Table of Contents Page # Topic . 2 Agenda 3 Scope of Work

2nd+ Generation Healthcare Consumerism Ronald Bachman, FSA, MAAA
A Workbook for Developing a Vision and Roadmap to 2nd+ Generation Healthcare Consumerism Ronald Bachman, FSA, MAAA President & CEO Healthcare Visions, Inc. Senior Fellow, Center for Health Transformation

Table of Contents Page # Topic . 2 Agenda 3 Scope of Work
4 Background Info 5 Task #1 – Setting Principles for Change 8 Task #2 – Vision Statement Development 11 Task #3 – Identification of Acceptable Stategies 14 Change Formula 18 Actuarial Issues 20 Consumerism 40 Task #4 – Personal Care Accounts 65 Task #5 – Wellness, Prevention, & Early Intervention 78 Task #6 – Disease Management 93 Task #7 – Decision Support Tools 102 Task #8 – Incentives & Rewards 111 Task #9 – Viewing Consumerism by Generations 145 Task #10 – Create Consumerism Plans 154 Task #11 – Setting Time Frame for Implementation 158 Integrated Health Management 161 Potential Savings from Healthcare Consumerism 164 Actual Industry Experience Results 170 Task #12 (summary) – Potential Savings 171 Consumer-driven Healthcare Surveys of Growth

Agenda Day# Goal 1 Morning Agenda, Scope of Work, Background, (T1-3), Change Formula, Actuarial Issues, Consumerism, Building Blocks (T4), Building Blocks (T5) 1 Afternoon Building Blocks T(6-8), Multi-generational Issues (T9), Create MSFT Plans (T10), Time Frame for Implementation (T11) Review Decisions from Tasks 1-11, Financials Task 12, Final Input to Roadmap Tasks To Be Completed During 1.5 Day “Extreme” Consumerism 1. Principles Decision Support Tools 2. Consumerism Vision Statement 8. Incentives & Rewards 3. Strategies Viewing by Generations 4. Personal Care Accounts 10. Create Consumerism Plans 5. Wellness Time Frames 6. Disease Management 12. Financial Analysis

Scope of Work for Developing the Roadmap and Beyond
Diagnostic and Readiness Assessment Perform Financial & Actuarial Analysis (set metrics) Design Benefits and Contrib. Strategy (The Road Map) Evaluate, Select, Implement Vendors Develop and Implement Education, Comm., Training, etc. Monitor and Evaluate Evaluate current plans Interview stakeholders Identify Basic Principles for Change Create Consumer Vision Stmt Select Strategies Develop Obj. & scope, set timeframe Match HR/business plan Develop baseline costs Co.& Ee contrib. level Model options Evaluate cost impact and revise Develop measures of success Est. Rel. Value of Components HDHP & Accts Wellness & DM Transition strategy Optional Coverages Carve-out Programs Support services Health vs. Healthcare Debit/Credit Cards Incentive Programs Vendors Technology Services Performance Accountability Reliability Communication Strategy Web-based Training, education Print, video, other media uses Internal vs. External Services Periodic reevaluation of baseline metrics Consumer scorecards Survey, measure success, acceptance Vendor/supplier audits Reassess & modify as appropriate

Background & Issues Current Benefits, Design Issues, Service Issues,
General Concerns, Anti-selection Reasons for Change, Interests in Consumerism, Driving Forces for Change, Perceptions of Employee Satisfaction, Dissatisfaction Other Problems and Positives with Current Plans

Task #1 – Setting Principles for Change
Important…Not Important 1. Have the Right Vision & Vision Stmt 2. Have a 3-5 Year Roadmap/Strategic Plan 3. Consider Other Related Corporate Initiatives 4. Create plan as part of Employer of Choice 5. Consider other HR metrics impacted by Healthcare 6. Provide Information on Rx Costs & Alternatives 7. Provide Information on Dr. & Medical Service Costs 8. Provide Information on Hospital Costs 9. Provide Information on the Quality of Dr. Care 10. Provide Information on the Quality of Hospital Care 11. Focus on Discretionary Costs (Rx and OV) 12. Focus on High Cost Claims & Claimants 13. Focus on Wellness and Preventive Care 14. Focus on an Individual Behavior Changes 15. Focus on Group Behavior Changes

Task # 1 – Setting Principles for Change
Important…Not Important 16. Use Incentives and Compliance Rewards 17. Increase Costsharing to Change Behaviors 18. Increase Employee Contributions to Offset Costs 19. Focus on Overall Plan Cost Reduction 20. Set the Right Measurements for Monitoring Progress 21. Build Broad Employee Agreement for Change 22. Minimize Change from Current Plans 23. Make Choices and Plan Options available 24. Improve Access to Care 25. Maintain Existing Network of Providers 26. Provide $ for post-65 retirement healthcare 27. Provide $ for pre-65 retirement healthcare 28. Provide $ for non-plan medical 29. Provide $ for terminated ee’s healthcare 30. Provide $ for non-healthcare expenses 31. Alternative to cutting benefits or initiating contributions

Task #2 – Sample Vision Statement Positioning to Balance Cost, Quality, and Access
Sample Vision Statement: Create health and healthcare program options valued by employees that adapt effectively to environmental trends that increase the quality of services, improve access to care, and lower costs. Uncertain, Clinically Oriented Quality Consumer Valued Quality Demand Driven Controls Supply Driven Controls Access Third Party Reimbursement Consumer Involvement & Transparency Cost

Task #2 – Create a Consumerism Vision Statement
Sample Vision Statements: Providing high performing highly educated employees and their families with the security of comprehensive health and healthcare coverage that meets their diverse needs and rewards their personal involvement and responsibility as wise users of services to optimize their individual health status and functionality. 2. Affect employee behavior change towards healthier lifestyles and greater consumerism through the use of rewards and incentives. 3. Make employees better consumers of healthcare services by providing them with the necessary health education, decision support tools and useful information including provider cost and quality data. 4. Encourage greater employee awareness and involvement in healthcare and financial decision making, as a building block towards a defined contribution strategy for healthcare in the future.

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Task #2 - Key Words / Phrases for Consumerism Vision Statement or Addition to Guiding Principles __________________________________

Task #3 - Identification of Acceptable Strategies
High Priority...Low Priority 1.Create Transparency – support “employee’s right to know,” minimize distortions of third-party reimbursement system, create transparency in costs, provide education/ training on healthcare costs, use decision support programs 2.Create Personal Involvement – establish greater financial involvement through HDHPs, HRAs or HSAs, reward good behavior, offer valued options, provide long term incentives, provide immediate feedback 3. Be Bold and Creative - Shift from supply-side controls to demand-side control designs. Be an early adopter/fast follower, consider out-of-the box ideas 4. Focus on High Cost “Pareto” Population - Provide financial protection to families in need due to high unexpected medical costs and/or chronic conditions

Task #3 - Identification of Acceptable Strategies Continued
Important…Not Important 5. Focus on Saving Lives and Improving Health – Focus on improving the health of the entire population regardless of plan design selected. Implement prevention & wellness for long term savings and DM for immediate impact 6. Focus on Preventive Care – Create incentive programs that change behaviors towards acceptance and compliance with wellness and early intervention, including pre-natal, non-smoking, diet, exercise, and safety 7. Minimize Impact of Cost Shifting – Use consumerism as an alternative to increased cost shifting or higher contributions 8. Implement Optional Consumerism – Provide new programs and plan options on a voluntary basis

Task #3 - Identification of Acceptable Strategies Continued
High Priority…Low Priority 9. Implement Change on a Multi-Year Program – Establish a consumer-centric program with a pre- determined multi-year introduction of options and use of accumulated HRAs and/or options 10. Focus on Information Sharing Only– Provide ees with decision support systems and information sources w/o accounts or incentives to reward behavioural change 11. Use Packaged Programs – use full integration of plan design, information, disease management, and decision support systems from single vendor 12. Use Existing Vendors – develop consumerist programs through current vendor relationships only 13. Use “Best of Class” Programs – use selected vendors that May overlay core benefit designs as long as integration is Non-disruptive and transparent to members

A Reason To Consider Change
The Definition of Insanity: “Endlessly repeating the same process, hoping for a different result.” - Albert Einstein

Employee Perceptions Lead to a sense of entitlement…
Employees underestimate total premium cost Employees overestimate their share of cost 63% Underestimate 16% Close 21% Overestimate 20% Underestimate 11% Close 69% Overestimate Source: Watson Wyatt

Requirements & Stages of Change
NO CHANGE Without Desire – “Back Burner” Without Vision – False Starts Without Process – Frustration Requirements & Stages of Change Alignment C H A N G E CHANGE No C H A N G E Threshold Gather Info Pros & Cons Awareness + + =

The Formula for Making Change Happen
Set by Mgmt’s Direction Task at Hand Later - Next Steps Results Desire for Change Vision / Roadmap Process for Change POSITIVE CHANGE + + = Desire for Change Vision / Roadmap Process for Change Put on Back Burner + + = Desire for Change Vision / Roadmap Process for Change Expensive False Starts + + = Desire for Change Vision / Roadmap Process for Change Frustration + + =

Preliminary Actuarial Work & Issues (NOT performed by CHT)
1. Data Collection and Population Profiling 2. Distribution of claims (low-medium-high-catastrophic claims) 3. Types and Analysis of Chronic & Persistent Conditions 4. Review of Industry Data on Consumerism 5. Use of Actuarial Pricing Model 6. Behavioral Modification Recognition 7. Cost Impact of Strategies and Plan Designs Selected

Purpose of Actuarial Work
Perform the actuarial and financial analysis to determine the impact of options available under a Consumerism Plan. Determine Potential: Plan designs Savings Elements / HRA, HSA, & Account Credits Combinations and interactions of “Building Blocks” Costsharing structure Contribution strategies Participation

Reform is Not Enough, Transformation is Required
Consumerism Supply Controls vs. Demand Controls “Them” or “You” Reform is Not Enough, Transformation is Required

Supply Controls or Demand Controls
Plan Sponsors and Members have two basic choices to control costs: 1. Managed care & HMOs - The “supply of care” is limited by a third party who controls the access to medical services (e.g. utilization reviews, medical necessity, gatekeepers, formularies, scheduling, types of services allowed), or 2. Healthcare Consumerism - The member controls their “demand for care” because of a direct and significant financial involvement in the cost of care, rewards for compliance, and the information to make wise health and healthcare value driven decisions.

