2005 Retiree MIP Overview

1
2005 Retiree MIPOverview

• October, 2005
• Rajiv Nundy Deborah Wright
• HR Compensation Management

2
Agenda

• Introduction
• Health care cost trends
• Supply- side and demand-side drivers of cost
  increases
• Retiree Medical Insurance Program Key features
  and recent changes
• Recent Retiree MIP financial status Incurred
  Jan to June 2005 paid through Sep 2005
• Prescription Program
• Cost of the Rx program
• Cost Containment Strategies
• Medicare Part D
• Formulary

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Health care cost trends

• Health care costs in the U.S. increased 156 per
  capita from 1980 to 1990 and by only 71 from
  1991 to 2000 more recently we have seen premium
  increases of 11 to 12 annually
• During the 1980s with the economy expanding
  rapidly ERs reluctantly managed to absorb costs
• With the 1991 recession the private sector
  responded with increased dominance of managed
  care and HMOs medical costs still continued to
  outpace the CPI overall
• At present ERs are still struggling to recover
  from the recent slowdown and with intense
  competition and overcapacity in many industries
  have been finding it difficult to pass these
  costs via increased prices
• In addition managed care has lost some clout with
  health providers because of increased
  consolidations in the health industry and because
  HMOs loosened some of their restrictions due to
  widespread consumer backlash
• ERs are responding with increased cost-shifting
  to EEs since they cannot pass the cost increases
  along to customers

4
Supply-side vs demand-side drivers

• Supply-side drivers
• When we look at the medical component of the CPI
  - hospital costs and prescription drug costs have
  grown the fastest in recent years
• Hospital costs
• The main drivers behind hospital cost increases
  are use of advanced medical technology, increased
  labor costs ( nurses and pharmacists) and renewed
  pricing power from hospital consolidations
• Prescription drug mix and promotion
• Proliferation of drugs aimed at lifestyle
  maladies such as erectile dysfunction (ED), high
  cholesterol, hypertension, heartburn, acid
  reflux, ulcers, depression, toenail infections
  and the like
• Increased direct-to-consumer advertising that
  encourages consumers to ask doctors for specific
  prescriptions by brand name
• These drugs utilization has grown dramatically by
  consumers with minor ailments ( some of which
  could be controlled with better management of
  diet and eating habits) and some with purely
  self-diagnosed symptoms

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Supply-side vs demand-side drivers

• Demand-side drivers
• The rise in behavioral risk factors ( tracked by
  Centers for Disease Control) 70 of health care
  costs are attributable to lifestyle choices and
  behaviors
• Smoking - decline has plateaued except for 18-34
  year olds which have increased 15 since 1990
• Chronic drinking - amongst all age groups has
  doubled from 3 of the population to 5.9
• Obesity (BMI of 30 or more) has doubled from
  11.6 in 1990 to 22.1 in 2002, while not a
  disease it is strongly associated with such
  chronic conditions as diabetes, hypertension and
  asthma costing the economy more than smoking and
  drinking combined
• Increased utilization ( medical products and
  services especially for specialists and
  prescription drugs)
• Office visits to specialists increased by 13.8
  between 1990 and 2000
• The population is consuming more prescriptions
  and more expensive prescriptions number of Rx
  increased 45 between 1992 and 2002 to 10.6 per
  capita and the price of prescriptions increased a
  whopping 107 to 55.00 per Rx

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Retiree MIP Key Features

• The Retiree MIP provides comprehensive medical,
  dental and prescription coverage - financial
  protection at a time when you need it most
  likely higher medical expenses and likely fixed,
  lower income
• Funding is a partnership between the Bank and
  each retiree you pay 25 of contributions but
  close to 40 overall when including deductibles,
  coinsurance and co-payments. You have a
  significant investment in the plan, therefore it
  is in your best interest for you to understand
  the plan and its benefits
• Please note the MIP does not cover every expense!
  There are MIP plan limits, certain items are not
  covered at all and you will have some co-payments
  to make
• The Retiree MIP is a PPO Preferred Provider
  Option type of plan. If you choose an
  in-network medical or dental provider, you will
  have lower out of pocket costs and the Plan will
  also benefit from savings
• Staff are eligible for retiree medical coverage
  if they meet certain age and service requirement
  when they terminate employment from the Bank 5
  years service and rule of 60 ( age plus service
  is at least 60) with coverage beginning as early
  as age 50

