SEARS RETIREE GROUP BENEFITS REVIEW

June 18, 2012

2

Agenda

• Welcome

• Committee Goals

• Communication

• Life Insurance Benefits

• Health & Dental Benefits

» Enrolment Statistics

» 2011 Financial Results

» Sun Life Customer Care Centre Statistics

» Prior Authorization

• Other New Business

» Next Meeting

3

Committee Goals

• Mandate– To research and recommend changes to the retiree extended health

and dental plans

• Cost reduction without benefit reduction

– Significant cost savings should, in part, be used for improvement of retiree benefits

• 2011 Overview • Cost containment measures in current plan

– Mandatory generic drug substitution, dispensing fee cap and dollar maximums on other coverages

• Risk, new biologic drugs very expensive and no generic equivalents

Communication

Life Insurance Benefits

Review & Analysis

6

Provincial Distributionof the 5,463 Participating Retirees with Life Insurance Benefits Coverage

Source: PeopleSoft, Dec 2010

Ontario47%

British Columbia13%

Alberta8%

Prairies9%

Atlantic10%

Quebec13%

Retired associates receiving life insurance benefits are highly concentrated in Ontario (47%) …

7

Demographic Analysisof the 5,463 Participating Retirees with Life Insurance Benefits Coverage

Source: PeopleSoft, Dec 2010

0

1000

2000

3000

Age Ranges

Num

ber o

f Ret

ired

Asso

ciat

es

F 66 234 682 1,155 609 41

M 164 489 967 789 259 8

Grand Total 230 723 1,649 1,944 868 49

2010 to 2011 % -21% -4% -1% -5% 8% 17%

56-60 61-65 66-75 76-85 86-95 Over 95

Females represent 51% of retired associates have life benefit coverage, while males represent 49% …

8

Life Paid and Number of Claims

(6.0%)(14)235221Life # of Claims

6.9%$749$10,859$11,608Average claim amount

0.5%$13,390$2,551,940$2,565,330Life Paid Claims

2010CHANGE

$/# %2011

Life experienced an increase in cost over the previous year of 0.5% …

Health & Dental Benefits

Review & Analysis

10

Coverage Breakdownof the 5,971 Participants

Couple57%

Family2%

Single41%

Source: PeopleSoft, Dec 2011

Of the 5,971 participants receiving health & dental benefits, 57% have couple coverage, 41% have single coverage and 2% have family coverage …

11

Participant Levels

Retiree Health and Dental

58505900595060006050610061506200

2007 2008 2009 2010 2011

Year

# of

par

ticip

ants

Source: PeopleSoft, Dec 2011

12

Provincial Distributionof the 5,971 Participants

Source: PeopleSoft, Dec 2011

Ontario49%

British Columbia13%

Alberta8%

Prairies8%

Atlantic10%

Quebec12%

Participants receiving health and dental benefits are highly concentrated in Ontario (49%) …

13

Demographic Analysisof the 5,971 Participants

Source: PeopleSoft, Dec 2011

0

1000

2000

3000

Age Ranges

Num

ber

of

Ret

ired

Ass

ocia

tes

Females 7 102 339 948 1,100 608 64

Males 0 201 548 1,048 744 243 19

Total 7 303 887 1,996 1,844 851 83

2009 to 2010 % -13% -22% -1% 1% -1% 9% 20%

55 or Under

56-60 61-65 66 - 75

76 - 85

86 - 95

Over 95

Females represent 53% of participants receiving health and dental benefits, while males represent 47% …

14

Cost Components

• Cost paid by Sears to Sun Life Financial through the Health and Welfare Trust (HWT):

– Health and Dental claims are adjudicated by Sun Life Financial

• Subject to fluctuations throughout the year

– Sun Life Financial’s 2011 expense charges:

• 3.83% of paid extended health claims

• 3.73% of paid dental claims

• Other Costs

– Administration and recordkeeping by Sears HR Service Centre

– Sears Canada financial accounting liability (accrued benefits obligation)

– Applicable taxes

15

Plan Expenses

ASO Fees and Taxes

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

2011 2010 2009

HealthDentalTaxes

Sun Life Financial Administration fees and taxes totaled $552,175 in 2011 …

16

Extended Health Paid Claims

-$15,794$0$15,794Travel Assistance

(61.7%)($77,490)$125,637$48,147Out of Country

22.9%$102,116$445,042$547,158Services & Equipment

$9,781,820

$8,127,868

$354,880

$586,982

$141,411

2010CHANGE

TYPE OF EXPENSE

($20,092)

($132,117)

$42,812

$20,744

$8,049

$

(0.2%)$9,761,728TOTAL

(1.6%)$7,995,751Prescription Drugs

12.1%$397,692Paramedical

3.5%$607,726Hospital

5.7%$149,460Vision

%2011

Prescription drugs, the largest expense, decreased by 1.6%; services & equipment expenses increased by 22.9% …

