ACE USA

Benefit Analysis: PART I: Benefits Matrix Part II: Inventory of Benefits

12/5/2011 912901695 911065782

Table of Contents
Exposure Analysis. Inventory of Benefits. Introduction to the Healthcare Plan.. Fully Insured... Self-Insured.. Medical Expenses.... Aetna Health Maintenance Organization (HMO) Plan.. Aetna Choice POS II and Out-of-Area (Indemnity Plan)... High Deductible Health Plan with Health Savings Account... Dental... Vision. Prescription Drug.. Flexible Spending Account (FSA)... Healthcare FSA.. Dependent Care FSA... Loss of Income..... Short-Term Disability (STD) Insurance. Long-Term Disability (LTD) Insurance.. Basic... Supplemental... Retirement.. Other Exposures Educational Assistance. Work / Life... Dependent Care... Property / Liability.. 1 2 2 2 3 4 4 5 6 8 8 9 10 10 11 12 12 13 13 13 13 14 14 14 14 15

Part I: Benefits Matrix

Exposure Analysis
Loss Exposure
Hospital/Physician Dental Prescription Drug Vision LTC Retiree Health Care Yes Yes Yes Yes No Yes

Is Coverage Provided?
Medical Expenses:

Benefit(s) Offered
Aetna HMO, Aetna Choice POS II, OOA (Indemnity Plan), FSA, HDHP Dental DMO, Dental PPO ACE Prescription Drug Plan, Flexible Spending Account (FSA) ACE Vision Plan, Flexible Spending Account (FSA) LTC Insurance COBRA, Retirement Health Plan, Medicare, 401(k) Plan OASDI, AD&D Insurance, Life Insurance, 401 (k) Plan OASDI, AD&D Insurance, Life Insurance, 401 (k) Plan OASDI, AD&D Insurance, Life Insurance, 401 (k) Plan, Life Insurance, Workers' Compensation Unemployment Insurance, Severance Package Sick Leave/Sick Pay, STD, OASDI, 401 (k) Plan Sick Leave/Sick Pay, LTD, OASDI, 401 (k) Plan Sick Leave/Sick Pay, STD,OASDI, Workers' Compensation, 401 (k), AD&D Sick Leave/Sick Pay, LTD,OASDI, Workers' Compensation, 401 (k), AD&D OASDI, 401 (k) Educational Reimbursement Plan (ERP) Aetna Dependent Care, Flexible Spending Account (FSA) MetLife No

Loss of Income Due to Death:

Non-Accidental, NonOccupational Death Accidental Death Occupational Death Yes Yes Yes

Loss of Income Due to Unemployment:

Unemployment Short-Term Long-Term Short-Term Long-Term Yes Yes Yes Yes Yes

Loss of Income Due to Non-Occupational Disability:

Loss of Income Due to Occupational disability:

Loss of Income Due to Retirement:

Retirement Educational Assistance Work/Life Exposures Dependent Care Property/Liability Legal Expenses Yes Yes Yes Yes Yes No

Other Types of Loss Exposures:

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Part II: Inventory of Benefits

Inventory of Existing Benefits

Introduction to the Healthcare Plan
The ACE Group, headquartered in Philadelphia, Pennsylvania, is one of the worlds largest providers of commercial property insurance, casualty insurance and reinsurance. It is a subsidiary of ACE Limited, which is domiciled in Switzerland. ACE Group USA currently has 4,500 employees enrolled and 5,200 covered lives that participate in the broad benefit package that ACE offers to attract and retain its talent pool. This comprehensive benefit package plan consists of a combination of fully insured and self-insured options.

Fully Insured Benefit Plans

ACEs fully insured benefit plans are insured and contracted through insurance companies which act in an ASO capacity to administer claims and provide benefits to ACEs eligible employees. These plans operate on either a contributory or a non-contributory basis.

Benefit Plan
Vision Dental Aetna DMO Option Employee Assistance Program (EAP) Life Insurance (Basic and Supplemental) AD&D (Basis and Supplemental) Long-Term Disability (Basic and Supplemental)

Administrator
Vision Service Plan Aetna Inc. Cigna Behavioral Health Prudential

AM Best Rating
*A / Stable *A / Excellent N/A N/A

ACE Accident and Health Life Insurance Company of North America

N/A *A / Stable

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Self-Insured Benefit Plans

The following Benefit Plans are self-insured by ACE. This means that ACE is ultimately responsible for providing benefits, and benefits are paid directly out of ACEs general assets. There is no special fund, trust or insurance from which benefits are paid, and participant contributions toward the cost of a particular benefit are used in their entirety prior to using ACEs funds. ACE has engaged the services of the following third-party administrators who are responsible for processing claims for these self-insured plans. Only ACEs funds (and not participant contributions) are used to pay administrative expenses in connection with these service providers.

