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www.mercer.com

Switching to a Health Reimbursement Account

Bob KellerVice President, Compensation & BenefitsNorwood Promotional Products, LLC

Tracey M. GavinSenior AssociateMercer

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Topics

Defining “Consumer Driven Healthcare” and their value proposition

Benchmark Data

Norwood Promotional Products

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Defining “Consumer Driven Healthcare”

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Facts of life

Web sites and newsletters are not enough; training means door-to-door canvassing, campaign rallies, and real folks on the phone

Adults learn personally –by pressing flesh and talking to real people

It’s old-fashioned marketing: coupons, discounts, and promises of a better life

Adults learn not from altruism but self-interest

Don’t start by aiming at the masses; get leaders and influencers up to speed first

Adults follow leaders; they follow crowds and early adopters

There needs to be a Big Bang, which only comes once and can’t be wasted

Adult learning only starts after overcoming inertia

Never underestimate the lack of time available, or overestimate adults’ desire to overcome laziness and use time wisely

Adults think learning means change and represents hard work

Advertisers target 18- to 24-year-olds, not because they buy more, but because adults over 25 are less willing to change buying habits and brands

Adults don’t like to change

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CDH (Cost-Driven Health) – The primary focus: immediately reduce an employer’s cost of health insurance

(Little investment in helping employees become more informed and involved in their health care. Small or no account contributions, weak provision of tools, information, support, communication and education.)

CDH (Consumer-Directed Health)– The primary focus: to help employees become more informed and involved in their

health care, and control cost over time(Significant investment in resources that support employees in being more informed, involved health care consumers. Meaningful account contributions, strong provision of tools, information, support, communication and education.)

Two different health benefit programsBoth called CDH

Many articles highlight the opportunity and challenges of CDHPs – cost-driven health increases the chances for unintended consequences (significant dissatisfaction, avoidance of

care, disproportionate impact to chronic/low paid, etc.)

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Results:Low enrollment

Limited behavior change

Limited cost savings

1. Cost savings

2. Employee satisfaction

3. Quality of care

Little investment in:Employee incentives

Employee education

Support tools

COST- driven health

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CONSUMER- directed health

Results:Higher enrollment

Increased behavior change

Longer range cost savings

1. Quality of care

2. Employee satisfaction

3. Cost savings

Major investment in:Employee incentives

Employee education

Support tools

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The Value Proposition:

Increases employee motivation and demand for information about healthcare services and choice (value & transparency).

Provides employee incentive to consider care options and need for services – self care and discretionary health care spending.

Provides benefit of accumulating unused funds for future needs.

“Monetizes” health benefits via employer-defined contributions to health accounts, increasing employee perceived value of health benefits.

Account-based plans – Consumer-driven health plans

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Benchmark Data

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Growth in CDHP offerings accelerates in 2008Percent of employers offering/likely to offer CDHP, by employer size

45%

41%

28%

28%

20%

16%

19%

13%

Very likelyto offer in

2009

41%

36%

22%

16%

9%

6%

9%

6%2007 200820062005Employer size

37%

21%

18%

12%

6%

7%

7%

5%

45%22%20,000 or more

40%19%10,000-19,999

28%10%5,000-9,999

22%4%1,000-4,999

14%4%500-999

11%5%200-499

14%1%50-199

8%2%10-49 employees

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45%

20%

9%2008

41%

14%

7%2007

45%

25%

14%

Very likely to offer in

2009

22%

5%

2%2005

37%Jumbo employers

11%Large employers

5%Small employers2006

Big jump in CDHP offerings among large employers

CDHP* offered in:

* Based on either a health savings account or health reimbursement arrangement.

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5%

4%

54%

58%

61%

61%

61%

14%

10%

10%

9%

8%

69%

27%

27%

25%

24%

23%

23% 7%

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3

3

1

3

1

1

5%

2003

2004

2005

2006

2007

2008

Traditional indemnity plan PPO POS PPO/POS HMO CDHP

Enrollment in consumer-directed health plans grows in 2008Percentage of all covered employees enrolled in each plan type

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In existing plans, average CDHP enrollment has grown each yearPercentage of eligible employees enrolled in CDHP, among 173 plans offered by large employers as a choice since 2006

23%

27%

30%

10%

13%15%

2006 2007 2008

HRA-based CDHPHSA-eligible CDHP

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CDHPs are significantly less costly than PPOs – even high-deductible PPOs Average cost per employee

$6,027$6,420 $6,661

$7,815

HSA-based CDHPs HRA-based CDHPs PPOs withdeductible of

$1,000+

All PPOs

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Switching to a Health Reimbursement Account

