Health Care Industry Trends...1 Aon Proprietary & Confidential I 2016 “We always overestimate the change that will occur in the next two years and underestimate the change that will

Risk. Reinsurance. Human Resources.

M a r k e t F o r c e s I m p a c t i n g

E m p l o y e r H e a l t h B e n e f i t s

Health Care

Industry Trends

1 Aon

Proprietary & Confidential I 2016

“We always overestimate the change that will occur in the next two

years and underestimate the change that will occur in the next ten.”

— Bill Gates

Every decade has brought some form of health care transformation

1970s 1980s 1990s 2000s 2010+

Scheduled

benefits;

basic/major

medical

Comprehensive

indemnity

programs;

flexible benefits

HMOs and

managed care

PPOs and

consumerism

Chronic condition management

Health navigation

Wellbeing

Payment reform

2 Aon


Looking Forward—Healthcare Industry Market Forces

Providers

Health Plans

Population

Employers

3 Aon


US Population—Number and Percent Uninsured, 1994 – 2014

4 Aon


US Population—Percent Uninsured by State, 2014

5 Aon


Hospital Payment-to-Cost Ratios, 1994 – 2014

6 Aon


Distribution of Hospital Cost by Payer Type

Source: Analysis of American Hospital Association Annual Survey data, 2014, for community hospitals

Excludes bad debt expense, charity care, other government programs, and operating costs not attributed to any one payer

Private Payer Medicaid Medicare

1980 2000 2014 1980 2000 2014 1980 2000 2014

10%

35%

13%

38%

18%

40% 42%

39%

33%

7 Aon


Hospital Payment Shortfalls for Government Programs

8 Aon


Number of Hospital Beds, 1994 – 2014

9 Aon


Hospital Outpatient vs. Inpatient Revenues, 1994 – 2014

10 Aon

Proprietary & Confidential I 2016 10

Aon


Rise of the Bedless Hospital

11 Aon


Announced Hospital Mergers and Acquisitions, 1998 – 2015

12 Aon


Percent of Physician Practices Owned by a Hospital

13 Aon


Push Towards Risk-Sharing Payment Models

Fee For Service Bundled Payments Global Payments

FFS Quality

Bonus,

P4P

Per Diem Diagnosis

Related

Group (DRG)

Episode

Bundle

Shared

Savings (upside only)

Shared

Risk (two-way)

Capitation

Increasing Provider Accountability, Risk, Resistance, and Complexity

14 Aon


Innovations in the Delivery System

Intimate

Simple

Anonymous

Complex Acuity Acuity

Re

lati

on

sh

ip

Primary Care

Specialist

Hospital

Emergency

Department

Re

lati

on

sh

ip

Telehealth

Retail

Clinics

On-site

Clinics

COE

Urgent

Care

Near-site

Clinics

PCMH

15 Aon


Healthcare Market Forces—Providers

Growing losses from Medicare

and Medicaid patients

Fewer uninsured patients, but

more bad debt from insured

patients with high cost sharing

Changing payment models bring

new risks and incentives

Increasing merger and acquisition

activity

Rise in physician employment by

hospitals

Growth in number of urban and

suburban facilities, but reduction

in overall US hospital beds

Rise in provider sponsored health

plans

Key Catalysts Market Response

Increasing system complexity

16 Aon


Healthcare Market Forces—Health Plans

Public exchanges

Private exchanges

Provider M&A activity

New competition

Changing payment models

Explosion of new third party

vendors—telemedicine, expert

opinion, transparency, wellbeing

Increasing health plan merger

and acquisition activity

Narrow networks

Localization

Increasingly public network

contracting disputes with

providers

Exploring new partnerships

Key Catalysts Market Response

B2B 2 B2C

17 Aon


Percent of People with Chronic Conditions by Number

42.6%

20.0%

11.8% 9.5%

6.7% 9.3%

0 1 2 3 4 5+

Number of Chronic Conditions

37.3%

Source: Analysis of 2013 Medical Expenditure Panel Survey data

18 Aon


Cumulative Cost and Earnings Increases, 2011-2016

Source: The Henry J. Kaiser Family Foundation, Employer Health Benefit Survey 2016