Benefit Plan
Medical: Aetna POS II Plan Aetna AOO (Indemnity Plan) Aetna HMO Prescription Drug (Retail and Mail Order) Dental: Aetna Dental PPO Short-Term Disability Flexible Spending Accounts (FSA's): Health Care FSA Dependent Care FSA Transit Accounts *= Source of AM Best Rating www.ambest.com ESIS Aetna Inc.

Administrator

AM Best Rating
*A / Excellent

Caremark (PBM) Aetna Inc.

N/A *A / Excellent N/A N/A

ADP Flex Direct

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Medical Expenses
Aetna Health Maintenance Organization (HMO) Plan ACE USA offers a self-funded Health Maintenance Organization medical benefit plan. Employees enrolled in the HMO option must select a primary care provider. The HMO option covers medical services provided by Aetna HMO network providers and facilities with 100% network coverage after the applicable copay is satisfied. Benefits are not provided for care received outside the HMO network, except in the case of an emergency. The HMO option offered by ACE is available in areas with large ACE employee populations and available Aetna provider networks. Participants can choose from three levels of coverage: employees only, employees plus one or family. To be eligible to participate in the HMO Plan, an employee must be a US based full- or part-time (regularly scheduled to work at least 24 hours per week) permanent employee at ACE. Coverage is also available to dependents who fulfill certain criteria for eligibility. Eligible dependents are defined as a legal spouse, unmarried children up to age nineteen, or up to 23 if they are full-time students, and disabled children of any age if coverage began and the child was disabled prior to losing eligibility. Children up to age nineteen, or 23 if attending school full time, are also considered eligible if the employee is required to provide them medical coverage under a divorce decree or Qualified Medical Child Support Order (QMCSO). Coverage for a newborn child is automatic for the first 31 days after his or her date of birth, but the child must be enrolled within that time in order for coverage to continue. The plan covers routine hospital nursery care for a child born to an unmarried, covered dependent during the first 31 days. For coverage to apply to eligible dependents, they must be individually enrolled as dependents. No person may be covered both as an employee and as a dependent, nor may any person be covered as a dependent of more than one employee. To be covered under the ACE HMO Medical Plan, an employee must enroll him or herself (along with any eligible dependents, if applicable) during specific time-sensitive enrollment periods. The enrollment periods are: when an employee is first hired by ACE, during the annual open enrollment period, or within 31 days of experiencing a Qualified Life Status Change.
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Cost of coverage under the Aetna Health Maintenance Organization (HMO) Plan is paid for on a contributory basis in which ACE pays a major part of the cost and plan participants contribute through pre-tax payroll deductions. Aetna Choice Point of Service (POS) II Plan and Out-of-Area (OOA) Indemnity Plan ACE USA offers a self-funded Point of Service (POS) II healthcare plan which offers employees the option of using an in-network preferred provider or an out-of-network provider, and does not require the selection of a primary care physician. While the Choice POS II and OOA option has an annual deductible, annual out-of-pocket maximum, and lifetime maximum benefit limit, the Choice POS II option has separate maximums for in-network and out-of-network expenses. When in-network participant expenses for services received reaches the annual out-of-pocket maximum, the plan pays 100% of reasonable charges for most covered services for the remainder of the calendar year. This is intended to protect participants from financial hardship when medical expenses are unusually high during any single year. Participant coinsurance and deductibles apply toward the out-of-pocket maximum. The Choice POS II out-of-network part of this option covers most eligible services and is reimbursed up to 65% of usual, customary and reasonable coverages after the employee satisfies the annual deductible. Under the Out-of-Area Indemnity option, an employee may use any medical provider. After satisfying an annual deductible, the Out-of-Area Indemnity option reimburses the employee a certain percentage of the reasonable charges for covered expenses. The Out-of-Area Indemnity option is only available to employees who live outside of Choice POS II and HMO/EPO network areas. The Out-of-Area Indemnity option is provided through Aetna which, in the role of a TPA, administers all claims and is responsible for providing benefits. Under the Out-of-Area Indemnity option, services are generally reimbursed up to 90% of reasonable charges after the annual deductible is satisfied. The Aetna Choice POS II and OOA Plan define eligible employees as full-time or a part-time (regularly scheduled to work at least 24 hours per week) salaried employees. Eligible dependents are defined as a legal spouse, a same sex spouse in those states where it is legally recognized, dependent children up to age 26 (who
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are legally or financially dependent as defined by the IRS for federal tax purposes), including legally adopted children (eligibility begins on the date of placement for adoption or commencement of legal obligation to provide support in anticipation of adoption), or children for whom the employee is required to provide medical coverage under a divorce decree, court order or Qualified Medical Child Support Order (QMCSO). Cost of coverage under the Aetna Choice Point of Service II Plan and Out-of-Area Indemnity Plan is paid for on a contributory basis in which ACE pays a major part of the cost and plan participants contribute through pre-tax payroll deductions. High Deductible Health Plan (HDHP) with Health Savings Account (HSA) ACE USA also offers a self-funded HDHP medical benefit plan with an HSA option. This plan has an annual deductible and an annual out-of-pocket maximum and requires certification for inpatient hospital admissions and certain other types of care. The annual deductible is the amount that must be paid each calendar year for covered expenses before the plan begins to pay benefits. Money deposited on a contributory basis to the Health Savings fund are automatically set up in the employees name and count toward the annual deductible. Each plan level (i.e., employee, employee plus one, family) has a different annual deductible. Expenses for covered medical care count towards an employees deductible and annual out-of-pocket maximum. The High Deductible Plan with Health Savings Account (HSA) option has an out-of-pocket maximum for network and non-network care. Once the annual out-of-pocket maximum is paid, the High Deductible Plan pays 100% of recognized charges for most in-network covered services for the remainder of the calendar year. This is intended to protect an employee from financial hardship if medical expenses are unusually high during any single year. Once the applicable deductible has been met, the plan will pay 90% for network services and 60% for non-network services. The Aetna High Deductible Plan with HSA option defines eligible employees as full-time or a part-time (regularly scheduled to work at least 24 hours per week) salaried employees with ACE. The dependents covered are defined as a legal spouse, a same sex spouse in those states where it is legally recognized,
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dependent children up to age 26 (who are legally or financially dependent as defined by the IRS for federal tax purposes), including legally adopted children (eligibility begins on the date of placement for adoption or commencement of legal obligation to provide support in anticipation of adoption), or children for whom the employee is required to provide medical coverage under a divorce decree, court order or Qualified Medical Child Support Order (QMCSO).

