Creative Solutions to Rising Employee Benefit Costs September 12, 2016
Agenda Speaker Introductions Employee Benefits Market Influences & State of the Union Solution to Rising Costs & Unhealthy Populations CCHIP Program Overview 1
SPEAKERS Matt Filing Producer, Lockton Todd Hlasney Vice President, Health Risk Solutions Consultant, Lockton Bryan Mailliard Vice President, Consultant, Lockton Mark Morris, CPA, CPCU Senior Vice President, Risk Finance, Lockton Sal Pellegrino Vice President & General Counsel, Caring Communities 2
Market Influences & State of the Union
Key Market Influences Beyond PPOs New network alternatives Pharmacy/Specialty Spend Costs > +25% annually Private Exchanges Form over substance? Compliance Numerous exposures outside of ACA Large Claims Increasing frequency and size Health Plan: Strategic + Decision Areas Carrier Consolidation New efficiencies or monopolies? Redefining Benefits From traditional benefits to total rewards Medical Trend 3x Consumer Price Index Cadillac Tax Will affect majority of employer plans 4
Medical Trend Medical Trend Continues to Outpace CPI by 2-3X 1 Top Cost Drivers of Rising Healthcare Costs 2 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 8.3% 9.0% 6.4% 8.0% 8.0% 8.0% 8.0% 6.8% 6.8% 6.8% 5.3% 5.5% 5.5% 6.0% 6.0% 5.7% 6.0% 4.9% 5.0% 4.2% 4.1% High-cost claimants Specialty pharmacy Overall medical inflation Specific diseases or conditions Outpatient care (physician visits) Hospitalization (inpatient care) Outpatient procedures ACA compliance Geographic variation in cost/utilization Imaging Other* Before Plan Design Changes After Plan Design Changes 0% 20% 40% 60% 80% Highest Driver 2nd-Highest Driver 3rd-Highest Driver *Other includes pharmacy, maternity, chronic diseases, and an aging workforce 1 20 th Annual Towers Watson/National Business Group on Health Employer Survey - Purchasing Value in Healthcare - For companies with more than 1,000 employees, compared with prior year. 2 National Business Group on Health 2016 Large Employer Health Plan Design Survey 5
Consistent Top Disease Prevalence and Cost Drivers 17.3% of the InfoLock employee benefits population has one of these conditions. Given no group-specific data, we understand that improving these four conditions will positively affect population health, productivity, and health plan financials. Per Member Per Year $25,000 $20,000 $15,000 $10,000 InfoLock Employee Benefits Book of Business $21,324 $12,937 $9,767 $8,471 $5,000 $0 Heart Disease High Blood Pressure Diabetes High Cholesterol Source: InfoLock Benchmarking Groups, June 2015 L O C K T O N H E A L T H R I S K S O L U T I O N S 6
The Impact of Obesity On Management Costs of Selected Comorbidities BMI: Body Mass Index BMI 30: Obese PMPY: Per Member Per Year Source: InfoLock Benchmarking Groups, June 2015 L O C K T O N H E A L T H R I S K S O L U T I O N S 7
Solution to Rising Costs & Unhealthy Populations
Basic Self-Insured Program Structure 1. Collaborative strategy among peers. 2. Target common challenges. 3. Clinical risk management and risk sharing at program level. 4. Customized solutions based on individual group needs. Health and Welfare Consulting Captive Strategy Health Risk Solutions Pharmacy Analytics Health Reform Advisory Practice/Compliance Care For Your Employees 9
Building Blocks of a Successful Program CLINICAL DATA ANALYTICS & POPULATION HEALTH MANAGEMENT ACTUARIAL Modeling and Price Analysis Network Optimization Specialty Networks (imaging, dialysis, high performance, narrow) ALTERNATIVE FUNDING OF RISK LARGE CLAIM & STOP LOSS MANAGEMENT Clinical Evaluations and Support Contractual Protection PHARMACY ANALYTICS Contractual Definitions Drug Mix Analysis Performance Guarantees Independent Audits C-SUITE INVOLVEMENT Active Participation In Management of Health & Welfare Program Ability to manage entire risk pool with a targeted, data driven approach 10
INFOLOCK EMPLOYEE BENEFITS 11
Fully Insured vs. Self-Insured With Stop-Loss vs. Captive Program Fixed Liability for the Employer Maximum Liability for the Employer Expected Liability for the Employer Administration (Network, Margin, Taxes, Pooling, Etc.) Contingency for High Claims (20%) Stop-Loss Premium Administration Stop Loss Carrier Premiums Captive Premiums True Stop Loss Cost Surplus Claims Claims Fixed Costs for the Employer Fully Insured Self-Funded Savings of 4% 8% Captive Program Savings of 6% 10% 12
Where Does The Stop Loss Premium Go? Collateral Requirement (8%) Captive Layer (43%) Opportunity For Capital Accumulation Carrier Expenses (49%) Captive Stop Loss Premium 13
Group Captive Stop-Loss Program EMPLOYER EMPLOYER EMPLOYER Individual stop-loss policy to each employer Each employer has autonomy to craft plan design, coverage, deductibles, copays, etc. Finite amount of risk reinsured to captive Captive reinsurance lowers costs for all participants by reinsuring the group EMPLOYER EMPLOYER EMPLOYER EMPLOYER STOP-LOSS CARRIER Reinsurance Premiums Claim Reimbursement CAPTIVE EMPLOYER EMPLOYER EMPLOYER Group Ownership 14
Sample Analysis 3 PARTICIPANTS Different specific attachment points, floating captive layer of $200,000 Renewal Program Cost for Group = $9.8M $1,000,000 Stop-Loss Insurance Commercial Stop-Loss Insurance $7.9M Employer Retained Layer Individual Group Aggregate Stop-Loss $350,000 $447K Group Captive Funding (Pooled/Retained) $114K Contingent Aggregate Collateral $150,000 $1.2M Commercial Risk Transfer/TPA Fee $100,000 $75,000 $50,000 $25,000 Group Medical Expected $9.5M > 95% of outcomes between $8.2M and $10.9M A B C Captive Aggregate 15
CCHIP GROUP MEDICAL PROGRAM ADVANTAGES Group purchasing Avoid fully insured taxes, risk charges, and margins Reduce cost of insurance and retain underwriting profits Minimize Cost Spread & Reduce Risk Increase predictability Decrease volatility Long term pricing stability Improved risk pool Best in class administration and day to day service Actuarial Pharmacy Consulting Data Analytics Enhanced Services Bend Cost Curve Understand cost drivers Data driven decisions Greater control over claims 16
Questions? 17
Captive Claim Example
2016 CCHIP Analysis 3 PARTICIPANTS Different specific attachment points, floating captive layer of $200,000 Renewal Program Cost for Group = $9.8M Stop-Loss Insurance $7.9M Employer Retained Layer $1,000,000 $350,000 Commercial Stop-Loss Insurance $447K Individual Group Aggregate Stop-Loss Group Captive Funding (Pooled/Retained) $114K Contingent Aggregate Collateral $150,000 $1.2M Commercial Risk Transfer/TPA Fee $100,000 $75,000 $50,000 $25,000 Group Medical Expected $9.5M > 95% of outcomes between $8.2M and $10.9M A B C Captive Aggregate 19