(HRA) Planaka HCA, The Bridge to an HRA

Norwood Promotional Products, LLC

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Context

Who are we?– Promotional Products Company– Manufacturing, printing– $330 million in revenues– Multi-state: 7 states (5 today)– 2,000+ employees, 80% hourly – 1,500 enrolled employees – Headquarters: Indianapolis, IN – Wholly owned subsidiary of BIC

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Norwood Promotional Products

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Pre-History

Prior to 2006

PPO, self-insured– Consolidated individual plant plans in 2002– Blue Cross, Aetna, Cigna (current)

Three tiers (Gold, Silver, Bronze)

In network

$3,500 individual/$7,000 familyOut-of-pocket Maximums

$20/$40 co-payMD Visits

$100 co-pay, 30% cost shareEmergency Room

$100 deductible, 30% co-payInpatient/outpatient

3 tier ($10, $25, $50 co-pay), mail order

Drugs

$750 individual/$2,000 familyAnnual Deductibles

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2006 – “Year of Action”

Reasons – 5 years of double digit increase in medical costs in U.S.– Increasing deductibles and co-pays was not enough– Passing along the overall increases to employees– Company restructuring

Concerns– Communicating / educating our employees

HRAConsumer driven selections / decision support tools

– Achieving real enrollment penetrationNeeded cost savings/cost avoidanceEnabling members to make better healthcare choices

– HRA knowledge-base Broker/consultant

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Investigation

Tracking HRA’s – five years

Annual Provider Conferences – Owens Corning – 71% enrollment into CDHP – Through voluntary selection

New broker/consultant selection– Corporate Office move from Austin to Indianapolis– Transition to Mercer

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Plan Development

1. HRA Design – Options from our consultant/broker (Mercer)

2. Premium levels – To encourage migration by choice by our employees

3. Communications– PowerPoint presentation to employees– Medical plan bi-fold

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1. Plan Design

True HRA too large a leap

Blend between HRA and PPO

Health Care Account (HCA)

Features

– Of an HRA: Health Accounts $400 individual $800 family

– Of a PPO: Co-pays for doctor/hospital visits and Rx

– Annual deductibles increased

From $750 to $1,500 per individual From $2,000 to $3,000 per family

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1. Plan Design (cont’d)

From three levels (gold/silver/bronze) to:– 2 PPO Plans: “Standard” and “Plus”– 2 HCA Plans: “Standard” and “Plus”

(mirror plans)

Stressed the sameness of the PPO plans with the prior year PPO plans

Stressed the similarity of the HCA plans with the two PPO plans, except for:– The $400/$800 placed in their HCA account– Lower employee premiums in the HCA plans

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1. Plan Design (cont’d)

We explained how the HCA dollars would be placed in their HCA account

And how this “defacto” lowers their deductible– Called it a “true deductible”

We also added an additional $50 individual/$100 individual & still offering spouse (first year only) for filling our Health Risk Assessments– In subsequent years – employees received the $400/$800 for

participating in biometric screenings, updating Health Risk Assessments, selecting/participating in in Healthy Personal Activities, etc.

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2. Premium Levels

Raised PPO plan employee premiums by– 45% to 86% over the prior Bronze & Silver Plans– No Gold plan equivalent (lowered premium 11%)

HCA Std premiums lower than prior plan’s rates:– 2%

HCA premium lower than new PPO rates:– 47% to 17% (Standard/Plus Plans)

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3. Communications

Simplicity

– Power points pages just shown

– One “bi-fold" summary

2/3 the size of former “tri-folds”

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3. Communications (cont’d)

Philosophy

Keep employee’s aware each Open Enrollment of our thoughts and potential direction for the following plan year

We will try to keep the Plan the same each year as long as it stays in the “black”

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ResultsYear 1: 92% selected HCA plans – 63% in HCA Standard Plan– 29% in HCA Plus Plan

Year 3 (today): 98%

No increase in employee premiums for 3 years

2009 – first increase in 4 years – 6%– Average 1.5% / year

Aetna 2006; Cigna 2007-09

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2007-08 Health Plan Costs

Company costs: $6,225 / employee

Employee premiums: $1,151 / employee } 18%

Employee out of pocket: $1,228 / employee } 20%

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Next Steps

Eliminate both PPO Plans

Add true HRA that mirror the 2 HCA Plans

Designed in 2009; pending implementation

Pre-communicated to our employees

Use same premium differential strategy as in 2006

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Final Comments

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Things to Remember

One size does not fit all

Understand your culture and business philosophy

Know your employees

Engage management

Educate

Empower decision making

Communicate, communicate, communicate