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Dental
ACEs Dental Plan offers two options: Aetna Dental PPO (PPO) and Aetna DMO (DMO). Both options are on a contributory basis through Aetna Inc. The PPO version is self-insured and offers the option of choosing a network or non-network dentist (provider); although, charges are higher for utilizing a non-network provider. When in-network, the PPO pays 100% of preventive and certain diagnostic services and a percentage of most dental costs. The fully-insured DMO option is only available in some geographic areas and only covers dental services rendered by a DMO provider. Employees are covered for 100% of the costs for diagnostic and preventative services rendered by DMO participating providers. If the employee elects the DMO, he or she must select a primary care dentist (PCD) and receive and coordinate all care through DMO providers.

Vision
When employees enroll for medical coverage under any of ACEs Medical Plan options, they and their eligible dependents automatically receive vision care coverage through EyeMed. This vision care coverage is not an option for employees who are not enrolled in the ACE Medical Plan. Vision plan coverage begins at the same time as the ACE Medical Plan and includes eye exams, eyeglass frames and lenses. EyeMed will pay network doctors directly for covered services and eyewear. Although EyeMed does not cover all services and cosmetic or specialized eyewear, it does control the cost that doctors can charge, which is approximately 30% less than retail. When selecting a non-EyeMed Select Plan provider, employees will receive benefits at a lower, non-network level. Employees are responsible for paying the provider in full at the time of service then submitting itemized receipts to receive any possible reimbursement.

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Prescription Drug
The Prescription Drug Plan is self-funded and administered by Caremark Inc, a PBM that provides prescription drug benefits when an employee enrolls for medical coverage at ACE. Employees and their dependents automatically receive prescription drug coverage through Caremark, Inc. at the time they enroll in any of ACEs Medical Plan options. The Prescription Drug Plan contains a 3-tier copay structure with two types of covered drugs: generic and brand-name. When filling prescriptions, enrollees can choose to utilize a network or non-network pharmacy or use the mail-order service. Coverages for these options are as follows: When using a network retail pharmacy:

Type of Drug
Generic Preferred Brand (on drug list) Preferred Brand (not on drug list and no drug list alternative) $10 $20 $20

*Copay

Non-Preferred Brand (not on drug list with drug list alternative) $35 *If the cost of the drug is less than your copay, you pay the network pharmacy's usual and customary cost of the drug.

When using a non-network retail pharmacy:

For example:
Cost for a generic drug at non-network pharmacy Cost for the same prescription at a network retail pharmacy Plan pays ($60- $10 copay) You pay the difference ($75-$50) $75 $60 $50 $25

When using the mail service program:

Type of Drug
Generic Preferred Brand (on drug list) Preferred Brand (not on drug list and no drug list alternative) Non-Preferred Brand (not on drug list with drug list alternative) $20 $40 $40 $70

*Copay

*If the cost of the drug is less than your copay, you pay the cost of the drug.

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Flexible Spending Account (FSA)

Flexible Spending Accounts (FSAs) allow employees to pay for certain health care and dependent care expenses with pre-tax dollars. This means money to paid into health care and dependent care expenses is free from Federal Income, Social Security, and most state taxes. Participation in a FSA is fully contributory, or entirely optional, with pre-tax contributions taken out of each paycheck, then withheld and deposited into an account in the employees name by a third party administrator. An employee may file a claim for the reimbursement of an eligible expense from the pre-tax dollars in the FSA account. The Health Care FSA and Dependent Care FSA are separate accounts and, therefore, the money in a Health Care FSA cannot be used to reimburse dependent care expenses and vice versa.

