L O C K T O N C O M P A N I E S

Metropolitan Community College 2015 Renewal Presentation March 28, 2014

Insurance Committee Meeting

1

Agenda

2013/2014 YTD Plan Performance

2015 BlueKC Renewal

2015 Lockton’s Renewal Analysis

Appendix

Basics of Stop Loss

2013 and 2014 Plan Performance

3

2013 Experience – All Plans Combined

Month/Year Total

Subscribers Total

Members Adminn Stop Loss Total Fixed

Medical Claims

Capitated Claims

Rx Claims

Specific Stop-Loss

Reimbursable Claims

($200K)

Monthly Net Paid Claims

Monthly Net Paid Claims

+ Fixed Costs

Monthly ER

& EE Funding

Monthly EE Contributio

ns

Total Net Plan Cost

Jan-13 1,139 1,963 $68,150 $23,568 $91,718 $672,156 $1,903 $157,157 $0 $831,216 $922,934 $1,005,452 $165,656 $757,278

Feb-13 1,135 1,959 $67,736 $23,425 $91,161 $912,997 $1,737 $150,877 $0 $1,065,611 $1,156,772 $999,897 $163,270 $993,502

Mar-13 1,129 1,948 $67,448 $23,326 $90,775 $873,164 $2,318 $232,639 $99,606 $1,008,515 $1,099,290 $995,475 $162,287 $937,002

Apr-13 1,127 1,934 $67,167 $23,229 $90,396 $942,530 $1,978 $171,363 $133,089 $982,783 $1,073,179 $992,392 $161,427 $911,752

May-13 1,133 1,943 $67,533 $23,355 $90,888 $723,128 $2,004 $188,242 $20,683 $892,691 $983,579 $997,821 $162,345 $821,234

Jun-13 1,125 1,933 $67,094 $23,203 $90,297 $831,496 $1,985 $237,372 $110,623 $960,230 $1,050,527 $991,139 $162,210 $888,316

Jul-13 1,085 1,885 $65,304 $22,584 $87,888 $826,966 $1,828 $162,356 $46,649 $944,501 $1,032,389 $964,095 $165,666 $866,723

Aug-13 1,086 1,895 $65,509 $22,655 $88,164 $727,268 $1,749 $242,215 $23,770 $947,463 $1,035,627 $966,297 $166,412 $869,215

Sep-13 1,093 1,908 $65,951 $22,808 $88,759 $862,121 $1,877 $173,210 $139,055 $898,154 $986,912 $971,382 $165,151 $821,761

Oct-13 1,102 1,917 $66,466 $22,986 $89,452 $596,154 $1,841 $198,703 $21,725 $774,973 $864,425 $978,404 $167,295 $697,130

Nov-13 1,106 1,916 $66,594 $23,030 $89,624 $957,021 $1,841 $241,178 $211,291 $988,749 $1,078,373 $980,030 $166,313 $912,060

Dec-13 1,107 1,914 $66,556 $23,017 $89,574 $831,524 $1,860 $212,455 $75,673 $970,166 $1,059,740 $979,246 $165,405 $894,335

Total 13,367 23,115 $801,507 $277,189 $1,078,696 $9,756,526 $22,921 $2,367,768 $882,164 $11,265,05

0

$12,343,746

$11,821,63

0 $1,973,437

$10,370,309

Average/PEPM

1,114 $59.96 $20.74 $80.70 $729.90 $1.71 $177.14 $66.00 $842.75 $923.45 $884.39 $147.64 $775.81

Funding Surplus/(Deficit)

-$522,116

% of Funding

104.4%

4

2014 Experience – All Plans Combined

Month/Year Total

Subscribers Total

Members Total Fixed

Medical Claims

Capitated Claims

Rx Claims

Specific Stop-Loss

Reimbursable Claims ($200K)

Monthly Net Paid Claims

Total ACA

Fees

Monthly Net Paid Claims

+ Fixed Costs + ACA

Fees

Monthly ER

& EE Funding Monthly EE

Contributions Total Net Plan Cost

Jan-14 1,106 1,870 $97,538 $812,695 -$61 $169,924 $0 $982,558 $9,966 $1,090,062 $901,132 $101,032 $989,030