Single Coverage Deductibles

Single Coverage Premiums

Workers Earnings

Overall Inflation

19 Aon


Percent Change in Middle-Income Households’

Spending on Basic Needs, 2007-2014

20 Aon


Getting Lost in the System

Health Plan

Health Plan

Nurse Line

Disease

Management Case

Management

Telemedicine

Lifestyle

Management

Advisors

Network

Steerage

Transparency

Tools

Delivery

System

Freestanding ERs

Retail Clinics

Surgery

Centers

Specialists

Urgent Care

Employer

Worksite Safety

Onsite Clinic

Learning and

Development

Hospitals

Pharmacy

Primary Care Labs

Radiology

Built Environment

HR Policies

21 Aon


On the Minds of Consumers

57% of millennials say

an integrated

approach to

wellbeing would

increase their job

satisfaction

70% of insured Americans

are struggling with

medical debt

80% want personalized

benefits geared to

circumstance and age

Sources: Kaiser Family Foundation; 2016 Consumer Health Mindset Study: Aon Hewitt, the National Business Group on Health, and The Futures Company

Help Me Pick

the Right

Coverage

Help Me Get

and Stay

Healthy

Help Me

Navigate the

System

22 Aon


Healthcare Market Forces—Population

Increasing workforce diversity

Deteriorating health status

Financial burden of healthcare

System complexity

Rise of consumer expectations

Emergence of digital natives

Desire for choice and flexibility

Demand for clarity and guidance

Comingled concerns about health

and wealth

Key Catalysts Population Response

Need for a Helping Hand

23 Aon


Healthcare Market Forces—Employer Challenges

Benchmarking to 50th Percentile neither differentiates nor controls cost

Current benefit programs don’t meet all of the needs of a diverse workforce

We focus too much time/effort/energy on the one event of AE

We ask employees to make choices they aren’t well equipped to make

Patients often feel abandoned in the complex health ecosystem

Programs get low utilization

HOUSTON

WE HAVE

A PROBLEM

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24 Aon


Employer Response—Diverging Strategic Paths

Centers of Excellence

Telemedicine

Transparency

Bundled Pricing

Choices / Decision Support

Concierge / Advocate

Accountable Care Organizations

Primary Care / PCMHs

Narrow Networks

Capitation

Requirements

Complex care management

Guide Patients Empower Consumers

Workplace culture and support

Wellbeing

Navigation / Coordination

Expert medical opinions

Mobile enabled technology

Targeted member marketing

Subsidy strategy

Health plan choices

25 Aon


What Do You Want to be Famous For?

2 0 1 6 N a t i o n a l a n d H o u s t o n

E m p l o y e r R e s u l t s

Aon Health

Care Survey

27 Aon


Industries Represented

7%

12%

3%

3%

5%

11%

5%

19%

3%

4%

5%

7%

4%

Energy, Mining, Oil and Gas

Finance and Insurance

Food, Agribusiness and Beverage

Hospitality and Entertainment

Government (Local, State, Federal)

Health Care

Higher Education

Manufacturing

Pharmaceuticals

Professional and Business Services

Retail

Technology and Communications

Transportation and Logistics

Houston #1

Houston #2

Houston #3

National

28 Aon


Which Factors Influence Your Health Care Strategy?

95%

91%

77%

73%

69%

55%

54%

53%

43%

19%

79%

79%

75%

79%

58%

42%

50%

54%

38%

13%

Health care cost increases

Business strategy and objectives

Total Rewards strategy

Major employers in our industry

Health's impact on productivity and performance

Major employers in our key geographies

Employee feedback and perspectives

Changing workforce (preparing for future)

Local provider market dynamics

2016 Presidential election

National Houston

29 Aon


If Current or Future Approach is to Offer a Private Health Exchange,

What are Your Primary Drivers?

