The Road to Exchange Solutions - Delivering Sustainable Value for All Your Employee Populations Janet Vermeulen, Senior Consultant, Towers Watson Rebecca

The Road to Exchange Solutions - Delivering Sustainable Value for All Your Employee Populations Janet Vermeulen, Senior Consultant, Towers Watson Rebecca Duff-Campbell, Communication & Change Management Consultant, Towers Watson

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Health Care Benefits Continue to be Highly Valued 2 98% U.S. employers committed to offering health care programs to full-time employees in 2015 or after ** 95% U.S employers that say subsidized health care is an important part of their value proposition for full-time employees 57% U.S. employers that say private health exchanges could be a viable option in 2015 or after** Health care benefits are an important driver in the top 10 of employee attraction, globally and in the U.S. * *Towers Watson, 2012 Global Workforce Study. **Towers Watson, 2013 Health Care Changes Ahead Survey. 2014 Towers Watson/National Business Group on Health Employer Survey on the Value of Purchasing Health Care. J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Excise Tax Impact: Must Stay Between the Floor and Ceiling of Costs to Avoid the Levy 3 J\GH\00025\14\Marketing\Crain's Webinar\Towers Watson Presentation - Crain's April 22 Webinar Employer Facts - Know the Pitfalls.pptx 40% Excise Tax Cap Ceiling ($10,200/$27,500) Minimum plan of 60% actuarial value and affordable to employees Lower the gross costs of the plan (i.e., average claims and administrative expenses per employee), and the rate at which those costs increase Reduce benefit plan value (increase employee costs through higher deductibles, coinsurance or copays) Lower trend through use of wellness programs, disease management programs, incentives and penalties Consider reductions in dependent subsidies Consider pay strategy and direct employees to Exchanges Introduce new wellness programs, giving employees tools and resources to maintain and improve their health. This minimizes the long-term health care trend Healthier employees mean fewer and smaller (medical & prescription drug) claims, leading to lower budget rates Lower budget rates extend the period of time before an employer hits the excise tax thresholds 2014 2018 Plan design high enough to avoid penalties Plan value low enough to avoid the excise tax Manage cost trend Improve workforce health Reduce risk factors Optimize vendor performance Manage high-cost claim risk Minimize core- benefits

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Health Care Delivery New Opportunities 4 J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx Components that drive lower cost/high value Affordability and Excise Tax Risk Total Rewards EVP Financial commitments PPACA Competitive needs Delivery alternatives External Influences Employer Objectives Benefit Delivery Channel Optimization Benefit Restructuring Network Optimization and Contracting Population Health and Health Care Accountability and Engagement Health Care Reform is leading to significant changes in the health care system as well as potentially how benefits are delivered

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 1. Build Manage performance on own: likely through added employee OOP costs, investing in aggressive care/condition management and health improvement Employer Managed Three Paths to Delivering Health Care Benefits 5 2. Buy Private exchange path: sustainable high-performing product leveraging best-practice solutions Exchange Managed 3. Exit Exit with subsidy or pure exit: pay $2,000 penalty (less first 30) deal with loss of family subsidy Employee Managed Excise tax avoidance and trend management J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. The Changing Plan Sponsor Mindset: Self-Managed vs. Exchange-Based Strategic Decision Points Build Employer Managed Private Buy Exchange Managed Public Exit Employee Managed Control of plan design Employer has complete ability to customize Employer initiated design changes likely to be needed on a regular basis Exchange operator designs plans for optimal value Plan updates are responsibility of exchange owner Oversight agency dictates standard designs Inconsistent application of design levers across states Vendor management Employer is responsible for selection and management of health plan and carve-out vendors Exchange operator selects, contracts and manages vendor network Oversight agency selects, and may negotiate rates with, insurers J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx 6

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. The Changing Plan Sponsor Mindset: Self-Managed vs. Exchange-Based (continued) Strategic Decision Points Build Employer Managed Private Buy Exchange Managed Public Exit Employee Managed Financing approach Employer likely to self insure, retaining risk of one-year cost fluctuations Contribution strategy can be equal dollar, equal percentage or other approach Employer may choose to self insure or fully insure Contribution structure is equal dollar and can shift all risk to participants All plans fully insured Limited risk mitigation for insurers from TRF pool and elsewhere Participant experience Employer directed Likely limited variation by geographic location Exchange directed Geographic rate differentiation Exchange influenced Geographic rate and design differentiation J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx 7

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. The Changing Plan Sponsor Mindset: Self-Managed vs. Exchange-Based (continued) Strategic Decision Points Build Employer Managed Private Buy Exchange Managed Public Exit Employee Managed Source of premium funding Employer and employee dollars used to pay premiums Federal subsidies and enrollee dollars used to pay premiums Tax efficiency Employer costs: tax deductible Employee: tax-free employer subsidies and pre-tax premiums; some out-of-pocket costs may be tax free Employer costs: tax deductible Employee: tax-free employer subsidies and pre-tax premiums; some out-of-pocket costs may be tax free Employer: penalties not deductible Employee: After-tax premiums and out- of-pocket costs J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx 8