Feb-14 1,109 1,869 $97,656 $418,545 $0 $139,965 $0 $558,510 $9,951 $666,117 $901,188 $100,546 $565,570

Mar-14

Apr-14

May-14

Jun-14

Jul-14

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Total 2,215 3,739 $195,194 $1,231,240 -$61 $309,889 $0 $1,541,068 $19,917 $1,756,179 $1,802,320 $201,579 $1,554,600

Average/Month 1,108 1,870 $97,597 $615,620 -$31 $154,945 $0 $770,534 $9,958 $878,089 $901,160 $100,789 $777,300

Average/PMPM $52.20 $329.30 -$0.02 $82.88 $0.00 $412.16 $5.33 $469.69 $482.03 $53.91 $415.78

Funding Surplus/(Deficit) $46,141

% of Funding

97.4%

February ‘14 is the most favorable claims month MCC has had in three years!

5

Large Claims March 2013 – February 2014

Based on actuarial claims distribution tool, we would expect a group of similar membership to have seven members with claims in excess of $100,000 and 2.2 members with claims in excess of $200,000.

Large Claims - March 2013 - February 2014

Claimant Plan 2014 Plan* Status Paid Claims Above $100K

Prognosis/ Projected Claims

over next 6 months Diagnosis

MNZH-ZWZF-BHS BlueCare HMO HDHP Active $956,601 $856,601 Premie/$300K+ Respiratory

MNZH-ZWST-AHM BlueCare HMO Early Retiree/Pre-65 $263,240 $163,240 Injury/Poisoning

MNZH-ZWZV-MHS PPO Option 1 Early Retiree/Pre-65 $260,760 $160,760 Musculoskeletal and Connective Tissue

MNZH-ZWPX-GHS PPO Option 1 Premier Active $232,417 $132,417 Genitourinary

MNML-MHSD-YHM PPO Option 1 Cobra $217,589 $117,589 $100K-150K Genitourinary

MNZH-ZWBH-BHM PPO Option 1 Premier Active $207,535 $107,535 $50K-75K Neoplasms

MNOW-MDGU-AHM BlueSaver (HDHP) HDHP Early Retiree/Pre-65 $195,997 $95,997 Neoplasms

MNZH-ZWPD-BHM PPO Option 1 Active $157,795 $57,795 Neoplasms

MNZH-ZWGL-QHO BlueCare HMO Active $152,210 $52,210 Endocrine, Nutritional and Metabolic Diseases

MNOW-MDGV-YHM PPO Option 1 Regular Retiree/Post-

65 $150,291 $50,291 Musculoskeletal and Connective Tissue (Rx)

MNZH-ZWZW-ZHM PPO Option 1 HDHP Active $117,773 $17,773 Neoplasms

Total $2,912,208 $1,812,208

*If blank, member is not appearing on the large claim report through February 2014.

6

2014 Plan Design

Premier Standard HDHP

Preferred Care Blue Preferred Care Blue Preferred Care Blue

Benefit In-Network Out-of-Network In-Network Out-of-Network In-Network Out-of-Network Annual Deductible Individual Family

$500 $1,000

$500 $1,000

$1,000 $2,000

$1,000 $2,000

$2,500 $5,000

$2,500 $5,000

Coinsurance 90% 70% 80% 70% 100% 80%

Out of Pocket Maximum Individual Family

$2,000 $4,000

$4,000 $8,000

$3,000 $6,000

$6,000 $12,000

$2,500 $5,000

$5,000 $10,000

Includes copays Medical Medical Medical Medical N/A N/A

Includes deductible Yes Yes Yes Yes Yes Yes

Office Visit Copay $20 30% Coinsurance $30 30% Coinsurance 0% Coinsurance 20% Coinsurance

Inpatient Hospital 10% Coinsurance 30% Coinsurance 20% Coinsurance 30% Coinsurance Deductible then Coinsurance

Emergency Room $100 Copay+Deductible then 10% Coinsurance

$150 Copay+Deductible then 30% Coinsurance

Deductible then 0% Coinsurance

Deductible then 20% Coinsurance

Prescription Drugs Retail Generic Preferred Brand Non-Preferred Brand Mail Order Generic Preferred Brand Non-Preferred Brand

