Developing Wellness for the Mid-Sized Employer…A CFO’s Perspective

GlobalFit’s Fourth Annual Wellness Summit

May 13, 2010

The ACW

• History

• Mission

• Membership

• Events

• www.acwell.org

Special thanks to WellNow, BHS, and other ACW members for their input!

Your Speaker

• Bill Lacy – President & CFO, Association for Corporate Wellness

– Over 25 years CEO, CFO, and other executive positions (Fortune 500, middle market, and start-up)

– EVP CFO-Finance and Admin, Business Health Services; CFO-Planet Fitness PA– President, ACW; founder Entre Advisors, LLC & GreatLife Wellness Centers, LLC– Entered corporate wellness industry 2003 – Facilitated or lead over 100 of corporate wellness speaking engagements and panels– MBA, Drexel University

Corporate Wellness

• Reduce health care costs

• Boost productivity

• Corporate Wellness Components– Reduce health care claims– Absenteeism– Productivity - presenteeism– Worker Comp Claims / Work Site Injury / Ergonomics– ST&LT Disability– Mental Health– Financial / Legal– Other

Today’s Objectives

1. HCR corporate wellness highlights

2. Four corporate wellness models

3. CFOs perspective

Health Reformation Highlights

• Ten year roll-out

• Wellness impacts

• Boost incentives

• New agencies / new regulations

• Greater need for sound Corporate Wellness strategies

Health Care Reformation

• Increases incentives for employers to offer workers from 20% (current) to as much as 50% off their premiums for participating in such programs (effective 2014)

• Requires chain restaurants and vending machines to disclose nutritional information

• Provides additional resources for children, pregnant women and people trying to quit smoking (Lazarus, Los Angeles Times, 3/26)

Source: http://www.californiahealthline.org/articles/2010/3/26/health-reform-law-steps-up-focus-on-prevention-wellness.aspx

Health Care Reformation• Establishes a National Prevention, Health Promotion and

Public Health Council to coordinate federal efforts to promote healthy living

• Eliminates copayments for Medicare and Medicaid beneficiaries receiving preventive services

• Increases reimbursement rates for physicians who offer certain preventive services

• Provides grants to small business for establishing wellness programs

– Source: http://www.californiahealthline.org/articles/2010/3/26/health-reform-law-steps-up-focus-on-prevention-wellness.aspx

HCR – Grant Program

• $200 billion, five-year program to provide grants to certain small employers (fewer than 100 employees) for comprehensive workplace wellness programs(*)

(*) small employers that did not have a wellness program when the law was enacted

Source: http://www.shrm.org/Publications/HRNews/Pages/WellnessReformBoast.aspx

Health Care Reformation

• In 2010: Employer-provided adoption assistance benefits under the IRC Section 137 are increased to $13,170

• Source: http://www.towerswatson.com/assets/pdf/1424/TW-HC%20Reform%20Bulltn-BillPassed_3-22-10.pdf

• In 2011: New group health plans must provide preventive care without cost sharing

• In 2014: Employer government reporting begins on

employee health coverage

HCR: Running Afoul of the Excise Tax?

• The health reform law is likely to give a short-term boost to the use of financial incentives in wellness plans, says Corporate Synergies CEO Thom Mangan. But employers should beware of triggering the 40 percent excise tax on high value or "Cadillac" plans that takes effect in 2018, for plans valued annually at more than $10,200 for individuals and $27,500 for families. Employers spending on wellness programs would add to their health plan's value, pushing them closer to that trigger.

• "Those who are not early adopters in using wellness initiatives to curb the cost of their health insurance will end up being hurt if they try to launch a program in 2018 or later," Mangan notes, because "the cost curve does not come down for two to three years once you've implemented a wellness program."

• The excise tax will become a disincentive for employers to add to the cost of their health benefits and, as a result, health care reform could have a reverse effect on employers’ efforts to promote wellness and healthy behaviors, in Mangan's view.

Source: http://www.shrm.org/Publications/HRNews/Pages/WellnessReformBoast.aspx

HCR: Running Afoul of the Excise Tax?

• "We're strongly encouraging companies to step up their wellness efforts today to better control their future health spending, making it more likely they'll avoid the tax," Mangan advises.