Supply Controls Are Failing
High Healthcare Costs Climbing Higher Patients have lost control of their own healthcare, and are not truly engaged in the process of managing their health Patients are frustrated with managed care “rules” and the impact on time and productivity Patients don’t understand healthcare costs – costs are not transparent “Every System is perfectly designed for the results achieved.”

Mega Trends Leading to Demand Control
Personal Responsibility Self-Help, Self-Care Individual Ownership Portability Transparency (the Right to Know) Consumerism (Empowerment)

Healthcare Consumerism - Defined
Healthcare Consumerism is about transforming an employer’s health benefit plan into one that puts economic purchasing power—and decision-making—in the hands of participants. It’s about supplying the information and decision support tools they need, along with financial incentives, rewards, and other benefits that encourage personal involvement in altering health and healthcare purchasing behaviors. “The job of a leader is to create the possible” – Condi Rice 23

Consumerism – Saving Lives & Saving Money
The Moral Imperative for Consumerism: Increasing the Quality of Care, Better Health, and Improving Lives The Economic Imperative for Consumerism: Saving Money (Lower Product Prices and More Jobs)

Objectives Of Consumerism
Change participant health and healthcare purchasing behaviors Narrow market cost and quality variations using patient decisions Increase transparency of healthcare costs to plan participants Give plan participants more control over and “shared responsibility” for managing own healthcare and related costs Supply participants with the tools to act as better informed healthcare consumers Reduce costs for “discretionary care” through informed purchasing & incentives Reduce long term costs with added incentives for “good health” Reduce costs of Chronic Conditions through improved compliance with treatments and disease management programs Reduce Acute Care costs with incentive hospital tiering based upon cost and quality

Basic Requirements for Successful Healthcare Consumerism
Must work for the sickest members, as well as the healthy Must work for those not wanting to get involved in decision-making, as well as those that do

The Core of Consumerism
The Unifying Theme for a Health and Healthcare Strategy is: Behavioral Change “Implement only if it supports behavioral change consistent with the strategy”

Healthcare Consumerism Roles & Responsibilities / Implications
Employers Facilitators of change Provide increased information and decision making tools Improved employee morale with choice and access Link to productivity, absenteeism, disability, turnover, etc. Consumerism can improve costs/budgeting (current & future) Payers (Self-Insured Employers) Focus on high cost case mgmt/disease mgmt/population mgmt Will become responsible for more communications, training, education direct to consumers Value added services may change, including transactions and asset management Diminished role of managed care for routine care

Healthcare Consumerism Roles & Responsibilities / Implications
Employees Increased responsibility for own health & healthcare Involved in own treatment and medical necessity decisions Improved access to care Involved in financial costs of health & healthcare (P4C) Providers More direct involvement with patients and treatment Service and quality will be determined by consumers Pricing will become more flexible and visible (P4P) Overall implications Roles will change for all players The picture change quickly - your strategy must prepare you for rapid market changes

Consumerism Choices Involve Options for Behavioral Change
Wellness Preventive care Early Intervention Lifestyle Options (diet, exercise, smoking, safety) Self-help, self care Discretionary Expenses (e.g. OV, ER, Rx) Value purchasing (e.g. DXL, o/p vs. in/p) Participation in Disease Management Programs Compliance with Evidence Based Medicine Treatment Plans

Consumerism – Much Broader than HDHP & Consumer-Driven Healthcare
Consumerism is A Strategy ****************** It’s about moving from a “benefit” to an “accumulating asset.”

Evolution of Healthcare Consumerism
Focus Impact Choices First Generation High Deductible Plans with HRAs or HSAs, Decision Support Tools Discretionary Expenses: Rx, ER, OV, D-X-L Initial Level and Type of Accounts with CDHC / HDHP Designs, Information and Decision Support Services Second Generation Behavior Change Through Rewards Chronic and Persistent Conditions, Pre-natal, Preventive Care Covered Benefits, Type and Level of Matching Funds and P4C / P4P Incentives for Prevention, Wellness, and Disease Management Programs Third Generation Health and Performance Organizational Health, Turnover, Absenteeism, Productivity, Disability, and Presenteeism Group rewards, Importance and Impact on non-health Corporate metrics Fourth Generation Personalized Health and Lifestyle Needs Personalized Health and Performance Outcomes, Genetic Predispositions Lifecycle Needs, Culturally Sensitive DM, Holistic Care, Information Therapy

Behavioral Change and Cost Management Potential
The Evolution of Healthcare Consumerism Future Generations of Healthcare Consumerism 2nd Generation Consumerism Focus on Behavior Changes Traditional Plans with Consumer Information 1st Generation Consumerism /CDHC Focus on Discretionary Spending 4th Generation Consumerism Personalized Health & Healthcare 3rd Generation Consumerism Integrated Health & Performance Traditional Plans Behavioral Change and Cost Management Potential Low Impact High Impact

The Promises of Consumerism
Major Building Blocks of Consumerism Personal Care Accounts The Promise of Demand Control & Savings It is the creative development, efficient delivery, efficacy, and successful integration of these elements that will prove the success or failure of consumerism. Wellness/Prevention Early Intervention The Promise of Wellness Disease and Case Management The Promise of Health Information Decision Support The Promise of Transparency Incentives & Rewards The Promise of Shared Savings

The Consumerism Grid Incentives & Rewards Personal Accounts
2nd Generation Consumerism Focus on Behavior Changes 1st Generation Consumerism Focus on Discretionary Spending 4th Generation Consumerism Personalized Health & Healthcare The Consumerism Grid 3rd Generation Consumerism Integrated Health & Performance Personal Accounts Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to-Work Wireless cyber –support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related Wellness/Prevention Early Intervention Disease Management Information Decision Support Incentives & Rewards

Creating Healthcare Consumerism Plans
Understand Basic Consumerism Plan Designs Including Consumerism in All Plan Options Building Blocks 1. Understanding HRAs/HSAs to Create Personal Care Accts as a Basis for Health “Asset Accumulation” 2. Include Wellness Programs that Encourage Healthy Habits 3. Include Disease Management Programs that Encourage Compliance 4. Include Decision Support Tools for All Plans 5. Include Incentives/Disincentives to Change Behavior

Basic Plan Design Options & Healthcare Consumerism
Traditional Health Plans Most Healthcare Consumerism Plan Designs Personal Accounts HMO & FSAs HRAs? PPO & FSAs HRAs? PPO & FSAs with HRAs HDHP PPO & Ltd FSAs HSAs HDHP PPO & Ltd FSAs HSAs Ltd HRAs Typical CDHP Must Meet HSA / HDHP Legal Definition Wellness/Prevention Early Intervention Disease Management Case Management Information Decision Support Incentives & Rewards

Potential Use of PCAs to Support Consumerism Plan Designs
Traditional Health Plans Most Healthcare Consumerism Plan Designs Personal Accounts HMO PPO PPO HDHP PPO HDHP PPO Typical CDHP Must Meet HSA / HDHP Legal Definition Wellness/Prevention Early Intervention Minimum Co-Payment Designs Disease and Case Management High Ded & Co-Insurance Designs Health Incentive Accounts? Information Decision Support Initial $500-$1000 HRA with Incentive HRAs Initial Er HSA Contribution Initial Er HSA Contribution With HRA Match & Incentive HRAs & HSAs Incentives & Rewards

PPO/HRA and PPO/HSA High Deductible Health Plans
Four components that work together to improve quality, outcomes, and lower cost. Personalized Health Care Web- and Phone- Based Tools Health Tools and Resources Wellness, Condition care Programs, Information and Decision Support Tools and Resources. 3. HRA – ER provided $s HSA - ER and/or EE Provided $s HRA/HSA – Individual & Group Reward $s Incentives and Rewards Health Accounts (HRAs or HSAs) “Benefit dollars” to pay for healthcare expenses. Preventive 100% Coverage Health Account (HRA/HSA) The Definity Health benefit features three key components. The Personal Care Account is an allotment of benefit dollars provided by employers that members use to pay for their medical needs. Doctor visits and prescription drugs, among other medical services, are paid directly from the PCA without the hassle of co-payments. Health Coverage is a repackaging of typical health insurance plans. It features a Preventive Care component that encourages members to be actively involved in managing their health. The third component of the Definity Health benefit is Health Tools and Resources. It provides members with care management services and advanced Web- and phone-based information, tools and resources that encourage them to become true consumers of healthcare. Lets look at these three components in more detail. Deductible Gap PPO Additional Health Coverage beyond the HRA/ HSA. 1. 2. 4.