$10 $30 $50

$20 $60 $100

$10 then 50% $30 then 50% $50 then 50%

$20 then 50% $60 then 50% $100 then 50%

$10 $30 $50

$20 $60 $100

$10 then 50% $30 then 50% $50 then 50%

$20 then 50% $60 then 50% $100 then 50%

$0 $0 $0

$0 $0 $0

$0 then 50% $0 then 50% $0 then 50%

$0 then 50% $0 then 50% $0 then 50%

Bold indicates changes for 2014

7

2014 Cost Sharing

Before MCC HSA and HRA Contributions Total Projected 2014 Premium $10,674,671 2014 Employee Contributions $1,028,740 2014 Total Net Projected MCC Cost $9,645,930 % Subsidized 90% Cost per Employee Enrollment 1041 Gross Cost per Employee $10,254 Net Cost per Employee $9,266

After MCC HSA and HRA Contributions Total Projected 2014 Premium $10,674,671 2014 Employee Contributions $1,028,740 2014 Total Net Projected MCC Cost $9,645,930 MCC HSA and HRA Contributions $1,383,525 Total Net Projected Plan Costs + HSA/HRA Contributions $11,029,455 % Subsidized 103% Cost per Employee Enrollment 1041 Gross Cost per Employee $10,254 Net Cost per Employee, including HSA/HRA Contributions $10,595

2015 BlueKC Renewal

9

2015 BlueKC Renewal

The Modified Cost Plus contract is comprised of Fixed Fees, which include Administrative Fees, Stop Loss Fees, and Excise Tax (which applies to the Stop Loss Fee). The combined increase equates to +15%.

Administrative Fees: +3%

Stop Loss: +40%

ACA Excise Tax: 2.4%

As we analyze the stop loss component of the overall fees, it is important to look at historical plan performance:

Stop Loss Fee $ Over Spec Loss Ratio

2011 $332,949 $1,853,381 557%

2012 $346,339 $499,918 144%

2013 $365,479 $775,354 212%

3 Year Total $1,044,767 $3,128,653 299%

10

BlueKC 2015 Renewal – Fixed Fees

*Includes the 2.4% Excise Tax

February 2014

Enrollment 2014 Current 2015 Renewal

Fixed Fees Admin Employee Only 725 $41.55 $42.80 Employee + Spouse 145 $85.48 $88.04 Employee + Child(ren) 112 $77.50 $79.82 Family 127 $121.42 $125.07 $799,424 $823,434

Stop Loss Employee Only 725 $19.36 $27.27 Employee + Spouse 145 $39.82 $56.08 Employee + Child(ren) 112 $36.10 $50.85 Family 127 $56.57 $79.68 $372,450 $524,603

Total Annual Fixed Fees 1,109 $1,171,874 $1,348,037 Impact to Current (%) N/A 15.0%

Impact to Current ($) $176,163

11

BlueKC Renewal – ACA Taxes

2014 Current 2015 Renewal

PPACA Fees - PMPY Comparative Effectiveness Fee $2 $2

Reinsurer Fee $63 $44 Total PPCA PMPY Fee $65 $46

Total Annual PPACA Fee (1870 members) $121,550 $86,020

Important Note: ACA Taxes are not included in the Contractual Billed Rates

12

BlueKC 2015 Renewal (cont.)

The second component of the Modified Cost Plus contract is Maximum Claim Liability Factors/Aggregate Stop Loss Limits.

Using claims through January, BlueKC initially proposed an increase of +16.7%. Based on Lockton’s underwriting, as well as updated claims through February, we were able to negotiate the increase to +10%.

To maintain compliance with ACA requirements, Prescription Drug copays will apply towards the Out-of-Pocket Maximum effective 1/1/2015. To account for this, BlueKC has proposed an increase to the Out-of-Pocket maximums on the Standard and Premier plans:

Standard: From $3,000/$6,000 to $3,900/$7,800

Premier: From $2,000/$4,000 to $3,000/$6,000

Should MCC wish to keep the Out-of-Pocket maximums the same in 2015, the Maximum Claim Factors would increase by an additional +1.55% to the Premier & Standard plans.