• In a March 2010 letter to Congress, the Society for Human Resource Management urged lawmakers not to count the value of supplemental benefits such as wellness plans toward the excise tax threshold.

Source: http://www.shrm.org/Publications/HRNews/Pages/WellnessReformBoast.aspx

Corporate Wellness Models

1. General

2. Data-Driven

3. “Safeway”

4. Hybrid

CFO/Company’s Culture & Model Type

Model Type How Analytical?

Degree of Immediate Savings / ROI

How Wellness Orientated

How Much Budget?

General Low Limited Need Low Low-Medium

Data-Driven High Moderate Need

High High

Safeway Moderate Immediate Need

Moderate Minimal

Basic Model

• Description:– Wide variety of offerings

• Costs:– Per event or intervention

• Results:– Difficult to track– Limited ROI

Data Driven Model• Description:

– Input, Analysis of Biometric and/or Claims Experience

• Costs:– High initial investment: Software, data

analysis, interventions, tracking ($12 - $14 / PEPM)

• Results:– Strong predictive modeling capabilities– Future ROI

Data Driven Model

Claims Data

HRA/Biometrics

Focus Groups

Plan Updates & Refinement

Plan Updates & Refinement

Changes toPolicy

Plan Design

Vendor Contracts

Changes toPolicy

Plan Design

Vendor Contracts

Employee Health

Programs

Employee Health

Programs

AdministrationIncentivesCultural Changes

AdministrationIncentivesCultural Changes

Multiple Stream Analysis

Tracking &

OutcomesReports

Tracking &

OutcomesReports

Long Term Return on Investment (ROI)Data Driven Model

32 studies 14 studies

Data Driven Model

• Strong Reporting!

• Examples:1. Medical conditions contributing to highest

number of claims

2. Leading single health risk indicators

3. RX claims analysis

4. Health risk profile vs. national average

5. Unmanaged medical spend

MEDICAL CODITIONS CONTRIBUTING TO HIGHEST NUMBER OF CLAIMS

LEADING CONDITIONS REPRESENTING HIGHEST % of MEDICAL CLAIMS

Condition 2006-1 2006-2 2007-1 2007-2 2008-1 2008-2

Arthritis 14.95% 17.57% 24.23% 17.01% 16.19% 20.39%

Asthma 10.75% 14.87% 14.39% 12.88% 9.48% 12.70%

Back Pain 27.16% 34.45% 34.88% 33.86% 31.60% 32.09%

Chronic Heart Failure 9.80% 12.58% 4.90% 8.85% 4.06% 9.98%

Chronic Obstructive Pulmonary Disease 7.40% 13.38% 9.22% 10.42% 6.10% 13.02%

Coronary Artery Disease 32.19% 24.23% 16.67% 19.12% 18.11% 18.27%

Depression 21.86% 23.16% 23.76% 29.67% 32.49% 24.61%

Diabetes Mellitus 27.91% 16.99% 12.70% 12.52% 10.25% 10.75%

GERD 16.51% 15.80% 16.16% 18.15% 22.41% 19.64%Hypertension 34.68% 41.71% 37.43% 36.34% 40.13% 41.21%

Lupus 8.08% 8.31% 9.69% 8.05% 8.46% 9.38%

LEADING SINGLE HEALTH RISK INDICATORS

BASED ON 572 HRA Takers, $295.15* population average PMPM and 2,630* insured

High Risk Factor# High RiskHRA Takers

High Risk PMPM > Average PMPM

% High Risk

HRA Takers

PARate

County Rate

NationalRate

Physical Inactivity 198 $ 308.95 34.6% 70.2% 70.2% 71.7%

Obesity (BMI) 132 $ 361.75 23.1% 28.4% NR 26.7%

Waist Circumference 147 $ 356.79 25.7% NR NR NR

Underweight 7 $ 1,123.52 1.2% NR NR NRHealth Perception

(Poor) 12 $ 384.98 2.1% 4.2% 3.1% 3.8%

Health Perception (Fair) 55 $ 373.00 9.6% 12.1% 10.8% 10.6%

TOP TWENTY PRESCRIPTIONS BY EXPENSE: ON FORMULARY (2008)