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Retiree MIP Key Features

• The Retiree MIP is a self-insured program Aetna,
  Van Breda and Pharmacare are administrators
  they are required to process claims in accordance
  with the MIP Plan design. The contract is
  designed with financial incentives to encourage
  administrators to pay claims promptly and
  accurately
• Claims are now serviced for the whole group by
  Aetna Global Benefits, based in Tampa, Florida.
  All MIP members received new ID cards in June
  2005. Provides additional services such as 24
  hour phone coverage, access to international
  network providers for direct billing outside the
  US
• If you have a permanent non US address you also
  have a choice, once per year in December, to
  choose between Aetna and Van Breda as your
  administrator. The Plan design is essentially
  the same, but network savings are higher with
  Aetna if most of your medical treatment takes
  place in the US

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Retiree MIP - recent changes

• Recent Changes
• Increased overall contributions May 1, 2005
  4.3
• Implemented three tier premium based on Single,
  Dual and Family coverage - (600 plus family
  coverages )
• Last increase in deductible and co-pay was Jan 1,
  2003
• History of Changes since 1991
• Average annual rate increase of 5.2 over the
  period 1991- 2004
• Cost of the program has gone up 5.9 annually
  over the same period

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Key Cost and Utilization Statistics- MEDICAL
only AETNA claims Current Jan-Jun 05 Prior
Jan-Jun 04
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Key Cost and Utilization Statistics- MEDICAL
only AETNA claims
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Large Claimants Medical only AETNA claims
12
Large Claimants Medical only AETNA claims
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Provider Network Experience- AETNA only
Medical claims
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Medical Cost Sharing- AETNA only Medical Claims
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Medical Cost Sharing- AETNA only Medical Claims
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Utilization and Unit Cost by Medical Cost
category AETNA only Medical claims
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Summary of recent financial

• AETNA only Medical Claims - Current Jan-Jun 05
  Prior Jan-Jun 04
• Medical Costs up per member increased 23 (
  excluding catastrophic claims up 9)
• Most of this increase is due to
• increased utilization
• Increase in number of hospital admissions,
  inpatient surgeries and ER visits
• Increase in average length of hospital stay
• Increase in catastrophic claims ( over 50,000
  from 7 to 15 claimants)
• price increase
• Lower in-network hospital discounts
• cost shifting to plan lower out-of-pocket costs
  to retirees
• partially offset with increase in network usage
  and COB savings

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Prescription Program
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Prescription Cost and Utilization Statistics
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Cost containment strategies

• Some drug cost control tactics
• deductibles
• dollar based or percentage based co-pays
• Educating physicians and pharmacists
• Educating EEs
• Formularies
• Financial or other incentives for using generic
  medications
• Mail order pharmacies
• Pharmaceutical Benefit Managers (PBMs)

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Medicare Part D

• Medicare Prescription Drug, Improvement and
  Modernization Act (MMA) was enacted in Dec 2003
• A voluntary prescription drug benefit was added (
  Part D) effective Jan 2006 which was designed for
  Medicare enrollees (currently enrolled or
  eligible for Part A or Part B) who do NOT have Rx
  protection through other employer plans
• Employer Plans that provide Rx plans at least as
  good as Part D are deemed Actuarially Equivalent
  qualify for subsidy for those Medicare eligible
  participant who do not enroll in Part D subsidy
  approximately 450 per enrollee in 2004 projected
  to increase to approximately 600 in 2006 total
  subsidy is projected at over 1.2 million
  annually in 2006

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Medicare Part D vs Retiree MIP Rx
Benefits

• MEDICARE
• Deductible 250
• Medicare pays 75 for claims between 250 and
  2,250
• Medicare pays 0 for claims between 2,250 and
  5,100
• Maximum Annual Deductible and Copay is 3,600 (
  True out-of-pocket)
• Catastrophic coverage begins after 5100 of
  annual expenses submitted Medicare pays 95
• Premium is 420 per participant per year

• Retiree MIP
• Deductible of 50
• Brand co-pay is 20 and Generic co-pay is 0
• Maximum annual Out-of-pocket Deductible and Copay
  for Individual is 1,000
• Catastrophic coverage begins after approximately
  4,800 of annual expenses submitted Bank pays
  100 thereafter
• Premium is 25 of annual cost approx. 320 per
  year

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Four possible plan design options

• Do Nothing
• No Federal Subsidy
• No changes to the existing prescription program
• Take the Federal Subsidy
• Apply for 28 federal subsidy -Plan should be
  deemed actuarially equivalent
• No changes to the existing prescription program
• Introduce Wrap Around Plan
• For the portion not paid by Medicare
• Not eligible for Subsidy
• Bank pays Part D premium
• Eliminate Prescription coverage for Medicare
  eligible participants in the Retiree MIP
• Retirees Shift to Part D
• Bank pays the Part D premium

