Defined Contribution Private Exchange. Dan Crawford

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1 Defined Contribution Private Exchange Dan Crawford

2 Healthcare: What Employers Want Healthy, happy, productive employees Continue to provide benefits Minimize cost, and make it predictable Flexibility without added complexity Prepare for new health insurance buying models

3 Why Get Excited? The Market is mobilizing very quickly, in parallel with, defense of, or in spite of PPACA We are at a tipping point and the opportunity for DC Health is very strong Sources: 1 Congressional Budget Office, 2 McKinsey Consulting, 3 Evolution1

4 Defined Contribution Health Traditional Insurance Plan Consumer Directed Health Plan Defined Contribution Health High ER Responsibility Greater Transparency High EE Responsibility Employee Funded Co-Pays Declining Benefits Healthcare Account(s) EE Responsibility Some ER Flexibility Healthcare Account(s) $ Employer Funded Health Insurance 1-3 choices Rising Costs (~8%) Health Insurance CDH/HDHP 1-3 choices Rising Costs (~4%) Health Insurance Many Options Fixed Contribution Amount Low ER Cost Control High ER Flexibility

5 Tough Employer Choices 2014 PPACA Implementation Pay? Cost Inflation Tax $2,000 per EE over 30 -or- $3,000 per uncovered receiving credit Additional wages to offset eliminating benefits Eliminating employee benefits Penalty is indexed Additional income to EE not pre-tax Cost Inflation Tax Benefit Play $11,204 per employee* Increasing by 6-8%+ per year* Deductible to employer Providing a benefit to employees Benefit Out of the healthcare business Easy to plan and budget *Towers-Watson, Sep-2012

6 Tough Employer Choices 2014 From 28 million (CBO) to 125 million (McKinsey) exiting traditional group plans Pay? Play Cost Inflation Tax Benefit $2,000 per EE over 30 -or- Cost $11,204 per employee* $3,000 per uncovered receiving credit Inflation Increasing by 6-8%+ per year* Additional wages to offset DC eliminating Health Tax Deductible to employer benefits Eliminating employee benefits Benefit Providing a benefit to employees Penalty is indexed Cost Employer decides (inc. penalty if <60%) Additional income to EE not pre-tax Inflation Employer decides Out of the healthcare business Contributions deductible to employer Easy to plan and budget Tax Contributions deductible to employee Benefit Providing a benefit to employees Out of the healthcare business Easy to plan and budget for *Towers-Watson, Sep-2012

7 The Exchange Opportunity Traditional Group Benefits 77% 23% CHANGE Rising Costs Reform Exchanges Disruptive Solutions Dynamic Marketplace OPPORTUNITY 31% 69% New/Other Benefit Models What Models? 72% - Planning on Exchanges AON Hewitt survey of 562 U.S. Employers, Nov 2011 Why? 86% - Reduce costs 45% - Improve access to quality plans 43% - Enhance wellness programs 43% - Increase healthcare choices

8 Core Functions of Private Exchanges Exchanges are generally viewed as having four core functions: Offering a significant level of decision support to help employees shop and compare products through a secure web-site Providing administration of eligibility assessment, enrollment, and premium collection and payment Offering a managed funding approach that moves employee benefits towards a defined contribution model Offering a wide choice of products and providers to employees.

9 Defined Contribution Exchange Employees are responsible to choose appropriate health plans for themselves and/or their family Employees are given guidance and information resources along with options management and a selection process Employer defined pre-tax contribution vehicles: Section 125/Cafeteria Plan (125) with HSA or FSA Employer or Employee contributions Premiums, HSA, Health FSA, Dependent Care FSA Funded (i.e., HSA) and notional accounts Section 105 Health Reimbursement Arrangement (HRA) Employer contributions Premiums, health expenses Notional or funded HRA account

10 Market Models Individual Plan Private Exchange Regional individual health plans based on consumer s home address Single Health Plan Exchange Comprehensive group plan from a single carrier Limited Product Exchange Limited qualifying plan designs (e.g., HDHPs) Group Plan Exchange Two or more health insurance options w/group underwriting

11 A Strategy for ALL Employees Employees choose a group plan with Engine Recommendation Eligible for Group Benefits Part-time or Spouses/ Dependents Those not eligible for group benefits can still find affordable health insurance Employees can shop for short-term insurance or more affordable long-term coverage In Waiting Period Employees purchasing their own insurance Employees in transition (retirees or terminations) Employees in transition can shop for individual insurance Employers are able to offer a Defined Contribution to subsidize employees insurance

12 Consumer Shopping Experience Manage Health Health insurance Specialty health insurance - Dental insurance - Vision insurance - Pet insurance Wellness/concierge Protect Income and Wealth Income Replacement - Long Term Disability Insurance - Critical Care Insurance Wealth Protection - Basic life insurance - Voluntary life insurance - Long term care insurance

13 Consumer Demand will Grow Private Exchanges will continue to develop and evolve to meet market demand Private Exchanges are alternatives to State Exchanges. Employers of any size can participate Private Exchanges can offer up to 35 plans with varying options A wider variety of plan options ensures employees select the plan that suites their needs The Private Exchange does not have many of the regulatory requirements of a government run model and will likely be more flexible to meet consumer demand

14 Consumer Shopping Platform and Recommendation Engine drives consumer decision and action Overall 131% Average Lift in Application Rate after implementing the Shopping Platform Percent of Visitors to Health Plan Website Starting and Completing an Application 14% 12% 10% 8% 6% Pre-Private Exchange Post-Post Private Exchange Similar lift in rate of completed applications (126%) On average, 13.2% of site visitors start an application Calls to Call Center are more specific 4% 2% Exceeding growth goals 0% Q Q Q Q Q Q Q Q Q3 * 2012 % Visitors Start Application % visitors Complete Application *Incomplete Quarter

15 Snap shot of case study of mid-size company product selection

16 Key Considerations for Employers Using Private Exchanges Include number of employees, demographics of the employee population Employee income levels, health of the population, single state versus multi-state coverage Benefit strategies of the employer s competitors, and even the company culture Paternal approach versus a consumerist approach

17 Perceived Value / Stickiness Strengthening the Consumer Relationship Shopping Accounts Plan/Save Annual Plan Selection 2012 Evolution1, Inc. All Rights Reserved

18 Employer Key Value Points Employers simply set the amount to be contributed we provide the services to the employee for everything else Individual underwriting no annual shopping or negotiating with carriers Reduces income tax liability like other health benefits Prepares employees to take a stronger role in not only their health spending, but their health insurance. Happy employees they get to pick whatever set of health benefits best suits their needs

19 Employee Key Value Points Brings cost transparency to BOTH benefit selection (through exchange) and health spending (through accounts) Extremely easy to select insurance and manage spending accounts either online, mobile device or contact center Customized guidance to make smart plan decisions based on employee input Reduced focus on annual decision-making as with individual insurance employees can modify their benefits as frequently as monthly if they so choose Additional non-premium contributions are saved, reducing future health insurance costs through the purchase of higher deductible plans: In an HSA they stay with the employee In an HRA they roll over but are forfeited at termination

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