Healthcare FSA The Healthcare FSA allows employees to pay for eligible health care expenses that are not fully reimbursed or covered by their medical, dental or vision plan coverage. Employees may contribute up to a maximum of $5,000 a year to the Healthcare FSA. These FSA funds may be used to pay for health, dental or vision care expenses that are tax-deductible under IRS rules. Participants are eligible to participate in the Health Care FSA if they are a U.S.-based, full-time or part-time (regularly scheduled to work at least 24 hours per week) salaried employee with ACE. Employees can also use the account for health care expenses incurred by dependents. Dependents are defined as a legal spouse, any dependent who can be claimed by the employee on their federal income tax return, and any child for whom an eligible employee is required to provide medical coverage under a qualified medical child support order (QMCSO).

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Dependent Care FSA The Dependent Care FSA allows employees to use money in the dependent care spending account to pay for certain dependent care expenses that allow the employees and their spouse to work or look for work. The Dependent Care FSA allows the employee to pay for eligible dependent care expenses with before-tax dollars. Generally, employees may contribute a maximum of $5,000 a year, with the exception of a $2,500 maximum for those who are married and file a separate income tax return. In the event that a covered married employee files a joint tax return with his or her spouse, and that spouse has a similar account with his or her employer, the combined maximum the couple may contribute tax-free is $5,000. The minimum annual amount that may be contributed in any of these situations is $100. In the case that an employee is married with a spouse who is not a full-time student, working or looking for work, that employee may not contribute to the Dependent Care FSA. Employees are eligible to participate in the Dependent Care FSA if they are a U.S.-based, full-time or part-time (regularly scheduled to work at least 24 hours per week) salaried employee with ACE.

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Loss of Income
The STD Plan benefit is self-funded by ACE. The Basic and Supplemental LTD Plan benefits are fully insured through Life Insurance Company of North America, a CIGNA company. LTD Plan Benefits are paid exclusively through insurance and never by ACE. CIGNA is the Claims Administrator and has been designated by ACE as the claims fiduciary for the LTD Plan (Basic and Supplemental), though ACE still has fiduciary responsibility to oversee the plan as it is being administered in the best interest of their employees. For the selffunded STD Plan, ESIS does not serve as an insurer, but as Claims Administrative Service Only (ASO) and does not bear any risk. ACE is responsible for providing plan benefits, but ESIS has been designated by ACE as the claims fiduciary. ESIS makes final decisions with respect to the self-funded STD Plan benefits provided. Both CIGNA and ESIS handle all claims for disability benefits, including appeals. ACE protects income by providing basic short-term and sponsoring basic long-term disability coverage at no cost to the employee. In addition, employees may be eligible to purchase supplemental long-term disability coverage. This disability protection is offered under the STD and LTD Plans. In addition to the STD and LTD Plans, employees are also eligible for Workers Compensation on the first day they are actively at work. Depending on the state in which an employee works, he or she may also be eligible for Statutory Disability coverage on the first day they are actively at work.

Short-Term Disability (STD) In the event that an employee is absent from work because of a covered disability, the STD Plan pays 60% or 100% of the employees base pay (depending on the length of service with ACE) for up to 26 weeks in any consecutive 12-month period. Eligible employees are automatically enrolled in the STD Plan, a benefit for which ACE pays the full cost. Employees are eligible for both the STD Plan and LTD Plan coverage if they work in the United States and are full-time or part-time (regularly scheduled to work 24 hours per week) salaried employees of ACE.

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Long-Term Disability (LTD) Basic LTD: LTD Plan benefits coordinate with STD Plan benefits to provide employees with income throughout their covered disability. LTD Plan benefits begin after they have reached 26 weeks of STD; the LTD Plan pays the Basic LTD Plan benefit in an amount up to 60% of an employees monthly base pay. Eligible employees are automatically enrolled in the Basic LTD Plan benefit in the LTD Plan, a benefit for which ACE pays the full cost. Supplemental LTD: Officers at ACE may elect to enroll in Supplemental LTD Plan coverage. The Supplemental Plan coverage, when combined with the Basic LTD Plan coverage, provides officers with 60% of their combined monthly base pay, commissions and performance bonus. In other words, Supplemental LTD Plan coverage works the same as Basic LTD Plan coverage, except that officers can replace 60% of the total of their combined base pay, commissions and performance bonus. The Supplemental LTD Plan defines a disability as an officers inability to perform all of the material duties of his or her regular occupation, or a qualified alternative, or that the officer is unable to earn 80% of their Indexed Covered Earnings.

