From Theory to Implementation: Lessons and Insights From the Industry's First Operational Corporate Health Exchange

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2 From Theory to Implementation: Lessons and Insights From the Industry's First Operational Corporate Health Exchange EBN Private Healthcare Exchanges July 2013 Karen Frost Vice President Health Solutions & Strategies Bob Lyter HR Senior Director, Rewards Former Director of Benefits & HR Policy, Sears Holdings

3 Agenda Section 1 Section 2 Section 3 Section 4 Background How It Works Case Study: Sears Holdings Year Two and Beyond Proprietary & Confidential 2

4 Background

5 How Health Care Works Today Bottom line: no competition; no consumer choice; roles, risks and incentives are not aligned Employees Carriers Employers Proprietary & Confidential 4

6 Addressing the Challenge Through Competition Competition Consumer Choice Aligned Incentives Market Maturity DVD Players Market Maturity Lasik Surgery Source: MarketScope, Consumer Electronics Corp. Proprietary & Confidential 5

7 How Do You Accomplish These Goals? Consumerism Competition Standardized Plans Attractive Buyer Market Transparency Multiple Carriers Fully-Insured Risk Adjustment Proprietary & Confidential 6

8 How It Works

9 How Does It Work? Employer Employee Employee Pays an amount toward coverage Uses that to shop from a coverage menu Picks the plan and insurer for their needs Health Care Credit Standardized Plans + Competing Carriers Retail Shopping Experience Bronze Bronze Plus Silver Gold Platinum Cigna United BCBS Kaiser HealthNet Proprietary & Confidential 8

10 Aon Hewitt s Solution: How the Corporate Health Exchange Works Now, risks and incentives are aligned for increased efficiency and effectiveness Solutions Employers Defined contribution (credit) Fully insured model Multiple carriers Employees Choice of plans and insurance companies Results Predictable costs Reduced administrative burden Ability to focus on health improvement Risk shifted to carriers Increased choice and control More accountability for health costs Coverage to fit individual needs Carriers More administrative responsibilities Fully insured model Assumes risk Accountability to innovate and manage costs Competitive rates Higher quality service Proprietary & Confidential 9

11 2012 Aggregate Financial Results Cost Drivers Risk charges Profit charges Premium taxes Mandated benefits Commissions Cost Reducers Competition Risk adjustment Best-in-class networks/provider discounts Pricing approach Standardized designs Reduced admin/consulting costs Proprietary & Confidential 10

12 Case Study: Sears Holdings

13 About Sears Holdings 125 Years Old $35+B Revenue 240,000 Associates Proprietary & Confidential 12

14 Ultimately, Two Viable Paths Emerged Standing still is not an option the choice is to go deeper into health care, or step back and simplify our role in health care Aggressive Health Management/Trend Mitigation Reduce health care cost/trend by changing the health status of our associates Expand our role as plan sponsor, taking ownership for how health care is used and how money is spent The equivalent: to defined benefit pension plan Change the Rules Change the Game Competitive Market Model Reduce health care cost/trend by driving competition and best-inmarket efficiencies Reduce our role as plan sponsor by monetizing our commitment to health benefits Expand choice to associates and empower them to make informed choices as consumers The equivalent: to defined contribution retirement plan Large Increase Flat to 2012 Proprietary & Confidential 13

15 Communications Roadmap CEO Approval Board Approval Pre-Communication Enrollment Proprietary & Confidential 14

16 Enrollment Patterns 2012 Enrollment by Plan Type Enrollment by Coverage Category Proprietary & Confidential 15

17 Enrollment Patterns 2013 Enrollment by Metallic Level Enrollment by Coverage Category 28% CDHP Proprietary & Confidential 16

18 Initial Enrollment Event Exceeded expectations 2013 Financial Results Exceeding expectations

19 In Closing

20 Employers Will Join a Corporate Exchange If They Are philosophically aligned with monetizing their commitment in the form of a defined contribution Do not want to be involved in plan design or vendor relationships, but still want to own health promotion Do not believe that health benefit plan design should differentiate in Total Rewards Want to move toward a compensation-like rate of cost growth in the long term without cost-shifting to employees Are comfortable with employees accessing information and support from a third party Proprietary & Confidential 19

21 Contact Us Karen Frost Vice President Health Solutions & Strategies Aon Hewitt Bob Lyter HR Senior Director Rewards Aon Corporation Former Director of Benefits & HR Policy, Sears Holdings Proprietary & Confidential 20

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