Task #4 - Personal Care Accounts
The Promise of Demand Control & Savings HSAs, HRAs, FSAs, FHSAs “Of the 5 building blocks, the greatest among them is the Personal Care Account”

HSAs and HRAs - Two Very Different Accounts to Support Consumerism
HSA (2003 MMA) - A law, with specific requirements and benefit design requirements. - Most TAX ADVANTAGED vehicle ever created HRAs (6/26/2002) - A regulatory creation based upon an IRS ruling - Most FLEXIBLE vehicle ever created

Health Savings Accounts – Advantage Employees
Tax-free savings vehicles for medical expenses, no use-it-or-lose-it rule Effective January 1, 2004 Eligibility: must be covered under high deductible health plan (HDHP) Portable

Health Savings Accounts
Individual accounts To permit saving for qualified medical and retiree health expenses on a tax-free basis Must be offered in conjunction with a legally defined HDHP - “High Deductible Health Plan” Portable An HSA is owned by the individual, similar to IRAs, and transfers if the employee changes jobs Held in a trust or custodial account; trustees – banks, insurance companies, approved non-bank trustees

Health Savings Accounts: Contributions
Contribution limits determined monthly based on status, eligibility, HDHP coverage as of first day of month (offset by other HSA contributions) 2005 Monthly limit – 1/12th of lesser of deductible or $2,650 (self-only), $5,250 (family), indexed Catch-up contributions, age 55 to 64, $600 in 2005, phased up to $1,000 annually in 2009

HSAs – Real Dollars, Portable, Vested
Can be used or taken in cash at anytime, even when no longer eligible to make contributions Tax-free if used to pay for qualified medical expenses (IRC Section 213(d)) For other purposes, subject to income tax and 10% penalty - 10% penalty waived in case of death or disability - 10% penalty waived for distributions after age 65 or older HSA can be transferred tax-free to spouse on death; otherwise taxable to estate or beneficiary Transfers upon divorce, nontaxable, becomes spouse’s HSA

HSA Eligible HDHP High Deductible Health Plan – By Law
Self-only: a deductible of at least $1,000; maximum HSA is $2,650; no more than $5,100 maximum out-of pocket expenses (incl. Ded.) Family coverage: a deductible of at least $2,000; maximum HSA is $5250; no more than $10,200 on out-of pocket expenses (incl. Ded.) 2005 Age 55 and over catch up amount of $600 Preventive services are not subject to the deductible OK for out of network costs to exceed maximum out-of pocket limits THE ABOVE 2005 AMOUNTS ARE SUBJECT TO ANNUAL INDEXING

HRAs- Advantage Employers National Accounts, Er Controlled Rules
Employer does not fund and has cash flow value Employer can determine rules for HRA usage; they are subject to forfeiture; they are not portable, but can be subject to vesting HRAs are more flexible in plan design, can tailor scope of reimbursements, are less costly for employer Employer decides if HRA can used for (1) medical plan expenses not otherwise reimbursed, (2) non-plan QME 213(d), and/or (3) insurance premiums

Important Differences between Use of HRAs and HSAs for Supporting Behavioral Change
Personal Care Accounts Generation 1 Initial Account Only Generation 2 Activity & Compliance Rewards Generation 3 Indiv. & Group Corporate Metric Rewards Generation 4 Specialized Accts, Matching HRAs, Expanded QME Health Reimbursement Arrangements 1. Any Amount 2. Notional Acct 3. Employer Determined 4. Employer Only Contributions 1. Flexible Activity & Compliance Rewards 2. Employer Determined 3. Can not be cashed out 4. Must be used for healthcare 1. Flexible Indiv & Group Rewards 4. Must be used for healthcare 1. Specialized Notional Accts, 2. Can terminate by employer rules 3. Potential IRS Expanded QME Health Savings Accounts 1. Amounts Set by law 2. Real Dollars in Acct 3. Er or Ee Contrib 4. Contributions up to plan deductible of $ Single $ Family 5. Non-substantiation 1. Ltd Potential – (But For Rule) 2. Must give Cash Option 3. Awards must be same $ amt or same % of deductible 3. HSA can be used (with 10% penalty) for non- healthcare expenses 2. All participants must receive same amount or same % of deductible 3. Difficult to use for Group Incentives 2. 100% Vested & Portable 3. Can use matching HRAs, 4. Potential IRS Expanded QME

HRAs – Best for Larger Groups
HRAs – Best for Larger Groups? HSAs – Best for Individuals and Small Groups? Current State Combination Accounts HRAs HSAs FSAs Employer-based Healthcare Traditional (Ltd Carry-over) Special Purpose Non-Plan Employer-based healthcare Special Purpose Accounts Incentive Matching Individual-based Healthcare Employer-based Healthcare with Individual Accountability Er-Based with HSA Contributions Employer-based Defined Contribution Developments

Are HSAs the right vehicle for large employer groups?
Yes, If……….. Or No, Because……. Need to Understand the Consumer Movement, Federal Health Policies, & the Market Transformation that is Underway

Are HSAs the Wave of the Future? Which Direction will Legislation Take?
Yes, if…. … we recognize the HSA legislation and regulations as a good start and another building block for consumerism and behavioral change. …Er’s and Ee’s recognize current limitation and optimize available uses …there is additional legislation/regulation to support large Er interests in providing HSAs (use for healthcare only, Rx coverage problem, combination accounts). …there is legislative support for the common use of FSAs for targeted needs, HSAs as true “Health Savings Accounts” and HRAs as true “Health Reimbursement Arrangements. No, because…. … they were not legislated/regulated with large employers in mind. … of a desire to promote individual insurance over individual ownership (under employer and individual policies) … they are just a tool to cost shift to employees, they can not reward behavior change … they are only desirable to the young, healthy, and wealthy

Summary - PCA Comparisons

Summary - PCA Comparisons (cont)

The Fundamental Federal Policy Question
Will Legislation/Regulation Use HSAs to … mainly promote portable Individual & Small Group Insurance, OR … expand Personal Care Account ownership through in both an employer-based and individual-based healthcare system thru HSAs, HRAs, and FSAs.

- The Answer - Flexible Health Savings Accounts (FHSAs)
FHSAs would have the tax advantages of HSAs and the key flexibilities of HRAs. Basic Principles: Retain personal responsibility goal of HSA/HDHPs Focus on Behavior Change Recognize value of Pay for Compliance as a driver for behavior change and shared savings with personal responsibility Expand adoption and funding of HSAs by large employers

Flexible Health Savings Accounts (FHSAs) The Next Generation
Four needs that would allow FHSAs the flexibility to: Provide financial Rewards and Incentives for Behavioral Change. 2. Encourage Employer/Carrier FHSA contributions towards healthcare 3. Be provided with plan designs other than HDHPs 4. Address FHSA/HSA Technical Issues

FHSA Flexibilty to Provide Financial Rewards and Incentives for Behavioral Change
1. Allow for compliance incentives under disease management programs (e.g. diabetes, asthma, CHF) and wellness initiatives (e.g. wellness assessments, smoking cessation, etc.). 2. Change Comparability Rule to mean all members under a given program of care or treatment, such as, a disease management or wellness program. 3. Rewards and/or incentives should not be limited by the deductible limit, but should be consistent with expected savings from programs for which participation is being rewarded.

FHSA Flexibility to Encourage Employer Contributions to Healthcare
1. Allow employers/carriers to voluntarily contract with employees to require employer/carrier funded FHSAs to be used only for healthcare expenses while employed and covered under the plan. 2. Remove cap on employer/carrier funded FHSA contributions or expand to at least the plan’s Maximum Out-Of-Pocket total exposure in a given calendar year.

FHSAs Flexibility to be Provided with Plan Designs Other than HDHPs
1. Preventive drugs include maintenance drugs. Drugs now defined as preventive by the Treasury Dept. can be covered below the deductible, while the cost of maintenance drugs is now included in the deductible. 2. Allow Rx to exist as carve out benefits at least for prescription drugs associated with chronic and persistent disease states 3. Allow “incentive only based” FHSAs for employer/carrier only funding under non-HDHPs (i.e. no initial FHSA funding or employee funding) 4. Allow some mental health and substance abuse benefits (besides EAPs) to be included under preventive care. 5. Allow use of HSA to pay for pre-65 Retiree and Individual Healthcare premiums

FHSA Flexibility - Technical Issues
Allow FHSA/HSAs to go into effect on the first day of coverage is effective. 2. Allow FHSA/HSA contributions for a full calendar year regardless of when a plan is effective. 3. Allow FHSA/HSAs to be used to pay for health coverage premiums (other than current limited use for (1) Premiums for coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), and (2) premiums for HDHP coverage for those who receive federal or state unemployment compensation). 4. Allow Flexibility to "post-date" the FHSA/HSA effective date so that FHSA/HSA dollars can cover expenses incurred before the account was established. Allow the account to be opened under a "provisional status" until the necessary paperwork is filed, at which time the account becomes active.

Growth of Personal Care Accounts
HRAs HSAs 2000* None None 2001* , None 2002* 53, None 2003* 394, None 2004(est) M 400,000 2005(est) M ,000,000 2006(est) M ??? 2007(est) M ??? * Deliotte Consulting

Task #4 - Discussion on Type(s) and Use of Personal Care Accounts
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Task #5 - Wellness, Prevention, and Early Intervention
The Promise of Wellness

Wellness - Defined Wellness is a proactive organized program providing lifestyle and medical/clinical assistance to employees and their family members in maintaining good health. Wellness programs encourage voluntary behavior changes and support compliance with proven approaches to maintain health, reduce health risks and enhance their individual productivity.

