Defined Contribution Healthcare Benefits

1. Defined Contribution Healthcare Benefits The HealthCast 2010 Series SM

2. Defined Contribution Terminology Many terms in the marketplace to describe “DCHB” approaches: • consumer-driven • consumer-enabled • self-directed • and many other terms also being used

3. Two Key Features: • financial mechanism with predetermined investment • additional transfer of responsibility to employee What Is Defined Contribution? What Employers want from DCHB: • 3 key concerns addressed for ideal solution

4. Understanding Drivers, Enablers, Barriers, and Accelerators

5. Drivers • Escalating Healthcare Costs • Medical and pharmaceutical • Consumer insulation • Burden of Administration and Vendor Management • not core to business • Potential Exposure to Liability • Experience with Defined Contribution Retirement Plans

6. Market Enablers • Consumerism • 70% satisfaction high enough? • Changing workforce with changing values • E-health • dot com offerings • more info and efficient systems via internet • Emerging treatments/Genomics • increasing demand and availability • what is “medically necessary?” • Growing public policy interest

7. Barriers • Employee Relations and Retention • Any change is bad change • Employer connotation of “exiting” system • Communications and Education • Requires an increase in resources and cost • Regulations and Tax Laws • Patients Bill of Rights not passed • MSA option - unclear tax regulations • ERISA • Questions of Insurance products • cost increases and underwriting unclear “Here's a check. Now go buy your own health insurance.”— USA Today, July 27, 2000

8. Accelerators • Downturn in the economic market • Adverse judicial decisions on employer liability • Passage of onerous Patient Bill of Rights or other regulations • Changes in the tax law • Structural changes to the insurance industry creating a more favorable climate for individual insurance • A high profile employer — or Medicare — implements a DCHB approach and has a success story to tell • Successful market penetration by a new economy company

9. How an Employer Could Offer A Defined Contribution Option

10. Continuum of Defined Contribution Approaches Wages Only High Account Only Catastrophic Plan + PHA + Exchange Choice of Plans + PHA* + Exchange Employee Responsibility Choice of Plans Catastrophic + PHA One Plan Offered Low High Employer Delegation *No rollover

11. High Deductible + PHA Insurance 100% Corridor Deductible $2,000 $1,500 $1,000 $500 Flexible Spending Account Personal Health Account $1,500/year/employee Good Medicine

12. DCHB MODEL Employer Considerations Funding Constructs Administration Employee Responsibility for Healthcare Purchasing Insurance Constructs Regulatory and Tax Issues

13. Potential of DCHB • Help employers: • Reduce administrative burden • Improve budgetability • Increase employee choice • Reduce disruption of coverage and care • Empower consumers and increase accountability • Attract employer funding and encourage employee savings • Uninsured • Retirees

14. DCHB Does Not Make it Easier to Limit Contributions Because... • Healthcare benefits have always been voluntary • Employers face barriers to limiting contributions • must attract and retain employees • collective bargaining • minimum participation requirements • tax incentive • paternalism

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