Retirement Each of the plans under the Retirement Program is a qualified defined contribution plan funded by both the employee and the company. T. Rowe Price handles the investment of the assets under the Retirement Program, which are held in a trust for the participants benefit. Assets in the Retirement Program will be used for the exclusive benefit of participants and their beneficiaries. As a participant in this plan, an employee is entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). The Retirement Program is made up of the following retirement Plans: The ACE USA Basic Employee Retirement Savings Plan The ACE USA Employee Retirement Savings Plan

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Other Exposures
Educational Assistance ACE actively encourages employees to continuously develop their professional skills to meet the challenges of tomorrow's business environment. The Educational Reimbursement Program (ERP) is an important and valued employee benefit that supports this goal. ERP reimburses employees for educational expenses incurred while completing courses at community colleges, four-year licensed, accredited, degreeawarding educational institutions, and for company-approved professional certification and designation programs. Employee Eligibility - The waiting period for ERP participation is:

Associate and Bachelors degrees - following six (6) months of employment. Masters degree - following one (1) year of employment. Individual college courses and certifications not on the Company approved list - following six (6) months of employment.

Work/Life ACEs wellness strategy, Ensuring a Healthier You, represents a collaborative approach to health care and wellness that is in the mutual best interest of employees and the company. Encompassing the categories of disease prevention, early detection and healthy lifestyle choices, the program focuses on providing tools and information on three common, yet preventable disease states: high cholesterol, high blood pressure and diabetes. ACE believes in providing its employees with the tools needed to achieve and maintain healthy lifestyle habits and take responsibility for their own health and well-being. ACE has teamed up with Aetna to provide participating employees with access to Healthy Lifestyle Coaching, a voluntary program which, at no cost to the employee, offers support for the personal health needs of plan participants.

Dependent Care To assist employees in managing the demands of finding quality child care services, ACE has contracted with local child care centers to offer discounts on pre-school, before-and-after school care, summer programs, holiday and vacation programs, and some 'drop in' care services.
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Property/Liability ACE offers discounts on Auto and Home Owners Insurance on a voluntary basis. These benefits are available for eligible employees, defined as a U.S.-based, full-time or part-time (regularly scheduled to work at least 24 hours per week) salaried employees with ACE. These benefits are available through MetLife as an employee-pay-all voluntary benefit.

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ACE USA

Part III: Analysis of Decision Making and Plan Design

12/9/2011 912901695 911065782

Table of Contents
Company History.. Overall Design Considerations in Employee Benefits. Overall Considerations of Health Benefits.... Funding Considerations....... Cost Inflation....... Wellness Program........ Healthcare Flexible Spending Account......... Dental.. Overall Considerations of Other Benefits...... Disability. Other Considerations Regulatory Compliance... Health Reform... Non-Discrimination Testing Issues..... Plan Communication.... Conclusions and Recommendations for the Future.... HDHP....... Wellness Programs.. Auditing........ Communication.. Health Reform.... Thank You Letter.... 1 2 4 4 5 5 5 6 7 7 7 9 9 9 10 11 11 11 11 12 12 13

Company History
ACE USA (ACE) is a subsidiary of ACE Limited, domiciled in Switzerland. ACE is an insurance carrier that provides coverage for property and casualty, accident and health, life, and reinsurance. ACEs focus is to provide an extensive range of products and solutions, designed to meet the needs of small and mid-sized businesses, boasting a global presence in 53 countries. ACE was established in 1985 by 34 founding sponsors who offered insurance in hard-to-place excess liability and directors and officers coverage. In the past 25 years, ACE has expanded its operation from a mono-line excess insurer owned by its policyholders to a global, publicly traded insurance company that made its initial public offering in 1993. In 1999, ACE acquired the property/casualty book of business from Cigna and, with it, a great deal of new employees. Today, ACE is recognized as one of the world's leading providers of commercial, property and casualty insurance. Most recently, ACE has expanded its markets by acquiring Crop, Rain & Hail insurance to better supply its current and future clients with more comprehensive coverage. ACEs top competitors include American International Group, Inc., Marsh & McLennan Companies, Inc., and The Travelers Companies, Inc.1 ACE Limited has grown from 6 full-time employees to over 15,000 world-wide. ACE USA currently employees over 4,500 employees and offers benefits to over 5,200 covered lives. As ACE has grown, the need to offer quality benefits has maintained the same pace. Today, ACE places a high awareness on the benefits they offer as they understand the importance of employee satisfaction and well-being. ACE provides its employees with a comprehensive and cost-effective set of core benefits, including a 401(k) plan, Medical, Dental, Vision, and Prescription plans, Short- and Long-Term Disability coverages, multiple Flexible Spending Accounts (FSAs), and an Employee Assistance Program (EAP).

http://www.hoovers.com/company/ACE_USA/rfskfhi-1.html

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Overall Design Considerations in Employee Benefits

