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Robert Heller

Presenting: Alpha Benefits Group Health Market Review

Full Service Employee Benefit Firm

Brokerage & Consulting Voluntary Benefits Human Resource Support Services Retirement Plans Executive Benefits Property & Casualty

Locations

Plymouth Meeting

New Camp Hill Office – Moving May 1, 2006!

Locations

Plymouth Meeting Camp Hill Bethlehem

COBRA Administration Section 125 Cafeteria Plan Premium Only Plans (POP) Flexible Spending Accounts Full Flex Credit Based Plans High Deductible Plan Design & Administration Health Reimbursement Arrangements (HRA) Health Savings Accounts (HSA)

Retirement Plan Services 401(k) Roth 401(k) Profit Sharing 403(b) New Comparability Executive Benefits Key Person Coverage Deferred Compensation Split Dollar Plan Estate Planning Long Term Care Welfare Plan Documents 5500 Filing Wrap Plan Documents

Starting Point in Process “Good Ole’ Boy Network” Changing Trust and Confidence

What You Should Expect From a Broker: Knowledge of the Marketplace Customer Service and Support Clout With Carriers Gets a Head Start on the Renewal Process Value Added Services

COBRA Administration Wellness Support Human Resource Services SHRM Membership Personalized Claims Administration Employee Benefit Communication

Many options are rate neutral regardless of whether you are working directly with a carrier or working through a broker.

Demand From Your Broker!

Year In Review… Single Digit Increases Some Rate Decreases Alpha’s average starting renewal in the past six months is 11%, after going to market, it drops to 2% Looks Good for Rest of 2006 & 2007 Still too Expensive

Percent vs. Dollar Increases

Year

2002 2003 2004 2005 2006

Single Cost

$250 $300 $360 $450 $490

% Increase

N/A 25% 20% 25% 9%

Dollar Increase

N/A $50 $60 $90 $40

Why Good News?

Credible Data Competition Catch Up to Rest of the Country Wellness Initiatives

Concerns

Aging Population Pharmacy Component Technology

Todd Hons

Presenting: Medical Carrier Updates Healthcare Survey Results

Carrier Updates

New Participation Guidelines 75% participation required after spousal waivers Spousal waivers from any carrier are valid (must provide photocopy!) No more than 50% of the group may waive coverage New Prescription Drug Plans – Effective 4/1/2006 or Upon Renewal For groups 2-99 – new business or upon renewal must take one of the new options New 3-tier co-pays and deductible options Curascripts New specialty drug vendor for self-injectable drugs

KHP Prescription Drug Coverage Will Be Terminated Effective at the first renewal on or after June 1, 2006 A Capital BlueCross prescription plan will replace the existing plan Medical Underwriting for Groups 2-19 – Effective March 1, 2006 Groups will receive discounted illustrative rates Must submit application and HIPAA authorization form 30 days in advance Final rates will be based on medical information received and final enrollment Keystone Health Plan Central Works Through the CBC Broker Program – Effective January 1, 2006 Major advantage for groups 2 to 99 Groups may work with a broker at no additional cost (up to 99)

Important Rx Change If a brand is prescribed and a generic is available and the member chooses the brand, he or she will be required to pay the brand co-pay plus the cost difference between the brand and generic

First Health Replaces PHCS as HealthAmerica’s National Network Gettysburg Hospital Tentatively Rejoining Network This Year Individual Applications Required For Groups 51-99 Individual applications with medical questions required for each employee to get final rates in all counties except Lehigh, Northampton, and 5 county Philadelphia area Average rate increase 3.5% 95% of companies completing applications enroll

Rx Select For Groups > 50 Employees Standard Option for PPO Plans Available as Rider for POS Plans Removes Prior Authorization for Most Drugs Proton Pump Inhibitors, Nexium, etc.

3-tier Prescription Incentive Change – Effective May 1, 2006 Currently, when a brand name drug is purchased instead of the available generic medication, the member must pay the brand co-payment, plus an ancillary charge. Upon renewal, HA is updating the Rx coverage to remove the ancillary charge. Therefore, members will only be billed the third tier co-payment.