Description Primary Treatment Purpose Claimants RxOn RxOff

NEXIUM CAPSULES DELAYED RELEASE GERD 102 $156,968.07 $0.00 APOKYN FOR INJECTION Parkinson’s Disease < 5 $124,155.15 $0.00 NORDITROPIN CARTRIDGE INJECTION Growth hormone deficiency < 5 $60,017.29 $0.00 HUMATROPEN CARTRIDGE KIT Diabetes < 5 $42,973.63 $0.00 LIPITOR TABLETS Elevated Cholesterol 48 $41,668.55 $0.00 LIPITOR TABLETS (Different NDC) Elevated Cholesterol 36 $41,249.75 $0.00 SINGULAIR TABLETS Asthma 63 $41,146.92 $0.00 Azithromycin Bacterial Infections < 5 $36,733.79 $0.00 COPAXONE Multiple Sclerosis < 5 $30,385.34 $0.00 VALTREX CAPLETS Cold Sores 33 $30,299.21 $0.00 ADVAIR DISKUS INHALATION POWDER Asthma 36 $24,588.50 $0.00 ATRIPLA TABLETS HIV < 5 $23,778.74 $0.00 PLAVIX TABLETS Myocardial Infarction, Cardiac Conditions 18 $23,716.94 $0.00 ZETIA TABLETS Elevated Cholesterol 25 $23,200.32 $0.00 YAZ TABLETS Oral Contraception 53 $23,176.72 $0.00 ASACOL TABLETS DELAYED RELEASE Colitis 6 $22,508.43 $0.00 VALTREX CAPLETS (different NDC) Cold Sores 37 $22,020.70 $0.00 LOVAZA CAPSULES Elevated Triglycerides 20 $21,428.07 $0.00 HUMIRA PEN KIT Arthritis <5 $21,254.98 $0.00 NIASPAN TABLETS Elevated Cholesterol 10 $17,342.18 $0.00

Number of National individuals Average** (%)

Diagnosed (self-reported) diseasesCoronary Heart Disease 8 1.6 5.1Stroke 4 0.8 1.9Other Cardiovascular Diseases 2 0.4 7.0Heart Failure 2 0.4 1.7Diabetes 8 1.6 5.9

On antihypertensive medication 70 13.8 16.1On lipid-lowering medication 88 17.3 8.0Physical exercise level

Low 207 40.7 19.7Moderate 179 35.2 44.4High 122 24.0 35.9

Current smoker 62 12.2 28.2Overweight (BMI 25.0-29.9 kg/m2) 196 38.6 32.2Obese (BMI>=30 kg/m2) 125 24.6 31.7High waist measurement (male>40 inches, female>35 inches) 135 26.6 48.5Prehypertension (>=120/80 and <140/90 mmHg) 196 38.6 38.1Hypertension (>=140/90 mmHg) 72 14.2 17.6Metabolic syndrome*** 105 20.7 27.6Total cholesterol>=200 mg/dL 173 34.1 51.7HDL<40 mg/dL 89 17.5 23.0LDL>=130 mg/dL 112 22.0 42.4LDL>=ATP III-suggested goal 74 14.6 29.8Triglyceride>=150 mg/dL 137 27.0 30.5Undiagnosed diabetes (glucose>=126 mg/dL) 21 4.1 1.6Prediabetes (100<=glucose<126 mg/dL) 143 28.1 17.7

Clinical Measures with Yes/No Values Percentage*

(%)

