 5 1/2% annualized. Our actual returns for 2011 were 3.3% net of fees. The Trust's assets are currently actively managed through BC Investment Management Corporation. Given our investment structure we are still subject to a little bit of market volatility, and our investment performance was lower than expected, but over the long term we are comfortable with our investment structures through bcimc. So just a little reminder that a funding policy document is in place, and it does outline the mechanism used in setting rates and collecting the appropriate amount of contributions to cover the current and future claims. We have been talking about the margins that we've been introducing over time. These are featured in this funding policy, and they've been built in since 2009 to help build some stability. The exit levies are still being discussed, and we do continue to work toward resolution of the exit levy payments owed to the Trust through continued cooperation and collaboration with the Ministries of Finance, Social

10 Page 10 Development and Health. Government has recognized that the exit levies that have been charged to terminated agencies are legitimate business obligations. We are partnering with those terminated agencies to resolve those exit levies that are owing, and have recently been successful in establishing exit levy payment plans for employers that have departed the Trust. We are still receiving payments towards exit levies in lump sum, but we do want to reiterate our offer to accept payments over time for anyone who is unable to make lump payments toward their exit levy upon termination. We do have some members that have requested to rejoin the Trust. We're very open to returning members, and we do have appropriate structures in place for returning members to pay their share of any deficit recovery that they otherwise would have paid if they'd remained active members during the time of their termination. I have a few general updates on three issues that will concern you as members of the Trust. Canada Revenue Agency recently issued Bill C-13, which requires employers to calculate and remit contributions for EI & CPP on all employer-paid Long-Term Disability benefit payments. We are pleased to announce that as HBT is structured as a health and welfare trust our member employers are exempt from this bill. And this exemption is critical to ensuring the most cost-effective benefit plans for our members. In order to ensure equity for our participating members, on April 1 st HBT did begin invoicing employers for Group Life and AD&D for all LTD claimants. Employer-paid Group Life is a taxable benefit to the employee and does require T4 reporting. And we recommend that you contact all of your LTD claimants to advise them of this change.

11 Page 11 And just one final reminder about MSP, we had published some information about this in Trust Matters but just wanted to highlight it again: employees who are in receipt of LTD benefits are entitled to receive other benefits while they're on disability, which does include MSP, which is 50% employee paid and 50% employer paid. And again, to ensure equity for participating members, effective January 1 st 2013, HBT will no longer be paying 50% of the MSP premium for the disabled members on the employers' behalf. Employers will remit their portion of MSP premiums for all employees and issue the T-4 for the payment of that debt. This change was made on the basis that HBT is not the provider of these benefits, is not named in the collective agreement, and as part of operational efficiency, we are moving towards administering only the benefits for which we are responsible for providing. We'd now like to take any questions that you may have. Operator: Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the three. If you're using a speaker phone, please lift your handset before entering your request. Once again, to queue up for a question you may press 1, 4 on your telephone keypad. One moment please. Ladies and gentlemen, once again, to queue up for a question, please press 1, 4. And we appear to have no questions on the phone line.

12 Page 12 Jan Grude: Still no questions? Operator: No sir, no participants queued up. Jan Grude: Well, failing any questions, thank you very much for your time, everyone. Should something occur to you following this call which you'd like to discuss with us individually, either with Sarah or myself or any one of the executive staff of the Trust, do feel free to give us a call. We're certainly ready to answer your questions. Thank you very much for taking the time to join us today, and have a tremendous summer. Operator: Ladies and gentlemen, that does conclude the call for today. We thank you for your participation and ask that you please disconnect your lines. END