13

Prescription Drug Analysis

If MCC maintains the current Out-of-Pocket Maximum (OOPM),

Average savings for members meeting OOPM

Premier: $716 Per Member Per Year (PMPY)

Standard: $940 PMPY

If MCC implements the proposed OOPM,

Percentage of members who would be paying more:

Premier: 9.4% (49 members) paying on average $76.50 more PMPY

Standard: 10.9% (47 members) paying on average $82.75 more PMPY

14

BlueKC 2015 Renewal – Contractual Billed Rates

February 2014

Enrollment 2014 Current

2015 Initial Renewal

No Changes to OOOPM

2015 Initial Renewal

Changes to OOPM

2015 Negotiated Renewal

No Changes to OOPM

2015 Negotiated Renewal

Changes to OOPM

Premier Employee Only 324 $711.75 $841.08 $829.31 $797.09 $785.99 Employee + Spouse 40 $1,464.07 $1,730.10 $1,705.89 $1,639.61 $1,616.78 Employee + Child(ren) 21 $1,327.40 $1,568.60 $1,546.65 $1,486.56 $1,465.86 Family 15 $2,079.69 $2,457.58 $2,423.19 $2,329.03 $2,296.61 Standard Employee Only 96 $600.82 $699.90 $700.90 $673.18 $663.97 Employee + Spouse 43 $1,235.87 $1,459.76 $1,439.68 $1,384.70 $1,365.76 Employee + Child(ren) 47 $1,120.55 $1,305.34 $1,306.34 $1,268.95 $1,238.33 Family 27 $1,755.60 $2,073.65 $2,045.12 $1,967.01 $1,940.11 HDHP Employee Only 305 $495.20 $576.69 $577.69 $547.79 $547.79 Employee + Spouse 62 $1,051.13 $1,224.17 $1,224.17 $1,162.54 $1,162.54 Employee + Child(ren) 44 $953.03 $1,109.92 $1,110.92 $1,067.50 $1,054.05 Family 85 $1,493.17 $1,738.98 $1,738.98 $1,651.44 $1,651.44 Total Annual Contractual Billed Rates 1,109 $11,330,251 $13,287,069 $13,204,274 $12,640,871 $12,522,258 Impact to Current (%) N/A 17.3% 16.5% 11.6% 10.5% Impact to Current ($) N/A $1,956,818 $1,874,023 $1,310,620 $1,192,007 Total Annual Contractual Billed Rates + ACA $11,451,801 $13,373,089 $13,290,294 $12,726,891 $12,608,278 Impact to Current (%) 16.8% 16.1% 11.1% 10.1% Impact to Current ($) $1,921,288 $1,838,493 $1,275,090 $1,156,477

15

2015 BlueKC Proposed Plan Design – Without Plan Changes

Premier Standard HDHP

Preferred Care Blue Preferred Care Blue Preferred Care Blue

Benefit In-Network Out-of-Network In-Network Out-of-Network In-Network Out-of-Network Annual Deductible Individual Family

$500 $1,000

$500 $1,000

$1,000 $2,000

$1,000 $2,000

$2,500 $5,000

$2,500 $5,000

Coinsurance 90% 70% 80% 70% 100% 80%

Out of Pocket Maximum Individual Family

$2,000 $4,000

$4,000 $8,000

$3,000 $6,000

$6,000 $12,000

$2,500 $5,000

$5,000 $10,000

Includes copays Medical and Rx Medical and Rx Medical and Rx Medical and Rx N/A N/A

Includes deductible Yes Yes Yes Yes Yes Yes

Office Visit Copay $20 30% Coinsurance $30 30% Coinsurance 0% Coinsurance 20% Coinsurance

Inpatient Hospital 10% Coinsurance 30% Coinsurance 20% Coinsurance 30% Coinsurance Deductible then Coinsurance

Emergency Room $100 Copay+Deductible then 10% Coinsurance

$150 Copay+Deductible then 30% Coinsurance

Deductible then 0% Coinsurance

Deductible then 20% Coinsurance

Prescription Drugs Retail Generic Preferred Brand Non-Preferred Brand Mail Order Generic Preferred Brand Non-Preferred Brand