Wellness – The Need For every 100 members:
23-30% smoke (70% want to quit, 35% try each year) 29% have high blood pressure 30% have cardiovascular disease 80% do not exercise regularly 55% or more are overweight or obese 30% are prone to low back pain (many linked to obesity) 6-9% have diabetes 10% are depressed 35% are under significant stress 50% do not wear their seat belts

Wellness – The Desire for Change
For every 100 members: 47% are trying to improve their diet 37% plan to undergo some health screening 30% state they exercise regularly Only 23% are aware of the health promotion and wellness programs offered by their employer sponsored health plans 76% of employers with over 11,000 employees offer health management programs Kaiser Family Foundation Survey, 9/03

Wellness - How Does It Impact Employees and Family Members?
e.g., Low Risk, Good Nutrition, Active Lifestyle At-Risk / Acute Condition e.g., Inactivity, High Stress, Overweight, High Blood Pressure, Smoking Chronically-Ill e.g., Diabetes, Musculoskeletal, Heart Disease, Asthma, MH/SA Catastrophic e.g., Cancer, Rare Diseases, Head Trauma No Claims Generally Healthy O/P (Low) In/P (High) Maternity In/P (High) % Ee 15% 48% 14% 3% 12% 4% 1% % $ 0% 5% 21% 20% 63% 17% % $ 32% 56% Prevention Wellness – Lifestyle Wellness - Lifestyle Minimize Acute Episodes Minimize Complications Maximize Recoveries Maximize Stabilization Early Intervention Wellness - Clinical Wellness - Clinical Traditional Wellness Programs

Wellness – Examples for Employer Sponsored Programs
Common Programs Weight Management Fitness/exercise/health clubs Smoking cessation Employer Support Communication and awareness (newsletters, health fair, posters) Screening (health awareness profiles, blood pressure check, blood tests, body fat analysis) Education (seminars/classes, self help kits, group discussions, lunch and learn) Behavioral Change (on-site fitness center, flu shots, lunchtime walks, yoga classes)

Wellness – Working within Consumerism
Traditional Plans Cover selected wellness in benefit plan at 100% Supplement with non-plan wellness and work-site programs Other: same * as below PPO/HRA incentives PPO/HRA Include Employer defined wellness/prevention benefits at 100% Include HRA Incentive for Wellness Appraisal Include HRA Incentives for personal wellness activities Include HRA Incentives for work-site wellness participation PPO/HSA Include IRS defined Preventive Care benefits at 100% Benefits contingent upon HSA contribution? Wellness Appraisal Other: same * as above with PPO/HRA incentives

Consumerism - Programs and Services
Prescription Drugs Information Evidence Based Medicine Medical Care Guidelines Health Library Disease Management Condition Specific Assessment Tools Chronic & Persistent Wellness Voluntary Participation Voluntary & Incentive Based Mandatory Participation Mandatory & Incentive Based Self Care Management Information On-Line Health Risk Assessment Personal and Family Tracking Health & Performance Population Management Case Management Cost & Quality Management Stress Management Assessment Tools Self Help Tools Depression Screening Preventive Care – Lifestyle Lifestyle Nutrition Fitness Personal Health Management Preventive Care – Clinical Immunizations Hypertension Screening Cholesterol Testing Mammograms Pap Smears Blood Pressure Checks Colorectal Cancer Testing Diabetes Testing Osteoporosis Testing Chlamydia Tests Early Prevention Wellness Online News Safety Pre-Natal Well Baby Care New Mom Programs Medical Services Support FAQ, Preparation for In/P End of Life Care Provider Cost/Quality Incentives Regional Centers of Excellence

Wellness & Preventive Care for HSAs
Preventive care includes, but is not limited to, the following: Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. Routine prenatal and well-child care. Child and adult immunizations. Tobacco cessation programs. Obesity weight- loss programs. Screening services However, preventive care does not generally include any service or benefit intended to treat an existing illness, injury, or condition.

HSA Safe Harbor Preventive Care Screening Services
Infectious Disease Screening Bacteriuria Chlamydial Infection Gonorrhea Hepatitis B Virus Infection Hepatitis C Human Immunodeficiency Virus (HIV) Syphilis Tuberculosis Infection Mental Health/Subst. Abuse Screening Dementia Depression Drug Abuse Problem Drinking Suicide Risk Family Violence Cancer Screening Breast Cancer (e.g., Mammogram) Cervical Cancer (e.g., Pap Smear) Colorectal Cancer Prostate Cancer (e.g., PSA Test) Skin Cancer Oral Cancer Ovarian Cancer Testicular Cancer Thyroid Cancer Heart and Vascular Diseases Screening Abdominal Aortic Aneurysm Carotid Artery Stenosis Coronary Heart Disease Hemoglobinopathies Hypertension Lipid Disorders

Wellness – Planning Will the wellness program be for employees only, or employees and dependents? Will you purchase from vendor, internally developed, or a combination Consider in conjunction with plan covered wellness benefits (immunizations, mammograms, screening, EAP, physical exams, prenatal care, well child care, etc.) Consider in conjunction with worksite programs (safety, ergonomics, work-life programs, etc.) Incentives/rewards provided for compliance

Task #5 - Discussion on Type(s) and Use of Wellness and Prevention
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Task #6 - Disease Management Programs
The Promise of Health The “Holy Grail” of Cost and Quality Improvements

Disease or Condition Management – the Holy Grail of Potential Savings
Primary cost drivers are chronic disease and serious acute conditions. The direct impact on productivity is comparable to the direct cost of health care 80% of costs Driven by 20% of claimants For a typical employer, 15-30% of costs are driven by controllable health risks 50% of costs Have a behavioral root cause (CDC 1999)

Disease Management Potential Focus on Hi-Volume / Hi-Cost Users
Cost Curve % Members % Costs 1% > 20% 15% -> 68% 50% -> 95% EBRI -Stakeholders in Consumer-Driven Health Care

Disease Management - Defined
Disease Management is an proactive organized program providing lifestyle and medical/clinical assistance to employees and their family members with chronic and persistent conditions. Disease Management programs encourage voluntary behavior changes and support compliance with proven medical practices which stabilize conditions, reduce health risks and enhance their individual productivity.

Disease Management – The Need
60+% of an employer’s total medical costs come from chronic and persistent diseases such as, diabetes, asthma, congestive heart failure, back pain, and depression. 45% of Americans live with at least one chronic disease. 14% live with two or more chronic diseases. 76% of hospitalizations, 72% of physician visits, and 88% of Rx is due to chronic conditions The average cost of health care for a diabetic is $13,200/yr compared to $2,600/yr for a non-diabetic. 61 million Americans live with cardiovascular disease 50% of chronic disease deaths are traced to cardiovascular disease. Coronary artery disease is a leading cause of premature permanent disability. Obesity is becoming the #1 preventable cause of death

Disease Management – The Desire for Change
Very Little under Traditional System: 50% do not follow recommended standards of care 33% will high blood pressure do not know 33% of diabetics do not know it Patient’s lack of knowledge and information Patients without financial incentives to change health and healthcare behaviors Distortions of current 3rd party reimbursement medical financing system. Plans pay for treatments not prevention or compliance Physicians without incentives to take time and effort to deal effectively with chronic conditions

Disease Management – Elements for a Successful Program
There are four elements of a successful disease management: 1. A delivery system of health care professionals and organizations closely coordinating to provide medical care and support the patient’s compliance throughout the course of a disease. 2. A process that monitors the compliance and describes outcome-based care guidelines for targeted patients. 3. A process for continuous improvement that measures clinical behavior, refines treatment standards, and improves the quality of care provided. 4. Incentive awards that support the disease management medical and clinical care services

20 Priority Areas per the Institute of Medicine
1. Asthma, supporting and treating those with chronic conditions. 2. Care coordination for patients with multiple chronic conditions. 3. Children with special health and care needs, particularly those with chronic conditions. 4. Diabetes, which can lead to high blood pressure, heart disease, blindness and other complications. 5. End-of-life care for people with advanced organ failures, concentrating on reducing symptoms. 6. Frailty - preventing accidents, treating bedsores and improving advanced care. 7. High blood pressure - left untreated it can lead to heart attack, stroke and kidney failure. 8. Immunization. 9. Evidence-based cancer screening, which can reduce death rates for many cancers, including colorectal and cervical. 10. Ischemic heart disease, also known as coronary heart disease. Efforts should focus on prevention.

20 Priority Areas per the Institute of Medicine
11. Major depression, which currently has a much lower treatment rate that other major diseases. 12. Medication management to prevent errors. 13. Noscomal infections. These are infections acquired in the hospital and kill an estimated 90,000 Americans annually. 14. Obesity, which is blamed for as many as 300,000 deaths annually in the United States. 15. Pain control in advanced cancer. 16. Pregnancy and childbirth, especially improving the quality of prenatal care. 17. Self-management and health literacy, using public and private organizations to increase the level of health education. 18. Severe and persistent mental illness; improving mental health care in the public sector, including state hospitals and community centers. 19. Stroke, the third highest cause of death in America. 20. Tobacco-dependence treatment for adults.