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. What Employers are Moving to Private Exchanges? Employer DescriptionAttributesDesired End State Financially Inefficient/ Challenged High health plan costs Limited health optimization Corporate financial limitations Lower-cost, more efficient health plans Savings accrue to employer Resource constrained Moderately successful status quo Lack of leadership, staffing and/or operational commitment Improved health plan financial performance with outsourced administration Plan savings pay for outsourcing plus provide some employer relief Execution Fatigue Highly successful status quo but with extensive resource demand Other HR/benefits priorities requiring attention Maintenance of financial efficiency and health focus Ability to reallocate employer assets while streamlining oversight and management J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx 9

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. How Do You Evaluate Private Exchanges? Is it viable long term? What is the impact of excise taxes and how does the exchange plan to avoid them? What is the expected trend rate in the plans? Who saves? Are cost reductions the result of cost-shifting, improved risk pools, operational efficiencies? Do employers or participants or both receive the savings? What is the exchanges strategic direction? Is it focused on health optimization, risk shifting, consumer experience/ buy downs, or other approaches? How is the participant experience realized? What decision support tools, modeling tools and call center support options are available to participants? Who owns/provides these services? When youve seen one exchange, youve seen one exchange J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx 10

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. OneExchange: Solutions for All Populations 12 J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Sustainability: Optimizing Health Care Plan Management 13 Health Plan Management Benefits Administration Key Features of OneExchange Active Provide high-performing designs that promote consumer behavior, and healthy lifestyle through wellness, care management and engagement Take advantage of best in class pricing and vendor management (including access to voluntary benefits) Support team members with guided enrollment and compelling multimedia communications to the new programs Access to complete benefits administration and full spectrum of ongoing program management support Communication and Change Management J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. OneExchange: 2014 Active Exchange Model 14 The goal: Deliver a high-value, sustainable framework built on four key pillars Incentives/disincentives to leverage improved health behaviors and decisions Best-in-market care and condition management protocols Consumerism tools and point-of-care decision support Long-term financial viability Consumer-guided enrollment experience High-value design elements Wellness, care/Rx management, transparency and more BenefitConnect enrollment and ongoing administration platform Self-funded plans in 2014 Four health plan choices Dental and vision plan choices Top carriers in 50 states and Puerto Rico Premiums configured across 40 geographic rating areas J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Employee Experience & Perspective 15 J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 1. Build Increased responsibility to be a good health care consumer and adopting wellness programs, and also accountability Employer Managed 2. Buy Understanding of new plans new concepts; increased responsibility in selecting plans; responsibility to be a good health care consumer and adopting wellness programs Exchange Managed 3. Exit Completely self-reliant to understand plans, personal and financial impact; responsibility to be a good health care consumer and adopting wellness Employee Managed Employee Experience Level of Change Intensity Increases 16

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. OneExchange Active Communication Overview 17 J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx What colleagues and their families will need to know July AugustAugust SeptemberOctober NovemberDecember into next year Why the company is taking this path What it means for you and your family What education and support you can expect in the weeks and months ahead Where you can go if you have questions An overview of health care benefit basics and key terms An introduction to your health plan choices for upcoming plan year The financial support the company will provide and a focus on your benefits and costs What you need to do as you prepare to enroll How to evaluate your choices and match them up with your needs Where to go when youre ready to enroll What happens after you enroll What the company will do to support your ongoing health and wellbeing What support is available from your health plan vendor How to make the most of your health care benefits during the year AnnounceEducateEnrollSupport 12341234

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Communication Recommendations 18 Pre-enrollment Pre-enrollment announcement Pre-enrollment guide Team member meetings or webinars Education and reminders (video, e-cards, poster) OneExchange video library Links to OneExchange carrier microsites Enrollment OneExchange information library OneExchange video library Videos Guided annual enrollment/decision support process Provider search Links to carriers Wellness incentive plan modelling Post-enrollment Resource guide OneExchange information and video library Wellness incentive reminders Ongoing new hire and life event enrollment Guided enrollment/decision support process Provider search SPDs Portal Customer service support for plan questions Customer service support for plan and enrollment questions Customer service support for plan, enrollment and usage questions J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Make it simple, easy to understand and intuitive Engage with multi-media Most effective, even for tech-savvy audiences they still want someone to tell them whats happening and why Get in front of and behind the message Say it 10 times Culture and Change Considerations Have a thorough and thoughtful change and communications strategy Grounded in your audiences needs and meets them where theyre most comfortable What you want them to know, think and do Defined objectives, success measures 19 J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. A New Health Care Landscape for All Employers All employers need to build a new, high performing structure to keep their health plan viable, sustainable and compliant The role of the plan participant is changed going forward accountability engagement financial investment You will need to respond in a manner that fits your objectives, culture and financial constraints You will need to re-examine your approach every year as the emerging markets mature and offer new alternatives 20 J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

towerswatson.com 2014 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. Towers Watson Contacts Rebecca Duff-Campbell 248.936.7492 [email protected] Janet Vermeulen 248.936.7543 [email protected] 21 J\GH\00025\14\Marketing\OESA HR Council Exchanges\OESA HR Council Private Exchange Overview April 24 2014.pptx

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The Road to Exchange Solutions - Delivering Sustainable Value for All Your Employee Populations Janet Vermeulen, Senior Consultant, Towers Watson Rebecca