Lifestyle Returns Integrated health enhancing incentives into your company’s benefit coverage Highmark Radiology Management Program Partnered with National Imaging Associates (NIA) Introduced New Programs With Co-pay or Co-insurance on Diagnostic Services CAT, PET, MRI Scans Medmark New specialty pharmacy for specialty medications such as injectables, biological agents, etc.

ePlatform Program to manage coverage through online services If qualified, group gets 2% discount!

For Groups > 50 Employees Will accept spousal waivers from any carrier After spousal waivers, 75% participation required Does not apply to groups under 50 employees Highmark Blue Shield must be the sole carrier A minimum of 50% of the group must enroll New plans coming out July 2006 for groups 2 – 50 High deductible plans with office visit co-pays

United Healthcare/Oxford/MAMSI Aetna

Third Party Administrator (TPA) located in Lancaster Provides self-funded and fully insured plans 100% owned by BlueCross of Northeastern PA Large statewide doctor and hospital network

High deductible with no other features Health Savings Account (HSAs) Health Reimbursement Arrangement (HRAs)

The Concept Makes Sense Larger out of pocket cost reduces employer/employee premium Turns employee into consumer Employees utilize medical plan pay more Isn’t insurance designed to pay for catastrophic?

Major insurance carriers slow to adopt plan design Not enough discount in rates Employee communication issues Confusion over regulations Employers view this as just a “cost shifting” method as opposed to a way to reduce overall costs

Medical Expense Reimbursement

TM

Plans (MERP Plan)

Stepping stone to HSAs?

Governed by IRC Section 105 Utilized with an insurance carrier’s high deductible plan Permits employers to self-insure certain medical expense costs

78% have claims of less than $1,000 35% have no claims!

5% have 50% of the total claims

BUY LESS COVERAGE

To Reduce Premiums, Buy Less Coverage

Employer secures high deductible plan (i.e. $2,000) for major expenses (in/out patient surgery) from carrier Generally less than 20% of employees utilize these types of expenses Communicate lower deductible (i.e. $250) to employees Employer self insures from $250 to $2,000 ($1,750 maximum exposure), only if actually incurred Employer utilizes premium discount savings to fund the self insured portion Typically part of PPO plan with office visit co-pay and drug card

Alpha Benefit Administrators administers the self funded portion for the employer Advantage over HSA in that the employee can retain the doctor visit co-pays and Rx co-pay card while still having PPO arrangement for service All expenses over $2,000 are the responsibility of the insurance carrier Cash flow advantage – Employer only pays if expenses are incurred

Serves as a starting point for getting into high deductible plans without having to communicate a complicated process to employees Alpha Benefit Administrators can provide proposal on savings and costs

Example 1: 223 Employees Received a 25% Medical Increase = $353,500 Group made no changes to employees’ benefits Final increase was 11% or $157,000 Savings of 14% or $196,500 1-1-06 group received 9% increase A decrease in cost is projected

Example 2: 99 Employees Received an increase from an association Provided three options to employees End result was 19% less than the previous year’s cost Savings of $73,000 7-1-05 group received 14% increase = $65,000 A 3% increase is projected

Example 3: 53 Employees Received a 40% increase = $119,500 Group made no change in benefits to employees Final increase was 14% or $42,000 Savings of 26% or $77,500 8-1-05 group received 5% increase A 6% decrease is projected

High Deductible Plans In-Force

HSA 8

High Deductible Plans In-Force

TM MERP Plans 90 HSA 8 Alpha Experienced With Leader in Central/Eastern PA with this concept More plans in-force than other providers Not one employer has gone back to the traditional approach

Administrator

Independent from carrier Not as seamless as appears

Why Are HSA’s Now Making More Sense?

Carriers offering more plan designs Better pricing Greater employee/employer acceptance Employers desperate to control costs TM MERP Plan/HSA concept

What Makes Alpha’s “HSA Today” Different?

The only complete focused HSA administrative system in the country

Why would I choose Alpha for my HSA provider?