Disease Mgmt - How Does It Impact Employees and Family Members?
Well e.g., Low Risk, Good Nutrition, Active Lifestyle At-Risk / Acute Condition e.g., Inactivity, High Stress, Overweight, High Blood Pressure, Smoking Chronically-Ill e.g., Diabetes, Musculoskeletal, Heart Disease, Asthma, MH/SA Catastrophic e.g., Cancer, Rare Diseases, Head Trauma No Claims Generally Healthy O/P (Low) In/P (High) Maternity In/P (High) % Ee 15% 48% 14% 3% 12% 4% 1% % $ 0% 5% 21% 20% 63% 17% % $ 32% 56% Prevention Wellness - Lifestyle Wellness – Lifestyle Minimize Acute Episodes Minimize Complications Maximize Recoveries Maximize Stabilization Early Intervention Wellness - Clinical Wellness - Clinical Disease Management Program

Disease Management Programs
Designed and Financially Aligned for Success

Disease Management Program Planning
Identify key populations Focus on Compliance Manage expectations Respect privacy Follow Best practices (EBM, Outcomes Based Medicine) Integrate demand management, disease management and utilization management Give patients their own data Align Incentives for patients, providers, and Employer Disease management buzz grows despite uneven record Despite their questionable return on investment potential, disease management programs are still hot among employers, according to a new study. An article from the Employee Benefit Research Institute (EBRI) reports employers are increasing their offering of disease management programs designed to control chronic illnesses, which account for three-fourths of the nation’s health care costs. Employers are motivated by the potential of the programs to help shield them from the onslaught of double-digit health care cost increases. Research and case studies for the most part, however, have offered evidence of success only in individual programs. There is no conclusive evidence that disease management in general can improve employees’ health or reduce costs in the long term. A 2001 Hewitt Associates survey found 76% of employers provide disease management programs. This month’s issue of EBRI Notes details disease management trends, including prevalence, effectiveness and the outlook for the future. For full-text copies, call BCBSNC Launches Predictive Modeling Initiative By Diana Garber In order to rapidly identify patients with treatable illnesses—and reduce the administrative costs related to providing services to these customers—Blue Cross and Blue Shield of North Carolina (BCBSNC, Durham, NC) and BioSignia Inc. (Durham) are co-developing a software program that will review insurance claims using predictive modeling technology. The program, designed by BioSignia, is being created to identify candidates for BCBSNC's free healthcare management programs. BCBSNC, which is implementing this program in order control expenses, takes patient lists complied by the program and alerts the people on the lists of the availability of existing health management programs. The basis for the predictive modeling program is an algorithm. The program scans claims filed with BCBSNC and records the dollar amounts, diagnosis and procedure codes. The program has 159 distinguishable diseases in its memory. The program then ranks how far the disease has progressed and how treatable and/or preventable it is in its current stage. The system is looking to pinpoint complicated but treatable conditions. If a patient has a medical condition listed as treatable and resource consuming, the patient is considered a prime target for BCBSNC's healthcare management programs. Once these patients are identified, a nurse from the insurance company contacts the patient and discusses the medical treatment the patient is receiving and if any changes should be made. According to Stephen Blackwelder, Ph.D., manager of quality improvement research and biostatistical support of BCBSNC, "the goal [of this program] is to identify and act more quickly on behalf of members who are in the midst of complicated medical situations. By running the claims through this algorithm, we are hoping to identify people in these situations rapidly, and then implement the solutions we already have in place more quickly." BCBSNC will look at the diagnosis on the claim and how much the procedure cost, not the customer's name on the claim. Patient participation in any of the programs is purely optional and will have no impact on premium rates, according to the insurer. Currently the only way for BCBSNC to get patients to use any of its health management programs is by a doctor's referral, or if a patient decides to call the insurance company's number. BCBSNC is hoping to reach a broader audience through the new program. "Potentially, we want to improve quality of the situation customers are experiencing and keep the cost down for the employer and for us," Blackwelder adds. BioSignia, which had developed the software before signing the agreement with BCBSNC, is still refining the system. Although so far it has only licensed the software to BCBSNC, the vendor thinks the program could be beneficial to many companies. According to Guizhou Hu, Ph.D., vice president of research and development at BioSignia, "They can use this system to identify the people [to whom] they can provide a health promotion to help review medical costs. We want to make this a product that can be available to many other managed care companies."

Task #6 - Discussion on Type(s) and Use of Disease Management Programs
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Task #7 - Decision Support Tools
The Promise of Transparency & The “Right to Know”

Healthcare Consumerism – Already Active Consumers
Consumers Search Internet for Medical Content Consumers Ask Physicians for Genetic Testing Consumers Work with Providers on Personalized Health Plans Consumers Monitor and Track Their Own Medical Status Regularly Consumers and Providers Coordinate Care and Understanding through Integrated Clinical and Information Therapies

Decision Support Tools Survey of Attitudes
Patient decision making preferences “INFORMED” PARENTAL INTERMEDIATE SHARED DECISION MAKING PATIENT AS DECISION-MAKER 17.1% 45% 11% 22.5% 4.8% The four areas of consumer choice highlight the need for a strategic plan and the proper selection of vendor partners. Employer Role: Recognize the “consumer-preference spectrum” Provide consumer-focused decision support tools for: Choice of Health Plan Choice of Provider Choice of Treatment Current and Future Financial Considerations

Decision Support Tools for Consumerism
Basic Design Information Provider Selection Support HRA Fund Accounting Physician Quality Comparison Underlying PPO Plan Design Physician Cost Comparison Disease and/or Medical Management Hospital Quality Comparison HSA Fund Accounting Hospital Cost Comparison Debit/Credit Card Personal Benefit Support Care Support Plan Comparison Cost Estimator On-line Provider Directory Account Balance Provider Scheduling On-line Claim Inquiry On-line Rx Comparisons SPD On-line Patient Decision Support 24/7 Nurse Line Personal Health Management Health Risk Appraisal Health & Wellness Information Targeted Health Content Medical Record, History Health Coach

Decision Support Tools Employer Considerations
Employee Readiness Sophistication and orientation Internet competency and access Due Diligence Accuracy Usability Independence Stability Integration issues Targeted Clinical Support: Value-based Evidence Based Medicine Personalized Chronic Care Management Tools Consumer-Focused Stress Management

Consumerism – a new force
can be a force to address quality and cost variations in a given market

Decision Support Tools for Cost & Quality Information
Variation in Cost & Quality Hospitals – CABG* Lower LOS Lower Cost Episodes of Care Align Strategy with the “Value Purchasing” Awareness Pay for Performance Tiered Networks Regional Centers of Excellence Cost Efficiency Quality Fewer Adverse Affects Lower Complication Rates Lower Mortality * Healthshare/SelectQualityCare weighted averages

Task #7 - Discussion on Type(s) and Use of Decision Support Tools
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Task #8 - Incentives, Rewards,
The Promise of Shared Savings Pay for Compliance & Pay for Performance “Two sides of the same coin”

Consumerism Incentives – Participation Based
Incentives must be participation and activity-based rather than outcomes-based. HIPAA laws prevent rewards based on health standards. The law allows incentive designs if the following requirements are met: Limit the reward to a specified amount (not to exceed between 10%-20% of the cost of employee-only coverage). Be reasonably designed to promote health or prevent disease. Be available to all similarly situated individuals. There must be a feasible alternative for those that cannot reach the health standard because of a medical condition. Inform employees that individual accommodations and alternatives are available.

Wellness Incentives – Outcomes Based
While HIPAA generally prohibits plans from differentiating benefits or premiums based on health status, employers can still design and implement wellness programs with financial incentives. Only a "bona fide wellness program" can provide a reward based on a health standard or health outcome (i.e., a low cholesterol level). To be a "bona fide wellness program," the law specifies that the program must meet four requirements: 1. Limit the reward to a specified amount (not to exceed between 10%-20% of the cost of employee-only coverage). 2. Be reasonably designed to promote health or prevent disease. 3. Be available to all similarly situated individuals. There must be a feasible alternative for those that cannot reach the health standard because of a medical condition. 4. Inform employees that individual accommodations and alternatives are available. - National Business Group on Health

Wellness Incentives – Participation Based
All wellness programs that are based on participation rather than outcomes are permitted. For example, financial incentives or premium discounts for participating in a health fair, joining a health club, or attending smoking cessation program, regardless of the health outcomes or results, are allowed. - National Business Group on Health

Rewards & Incentives for Smoking Cessation
The NGBH conducted a Quick Survey in December 2003 on "Smoking Cessation Incentives/Disincentives." The results from 26 respondents showed: 69% of the respondents offered discounts on annual health care premiums/contributions for non-smokers, and 15% offered another type of benefit enhancement. Similarly, 45% of the respondents offered premium discounts for employees that participated in smoking cessation/wellness programs. 57% included smoking cessation as part of a broader wellness initiative/incentives at the worksite. - National Business Group on Health

Incentive Awards - Three Very Different Personal Care Accounts
Flexible Spending Accounts (FSAs) – Traditional Group Plans with Use-it-or-Lose-it Health Reimbursements Arrangements (HRAs) – Employers’ choice for cash flow flexible incentive based medical plan benefit designs (best suited for self-insured groups) Health Savings Accounts (HSAs) – Employees’ choice for funded portable triple tax advantaged with “High Deductible Health Plans” (best suited for individuals and small groups) Combination Accounts – creative but confusing

O/P, Low In/P, High Maternity
Using Information & Incentives To Address Wellness & Disease Management Behavioral Changes Low Users Mediu m Users High Users Very High Users No Claims Generally Healthy Acute Episodic Conditions O/P, Low In/P, High Maternity Chronic & ersistent Conditions . O/P, Low In/P,High Catastrophic % Mem 15% 48% 14% 3% 12% 4% 1% % Dollars 0% 5% 21% 20% 63% 32% 17% 56% Prevention Wellness - Lifestyle Wellness - Lifestyle Minimize Minimize Maximize Maximize Wellness - Clinical Early Intervention Wellness - Clinical

