Trends in Health & Dental Benefits: 10 Year Review 2012

Trends in Health & Dental Benefits: 10 Year Review2012

Scope of Study • This study is based on Great-West Life data. It is intended to provide our customers with a benchmark for past experience. Past experience alone can not be used to project future experience. • Please obtain permission from Great-West Life prior to reproducing or distributing any contents in this presentation.

Agenda • Group Insurance Market Overview • Trends • Healthcare • Drugs • Paramedical Benefits • Visioncare • Dentalcare • Plan Design and Cost Management Options • Final Observations

MARKET OVERVIEW Composition of Group Market by Benefit 2001 2011 Source: Fraser Group

MARKET OVERVIEW Market Growth – Ten Year Comparison $25.3 Billion $18.0 Billion $32.5 Billion Source: Fraser Group

MARKET OVERVIEW Trend in Group Market Premium Rates Source: Fraser Group

Health and Dental benefits accounted for approximately 69% of the Group Insurance Market in 2011, which is a net increase of 4% from 2001 levels. Recent economic times have kept salary-related benefits like Life, Long-Term Disability and Short-Term Disability quite constant. Health benefits, on the other hand, have continued to grow. Since 2009, overall market premiums have experienced lower growth rates than in previous years. For instance, the premium growth was 12.1% in 2001 compared to the 2011 growth in premium of 3.8%. MARKET OVERVIEW Observations

At the highest level, health and dental costs can be broken down into three major components: Utilization: How many people use the plan, and how often do they use? Cost per Claim: How much does each claim cost? Plan Design: How much is paid by the benefit plan, and to what extent does this impact the first two cost components (plan management component) TRENDS Understanding Costs

TRENDS – HEALTH Cost Increase Drivers (2001 vs. 2011) • The amount spent on health benefits is continuing to increase because more plan members are using the plan, more frequently and for more expensive benefits Source: Great-West Life

TRENDS – HEALTH Average Cost of Health Benefits by Age (2011) Source: Great-West Life

TRENDS – HEALTH Distribution of Health Benefits by Age (2011) Note: The “All” category does not include age bands 65+ Source: Great-West Life

TRENDS – HEALTH Average Cost of Health Benefits by Claimant Type (2011) Source: Great-West Life

TRENDS – HEALTH Trend in the Distribution of Health Benefits (2001 vs. 2011) Source: Great-West Life

TRENDS – HEALTH Increase in Average Cost of Health Benefits (2001 vs. 2011) Source: Great-West Life

Healthcare costs increases with a plan member’s age but begins to taper off around age 65. This is due to the start-up of provincial drug programs, which shift the cost from the plan sponsor to the public sector. Regardless of age, drugs and paramedical benefits account for more than 70% of a plan member’s total healthcare costs. Over the past ten years, we have seen a dramatic change in the distribution of healthcare benefits. As a result of generic legislation and the expiry of patents protecting certain brand name drugs, drug benefits now account for less of the total cost (65% in 2001 vs. 56% in 2011). Paramedical benefits, on the other hand, make up a significantly larger proportion of the total cost, which speaks to the growing popularity of these benefits (9% in 2001 vs. 19% in 2011). Healthcare costs have continued to increase over time. For instance, the average covered cost for a 42-year old plan member was $845 in 2001. Ten years later, the average covered cost was $1,860, which represents an increase in cost of 120%. TRENDS – HEALTH Observations

TRENDS – HEALTH Percent of Plan Members using Health Benefits by Age (2001 vs. 2011) Source: Great-West Life

TRENDS – HEALTH Trend in Average Number of Health Services by Age (2001 vs. 2011) Source: Great-West Life

TRENDS – HEALTH Utilization of Health Benefits by Age and Benefit (2011) Source: Great-West Life

TRENDS – HEALTH Trend in Average Cost per Health Service (2001 vs. 2011) Source: Great-West Life

We have seen an increase in the utilization of healthcare services over the last ten years. This trend has been driven by the following factors: More people, on a relative basis, are using their plan. The average number of services used per claimant has been increasing. On average, plan members use around 33 healthcare services each year, although the exact number varies by age. For instance, the number of services used by a 57-year old plan member is more than 2.5 times the number of services used by a 27-year old plan member. Since 2011, the average cost per healthcare service, as well as the number of services have continued to increase. The average cost for healthcare services was $48 in 2001. In 2011, however, the average cost was $61 per service. The utilization of healthcare services was around 19 services per plan member in 2001. In 2011, utilization increased to around 33 services per plan member. Because of more costly services and greater utilization, more claimants are hitting their plan maximums. TRENDS – HEALTH Observations

TRENDS – DRUGS Trend in Top Therapeutic Classifications of Drugs (2001 vs. 2011) Source: Telus Health Solutions

In 2011, Cholesterol Disorders and Diabetes made up the top two therapeutic classifications , accounting for roughly 15% of Great-West’s total drug cost. This is much different from what we saw in 2001 where Depression and Blood Pressure represented the top two therapeutic drug classifications. The therapeutic classification of Rheumatoid Arthritis has seen the greatest movement over the past ten years. In 2001, Rheumatoid Arthritis was the 30th ranked class of drugs on the Great-West block. In 2011, however, Rheumatoid Arthritis was the 3rd ranked class in terms of cost. This shift reflects the emergence of high-cost biologic drugs like Remicade, Enbrel and Humira, which are all used to treat Rheumatoid Arthritis. The average paid amount for certain therapeutic classes like Cholesterol Disorders, Blood Pressure, Depression and Ulcers have decreased over the last ten years. This negative growth rate has mainly been driven by the expiry of patents protecting brand name drugs in these classes. TRENDS – DRUGS Observations

TRENDS – PARAMEDICAL BENEFITS Average Cost of Paramedical Benefits by Age (2011) Source: Great-West Life