$10 $30 $50

$20 $60 $100

$10 then 50% $30 then 50% $50 then 50%

$20 then 50% $60 then 50% $100 then 50%

$10 $30 $50

$20 $60 $100

$10 then 50% $30 then 50% $50 then 50%

$20 then 50% $60 then 50% $100 then 50%

$0 $0 $0

$0 $0 $0

$0 then 50% $0 then 50% $0 then 50%

$0 then 50% $0 then 50% $0 then 50%

16

2015 BlueKC Proposed Plan Design – With Plan Changes

Premier Standard HDHP

Preferred Care Blue Preferred Care Blue Preferred Care Blue

Benefit In-Network Out-of-Network In-Network Out-of-Network In-Network Out-of-Network Annual Deductible Individual Family

$500 $1,000

$500 $1,000

$1,000 $2,000

$1,000 $2,000

$2,500 $5,000

$2,500 $5,000

Coinsurance 90% 70% 80% 70% 100% 80%

Out of Pocket Maximum Individual Family

$3,000 $6,000

$6,000 $12,000

$3,900 $7,800

$7,800 $15,600

$2,500 $5,000

$5,000 $10,000

Includes copays Medical and Rx Medical and Rx Medical and Rx Medical and Rx N/A N/A

Includes deductible Yes Yes Yes Yes Yes

Office Visit Copay $20 30% Coinsurance $30 30% Coinsurance 0% Coinsurance 20% Coinsurance

Inpatient Hospital 10% Coinsurance 30% Coinsurance 20% Coinsurance 30% Coinsurance Deductible then Coinsurance

Emergency Room $100 Copay+Deductible then 10% Coinsurance

$150 Copay+Deductible then 30% Coinsurance

Deductible then 0% Coinsurance

Deductible then 20% Coinsurance

Prescription Drugs Retail Generic Preferred Brand Non-Preferred Brand Mail Order Generic Preferred Brand Non-Preferred Brand

$10 $30 $50

$20 $60 $100

$10 then 50% $30 then 50% $50 then 50%

$20 then 50% $60 then 50% $100 then 50%

$10 $30 $50

$20 $60 $100

$10 then 50% $30 then 50% $50 then 50%

$20 then 50% $60 then 50% $100 then 50%

$0 $0 $0

$0 $0 $0

$0 then 50% $0 then 50% $0 then 50%

$0 then 50% $0 then 50% $0 then 50%

17

2015 Illustrative Cost Share

Annual Costs 2014

2015

No Plan Changes

2015

w/Plan Changes

Total Projected Premium $10,674,671 $11,907,460 $11,797,961

Employee Contributions $1,028,740 $1,028,740 $1,028,740

Total Net Projected MCC Cost $9,645,930 $10,878,720 $10,769,221

% Subsidized 90% 91% 91%

Cost per Employee

Enrollment 1041 1041 1041

Gross Cost per Employee $10,254 $11,438 $11,333

Net Cost per Employee $9,266 $10,450 $10,345

Annual Costs if MCC funds HSA and HRA at 2014 Level 2014

2015

No Plan Changes

2015

w/Plan Changes

Total Projected Premium $10,674,671 $11,907,460 $11,797,961

Employee Contributions $1,028,740 $1,028,740 $1,028,740

Total Net Projected MCC Cost $9,645,930 $10,878,720 $10,769,221

MCC HSA and HRA Contributions (If funded by MCC at 2014 Level) $1,383,525 $1,383,525 $1,383,525

Total Net Projected Plan Costs + HSA/HRA Contributions $11,029,455 $12,262,245 $12,152,746

% Subsidized 103% 103% 103%

Cost per Employee

Enrollment 1041 1041 1041

Gross Cost per Employee $10,254 $11,438 $11,333

Net Cost per Employee + HSA/HRA Contributions $10,595 $11,779 $11,674

*Enrollment reflects data provided on census dated 1/17/2014 and therefore the total premium differs from other exhibits using February enrollment

18

Benchmarking

$3,300

$1,000 $1,000

$750

$0

$1,000 $1,000

$750

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

MCC

HDHP

Lockton

EducationServices

Lockton

Midwest Region

Lockton

1,000 - 4,999Employees

HSA Employer Contributions

Individual Family

19

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2014 2015 2016 2017 2018

Family

EE + Spouse

EE + Dependents

Family Limit

Employee

Single Limit

What is Our Exposure in 2018? (Active Ees)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

2014 2015 2016 2017 2018

Cost Trended @ 9%

E+1

Family

Family Limit

EE

Single Limit

In 2018, an excise tax will be applied if the total value of employee and employer-paid health coverage exceeds $10,200 for single and $27,500 for family coverage. Any amounts in excess of these limits will be subject to a 40% excise tax.