76%

56%

55%

42%

42%

75%

50%

25%

25%

0%

Greater choice among plan options

Improve predictability of health carecost

Greater choice among carriers

Minimize plan design and vendormanagement

Limit or reduce ACA liability andcompliance workload

National Houston

30 Aon


Changes in Dependent Coverage are Being Considered

17%

13%

8%

50%

42%

33%

25%

29%

33%

46%

67%

67%

71%

Surcharges for adult dependents with access toother coverage

Reduce subsidy for dependents across the board

Eliminate coverage for adult dependents with accessto other coverage

Adopt a 'unitized pricing' approach (charging perdependent)

Provide employees a cash incentive for not coveringa spouse

Current Approach Future Approach (May Add in 3-5 Years) Not Interested

Houston Responses

31 Aon


Benefits to Expand and Differentiate Offerings

88%

25%

13%

17%

8%

29%

33%

21%

82%

36%

21%

6%

8%

30%

39%

27%

Tuition

reimbursement

Identity theft

protection

Expanded parental

leave options

Student loan

repayment program

Current Approach Future Approach (May Add in 3-5 Years)

National

Houston

National

Houston

National

Houston

National

Houston

32 Aon


National

Houston

National

Houston

National

Houston

Voluntary Supplemental Medical Benefits

40%

39%

19%

24%

30%

32%

Supplemental accident

Critical illness

Hospital indemnity

21%

17%

13%

17%

29%

29%


33 Aon


Reasons for Offering Voluntary Supplemental Medical Benefits

48%

29%

7%

26%

12%

Meet employees needs with expanded options forcoverage

Support employee migration to or comfort withHDHP

Design and pricing strategy to prepare for the excisetax

All of the above

Other

National Responses

34 Aon


Wellbeing Dimensions Built Into Program

63%

67%

38%

54%

29%

25%

46%

25%

8%

8%

17%

21%

Physical

Financial

Emotional

Social


Houston Responses

35 Aon


Incentive Tactics

46%

50%

29%

42%

33%

21%

17%

21%

8%

8%

21%

13%

21%

21%

13%

29%

21%

29%

13%

13%

33%

38%

50%

38%

54%

50%

63%

50%

79%

79%

Cash/gift cards

Raffle drawings

Recognition

Premium subsidy differentials

Creating greater purpose

HRA/HSA contribution

Location prizes for engagement goal achievement

Rewarding behavior with behavior

Time off

Bonus or merit raises


Houston Responses

36 Aon


National

Houston

National

Houston

National

Houston

Incentive Approach

64%

24%

19%

24%

32%

45%

Rewards

Consequences

Both consequences

and rewards


50%

42%

25%

21%

33%

46%

37 Aon


Wearables―Houston Responses

Are you using technology devices

such as wearables?

Do you pay for the devices?

Among those who said “yes”

50%

25% 25%

Full Cost Partial No

33%

67%

Yes No

100%

13%

0%

0%

0%

Fitness Trackers

Sleep

Weight

Blood Pressure

Glucometer

Which types of devices? Among those who said “yes”

38 Aon


Incorporating Wellbeing Into Daily Workday

46%

42%

33%

21%

17%

29%

17%

4%

8%

17%

21%

29%

21%

33%

17%

25%

29%

21%

38%

38%

38%

58%

50%

54%

58%

67%

71%

Healthy snacks (veggies, fruit, etc.)

Healthy food at meetings and functions

Sit-to-Stand workstations

Passive social areas

Stretch/flexibility breaks

Active social areas

Active breaks

Walking meetings

Standing meetings


Houston Responses

39 Aon


In the Next 3 to 5 Years, How Much Effort Will You Put Into New Provider Models

Such as ACOs and PCMHs?

