The University of North Carolina

1. The University of North Carolina Healthcare – Current Realities – New Opportunities

2. Agenda • The state of health care in the United States • The state of health care in The University of North Carolina • New Opportunities • Questions

3. +76% The State of Health Care in the U.S. Health Care Costs Went Up Again in 2004 $6,857 $6,187 $5,427 $4,713 $4,276 $3,907 *Includes health care costs for employees and all covered dependents. Source: Hewitt Health Value Initiative.

4. Medical Plan Models/Features • Indemnity:All expenses covered by deductible and coinsurance, with an out-of-pocket maximum. No differentiation of benefits based on provider used. Usually only used for “out-of-area” or catastrophic coverage. • Preferred Provider Organization (PPO):Benefits are richer when a network provider is used (e.g. 90% coinsurance in-network, 70% out-of-network). Most common model used today. • Point-of-Service (POS):Similar to PPO, but primary care physician used as a “gatekeeper” with referrals required to see specialists. Becoming less common. • Health Maintenance Organization (HMO):Strict definition is an insured network-only plan that has a limited geographic coverage range and a tighter provider network, with more third-party managed care requirements. Today, HMO could refer to any network-only plan, whether insured or self-insured, local or national.

5. +126% The State of Health Care in the U.S. Employers Respond with Cost-Shifting Annual Employee Contribution $2,377 $2,126 $1,641 $1,311 $1,231 $1,054 Source: Hewitt Associates.

6. The State of Health Care in the U.S. A Ray of Sunshine? Source: Kaiser Family Foundation.

7. The State of Health Care in the U.S. What’s Driving the Increases? • Aging population • Ongoing cost shift from the public sector (Medicare and Medicaid) and from the uninsured population • Hospital and Physician group consolidation that limits network negotiation leverage/competition for patients • Provider malpractice liability

8. The State of Health Care in the U.S. What’s Driving the Increases? (cont.) • Prescription drug innovation and direct-to-consumer advertising • Worsening health status of the general population (particularly obesity/weight-related complications) • Increasingly expensive treatment technologies • A consumer/employee that is insulated from the costs

9. The State of Health Care at UNC Health Care Costs for Family Coverage State of N.C. Comprehensive Major Medical Plan rate increases over the past 5 years for employee/family coverage Monthly Premium for Family Coverage +98%

10. The State of Health Care at UNC • UNC system recently participated in a benchmarking exercise with 18 other research universities representing over 290,000 employees and over $1.7 billion in health care costs • Health care plans were compared to other universities, labor market, and overall national programs • Costs of UNC’s health care plan, represented by the rates paid into the State Plan pool, are very favorable • Competitiveness of the benefits and employee costs are not • The following pages outline some of the key results of the benchmarking exercise

11. UNC’s per employee plan costs ($4,203) are among the lowest largely due to low dependent coverage Per employee contributions ($1,026) are similar to other universities, but this is deceiving Zero for employee Full cost for dependents UNC’s overall percentage subsidy (76%) is lower than other universities (81%) Health Plan Costs per Employee All Plans Employee Contributions Employer Cost Research Universities Labor Mkt Large Employers UNC Employee Contributions $1,026 $1,096 $1,461 $1,298 Employer Cost $3,177 $4,784 $4,652 $5,489 Total Health Plan Cost $4,203 $5,880 $6,113 $6,787 Employer Subsidy Percent 76% 81% 76% 81%

12. Low dependent count is clearly a result of the high contributions required for dependent coverage UNC is positioned favorably on employee subsidy, but Research Universities are still over 90% for employee coverage UNC lags far behind on dependent coverage, to the point of being noncompetitive BUT…adding dependents means adding cost, so this presents a cost issue that will need to be overcome by savings in other areas Dependent Coverage Dependents Employees Research Universities Large Employers UNC Total Employees 36,468 15,332 16,582 Dependent Estimate 23,903 16,416 22,234 0.66 1.07 1.34 Dependents Per Employee *Average Enrollment Research Universities Large Employers Employer Subsidy: UNC For Employee Coverage 100.0% 91.7% 82.3% For Dependent Coverage 0.0% 64.1% 77.1% Subsidy Difference 100.0% 27.6% 5.2%

13. All employees pay for health care in two ways: through out-of-pocket costs (plan design) and through employee contributions UNC employees on average actually pay as much or more for health care ($2,109) as the Research Institutions ($2,091), despite the fact that they cover far fewer dependents and the health insurance plan costs appears to be very low Out-of-Pocket Costs Employee Contributions Employee Costs for Health Care All Plans Research Universities Labor Mkt Large Employers UNC Out-of-Pocket Costs $1,083 $995 $1,195 $1,062 Employee Contributions $1,026 $1,096 $1,461 $1,298 Total Employee Costs $2,109 $2,091 $2,656 $2,360

14. UNC’s plan design is much less rich than the Research Universities’ average Roughly 20% in out-of-pocket cost-sharing No options for buying up to richer coverage Contribution percentages also higher Net UNC cost is only 60% of the total health care expenses Cost Sharing Mix Out-of-Pocket Costs All Plans Employee Contributions Employer Cost UNC Research Universities Labor Mkt Large Employers Out-of-Pocket Costs 20% 14% 16% 14% Employee Contributions 19% 16% 20% 17% Employer Cost 60% 70% 64% 70% NOTE: Represents percentage of total estimated health care expenses, not just health insurance plan costs

15. Distribution of Plan Types Research Universities • UNC is the only member of the Research Universities group to offer only a straight indemnity plan design with no network provider incentives • The Research Universities are more likely to use an HMO model design than most other employers UNC Indemnity Indemnity 16.9% 100.0% HMO 44.8% PPO 27.6% POS 10.6% Labor Markets Large Employers Indemnity Indemnity 7.0% 3.2% HMO Number of Employees Enrolled HMO 33.2% 36.7% Plan Type UNC Research Universities Labor Mkt Large Employers PPO PPO 41.0% 40.1% HMO 0 130,574 233,596 2,629,612 POS POS 0 POS 30,936 138,325 1,369,239 19.7% 19.1% PPO 0 80,528 281,549 2,935,444 Indemnity 36,468 49,275 49,329 228,961

16. New Opportunities Improved Health Care Steering Committee • Committee appointed by the UNC President to develop a pilot health care plan that would be an alternative to the State Health Plan for UNC employees and their dependents • Proposal will be presented to the UNC Board of Governors and, if the Board views it positively, it will be presented to the N.C. General Assembly • Steering Committee Members include representatives from the State Health Plan, Office of State Personnel, UNC Faculty Assembly, UNC Health Care System, and UNC campus representation • First meeting held on August 24, 2004 • Consultant and actuary retained

17. Questions 1.What is currently not included under the State Health Plan that you would like included?

18. Questions 2.What types of incentives would cause you to engage in healthier behaviors? 3.What information or tools would assist you in making good health care decisions?

19. Questions 4. If you knew your health care costs would be less but the quality of care would be equal if you used a particular group of providers (doctors, hospitals, etc.), would you switch to the low cost provider?

20. Questions 5. What information or incentives would you need to switch to generic drugs if they were available for a particular prescription?

21. THANK YOU!