Task #8 - Discussion on Type(s) and Use of Incentives & Rewards
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Task #9 – Viewing Healthcare Consumerism by Generations
Review of Plan Design Concepts by Generation

1st Generation Healthcare Consumerism
Focus on Plan Design and implementation of HRAs and/or HSAs and basic decision support tools. Impact: Discretionary Expenses Choices: Level and Type of Accounts with Plan Designs, information and Decision Support Services

1st Generation HRA Prototype
Employer Funds Only Notional Account Section 105 Plan Balance rolls over year to year Employer controls growth % Employer controls exit rules Vesting COBRA Retiree medical Qualified long-term care Participant responsibility Can fund thru Section 125 plan S.M.M. Insurance Deductible Gap Ensures good health Neutralizes “hoarding” Part of the Insurance Plan Health Reimbursement Arrangement Consumer education Chronic disease management Health Promotion Online tools Telephonic support Preventive Care (Insurance) Education and Decision-Support Tools

1st Generation HSA/HDHP Prototype
Employer HSA &/or Ee Contributions Interest earning Real Dollars in Real Accounts Legally Defined by 2003 MMA Balance rolls over year to year 100% Vested at Point of Contribution by Er 10% Penalty and Taxable Income for W/D for Non-health if <65 Non-substantiation W/Ds Participant responsibility Can funded thru Employee Tax Advantaged HSA Contributions Can Not be Funded by FSA, HRA or other Insurance S.M.M. Insurance Deductible Gap Ensures good health Neutralizes “hoarding” Part of the Insurance Plan Defined by IRS Health Savings Account Consumer education Chronic disease management Health Promotion Online tools Telephonic support Preventive Care (Insurance) Education and Decision-Support Tools

HRA/HSA Healthcare Consumerism – Multiple Options
Year 1: Employee elects $$$ Option with $1,000 risk corridor. Employee has $1,000 in claims, allowing Personal Account to carry $500 over. $$$ Option Ins. Year 1 Deductible $1000 Personal Acct $1,500 Year 2: Employee elects $$ Option, maintaining $1,000 risk corridor. Employee has $1,000 in claims, allowing Personal Account to carry over $1,000. $$ Option Ins. Ins. Deductible $1500 Year 2 Deductible $1,500 Personal Acct $1,500 Personal Acct $1,500 + $500 $ Option Ins. Ins. Year 3: Employee elects $ Option, again maintaining $1,000 risk corridor. Employee no longer has a need for the $$$ Option. Year 3 Deductible $2,000 Deductible $2,000 Personal Acct $1500 Personal Acct $1500 +$1,000 Year 1

2nd Generation Healthcare Consumerism
Focus on Behavior Changes. How to use plan design to effectively change health and healthcare purchasing behaviors with individual and group incentives/rewards. Impact: Chronic & Persistent Conditions, Pre-Natal, Wellness & Preventive care. Choices: Covered Benefits, Type and Level of Matching Funds and Incentives for Prevention, Wellness, and Disease Management Programs

2nd Generation Healthcare Consumerism with Focus on Behavioral Changes
Healthcare Consumerism models require a shift in responsibility from the employer to the employee in the purchase and use of health and healthcare. Communication, information, and education along with the reward system drives this change. Passive Users of Health Care Services Educated, Engaged, and Empowered Health Care Consumers Basic Health Care Information Benefit Education Consumerism Behavior Support Access to Information & Decision Support

2nd Generation Behavioral Change a Key Determinant of Health

Healthcare Consumerism Drives New Behaviors from All Participants
Employee Passive Participant Active & Empowered Patient/Consumer, P4C Employer Primary Purchaser Plan Facilitator Financial Contributor Health Plan Barrier Enabler / Education & Information Provider Contracted Supplier Clinical and Service Standards, Care Manager, P4P

Consumer Behavioral Changes
Focus on Preventive Care 2. Live Healthy & Safely 3. Use Nurse Line for Common Issues 4. Treatment Compliance for Chronic Persistent Problems 5. Consider Health and Healthcare Issues Together 6. Use Lower Cost / Higher Quality Alternatives

Consumer Behavioral Changes
7. Choose Rx Substitutions 8. Talk to Doctors as Informed Consumers 9. Be Compliance with Disease Mgmt Treatment Plans 10. Learn About Diagnosis/Condition 11. Act Like a Consumer - Demand Value and Service 12. Consider Plan as an Accumulated Asset rather than a Time Limited Benefit

2nd Generation Programs to Change Behaviors
Chronic Conditions e.g., Diabetes, Depression, Heart Disease, Asthma, MS/SA Catastrophic Conditions e.g., Cancer, Hepatitis C, Head Trauma Well e.g., Low Risk, Good Nutrition, Active Lifestyle At Risk / Acute Condition e.g., Inactivity, High Stress, Overweight, High Blood Pressure, Lacerations, Infections Acute Conditions e.g., Infections, Respiratory, Lacerations Health Promotion Health Management Chronic Disease Management High Cost Case Management Website Wellness Appraisal Patient Identification and enrollment Navigational Support Address Comorbid Conditions Healthy Lifestyle Promotion Targeted Behavior Modification Patient Advocacy Practice Guidelines Physical Activity Campaign Care Coordination Care Coordination Address Comorbid Conditions Integrated Services, Communications, Measurement and Evaluation

2nd Generation Consumerism – Improving Health and Lowering Costs with Behavioral Changes
Low Users Medium Users High Users Very High Users No Claims Generally Healthy Acute Episodic Conditions O/P, Low In/P, High Maternity Chronic & Persistent Conditions O/P, Low In/P, High Catastrophic % Mem 11% 29% 17% 9% 4% 18% 1% % Dollars 0% 2% 3% 35% 14% 40% 30% 31% 67% Evidence Based Medicine Pre-Natal care Evidence Based Medicine Safety Programs, Regional Centers of Excellence Discretionary Expenses Disease Management Stress Management / Health & Performance Sample Impact Areas: Rx Rx Rx Rx Rx Rx Rx Office Visits Office Visits Hosp Admits Hosp Admits OfficeVisits Hosp Admits Hosp Admits DXL DXL, ER ER ER Specialists Specialists High Tech

3rd Generation Healthcare Consumerism
Focus on Health & Performance. How healthcare consumerism plan design and behavior change affects work performance and the corporate bottom line. Impact: Manageable Costs - Organizational health, turnover, absenteeism, productivity, disability, and presenteeism

What are “Manageable Employment Costs”?
Five components of “Manageable Employment Costs”: Health care: the dollars spent on health care whether self-insured or insured. Turnover: the direct hiring costs, temporary replacement costs, learning curve costs, and lost productivity costs. Presenteeism: the time an employee is at work and assumed to be productive, but is not productive. Disability: the direct costs associated with workers’ compensation and non-occupational disability. Unscheduled Manageable Absence: the cost of absence that could be positively influenced with proactive intervention.

3rd Generation Health & Performance Strategy
Health & Performance is a benefits strategy that is designed to balance the rising costs of health care while optimizing employee health & performance through targeted, strategic, and value-added interventions. Targeted, Strategic, Value-added Interventions Better Health Employee Performance

3rd Generation – Incentives and Rewards
Optimizing Individual and Organizational Health & Performance Holistic Health & Productivity Focus Culture of Health & Wellbeing Seamless Population Management Shared Responsibility/Accountability Organizational Alignment & Support Data Driven Process Excellence Wellness Prevention Demand Management/ EAP Disease Management Case Management Absence Management 3rd Generation “Account Based” Benefits and Incentives Platform

3rd Generation Health & Performance ROI
Health & Performance ROI will be measured by: Reduced unscheduled sick days Reduced paid time off Fewer disability claims, more and faster recoveries Reduced turnover Improved survey results on teaming, creativity, staff moral Resulting in: More productive employees More effective employees Increased teaming, creativity, moral, workplace conflicts Better bottom line results

3rd Generation Creating the Health & Performance ROI
Keep in mind: This is a multi-year strategy that results in cumulative savings over time ROI estimates are based on static number of members expect more to enroll each year which will increase savings Estimates assume the same benefit levels changes to the plan design could increase the ROI in the shorter term

Example of 3rd Generation Concept Consumerism Stress Management
Consumerism Stress Management is a process improvement methodology designed to quickly improve bottom line saving and progresses into a business strategy that optimizes a company’s human capital an innovation efforts. Consumerism Stress Management emphasizes employee participation, the inclusion of corporate and operational performance metrics, and the power of the Internet to achieve savings by quantifying and positively influencing stress-related “Manageable Employment Costs”.

3rd Generation – Stress Management and Corporate Impact
Research suggests that stress has been directly attributed to: 21.5% of total health care costs 40% of the primary reasons that employees leave a company 50% of presenteeism is a function of stress 33% of all disability and workers’ compensation costs 50% of the primary reasons that employees take unscheduled absence days

Related / Imbedded Health Costs From Stress
Source of Demand Major Body Systems And Pressure Affected by Stress Job Muscular System Family Digestive System Personal Cardiovascular Social Emotional Financial Endocrine, Immune Environment Cognitive

4th Generation Healthcare Consumerism
Focus on Lifestyle, Lifecycle, and Personal Health needs. How healthcare consumerism plan design and behavior change affects personal health and healthcare based on lifestyle and personalized needs. Impact: Lifecycle needs, Personal health, genetic pre-dispositions, predictive modeling, healthy habits, and wellness.