Value Added Services that we provide: Don’t have to switch HSA providers every time you change medical insurance carriers Coordinate the HSA with the cafeteria plan Insurance premiums & Limited Purpose FSA Online access to Claims Vault An electronic storage facility for medical claims & receipts Available for EOB import when provided by carrier or TPA “Certification” of qualified medical expenses Contribution management to eliminate over-contributions Toll free phone support Tax form assistance 1099, 5498, 1040, and 8889 preparation

Online Access to Your HSA

More than just an account balance Claims certification service Online claims entry Online withdrawal requests Interest earned summary (currently paying 4.6%) Ability to update your HDHP or personal information

Group of 102 Employees Renewal premium $763,657 (+$134,853) Savings from original renewal $196,084 Employer funded HSA account $34,500 Employee funded HSA account $43,851 Claims estimate $42,600 $78,351 in HSA funding for the year!

Developer and leading national provider of workplace wellness paradigm:

“People Powered Wellness”

Brings workplace wellness to life by humanizing and personalizing the wellness process Enhances or replaces the traditional wellness delivery technology with persuasive power of personal, face-to-face, human interaction – LIVE, not over the phone or internet Average participation is over 90% of employees

Dates for providing Disclosure Notice to CMS Plan years ending in 2006: March 31, 2006 Plan years ending in 2007 and beyond: Within 60 days after the beginning of the plan year (ex. Plan begins 1/1/2007, deadline is 3/2/2007) Within 30 days of terminating a plan that provides prescription drug benefits Within 30 days of a change in the creditable coverage status of a plan that provides prescription drug coverage

Dates for providing a creditable coverage notice to employees/retirees: By November 15 th of each year, starting in 2005 Prior to an individual’s initial enrollment period Prior to the effective date of coverage for any Medicare eligible individual that joins your group’s plan When the plan you sponsor terminates When the plan you sponsor changes its prescription drug coverage so that it is no longer creditable or becomes creditable Upon an individual’s request

Zocor Comes off patent 6/23/2006 Zoloft Comes off patent 6/30/2006 Once generics are available, these drugs will be moved to non formulary for most carriers

Alpha is often asked what plans and contributions are most common. We surveyed our clients to get a representation of:  

Employer/Employee Contributions Average plan designs

Here are the results

35 30 25 20 15 10 5 0 100 90 85 80 75 70 60 55 50 Percentage of Employer Contribution to Cost 0 2004 2005 2006

30 25 20 15 10 5 0 100 90 70 50 45 40 30 25 20 15 10 0 Percentage of Employer Contribution to Cost 2004 2005 2006

76% of companies surveyed pay 75% or more of the single contribution 66% of companies surveyed pay 20-25% of dependent costs, down from 73% in 2005 26% pay nothing toward dependent costs, up from 21% in 2005 40% of those surveyed said they envision increasing the employees cost next year, down from 60% in 2005

50% 40% 30% 20% 10% 0% $10 $15 $20 Plan Copay Amount $25 > $25 2004 2005 2006

45% 40% 35% 30% 25% 20% 15% 10% 5% 0% $0 $1 - $249 $250 $251 $499 $500 > $500

2004 2005 2006

HMO 16% POS 7% 2005 Traditional Indemnity 8% PPO 69% HMO 15% Traditional Indemnity 5% POS 14% 2004 PPO 66% POS 15% HMO 12% 2006 Traditional Indemnity 8% PPO 70%

What is the likelihood of your company implementing an HSA?

Have already 2% High probability 16% Possible 40% Not Likely 42%

79% have a 3-tiered formulary plan as opposed to 78% in 2005 and 70% in 2004 9% have deductibles then coinsurance as opposed to 12% in 2004 and 15% in 2004 10% have a 2-tiered co-pay (usually 10/20) as opposed to 6% in 2005 and 12% in 2004 2% have straight coinsurance as opposed to 4% in 2004 and 3% in 2004

Results point to two major trends in the industry:

Renewal increase are lower than the previous years High deductible plans are continuing to become more popular

Thank you for attending!

This presentation will be available for download at: www.alphabenefits.com