17

Extended Health Number of Claims

-202Travel Assistance

(38.3%)(62)162100Out of Country

7.1%1692,3842,553Services & Equipment

270,489

260,601

5,379

517

1,446

2010CHANGE

TYPE OF EXPENSE

3.1%8,313278,802TOTAL

2.5%6,469267,070Prescription Drugs

30.5%1,6417,020Paramedical

1.5%8525Hospital

5.9%861,532Vision

%#2011

Prescription Drugs have seen an increase in utilization of 2.5%, while paramedical utilization has seen the largest increase of 30.5% …

18

Extended HealthAverage Cost Per Claim

(37.9%)($294.06)$775.54$481.47Out of Country

(14.1%)($9.33)$65.98$56.65Paramedical

$36.16

$31.19

$186.68

$1,135.36

$97.79

2010CHANGE

TYPE OF EXPENSE

(3.2%)($1.15)$35.01TOTAL

(4.0%)($1.25)$29.94Prescription Drugs

14.8%$27.64$214.32Services & Equipment

2.0%$22.21$1,157.57Hospital

(0.2%)($0.23)$97.56Vision

%$2011

Out of country experienced the largest decrease in average cost per claim by 37.9%, while Services & Equipment experienced an increase in average cost per claim by 14.8% …

19

Breakdown of Paid Health Claims

2010

Prescription Drugs83%

Travel Assistance0%

Paramedical4%

Vision1%

Hospital6%

Services & Equipment5%

Out of Country1%

2011

Travel Assistance0%

Prescription Drugs82%

Paramedical4%

Out of Country0%

Vision2%

Hospital6%

Services & Equipment

6%

20

2011 Services & Equipment Claims Paid

-5540554-101Dental

154%9,6466,28415,93019%42125Prosthesis

$ Paid# of CLAIMS

78%23,70130,32954,030(5%)(10)186176Other

(6%)(3,053)53,37050,3173%5189194Orthotics, Orthopedic26%11,96846,55658,52418%77419496Ambulance(6%)(2,877)44,74541,868(9%)(55)615560Laboratory

%#

2,553

277

136

688

2011

2,384

202

130

622

2010

169

75

6

66

CHANGE

7%

37%

5%

11%

445,042

23,615

59,046

181,097

2010CHANGESERVICE & EQUIPMENT

TYPE OF EXPENSES

102,116

(7,018)

4,650

64,545

$

23%547,158TOTAL

(30%)16,597Nursing

8%63,696Hearing Aids

36%245,642Durable Equipment%

2011

21

2011 Service & Equipment Claims

Equipment47%

Laboratory8%

Orthotics, Orthopaedic9%

Other7%

Nursing3% Ambulance

11%

Prosthesis3%

Dental0%

Hearing Aids12%

22

2011 Paramedical Practitioner Claims Paid

(14%)(663)4,6864,023(14%)(7)5144Psychologist

$ Paid# of CLAIMS

9%4,27448,28552,55913%1311,0251,156Podiatrist/Chiropodist

61%3,1375,1028,23969%4464108Osteopath

21%9.95247,81657,76830%205676881Massage Therapist15%1,89012,69614,58647%77163240Naturopath9%5,69563,12368,8183%25896921Optometrist

%#

7,020

1

1,471

1,996

202

2011

5,379

0

1,063

1,285

156

2010

1,641

1

408

711

46

CHANGE

31%

-

38%

55%

29%

354,880

0

80,736

79,354

13,082

2010CHANGE

PARAMEDICAL PRACTITIONERS TYPE

OF EXPENSES

42,813

80

5,446

12,500

502

$

12%397,693TOTAL-80Other Practitioners

7%86,182Physiotherapist

16%91,854Chiropractor4%13,584Acupuncturist%

2011

23

2011 Paramedical Practitioner Claims

Chiropractor23%

Massage Therapist15%

Naturopath4%Optometrist

17%

Osteopath2%

Physiotherapist22%

Podiatrist13%

Other Practitioners0%

Acupuncturist3%

Psychologist1%

24

Extended HealthPrescription Drug Utilization 2011

The following top 5 Classifications of prescriptions drugs represent 72% of claims and 68% of paid claims …

68%5,446,27072%193,933Top 5 Total

8%624,3016%17,251Gastrointestinal Drugs5

100%7,995,751100%267,070Grand Total

9%696,59310%27,384Hormones & Synthetic Substitutes4

12%987,0796%15,062Unclassified Therapeutic Agents314%1,122,32518%48,282Central Nervous System225%2,015,97232%85,954Cardiovascular1