7% 8%

22%

38%

43%

25%

23% 25%

5% 4%

National Houston

It will be one of our three highestpriorities

It will be a part of our strategy

It is something we will keep track of,but do not focus on

It is not a topic we plan to spend muchtime on

I don't understand these models andwhy my organization should care

40 Aon


Approaches to Provider Network Structure

13%

4%

17%

17%

13%

4%

46%

25%

25%

42%

33%

46%

17%

17%

13%

42%

71%

58%

42%

54%

54%

79%

83%

88%

Implement a Centers of Excellence strategy

Provide on-site, preventive, primary and urgent care

Narrow network offered through health plan

Offer, where available, integrated delivery models

Pilot integrated delivery models

Promotion of high-performing providers throughother means

Adopt a best in market model with variable networksby local markets

Directly contract with providers in specific locations

Narrow network offered through an independententity


Houston Responses

41 Aon


Use of Centers-of-Excellence by Procedure

17%

21%

21%

17%

21%

4%

4%

4%

4%

4%

8%

8%

8%

13%

4%

8%

75%

67%

67%

67%

71%

88%

Cancer

Cardiac surgery

Spinal/back surgery

Bariatric surgery

Orthopedic surgery

Infertility

Currently in Place, Voluntary Currently in Place, Financially Incented

Currently in Place, Mandatory for Non-Emergencies Not Utilized as a Strategy

Houston Responses

42 Aon


Approaches to Health Care Design

58%

58%

25%

25%

13%

4%

4%

21%

21%

58%

46%

46%

38%

42%

21%

21%

17%

29%

42%

58%

54%

Offer account-based HDHP as a choice

Increase participants' deductibles and/or copays

Steer participants through plan design to high-qualityproviders

Value-based insurance design

Set the company subsidy as a defined dollar amount

Offer account-based HDHP as a full replacement

Adopt reference-based pricing


Houston Responses

43 Aon


Tools to Promote Consumerism

50%

42%

50%

42%

21%

8%

25%

42%

54%

38%

33%

50%

54%

38%

8%

4%

13%

25%

29%

38%

38%

Mobile apps and tools to engage participants in programs

Cost/Quality transparency tools

Tools to help pick right insurance coverage

Advocacy services to help navigate health care system

Complex care advocacy for individual

Complex care advocacy for both patient and provider

Expert second opinion program


Houston Responses

44 Aon


Programs to Manage Total Prescription Medication Costs

88%

67%

67%

79%

71%

58%

38%

42%

42%

21%

29%

21%

8%

21%

21%

13%

17%

21%

42%

25%

25%

50%

29%

29%

4%

13%

13%

8%

13%

21%

21%

33%

33%

29%

42%

50%

Prior Authorization

Step Therapy

Quantity Limits

Member pay the difference

Mandatory use of specialty pharmacies

Exclusion-based formulary

Mandatory mail or retail 90 network

Carving out specialty from medical benefit

4th tier copay for specialty drugs

Site of care management

Pharmacy group purchasing coalition

Narrow Retail 30-Day Network


Houston Responses

45 Aon


The Key is an Adaptive Approach that is Responsive to Employee Needs

Stop Benchmarking, Be the Outlier

– Differentiate clearly in one key area that is uniquely important to your

workforce

– Rapidly pilot, and effectively measure, emerging solutions

Fewer Choices, Best Results

– Eliminate choices that don’t add value, or that members aren’t equipped to

make, and help them refocus on what they can control

– Consumerism becomes guided navigation

Everything I’m interested in and concerned about

What I can do today

What I can

control

Thank You

Jason Mahler, FSA, MAAA

Senior Vice President

Health and Benefits

[email protected]

Documents

Health Care Industry Trends...1 Aon Proprietary & Confidential I 2016 “We always overestimate the change that will occur in the next two years and underestimate the change that will