Health Status and Risk Factor Profile:Comparisons with National Averages

OUTCOMES: Management By Spend Levels

Percentage Managed by Medical Spend

Benefit Year

Medical Spend Level Claimants Managed % Managed GT-Medical Paid

Un-Managed Medical Spend

% Un-Managed Medical Spend

2006 >0 <10K 2470 297 12.0% $ 3,171,287.57 $ 2,576,919.33 81.3%

>10K <25K 95 24 25.3% $ 1,445,916.49 $ 1,039,812.77 71.9%

>25K <50K 21 7 33.3% $ 684,597.01 $ 457,464.42 66.8%

>50K <75K 5 0 0.0% $ 311,530.89 $ 311,530.89 100.0%

>75K 12 2 16.7% $ 2,217,711.20 $ 2,054,033.17 92.6%

2007 >0 <10K 2195 311 14.2% $ 3,016,351.03 $ 2,339,834.50 77.6%

>10K <25K 102 25 24.5% $ 1,512,136.63 $ 1,138,961.32 75.3%

>25K <50K 16 5 31.3% $ 481,874.61 $ 329,618.39 68.4%

>50K <75K 8 5 62.5% $ 501,913.89 $ 201,238.47 40.1%

>75K 10 4 40.0% $ 1,517,035.51 $ 1,062,039.43 70.0%

2008 >0 <10K 2142 342 16.0% $ 3,064,841.89 $ 2,357,333.54 76.9%

>10K <25K 99 30 30.3% $ 1,504,210.38 $ 1,089,835.87 72.5%

>25K <50K 22 7 31.8% $ 743,840.45 $ 517,180.18 69.5%

>50K <75K 3 2 66.7% $ 166,780.51 $ 53,514.88 32.1%>75K 10 4 40.0% $ 1,773,380.57 $ 1,227,000.87 69.2%

Safeway Model

• Description

• Results

• Benefits:– Wellness Program cost neutral– Provides greater employee accountability– Immediate ROI– Works with any size firm

Safeway Model – Overview

• History• Why Does It Work?

– Based upon Auto Insurance Model– Good drivers pay less; Healthy employees pay less

• How can my company save money…immediately?– Wellness program subsidized by unhealthy

employees

Safeway Model – Overview

• Self insured

• Strong executive support

• 3rd largest supermarket chain in N.A.

• Publicly traded (NYSE:SWY)…$40+ Billion in revenue…over 1,400 stores

• Total health care costs = $1billion (about 2.5% of revenues)

Safeway Model – Overview

• 70% of Health Care Costs behavior related• 74% of Health Care Costs due to the following

four diseases:– Cardiovascular (80% preventable)– Cancer (60% preventable)– Diabetes (80% preventable)– Obesity (90% preventable)

• 78% of employees surveyed rated plan good or excellent; 76% asked for more incentives

Safeway Model – Overview

• Automobile insurance model– Personal responsibility– Bad driving behaviors = higher premiums

• $780 ind ($1,560 family) insurance rebates if employee passes four measures.

– Greater weighting to Smoking & Obesity and less to BP & Cholesterol

• Tested every 12 months– if employee fails (or made appropriate progress employee can

qualify for rebate (full year) if passes test the next time

Safeway Model – Results

• Cost contained since 2005• Total workforce = approx. 233,000 workers

– 25,000 employees participate on a voluntary basis (75% of Safeway’s non-union workforce)…only 11% of total workforce...significant savings could still be realized!

• Company plans to phase in its 200,000 union workforce over next six years

Safeway Model – Challenges

• (Radical) Change to company culture

• Administration

• Requires third party

Safeway Model – Case Study• 781 employees• Average health insurance premium = $8,600• Average incentive = $1,720• Year one = full incentive for participation

(Biometric based HRA)• Year two and beyond = compliance with

Biometric tests• 1% claims reduction year one; 5% years two

and three.

Safeway Case Study - Results

• Year One:– 70% Participation– $98,460 Wellness Program ($180 / PEPY…robust)– $402,516 cost reduction– $39,872 claims reduction (1% of total claims)

• Year One ROI = 4.49• No absenteeism, no presenteeism included

Safeway Case Study - Results

• Year Two:– 70% Participation; 20% did not pass tests– $98,460 Wellness Program ($180 / PEPY…robust)– $590,701 cost reduction– $199,361 claims reduction (5% of total claims)

• Year Two ROI = 8.02• No absenteeism, presenteeism included

Recap

Model Type How Analytical?

Degree of Immediate Savings / ROI

How Wellness Orientated

How Much Budget?

ROI (2 yrs)

General Low Limited Need

Low $0 - $1,000 PEPY

Undefined

Data-Driven High Moderate Need

High $144 - $168 PEPY

3.48

Safeway Moderate High Need Moderate $0 – Save $$ 8.02