%Claims Paid ($)%# of ClaimsDrug ClassificationRank

25

Extended HealthDrug Utilization in 2011– Top 10 DIN List

2.32185,7611.002,726Blood FormationPLAVIX 75MG 2

0.9273,1950.511,380Central Nervous System Drug

CELBREX 200MG* 10

0.9475,1100.19503Central Nervous System Drug

LYRICA 75MG CAPSULE9

1.0886,1970.0138Blood FormationNEULASTA 10MG/ML8

1.1289,5470.681,849CardiovascularEZETROL 10MG7

1.1793,8520.0375UnclassifiedHUMIRA 40MG*6

1.83146,1900.05125UnclassifiedENBREL 50MG*5

2.00159,8581.624,408CardiovascularCRESTOR 10MG4

2.10167,5420.641,740GastrointestinalNEXIUM 40MG*3

2.68214,2960.0257UnclassifiedREMICADE INJECTION*1

%Claims Paid ($)%# of

ClaimsDrug ClassificationDrug NameRank

* Prior Authorization Drug

Remicade ranks number one in terms of annual costs, while Crestor is the number one dispensed drug based on number of claims …

26

DentalPaid Claims

CHANGETYPE OF EXPENSE

$69,248

$32,285

$21,294

$15,489

$180

$

3%$2,821,632$2,890,880TOTAL

4%$861,240$893,525Surgical, Restorative

2%$997,722$1,019,016Periodontics, Endodontics

5%$310,966$326,455Major Restorative

0%$651,704$651,884Diagnostic, Preventive

%20102011

Dental paid claims experienced increases across all categories except Diagnostic, Preventative, which remained relatively unchanged …

27

DentalNumber of Claims

39,165

6,222

12,267

908

19,768

2010CHANGE

TYPE OF EXPENSE

(0.3%)(101)39,064TOTAL

1.1%676,289Surgical, Restorative

1.0%11712,384Periodontics, Endodontics

4.2%38946Major Restorative

(1.6%)(323)19,445Diagnostic, Preventive

%#2011

Utilization within the plan in 2011 remained consistent …

28

DentalAverage Cost Per Claim

$72.04

$138.42

$81.33

$342.47

$32.97

2010CHANGE

TYPE OF EXPENSE

$1.96$74.00TOTAL

3%$3.66$142.08Surgical, Restorative

1%$0.95$82.28Periodontics, Endodontics

1%$2.62$345.09Major Restorative

2%$0.55$33.52Diagnostic, Preventive

%$2011

All dental categories experienced an increase in average cost per claim…

29

2011 Breakdown of Dental Claims

Surgical, Restorative31%

Periodontics, Endodontics

35%

Major Restorative11%

Diagnostic, Preventative23%

30

Retiree Group Benefit Costs

0.5%$13,390$2,551,940$2,565,330Life Claims

0.5%$2,596$519,579$522,175ASO fees & Taxes

(1.9%)($2,419)$129,670$127,251Life fees

$15,804,641

$2,821,632

$9,781,820

2010CHANGE

BENEFIT

0.4%$62,723$15,867,364TOTAL

2.5%$69,248$2,890,880Dental

(0.2%)($20,092)$9,761,728Extended Health

%$2011

The group benefit costs combined in 2011 amounted to $15,867,364which has increased by 0.4% …

*unaudited 2011 Life Fees

31

Extended Health & Dental Paid Claims Combined

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

Paid

Cla

ims

2010/2011 comparison

2010 9,781,820 2,821,632 519,579 13,123,0312011 9,761,728 2,890,880 522,175 13,174,783

Extended Health Dental ASO Expenses & Taxes Total

Average per capita costs are $2,206.46 per participating retired associate, health representing 74%, dental representing 22% and ASO expenses and taxes representing 4% …

Sun Life Financial Call Centre Statistics

33

Sun Life Financial Call Centre Statistics

• For the January 1 to December 31, 2011 period, 12,330 inquiries were made by retired associates with health and dental coverage

• This represents a 34% increase over the 9,225 calls made in last year (2010)• The inquiries are broken down for the January 1 to December 31, 2011 period

as follows:– Types of Inquiries

• 4,624 claim inquiries• 3,715 coverage inquiries• 382 internet support inquiries• 1,661 member info inquiries

– Source of Inquiry• 68% retired associate• 13% spouse• 7% dental provider• 12% other

34

Sun Life Member Services Website

591

645

1,185

1,459

1,782

December 2010

26%744Total Number of E-claims

31%845Members with Direct Deposit

10%1,302Valid Email

12%1,630Authenticated Members

12%1,992Registered Members

CHANGEDecember 2011

35

Prior Authorization

• Focuses on cost containment

• Continue to see relatively low increase in drug claims costs

• Biologics are being used, but not impacting overall claims experience

36

Discussion

• Next meeting

• Any new business