University of Arkansas, Health Plan Discussion January

Aon Hewitt Actuarial Analysis December 2014 “Loss rate accelerated and continues to increase…” “unprecedented large claims intensity on a significantly higher number of large claim events” Rate increase of 24% based on assumption plan continues to experience high cost claims at current level 2

Plan Design Changes to Mitigate Premium Increase: (Reducing a 24% recommended increase to 19%) July 1, 2015: ◦ Increase office visit co-pays by  $10 for primary care (to $35)  $5 for specialists (to $50) ◦ Increase Rx co-pays for Tier 2 Drugs by $10 (to $50) ◦ Apply deductible and coinsurance to procedures performed in association with Office Visits (in-office surgery, labs, x-rays) ◦ Reduce Co-insurance from 80% to 70% January 1, 2016: Increase Deductible from $750 to $1250 3

University of Arkansas System, Consolidated Plan Funding 4 Consolidated plans, all campuses, Cash, Liability Reserve and Cash-Basis Surplus/Deficit March JanuaryJuly November Cash In Bank $35,285, $17,608, $16,852,467 $23,481, Termination Reserve ($15,232,000.00) ($19,464,000.00) ($20,801,000.00) ($21,002,000.00) Surplus (Deficit) $20,053, ($1,855,070.38) ($3,948,532.54) $2,479, on Cash Basis Termination Liability Reserve is an actuarially estimated amount set aside to provide for claims incurred prior to a specific date that are expected to be paid after that date.

UA Fayetteville, Loss History July 2013 Forward 5

Projected Value of Plan Changes Increasing coinsurance, the application of deductible and coinsurance for Office Visit procedures, increasing PCP and Specialist copayments, increasing T2 prescriptions and the related plan design changes: Projected annualized savings $5,252,000 (not fully achieved until 7/1/16) Increasing the Deducible for 1/1/16: Projected annualized savings $5,855,000 (not fully achieved until 1/1/17) While these changes are projected to save approximately $11 million plan-wide on an annual basis, Fayetteville alone had over $4 million in catastrophic claims expenses in the first six months of 2015 and has another $5.7 million in projected claims for 20 existing known catastrophic cases. 6

Plan Design Changes Relative to Others Kaiser Health Survey ◦ 81% of employer plans apply a deductible, for 2015 that average deductible is $1,318 ◦ As recently as 2006 only 55% of plans applied a deductible ◦ In 2014 for the UAS Plan ◦ The total average deductible paid per member was $ and the average coinsurance paid was $ For the same period the UMR book of business average deductible paid was $299 and the average coinsurance paid was $208. ◦ Of all UAS health plan members, less than 9% met their deductible in 2014 ($750) or the OOP Maximum. ◦ Historic premium allocations have made the University the employer of choice for dependent coverage. The plan still provides a subsidy of approximately 78% for all tiers of coverage. The health plan was an outlier in the scope of services covered under the fixed Office Visit copayment. The look-forward/look-backward timeframe assigned to “associated with” an Office Visit was a particular outlier and required special handling by the TPA (QC and UMR) and slowed claims processing. Plan design changes offset a premium increase-only approach by shifting some expenses to those who are actually using the plan. The campus-paid premium subsidy averages 78%. How much premium increase can campuses absorb? Design changes were required. All preventive services as identified in the CDC and ACIP guidelines remain at $0 out of pocket expense for plan members. 7

The Future?  Dependent Audit- will begin January 2016  Documentation of New Participant Eligibility – will begin in coordination with Audit  Working Spouse Exclusion – will begin January 2017 Annual Premium Increases? Mandated Ceiling on Dependent Subsidy? High-Deductible Plan Option with a Partially Funded Health Spending Account? Premium or Deductible-based Wellness Incentive? Tobacco Use Surcharge? 8