Cost Trended at 9%

Excise Tax in 2018

2018 Excise Tax Projection at 9% Trend $581,926

20

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

2014 2015 2016 2017 2018

Family

EE + Spouse

EE + Dependents

Family Limit

Employee

Single Limit

What is Our Exposure in 2018? (Pre-65 Retirees)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

2014 2015 2016 2017 2018

Cost Trended @ 9%

E+1

Family

Family Limit

EE

Single Limit

In 2018, an excise tax will be applied if the total value of employee and employer-paid health coverage exceeds $11,850 for single and $30,950 for family coverage. Any amounts in excess of these limits will be subject to a 40% excise tax.

Cost Trended at 9%

Excise Tax in 2018

2018 Excise Tax Projection at 9% Trend $33,307

Lockton’s 2015 Renewal Analysis

22

Lockton’s 2015 Renewal Analysis – Assuming no Changes to Out-of-Pocket Maximum

Adjusted Paid Claims Projection $493.92

Current Aggregate Factors PMPM $452.93

Variance from Current 9.0%

1Rx copays accumulating toward the OOPM.

Assumes that the out of pocket maximums stay at the current levels.

Total Plan Cost PMPM $557.86

Current Funding Rates PMPM $510.43

Variance from Current 9.3%

Annualized Costs

Enrollment (Members) 22,428

Claims Costs $11,077,573

Fixed Costs $1,348,037

Annual Taxes (HCR) $86,049

Total Plan Cost $12,511,659

1Rx copays accumulating toward the OOPM.

Assumes that the out of pocket maximums stay at the current levels.

Maximum Claim Liability Increase

Overall Needed Increase

23

Lockton’s 2015 Renewal Analysis – Assuming Changes to Out-of-Pocket Maximum

Total Plan Cost PMPM $554.91

Current Funding Rates PMPM $510.43

Variance from Current 8.7%

Annualized Costs

Enrollment (Members) 22,428

Claims Costs $11,011,415

Fixed Costs $1,348,037

Annual Taxes (HCR) $86,049

Total Plan Cost $12,445,501

1Rx copays accumulating toward the OOPM.

Assumes that the out of pocket maximums are increased for the Premier & Standard to offset the Rx impact.