4th generation – Individual Ownership and Portability
Ownership, security, and portability of the PCA. Access to accounts post-employment. Vesting will be important to employees to secure the value of the accounts. Compared to HSAs, employees may ultimately expect “notional interest” on HRAs. Demand for more immediate use of the funds for non-plan QMEs and use of HRAs for paying health premiums.

4th generation – Individual Ownership and Portability (cont.)
Added HRA credits from unused vacation or sick leave. PCA will need to accommodate personal lifestyle expenses items such as, alternative medicines and acupuncture. Ability to use debit/credit cards to cover internet purchases and cyber-office visits. The IRS will have pressure to expand the definition of QME to cosmetic surgery and other personal care services.

4th Generation – Personalized Health and Healthcare
Based on genomics, predictive modeling, and push technology. Preventive care will include both lifestyle and clinical factors. Treatments will include culturally sensitive care and guidance Cyber-health Aides - decision support systems and wireless connections that link each person to a personalized health and healthcare cyber-support system (e.g. diabetes phone). Personalized Internet Search engines based upon individual profile health and healthcare needs. Cyber-support systems built to profile activity and anticipate areas of interest (e.g. TIVO/Travelocity) Connected to services through monitors that will provide real time feedback on health status, lifestyle, and health concerns. (e.g. Health Buddy)

4th generation – Decision Support tools and Individual needs
“Arrive in time” information and services at critical moments for care. “Information therapy” is the active use of patient oriented information with clinical evidence based medicine. Information needs to be embedded into the process of clinical care—as information therapy. Potential areas for Information Therapy: Prostate surgery Back surgery ACL surgery Coronary artery bypass surgery Medication for depression End-of-life care Prescription of beta-blockers following heart attacks Early-stage breast cancer testing Colon cancer screenings Immunizations and eye test reminders for diabetics

Nondiscrimination Rules
Health plans may not discriminate against similarly situated individuals on the basis of a health status-related factor with respect to 1) eligibility for the plan, or 2) premiums for the plan. Health plans may not charge an individual a higher premium than applies to similarly situated individuals because of health status- related factors. However, health plans are allowed to make enrollment in the plan, or receipt of particular benefits, contingent on regular completion of health awareness or promotion activities that do not require individuals to satisfy a particular health standard. Moreover, employers are allowed to provide any kind of financial incentive to plan enrollees who provide documentation of completion of such activities.

Individuals & Health Status Factors
Health status-related factors include diagnosis of overweight, obesity, results of cholesterol tests and a history of overweight or eating disorders. They are defined in a variety of ways, as follows: • Health status • Medical condition (including both physical and mental illnesses) • Claims experience • Receipt of health care • Medical history • Genetic information • Evidence of insurability • Disability

Task #9 - Additional Considerations for Building Blocks of Healthcare Consumerism
PCAs ______________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Wellness____________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Disease Management _________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Decision Support ____________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Incentives _________________________________________________________ ____________________________________________________________________ ____________________________________________________________________

Task #10 – Create/Design Basic Framework of MSFT Consumerism Options
Design: Deductibles, Copays, Coinsurance, Max OOP, Fund Balances, Wellness, Disease Mgmt, Incentives, Carve-outs, etc. Traditional PPO Plan PPO with HRA PPO with HSA Other

Potential Anti-Selection from Consumerism on an Optional Basis
Introduction of Consumerism on an optional basis will limit the cost reduction. In particular, with HDHP’s fewer members will be impacted and are those selecting HDHP’s are likely to have an existing favorable health status (anti-selection). Companies and members can benefit most by introducing consumerism with both a HDHP option and consumerism features for current plans. Example - Selection in An Option Environment OPTION # 1 OPTION # 2 % Members Participating Clms/Part.Mbr. Vs Clms/All Mbrs. Remaining Members 10% 75% 90% 103% 30% 85% 70% 106% 50% 100%

Design a PPO Plan Traditional PPO Desirable PPO Deductible Deductible
Preventive Preventive What would you Include? Any Coinsurance? Deductible Deductible How large of a Deductible? 20% Coins to a Maximum OOP PPO 80% Coverage In-Network 20% Coins to a Maximum OOP PPO 80% Coverage In-Network In-Network Coins? In-Network Max OOP? OON Coins? OON Max OOP? 100% Coverage 100% Coverage Plan Maximum? Other: Carve-out Vision, Dental?

Design a High Deductible PPO/HRA Option
Sample PPO / HRA PPO / HRA What would you Include? Any Coinsurance? How Much in Initial HRA? Preventive Preventive How Large of a Deductible Gap? HRA ($500-$1000) HRA In-Network Coins? In-Network Max OOP? OON Coins? OON Max OOP? Deductible Gap ($ ) Deductible Gap PPO 80% Coverage In-Network __% Coins to a Maximum OOP of $_______ 20% Coins to a Maximum OOP $2-5,000 PPO 80% Coverage In Network PPO __% Coverage In Network OOP of $______ Plan Maximum? Other: Carve-out or Incl.?: Rx, MH & SA, Vision, Dental 100% Coverage 100% Coverage HRA Incentives? Wellness, DM. Other?

Design a High Deductible PPO/HSA Option
Sample PPO / HSA PPO / HSA What would you Include? Any Coinsurance? How Much in Initial HSA? Preventive Preventive HSA=($1000=2600) In-Network Coins? In-Network Max OOP? OON Coins? OON Max OOP? HSA = _____ 20% Coins to a Maximum OOP $5000 (incl deductible) PPO 80% Coverage In Network ___% Coins to a Maximum OOP _______ PPO __% Coverage In Network Plan Maximum? Other: Carve-out or Incl.?: Rx, MH & SA, Vision, Dental 100% Coverage 100% Coverage HSA Incentives? HRA Incentive? Wellness, DM. Other?

A Unified Theory of Plan Design
All Medical Plans can be view as catastrophic plans with first dollar benefits funded by: 1. Post-tax self pay – Pure high deductible 2. Insurance – traditional HMO, EPO, POS, PPO, or Indemnity 3. Health Reimbursement Accounts (HRAs) - HRA with Deductible Gap 4. Health Savings Accounts (HSAs) – Legally defined High Deductible Health Plan (HDHP) 5. Flexible Spending Accounts (FSAs) 6. Combinations of the above

PPO Plans Differ Mainly in the Way Initial Dollars are financed
Traditional PPO Insurance Funding of Early Expenses PPO with HSA Funding of Early Expenses PPO with HRA Funding of Early Expenses Preventive Preventive Preventive Deductible HRA HSA 20% Coins to a Maximum OOP PPO 80% Coverage Deductible Gap 20% Coins to a Maximum OOP PPO 80% Coverage PPO 80% Coverage 20% Coins to a Maximum OOP 100% Coverage 100% Coverage 100% Coverage Similar Catastrophic Protection

Sample Consumerism PPO Plan Designs
Traditional PPO Insurance Funding of Early Expenses PPO with Voluntary Ee HSA Funding of Early Expenses and Er HRA Match PPO with Er HRA Funding of Early Expenses Preventive % coverage Preventive % coverage Preventive % coverage Deductible $250 Er HRA $1000 Voluntary Ee Funded HSA up to $1000 20% Coins to a Maximum OOP of $4,750 PPO 80% Coverage Deductible Gap $1,000 $1000 HRA Er Match to HSA to cover part of: 20% Coins to a Maximum OOP of $4,000 PPO 80% Coverage 20% Coins to a Maximum OOP of $4,000 PPO 80% Coverage 100% Coverage 100% Coverage 100% Coverage Max OOP = $5000 Min OOP = $4000 w/ HRA Match Max Ee Cost = OOP+ +HSA+Lowest Premium Max OOP = $5000 Max Ee Cost = $5000+Prem Max OOP = $5000 Max Ee Cost = $5000+ Lower Prem Incentive HRAs from Initial “$0” Balance Incentive HRAs from Initial $1000 Balance Incentive HRAs for CY Co-Insurance Only

Task #10 – Create/Design Basic Framework of Healthcare Consumerism Options
PPO PPO/HRA PPO/HSA Other Preventive Care Benefits Front-end Deductible Beginning Account Balance Deductible Gap PPO Coinsurance – In/Net PPO Coins Max OOP-InNet PPO OON Coinsurance PPO OON Coins Max OOP Carve-out Programs: Rx, Vision, Dental Incentives - DM Incentives - Preventive Care Matching Er HRA to Ee HSA Other Decision Support Tools

Task #11 – Implementation Planning & Time Frames
The Challenges and A framework for Implementation

Employer Challenges in Developing a Healthcare Consumerism Strategy
Lower Costs, Increased Employee Satisfaction, Quality/Value Driven Healthcare, Improved Access to Care Enterprise-wide Impact of Health & Healthcare Building the Future Employer Benefits Program Collaboration Standardize IT Platforms Focus on High Cost / High Volume Users Pay-for-Performance Consumerism Healthcare Consumerism Demand-Driven Healthcare

Communication Milestones
Accept Health Plan as an Accumulating Asset Rather than a Short Term Benefit Acceptance I accept the changes Practical Application Notes Communications Process What does it mean to me? How does it work? Education Awareness What is it? Employee Decision-Making Cycle