ACE quickly realized that it needed a generous benefit plan to retain the employees merging from Cigna, while also attracting new talent to improve the profitability of its newly obtained book of business. In order to attract and retain this bright employee pool while remaining profitable, ACEs original philosophy focused on building an extremely attractive and generous benefit plan2 while paying attention to cost and industry comparisons. Ashwyn Diljohn, Assistant Vice President of Employee Benefit Programs at ACE, is responsible for the decision-making and overall benefit plan design for ACE USA employees. In our interview, Mr. Diljohn explained the importance of offering competitive, if slightly more generous, compensation for ACE that is benchmarked against industry norms. Mr. Diljohn also expressed a concern of awareness among employees to understand the cost associated in offering benefits, as well as the responsibilities of the employees own health with the ongoing implementation of ACE offered wellness programs. ACE continues to follow this philosophy today, while also making efforts to minimize employees outof-pocket expenses. Company affordability is a major consideration, not only for the current year, but also in future years; ACE takes care to only implement benefits that it will be able to consistently afford in the future. ACE benchmarks its plans to see what competitors and the industry are offering, along with what these offerings may lead employees to expect from their own benefit plan. Involving employees in a reasonable amount of cost sharing is a growing part of ACEs benefit planning; ACE finds that offering voluntary plans allows it to fill gaps in coverage that may surface without costing the company more than it can afford. As a member of the insurance industry, ACE understands and applies its vulnerability to and thresholds for risk to its benefit funding decisions3. Appropriately, ACE offers a mix of self-insured and fully insured benefits to its employees. As its self-funding vehicle, ACE utilizes a General Asset Plan, through which company assets are comingled. According to Mr. Diljohn, ACEs financial integrity makes this a favorable

2 3

Workers Motivated by Richer Benefits http://ebn.benefitnews.com/news/workers-motivated-richer-benefits-270378-1.html

Page 2 Self-funded health insurance: Its about risk, vulnerability, cost savings http://www.bizjournals.com/albany/stories/2005/12/05/focus4.html?page=allof 13

choice; the General Asset Plan allows ACE to more easily administer its plans, as evidenced in the smooth annual reporting required by ERISA. While Mr. Diljohn says that ACE will always push back on fees, he admits that Aetnas are reasonable, due in part to the volume of business ACE places with Aetna. In addition to ACEs selection of Aetna as the ASO of its three medical plan options and Dental PPO, Aetna is also the insurer of a number of its products, including stop-loss, disability, and its wellness approach. In our interview, Mr. Diljohn explained that Aetna was chosen as the ASO for all three of its medical plans for a number of reasons, including demographics. ACE operates in just about every major city in the United States, where there a virtually four major carrier options: Aetna, UnitedHealthcare, Blue Cross/Blue Shield, and Cigna. The lack of consistency in products offered across geography by UnitedHealthcare and the BCBS franchise eliminated these options for ACE. As Cigna was considered too closely related to ACE directly after the acquisition, it was also eliminated as an option. Aetnas competitive pricing and robust network offers ACE a much more consistent coverage across demographics. Interestingly, ACE prefers not to include employees in the benefits design process. Mr. Diljohn explains that, although some limited-capacity focus groups have been done, he sees danger in polling employees and asking what they want offered in their benefit plan. In the past, this became an issue when employees requested specific, personally-significant benefits, and did not receive them. Instead, ACE chooses to offer a robust plan with a number of options an employee can add on to his or her core benefits.

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Overall Considerations of Health Benefits

Every year, ACE re-evaluates its plan costs and benchmarks the plan in comparison to the market. Other than minor adjustments, however, the medical plan with Aetna has remained relatively consistent from year to year. ACE offers eligible employees the choice of a NCQA-accredited HMO, a POS and OOA option, or a HDHP with HSA. Each of these options is self-funded and administered through Aetna, a decision which, as mentioned earlier, is based in part on ACEs belief that placing volume with Aetna allows ACE more leverage to negotiate fees with Aetna. Employee distribution among these plans is quite uneven, standing at roughly 50% in the HMO, roughly 50% in the POS, and a nearly negligible percentage of employees participating in the HDHP plan (less than 200 enrolled employees are enrolled). Through recent years, these percentages have remained relatively consistent. Since there is not much of a price differential, employees tend to remain in the plan system they are comfortable with. To prevent any problems that may arise from adverse selection, ACE tightly monitors its plans and only allows employees to make changes to their plans mid-plan year if they experience a Qualified Life Status Change.

Funding Considerations ACEs medical plans have passed on some extra costs to employees, a necessary move according to Mr. Diljohn, as ACE no longer believes that it is appropriate for employees to think that the company is going to supply benefits unequivocally, without shared risk. Additionally, ACE is asking employees to be more engaged in their own health. The blank check approach, he explains, creates an entitled, disengaged mentality wherein employees pay less attention to their own health and well-being than they would if they were sharing in the financial risk. For these reasons, ACE has made the cautionary move from an 80/20 company subsidy to a benchmark-approved 75/25 approach.

