Trends & Solutions in the New World of Health Care Reform March 2014

11 About Milliman 1947 Year that Milliman was founded 54 Number of cities you can find us in 2,600+ Number of employees 1,300+ Number of qualified consultants and actuaries $754 Million in revenue in 2012

22 Survey Summary Statistics

3 1. The Affordable Care Act Turned the Traditional Approaches Upside Down

44 *Results based on the 2013 MMMS National survey responses Health Care Reform Expected increase in cost due to ACA

5 *Results based on the 2013 MMMS National survey responses Health Care Reform Completed a formal analysis revealing ACA cost impact

66 *Results based on the 2013 MMMS National survey responses Health Care Reform Strategies being considered in response to ACA

7  Timeline of changes and cost impact  year cost projections (Includes Employer/Employee Cost Impact) – Employer Penalties as a result of Premium Subsidies – Employee Individual Mandates (“Play or Pay”) – Cadillac Tax Estimates (2018)  Exchange Migration Scenarios (logical versus illogical)  Terminating Employer-Sponsored Plan Scenarios  Comparison of exchange plans to the employer Health Care Reform Best Practices Checklist for an ACA Analysis

8 *Results above are based on sample data only Health Care Reform Model

9 *Results above are based on sample data only Health Care Reform Model

10  Becomes effective in 2018  2018 Thresholds – $10,200 annually for an individual – $27,500 annually for a family  Tax = 40% x premium in excess of the threshold  Based on premium only  Not adjusted for plan design  Not adjusted for demographics (separate thresholds for retirees)  Not adjusted for area – See greater impact on the coasts Cadillac Tax

11 2. Medical Plan Designs Have Become Even More Varied

12 Benchmarking Relative Value of Plan Designs

Regional PPO Medians

14 Trends Across the Regions Highest concentration of HMO plans based on plans offered – 45% Least Rich Plan Designs: West South Central $1,000/$2,000 80%/60% Highest concentration of CDHPs based on plans offered - 31% Richest Plan Designs: North Atlantic $500/$1, %/70%

15 Benchmarking Industry Relative Value of Plan Designs – 2013 National

16 3. Wellness is Gaining Popularity

17  35.7% of the U.S. Adult population qualify as obese  Approximately 17% of children & adolescents are obese (ages 2-19)  No state has an obesity rate less than 15% (the national goal) U.S. Obesity Trends. CDC.com. Feb Apr Parker-Pope, Tara. “Obesity Rates Stall, But No Decline.” The New York Times. 17 January April Percent of Obese (BMI ≥ 30) in U.S. Adults “Children will be entering adulthood heavier than they’ve ever been at any time in human history.” – Dr. David Ludwig, director of the childhood obesity program at Children’s Hospital in Boston The Obesity Issue Trends by State

18 Benchmarking Reasons for Offering Wellness Programs *Results based on the 2013 MMMS National survey responses

19 Benchmarking Wellness Programs Offered

20 Benchmarking Wellness/Disease Management Incentives *Results based on the 2013 MMMS National survey responses

21 Benchmarking Expected ROI on Wellness Programs Within 2 years Within 5 years *Results based on the 2013 MMMS National survey responses

22 4. Self-Insurance Provides Greater Control & Cost Savings

23 Do Better than your competition Medical Plans Cost Increase – Historical Results

24 Cost Advantages of Self-Insurance 1.Premium tax on only reinsurance not entire fully insured premium: 1% savings (varies by state – typically 1-3% savings) 2.Carrier Profit: 3%-4% 3.Health Insurance Industry Fee: 2% - 4% 4.Interest on Reserves: 1%-1.5% 5.Total savings range: 7% - 11%  Must be able to manage effectively

25 Best Practices 1. Side-by-side cost analysis – FI vs. Self Insured 2. Demographic Analysis – Higher or Lower than Average 3. Monte Carlo simulation of Stop Loss Levels 4. Ongoing actuarial support for IBNR (Sarbanes Oxley), budget, and other items Self-Insured Feasibility Analysis (SIFA)

26 Self-Insured Feasibility Analysis (SIFA)