Yr__- __ Yr__-__ Yr__-__ Yr__-__ Incentives & Rewards
Time Frame for Implementation of Consumerism (may be Dependent Upon Vendor Capabilities) Yr__- __ Yr__-__ Yr__-__ Yr__-__ 2nd Generation Consumerism Focus on Behavior Changes 1st Generation Consumerism Focus on Discretionary Spending 4th Generation Consumerism Personalized Health & Healthcare 3rd Generation Consumerism Integrated Health & Performance Personal Care Accounts Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Integrated Hlth Mgmt, Population Mgmt, Integrated Back-to-Work Wireless cyber –support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information Therapy Cash, tickets, Trinkets Health Incentive Accts, activity based incentives Non-health corporate metric driven incentives Personal dev. plan incentives, health status related Wellness/Prevention Early Intervention Disease and Case Management Information Decision Support Incentives & Rewards

Integrated Health Management A Logical Stake in the Ground ?
2nd Generation Consumerism Focus on Behavior Changes Integrated Health Management A Logical Stake in the Ground ? 1st Generation Consumerism Focus on Discretionary Spending 4th Generation Consumerism Personalized Health & Healthcare 3rd Generation Consumerism Integrated Health & Performance Personal Care Accounts Wellness / Prevention Early Intervention Disease Mgmt & Case Management Information & Decision Support Tools Incentives & Rewards Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Integrated Hlth Mgmt, Population Mgmt, Integrated Back-to-Work Wireless cyber –support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Zero balance acct, activity based incentives Non-health corporate metric driven incentives Personal dev. plan incentives, health status related

Integrated Health Management Program Implementation Option for Multiple Generations
Process Integration & Disciplined Improvement Company Data Warehouse & Metrics General Manager The secret is cooperation and synergy between components supporting the corporate strategies Personal Care Accts. FSAs, HRAs, HSAs Integrated Absence Mgmt Acute Case Mgmt Disease Mgmt Programs Demand Management Prevention Wellness Utilization and Case Management Communication Education NETWORK A / TPA A NETWORK B / TPA B

More than just Theory and Promises
Potential Savings & Actual Industry Results from Early Generation Implementations More than just Theory and Promises “To achieve transformation to a 21st Century Intelligent Health System, all participants must advance in a consistent way to the future model.”

The Value Proposition 5-8% Savings over 5 years with 2% lower trends
Low Range of Savings 5% x 5 years + 2% x 5 years = 35% High Range of Savings 8% x 5 years + 2% x 5 years = 50% 20-35% lower Rx costs Low Range: % x 20% = 4% High Range: % x 20% = 7%

Potential Savings from Full Implementation of Consumerism Achievement of savings and improved outcomes is dependent upon both the Type and Effectiveness of the programs implemented. Gross* Savings as % of Total Plan Costs (Programs Applicable to All Members) Effective Programs Implemented Traditional plans Consumerism Plans Passive 1st Generation 2nd Generation 3rd Gen & Future Basic 2% 3% 7% 10% Expanded 3-4% 5-8% % 20.0+% Complete 4% 17% 25% Comprehensive (Future) 5% 20% 30% *Excludes Carry-over HRAs/HSAs and any added Administrative Costs of Specialized Programs

Healthcare Consumerism
Experience Results

Aetna Health Fund (AHF)
Product Type: HRA with high deductible PPO Study by: Aetna Study Basis: 13,800 members (19 groups) enrolled in AHF vs. “randomly selected similar population” in traditional PPO Comparison of Jan-Sept, 2003 to Jan-Sept, 2002 experience Released March, 2004 Results Experience vs Experience for Members Enrolled in AHF in 2003 % increase in preventive care office visits vs. 14% for traditional group % medical cost increase per employee per month vs. 15.7% for traditional group % decrease in ER visits, 10.3% decrease in outpatient visits, and 14.5% decrease in inpatient admits % with HRA balances left over % of total HRA dollars rolled over %+ more use (than traditional group) of consumer health info (e.g. Intellihealth) % more use (than traditional group) of pharmacy price and generic substitution information %+ more use (than traditional group) of online provider directories Results - One Group with Integrated Pharmacy in the High Deductible Plan 11.1% decrease in prescriptions per 1000 for AHF members vs. 1.8% increase for traditional plans 34-44% increase (2002 to 2003) in generic usage for AHF vs % increase for traditional plans

United Healthcare Product Type: HRA with high deductible PPO Study by: United Healthcare Study Basis: Two years experience for 20,000 members enrolled in traditional plan year one and in iPlan year two Two years experience for 25,000 members enrolled in traditional plans for two years Released June, 2004 Results for iPlan Members 1. Higher registration rate on myuch.com than non-iPlan members 2. Higher use of preventive services than non-iPlan members 3. Decrease in total emergency room visits; indication of more selective, responsible use of emergency services after enrollment in AHF (in year two) 4. Reductions in the use of specialists, outpatient procedures, and radiology and lab in year two 5. Less than 1% (per member/per month) year-over-year cost increase when iPlan was a full replacement 6. Most iPlan members carried an HRA balance into 2004 7. In-network utilization was in the 90th percentile 8. Satisfaction ratings greater than 90% with customer service and decision-support tools

Humana Product Type: SmartSuite Multi-Option plans Study by: Humana
Study Basis: 10,000 Humana employees in ; 5.6% enrolled in consumerism plan (SmartSuite), remainder in traditional HMO/PPO Released December, 2002 Results % enrollment in SmartSuite (consumerism) products 2. Early adopters of consumerism were “super-healthy”, of average age, and of higher average salary than non-adopters 3. More SmartSuite enrollees waived dependent coverage 4. Apparent “spillover” of behavioral changes to traditional products due to communications and tools resulted in a 4.9% cost increase for 2003 for entire group (10,000 employees) vs. 19.2% projected trend Plan Option PMPM: 7/1/01 – 6/30/02 Expected (Trended) PMPM: 7/1/01 – 6/30/02 Actual HMO $127 $139 Tiered PPO $163 $141 PPO Standard $101 $110 SmartSuite Option 1 $64 $39 SmartSuite Option 2 $78 $51

Definity Health (Now United Health Care)
Product Type: HRA or HSA with high deductible PPO Study by: Galen Institute Briefing on Consumer Choice Health Care Study Basis: 85 self-insured clients with 300,000 consumer-driven members, experience for Jan-Nov, 2003 Released February, 2004 Results 1. 10% enrollment average for first year clients where Definity is an option 2. Enrollment from a broad demographic cross-section of the population, no apparent favorable demographic selection 3. Large claim (> $50K)incidence rate of 4.6 per 1,000 members compared to standard claim distribution incidence rate of about 2.3 per 1,000 members 4. 95% re-enrollment rate 5. 90% member satisfaction 6. Overall renewal increase over Definity book of business of 0% in 2003 and 3.2% in 2004 7. Average pharmacy utilization rate for groups range from .57 to .69 prescriptions per member per month (12% below the low industry benchmark and 34% below the high industry benchmark) 8. Generic drug substitution rate of 95%, compared to “norm” of 85% 9. Hospital admits of 44.3 per 1000 vs. “norm” of 59.0 per 1000 10. Hospital days of per 1000 vs. “norm” of per 1000

Actual Published Consumerism Experience
In 2004, Aetna consumerism plans showed cost increases of only 1.5% versus increases of more than 10% for traditional health plans. Employers that offered only consumerism plans had an average decrease in premiums of 2.9%. In 2004, United Health Care showed average cost increases of less than 1% for consumerism plans. Humana, Blue Cross Blue Shield, and other health insurers are finding similar results from their new consumerism products. Forrester Research predicts 24% of Americans will be covered under such plans by 2010.

Task #12 (Summary) - Medical Plan Costs and Potential Consumerism Savings Worksheet
Well e.g., Low Risk, Good Nutrition, Active Lifestyle At-Risk e.g., Inactivity, High Stress, Overweight, High Blood Pressure, Smoking Chronically-Ill e.g., Diabetes, Musculoskeletal, Heart Disease Catas-trophic e.g., Cancer, Rare Diseases No Claims Generally Healthy O/P (Low) In/P (High) Maternity Distribution of MSFT Med Costs ___% Avg $ Cost (000’s) $0 $____ $______ $_____ Est. CDHC Savings Pct. 0% 15% 12.5% 8% 5% 20% $ CDHC Savings (000’s) Incremental HRA Costs Amount Pct. Est. CDHC Savings $_______ _____% Incremental HRA Costs Net Annual Savings

Consumer-Driven Healthcare Surveys
A Fad or Exponential Growth ?

Milliman 10/2004 CDHC Survey 89% of those responding expect to offer a CDHC plan to employers within the next year, up from 29% in last year's survey. Specifically, these 89% currently offer or plan to offer within the next year a high deductible plan with an integrated employee account (i.e., HRA or HSA). Milliman Group Health Insurance Survey CDHC Available Currently or Within 2005 Offer a Tiered Offer a High Offer a % Prem Provider Network Deductible Plan CDHC Plan From CDHC 2004 Survey % % % % (in 2005) 2003 Survey % % % % (in 2004) Percentage of Respondents

Survey Information on CDHC
Mercer 4/2004 Nearly three-quarters (73%) of employers asked by Mercer Human Resource Consulting said they were likely to offer the new accounts to their workers by 2006, according to a survey to be released this week. "We're looking at a major market change," says Linda Havlin, Mercer's Midwest health care practice leader, noting that a 73% interest in adopting a new program within two years "is unprecedented.“ Forrester Research 9/2003

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