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Cost Inflation One of the biggest concerns facing plan design is balancing cost inflation and the need to remain competitive. Although this marks the first year in company history in which ACE was able to not raise premiums at all, Mr. Diljohn explains that ACE must make changes in order to continue providing successful, comprehensive healthcare plans. Rather than succumbing to the option of passing inflated medical costs on to employees, Mr. Diljohn opted to further engage his employees into their health plans through programs such as My Health and Safety, ACEs wellness program. Wellness Program ACEs wellness strategy was launched in consideration of consumerism issues, in order to make employees act like true consumers. ACE believes that nearly 70% of medical expenses can be avoided with the maintenance of a healthier lifestyle. As such, the plan emphasizes and heavily subsidizes preventative care, completely covers weight loss and smoking cessation programs, and includes consequential costs on employee wellness, such as a 15% tobacco premium differential on smokers. Since implementing Wellness Initiatives, the company has seen an overall decrease in claims. ACE views the funds spent up front, a $100 annual checkup, for example, to be a worthy expense when compared to the inflating cost of a preventable open-heart surgery. In addition to helping participating employees act as true consumers, passing surcharges and financial risk onto employees through such programs helps ACE avoid high claims costs in the future by creating more health and lifestyle-conscious employees. Healthcare Flexible Spending Account (FSA) With each of the plan choices, employees have out-of-pocket expenses. Under the HMO, for example, there is a 90/10 coinsurance model, which leaves employees to pay for 10% of eligible expenses. As a matter of great importance, ACE provides the option of a Healthcare FSA through which employees can contribute pretax dollars (also tax-free upon reimbursement)4 to help reduce or minimize these out-of-pocket expenses

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4

The Cost of Tax-Exempt Health Benefits in 2004 http://content.healthaffairs.org/content/early/2004/02/25/hlthaff.w4.106.citation

Dental ACE offers a Dental DMO and a Dental PPO through Aetna in an attempt to provide comprehensive benefits to its employees. ACE continues to offer this choice of dental plan because it is not a large expense, and employees appreciate and utilize the option.

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Overall Considerations of Other Benefits

Dependent Care Flexible Savings Account (FSA) ACEs Dependent Care FSA allows employees set aside pre-tax money to pay for certain dependent care expenses. Again, this benefit is included in an attempt to minimize employee out-of-pocket expenses

Disability Disability is not always a cut and dry benefit. In fact, there may be many loopholes in the system, through which employees can take advantage of an overlooked recovery to continue receiving benefits. ACE and Aetna take various measures to ensure that employees remain ethical while on disability, whether it is shortor long-term. Short-Term Disability: ACE provides Short-Term Disability (STD) coverage, a continuation of pay, to employees who submit a physicians proof of their disability. To avoid abuses of the system, ACE has a TPA review the physicians statement, test job requirements and make a determination if the employee is, in fact, disabled. This thorough testing goes on throughout the 26 weeks of STD. Long-Term Disability: ACEs Long-Term Disability (LTD) coverage is fully insured through Aetna, which continually requires medical evidence of the disability and submission of independent medical examinations (IMEs).

Other Considerations In order to provide the most robust benefits possible, ACE also offers benefits such as its Employee Assistant Program, Tuition Reimbursement, and a Stock Option Plan. While providing benefits to participating employees, these plans also greatly benefit ACE. The Employee Assistant Program (EAP) is provided to help employees, dependents, and any members of the household deal with issues, including aging parents, finding appropriate childcare, and substance abuse.
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The goal of this program is to provide a venue to clear up issues so that they are not brought to work, thus improving the work atmosphere for all employees. The Tuition Reimbursement Program was created in connection with ACEs belief that continuous education aids employees in staying informed and engaged, and in sharpening their skills. Ultimately, this program benefits ACE, as employees become life-long learners, and may not leave ACE without financial consequence for three years after the course is completed. In addition, ACE will reimburse the costs of acquiring certain designations, including a CPCU. ACEs Stock Option Plan allows participants to purchase ACEs stock at a 15% discount. This plan turns employees into stock owners of the company, and therefore increases their investment in the success of the company.

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Regulatory Compliance
To manage compliance and regulation issues under COBRA, HIPAA, and ERISA, ACE has employed a benefits attorney. Additionally, ACE hires various legal firms to administer fiduciary training each year. We dont compromise on compliance, says Mr. Diljohn, we spend the money to make sure we are good stewards of the plan, living up to the responsibility that has been entrusted to us.

Health Reform Virtually all benefits-providing companies across every industry are beginning to feel the impacts of Health Reform. As more changes are implemented, ACE focuses on the changes under the Patient Protection and Affordability Act. On September 23, 2010, PPACA extended the eligibility for healthcare benefits of dependent children to age 26. This extension offered healthcare coverage back to some dependents who had previously been aged-out of the plan, incurring greater costs for ACE.

Non-Discrimination Testing Issues One area in which ACE faces compliance issues is in regards to its defined contribution retirement plan. Under PPACA, non-discrimination testing is required to ensure that the plan benefits a fair ratio of highly compensated individuals (HCIs) and non-highly compensated employees.5 According to Mr. Diljohn, ACE has failed non-discrimination testing in this area due many employees scaling back on savings in response to the struggling economy. When this happens, ACE is required to put money into the plan for the non-highly compensated employees until the required threshold is passed. Although he insists that there is no inherent problem with the plan, Mr. Diljohn recognizes that this will continue to be a compliance issue when non-highly compensated employees do not contribute adequately to these plans.