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Take the Federal Subsidy

• The Bank is applying for the subsidy - we are not
  sure if it will be approved since the legislation
  is silent on international organizations being
  eligible for the subsidy
• RMIP members will receive a letter from the Bank
  confirming that the RMIP provides Creditable
  Coverage no later than November 15, 2005. This
  will be provided each year no later than end of
  November
• subsidy is calculated at 28 of the eligible
  charges between 250 and 5,000, so the maximum
  subsidy is capped at 1,330 per enrollee
• The subsidy projected at 1.2 million in 2006, if
  approved by Medicare, will be credited to the
  RMIP and would therefore benefit both retirees
  and the Bank under the existing cost sharing
  arrangement of Retiree and Bank of 25 and 75
  respectively

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The RMIP and Medicare Part D

• The RMIP coverage as noted earlier is much richer
  than Medicare Part D.
• Enrollment in Medicare Part D is voluntary but
  for retirees enrolled in RMIP, Medicare Part D is
  not cost effective so you are strongly advised to
  NOT ENROLL in the MEDICARE Part D Plan
• If a member of the RMIP enrolls in Medicare D,
  the Bank is unable to co-ordinate prescription
  drug benefits, and your Prescription coverage
  under the RMIP would be suspended. This
  suspension is for a minimum one year period
  regardless of the length of your Medicare D
  enrollment
• Medicare will fund this new program, but it will
  actually be delivered through one of many
  Medicare Prescription Drug Plans to be offered
  from pharmacies e.g. CVS, or from drug
  manufacturers e.g. Merck Medco. The Medicare D
  enrollee would have to study all these new plans
  and make a choice of prescription benefit plan
  coverage, then enroll and pay Medicare D premium
  plus additional plan premium if needed.

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The RMIP and Medicare Part D

• Look out!! Marketing has already started for the
  January 1, 2006 new plan. Medicare D enrollment
  period runs from November 15, 2005 until May
  2006. The Medicare Prescription Drug Plans are
  obliiged to offer a minimum set of benefits, but
  many will offer additional benefits if you are
  willing to (i) figure out what is what and (ii)
  pay additional premium
• Remember IF you enroll in Part D you will have to
  pay the Medicare premium of 420 annually
• If you lose RMIP coverage, because you elect to
  end your RMIP coverage, or because you cease to
  be eligible for it ( e.g. if you divorce a Bank
  Group retiree), then you may be able to enroll in
  Medicare D later. The letter of Creditable
  Coverage from the Banks MIP will confirm that
  you had prior RMIP coverage and this will avoid
  you paying a Medicare D premium penalty in the
  future.

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Medicare D Summary

• Letter of Creditable Coverage to be sent by Bank
  Group by November 15, 2005 format
  pre-determined by CMS/US Govt.
• In addition, a letter in plain english will be
  sent at the same time explaining what the
  Creditable Coverage letter means
• Medicare enrollees should review the official
  Medicare material e.g. booklet called Medicare
  and You, 2006, websites such as www.cms.hhs.gov
  or www.medicare.gov
• Be wary of aggressive marketing efforts by
  Pharmacies and manufacturers RMIP members have
  great Rx benefits, which exceed those available
  under Medicare D
• Be aware of the consequences to your RMIP if you
  do enroll in Medicare D

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Prescription Drug FormularyUnder Consideration
for the RMIP

• A formulary identifies a drug as Generic or Brand
  name (preferred) or Brand name (non-preferred)
  with higher benefits for Generic, then Brand
  name (preferred) and then Brand name
  (non-preferred). One possible co-pay would be 0
  for Generic, 20 for Brand name (preferred) and
  30 for Brand name (non-preferred)
• Free choice of drug use will remain, but if a
  member elects a higher cost drug, where that drug
  has chemically equivalent options brand and or
  generic then that member will pay a higher
  co-pay for that choice
• The Formulary will encourage members to discuss
  drug selection with their doctors
• New drugs that are new to market will be
  preferred for at least the first 6 months on the
  market. The Formulary Manager ( Pharmacare for
  the RMIP) will then determine if this new drug
  has pharmacological equivalents in the preferred
  brands or generic drugs and therefore determine
  if the new drug will remain preferred or
  become non-preferred
• This option does shift costs to those members who
  use the more expensive drugs, when there are
  lower cost equivalent drugs available
• RMIP stop loss protection for prescription
  drugs will remain in place to ensure financial
  protection for members