TRENDS – PARAMEDICAL BENEFITS Trend in Average Cost of Paramedical Benefits (2001 vs. 2011) Source: Great-West Life

TRENDS – PARAMEDICAL BENEFITS Percent of Plan Members using Paramedical Benefits (2001 vs. 2011) Source: Great-West Life

Paramedical services have become more popular over the past ten years and the number of plan members using benefits like Massage Therapy, Physiotherapy, Psychology and Chiropractic Treatments have increased dramatically. For instance, approximately 10% of plan members used Massage Therapy in 2001 compared to 27% of plan members who used this benefit in 2011. The average cost of paramedical services have continued to increase each year, depending on the plan member’s age and the type of paramedical practitioner. Physiotherapy has seen the largest per-plan member cost increase of 8% each year. For groups with annual maximums in place, this means that more claimants are hitting their maximums sooner by using fewer services. The cost of paramedical services increases with a plan member’s age and peaks in cost between the ages of 45 and 49. TRENDS – PARAMEDICAL BENEFITS Observations

TRENDS – VISION Average Cost of Vision Benefits by Claimant Type (2011) Source: Great-West Life

TRENDS – VISION Trend in Average Cost per Plan Member for Vision (2001 vs. 2011) Source: Great-West Life

TRENDS – VISION Percent of Plan Members using Vision Benefits by Age (2001 vs. 2011) Source: Great-West Life

TRENDS – VISION Observations • The average cost of vision benefits steadily increases with a plan member’s age and peaks in cost between the ages of 50 and 54. • The claims made by a plan member’s dependents account for a large part of the overall cost, especially when the plan member is between the ages of 35 and 49. • This makes sense since at these age bands, dependents are using the plan most often. • Over the past ten years, the per-plan member cost of vision services has increased dramatically. • In 2001, the average cost of vision services was $77 per plan member but increased to $191 per plan member in 2011. • These costs have increased despite most plans having a maximum in place, implying a greater awareness of the benefit plan design. • Across all age bands, the percentage of plan members claiming vision benefits has increased since 2001. • For instance, approximately 36% of plan members between the ages of 55 and 59 used vision benefits in 2001. This can be compared to 47% of plan members in the same age band who claimed vision benefits in 2011.

TRENDS – DENTAL Cost Increase Drivers (2001 vs. 2011) • The amount spent on dental benefits is continuing to increase because more plan members are using the plan, more frequently and for more expensive benefits Source: Great-West Life

TRENDS – DENTAL Average Cost of Dental Benefits by Age (2011) Source: Great-West Life

TRENDS – DENTAL Average Cost of Dental Benefits by Procedure and Age (2011) Source: Great-West Life

TRENDS – DENTAL Average Cost of Dental Benefits by Claimant Type (2011) Source: Great-West Life

TRENDS – DENTAL Trend in the Distribution of Routine Dentalcare (2001 vs. 2011) Source: Great-West Life

TRENDS – DENTAL Trend in the Distribution of Major Dentalcare (2001 vs. 2011) Source: Great-West Life

TRENDS – DENTAL Increase in Average Cost of Dental Benefits (2001 vs. 2011) Source: Great-West Life

TRENDS – DENTAL Trend in Average Cost of Dental Services (2001 vs. 2011) Source: Great-West Life

TRENDS – DENTAL Percent of Plan Members using Dental Services(2001 vs. 2011) Source: Great-West Life

The overall cost of dental services increases with age and peaks when the plan member is between the ages of 45 and 49. Across all ages, routine dental services represent a significant portion of a plan member’s total dental costs. The cost of major dental services increases with a plan member’s age. This makes sense since dentures and bridges are included under this category and these procedures are most prevalent in the higher age bands. The cost of orthodontic services peaks when a plan member is between the ages of 45 and 49 since at these age bands, dependents are most likely to require orthodontic work. Over the past ten years, we have seen a change in the distribution of routine dental benefits. Periodontic services such as scaling now make up more of the cost of routine dental (25% of routine dental costs in 2001 vs. 35% of routine dental costs in 2011). Preventative services such as polishing account for less of the total amount spent on routine dental (17% of routine dental costs in 2001 vs. 7% of routine dental costs in 2011). TRENDS – DENTAL Observations

TRENDS – DENTAL Observations • Dental costs have continued to increase over time. • For instance, the average covered cost for a 42-year old plan member was $1,056 in 2001. Ten years later, the average covered cost was $1,535 per plan member, which represents an increase in cost of 45%. • The increase in dental costs can be explained by considering the following factors: • Inflation – Dental costs are influenced by the Dental Fee Guides that have been set by the Provincial Dental Associations. We have seen increases in Fee Guide amounts over time, averaging around 3% annually. • Utilization – The number of people using dental services has increased. For instance, 73% of plan members claimed dental services in 2001 compared to 82% of plan members who made a dental claim in 2011. • Distribution of Services – The distribution of dental services is different from what we saw ten years ago.

PLAN DESIGN AND COST MANAGEMENT OPTIONS Distribution of Coinsurance Options for Healthcare 80% Coinsurance 90% Coinsurance 100% Coinsurance Other Coinsurance Source: Great-West Life

PLAN DESIGN AND COST MANAGEMENT OPTIONS Distribution of Paramedical Coverage in Healthcare Plans (Part 1 of 2) Acupuncture Chiropractic Treatments Dietician Massage Source: Great-West Life

PLAN DESIGN AND COST MANAGEMENT OPTIONS Distribution of Paramedical Coverage in Healthcare Plans (Part 2 of 2) Psychologist Office Visit Naturopath Treatment Physiotherapy Source: Great-West Life

Trends in Health & Dental Benefits: 10 Year Review 2012