Overall Needed Increase

Adjusted Paid Claims Projection $490.97

Current Aggregate Factors PMPM $452.93

Variance from Current 8.4%

Maximum Claim Liability Increase

24

2015 Renewal – Lockton vs. BlueKC Assuming No Change to Out-of-Pocket Maximum

BlueKC 2014 Renewal

Initial BlueKC 2015 Renewal

Negotiated BlueKC 2015 Renewal

Lockton's 2015 Projection

Aggregate Claims PMPM $453 $533 $503 $494

Admin PMPM $36 $37 $37 $37

Stop Loss PMPM $17 $23 $23 $23

ACA $5 $4 $4 $4

TOTAL PMPM $511 $597 $567 $558 BlueKC

2014 Renewal Initial BlueKC 2015 Renewal

Negotiated BlueKC 2015 Renewal

Lockton's 2015 Projection

Claims $10,147,131 $11,960,590 $11,278,144 $11,077,638

Admin $1,170,454 $1,347,923 $1,347,923 $1,347,923

ACA $121,550 $86,095 $86,095 $86,095

Total Plan Costs $11,439,135 $13,394,608 $12,712,162 $12,511,656

Increase from Prior Year (%) 0% 17% 11% 9%

Increase from Prior Year ($) ($387,808) $1,955,473 $1,273,027 $1,072,521

25

2015 Renewal – Lockton vs. BlueKC Assuming Change to Out-of-Pocket Maximum

BlueKC 2014 Renewal

Initial BlueKC 2015 Renewal

Negotiated BlueKC 2015 Renewal

Lockton's 2015 Projection

Aggregate Claims PMPM $453 $528 $498 $491

Admin PMPM $36 $37 $37 $37

Stop Loss PMPM $17 $23 $23 $23

ACA $5 $4 $4 $4

TOTAL PMPM $511 $592 $562 $555 BlueKC

2014 Renewal Initial BlueKC 2015 Renewal

Negotiated BlueKC 2015 Renewal

Lockton's 2015 Projection

Claims $10,147,131 $11,850,376 $11,174,302 $11,011,415

Admin $1,170,454 $1,347,923 $1,347,923 $1,347,923

ACA $121,550 $86,095 $86,095 $86,095

Total Plan Costs $11,439,135 $13,284,394 $12,608,320 $12,445,433

Increase from Prior Year (%) 0% 16% 10% 9%

Increase from Prior Year ($) ($387,808) $1,845,259 $1,169,185 $1,006,298

26

Lockton’s 2015 Renewal Analysis

In an effort to mitigate the increase, Lockton requested alternative specific deductible quotes, as higher deductibles yield lower specific premium rates. Based on the Monte Carlo simulation, MCC ‘wins’ 88% of the time at the current $200,000 specific deductible.

Current Contract Contract Alternative 2 Contract Alternative 3

Without Stop Loss $200,000 $225,000 $250,000

What is the plan's expected cost under the various options?

Expected Claims (Paid by Plan after specific and aggregate) $11,968,150 $11,352,732 $11,426,082 $11,485,884

Specific Premium $511,670 $487,914 $463,061

Total Expected Cost (Expected Claims + Stop Loss Premium) $11,968,150 $11,864,402 $11,913,996 $11,948,945

% of simulations this option "wins" 88% 0% 12%

Premium savings $0 -$23,756 -$48,609

Additional Expected Claims $0 $73,350 $133,152

Basics of Stop Loss

28

Stop Loss Background

Self-insured (or quasi self-insured) clients who want to mitigate risks due to large or unanticipated claims purchase stop loss coverage through their claims administrator or from a third-party carrier.

Under the BlueKC Cost Plus arrangements, customers are required to purchase stop loss through BlueKC; Only under a true Administrative Service Only (ASO) agreement is carving out the stop loss permissible.

Stop Loss Products:

Individual/Specific Stop Loss

Coverage per member in excess of a set threshold

Lockton performs Monte Carlo analysis, which is an actuarial tool, to better determine the appropriate threshold.

Aggregate Stop Loss

Coverage for total claim spend above a corridor (e.g. 125% over expected claims)

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Individual/Specific Stop Loss

Protects from catastrophic large claims on an individual member basis.

Once claims for any covered member exceed the set threshold, all eligible claims over this amount during the policy period are reimbursed

Under the BlueKC Cost Plus Arrangement, customers benefit from improved cash flow, as BlueKC starts paying claims in excess of the specific deductible (vs. the client paying then getting reimbursed)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Claimant A Claimant B Claimant C Claimant D Claimant E

Specific Deductible

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Aggregate Stop Loss

Protects from abnormally high claims for the entire covered population

BlueKC sets Aggregate/Maximum Claim Factors; if claims for the policy period exceed these, the Employer would be reimbursed the excess.

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

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Stop Loss Analysis Benchmark Data

Percentage of Employers carrying Stop Loss

Covered Employees 500-999 1,000-4,999 5,000-9,999 10,000-19,999 20,000+

With Stop Loss 95% 90% 74% 60% 33%

Without Stop Loss 5% 10% 26% 40% 67%

Source: 2012 Mercer Study

Of those Employers with Stop Loss, Percentage with Specific, Aggregate or Both

Covered Employees 500-999 1,000-4,999 5,000-9,999 10,000-19,999 20,000+

Specific Only 28% 40% 53% 60% 64%

Aggregate Only 16% 13% 9% 10% 11%

Specific & Aggregate 56% 47% 38% 30% 25%

Median Specific Loss Deductible

Covered Employees 500-999 1,000-4,999 5,000-9,999 10,000-19,999 20,000+

Specific Stop Loss Deductible

$150,000 $225,000 $300,000 $400,000 $400,000

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Our Mission

To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management

Our Goal

To be the best place to do business and to work

This document contains the proprietary work product of Lockton Companies and is provided on a confidential basis. Any reproduction, disclosure or distribution to any third party without first securing written permission from Lockton Companies is expressly prohibited.

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