Nondiscrimination Testing for Group Health Plans http://www.lewisellis.com/docs/Group%20Health%20Plans%20-%20Nondiscrimination%20Testing.pdf

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Plan Communication ACE is especially thorough in regards to its plan communication to employees. Complying with ERISAs requirements, ACE provides summary plan descriptions for plan participants upon entrance to the plan, annually, and whenever significant changes are made (with a Summary of Material Modifications, or SMM). Additionally, ACE maintains a comprehensive Intranet system, through which participating employees can access thorough, plan-language information about certain benefit options, including Educational Reimbursement, the Employee Assistance Program, and My Health and Safety (ACEs wellness initiative).

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Conclusions and Recommendations for the Future

After analyzing ACEs benefits, we have concluded that ACE does in fact offer a generous, comprehensive program for its employees. Additionally, ACE has a clear understanding of the current and future regulations that may threaten the strength and veracity of its employee benefits planning. As ACE continues to implement cost-containment, benchmark, and follow industry trends, we have some suggestions to help ACE remain more fully competitive. HDHP Mr. Diljohn believes that enrollment in the HDHP will continue to be very low as long as the HMO and POS options are still available. While this is a sensible prediction, we suggest that steerage towards the more forward-looking HDHP will benefit the company in the long run. The HDHP, along with wellness components, forces employees to behave as true consumers, a change of perception that could have an incredibly large financial impact on ACEs claims payout. We also agree that ACE should continue to suggest that employees select a primary care provider to assure continuity of care, regardless of whether the plan in which they are enrolled requires one.

Wellness Programs As positive financial outcomes increase in relation to wellness programs, we recommend that ACE build an even more comprehensive wellness program to continue to improve employee health, awareness, and to further reduce claims in the future. In addition, we suggest that ACE continue to build an even more intricate

Intranet system to keep employees informed in clear, understandable language.

Auditing Currently, ACE only audits dependents when they are added to the plan and in the event of aging-out, death, divorce, or other disqualifying event. We suggest that ACE implement a more regular auditing process through which the company can ensure that all dependents enrolled in the plan are valid and eligible for benefits.
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Communication While ACE currently has an informative intranet system for certain benefits, transforming this system into a Web-based Total Compensation Statement may make the benefits package even more transparent to employees. By creating a comprehensive website with links to additional benefits information and decision support tools,6 ACE could provide year-round information to employees, who could browse the system at their own leisure. It may also be helpful to distribute a monthly hard copy newsletter or hold in-person meetings to inform employees about plan participation, enrollment periods, wellness programs, etc. Year-round communication is important to keep employees informed consistently, rather than meeting a rush of questions at enrollment time.7 Additionally, implementing a more open-door policy through which employees can make suggestions would be helpful, as long as contributing employees understand in advance that their suggestions may not be brought to fruition in the plan design.

Health Reform ACE faces a massive decrease in cost if it chooses to opt out for the pay or play rule. ACEs current plan costs them roughly $8,000 per employee per year (PEPY). If ACE chooses to instead to not offer a medical plan and pay for employees to go to the exchanges, its PEPY costs would be decreased to $2,000. While we suggest that ACE look into this option, it is important for the company to remain competitive. Choosing to not offer a medical plan while competitors do could put ACE at an industry disadvantage. Additionally, there will soon be many more reporting requirements under PPACA, such as reporting on W-2 forms and company costs for coverage. As a provider of rich and robust benefits, ACE may also need to comply with the Cadillac tax, adding to the administrative burden and possibly the costs of the plans. With insurers facing their own new regulations, Aetna will most likely need to pass a certain amount of this administrative burden down to ACE.

Loaded Statements: Web-based Total Compensation Statements Keep Employees in the Know http://ebn.benefitnews.com/news/loaded-statements-web-basedtotal-compensation-statements-239135-1.html 7 Four Creative, Low-Cost Ways to Educate Employees About Benefits http://www.bizjournals.com/albany/stories/2005/12/05/focus4.html?page=all

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Thank You Letter

December 9th, 2011

Ashwyn Diljohn Assistant Vice President Employee Benefit Programs PO Box 1000 436 Walnut Street - WA 03N Philadelphia, PA 19106

Dear Mr. Diljohn,

Christina and I wanted to personally thank you for your time and effort in assisting us with our group project. The information you provided pertaining to ACE's employee benefit plan design has given us the opportunity to broaden our education and gain a sense of how detailed the design process can be. We greatly appreciate you for taking the time out of your day to conduct a face-to-face interview with us, and for your detailed explanation of ACE's benefit design. Once again, thank you for all of your help.

Sincerely, Joseph McNamee and Christina DeSilva

*This is a copy of the thank you e-mail sent to Ashwyn Diljohn.

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