In Conjunction with MassMEDIC, WGA is Pleased to Present:

1
In Conjunction with MassMEDIC,WGA is Pleased to
Present

• Employee Benefit Trends
• In The Medical Device Industry
• An Overview
• Presented by
• Louisa C. Bolick, Senior Vice President
• William Gallagher Associates Employee Benefits
  Practice
• September 19, 2006

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WGA The Medical Device Industry

• WGA is the largest independent insurance broker
  in New England, with Property Casualty and
  Employee Benefits services, comprised of many
  specialty practices.
• For over 23 years, WGA has specialized in working
  with companies in the Life Sciences, High
  Technology, and Health Care sectors.
• WGA works with over 400 Life Science and Health
  Care companies, almost 100 of which are Medical
  Device.
• While industry does not play the same role in
  benefits as it does in other types of insurance,
  it is a significant factor when designing a
  competitive program.

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The Medical Device Industry Companies Discussed

• Medical Device is so diverse, ranging from
  companies whose primary focus is manufacturing
  components to those companies researching and
  developing brand-new technologies.
• Size also varies widely, from start-ups to
  industry giants.
• Within the industry, benefits can vary
  significantly depending on size (number of
  employees) and their demographics with
  demographics driven by type of work conducted.
• For this discussion, the focus will be on small
  to mid-size companies whose employees are working
  primarily in research, development, design,
  support marketing.
• In order to attract and maintain these key
  personnel, Medical Device companies need a strong
  compensation program, of which benefits are a
  significant component.

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The Medical Device Industry Standard Plan
Offerings

• The Basics
• Medical
• Dental
• Basic Life ADD
• Short Long Term Disability
• Flexible Spending Accounts
• 401K Retirement Plan (matching varies)
• Paid Sick / Vacation / Personal Time
• The Extras
• Vision
• Employee Assistance Plans (inc. Work/Life)
• Business Travel Accident
• Tuition, Transit, Adoption Assistance
• Group Voluntary Benefits (Life, ADD, Vision,
  Home Auto, Long Term Care, Pet Insurance, etc.)

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The Employee Benefits Market Health Care Trend

• Rising health care costs and how to control
  them are near or at the top of everyones list
  of concerns today, and is the 1 priority among
  benefits specialists.
• Health care trend, or inflation, has remained
  stuck in the double digits for the last several
  years.
• Although the rate at which trend is increasing
  has slowed slightly in the last year or so,
  various industry surveys are estimating average
  trend to be 11.9 for 2007.
• Its predicted that health care costs will
  continue to rise steadily, largely due to the
  aging population and growing demand for better
  (and more costly) services, particularly in the
  medical technology area devices, testing,
  drugs, and hybrid technologies, etc.
• Med Device companies are acutely aware of this,
  from both a general business as well as benefits
  cost perspective.

Deloittes Top 5 Total Rewards Priorities
Survey, 2006
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Employee Benefits Trends Consumerism

• Consumerism is hot - talking about it, not
  adopting it (at least not yet).
• Forrester Research predicts that by 2010 24 of
  employees will be enrolled in a CDHP .
• In general, companies are interested in consumer
  driven health plans (CDHP) as a way to contain
  costs.
• In Medical Device, the interest is two-fold in
  addition to cost containment, there is genuine
  interest in the transparency aspect and in making
  employees (and customers) better consumers of
  health care services.
• In MA, adoption of these plans in the Med Device
  sector will be gradual, with start-ups and
  industry giants leading the way.
• In mid-size companies, the trend will likely
  catch on in the next year or two, with a CDHP as
  a option rather than a full replacement (Want to
  get started now? Try a Section 105 feature, or
  perhaps an HRA).

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Employee Benefits Trends Wellness

• Wellness is also a very hot benefits trend and
  Med Device companies are actually doing something
  about it.
• Individuals are drawn to this industry because
  they want to improve the health quality of life
  for people worldwide, but are they taking care of
  themselves?
• Med Device companies are more committed than most
  in promoting health wellness initiatives.
• Although reducing costs over the long-term is
  clearly beneficial, most Med Device companies
  want to encourage healthy habits and employee
  wellness because its the right thing to do.
• Companies are taking action quarterly wellness
  newsletters, lunch learn workshops, discounted
  fitness memberships, annual wellness fairs,
  incentive programs.
• Take advantage of what your carriers offer,
  particularly Medical and EAP providers.

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Medical Device in MA General Benefits Profile

• Small to mid-size Medical Device companies in MA
  have a very well-educated, highly skilled work
  force.
• Benefits are a large component of overall
  compensation, and expectations are high for a
  comprehensive generous package.
• This high expectation is both regional and
  industry-driven, as benefits in MA tend to be
  more generous overall than in other parts of the
  country.
• Historically, the benefits budget has been
  somewhat smaller for Med Device than for some of
  its Life Science counterparts. Careful analysis
  and planning go into every benefits decision.
• So when MA-based Medical Device companies promote
  a competitive benefits package to prospective
  employees, what does this entail?

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Medical Device in MA Benefits Benchmarking

• Medical plans tend to be fully insured
  (self-funding for larger companies) and include
  MA mandates. The most popular carrier is,
  overwhelmingly, BCBS of MA.
• For companies whose employees reside primarily in
  NE, an HMO plan with an out of area PPO is the
  most popular model. HMO and PPO are also offered
  as a buy-up dual option, with High / Low PPO
  plans gaining in popularity (addresses the out of
  state employee parity issue).
• The most popular PPO plan in MA is still 100-80,
  and HMO coverage remains at 100, with no
  deductible. OV copays remain low by national
  standards (avg. is 15-20)
• Hospital Outpatient copays (i.e. 250 / 500)
  are now a standard feature of these plans, while
  the most common Rx copays are 10 / 25 / 45, 2x
  for 3 month MOD.
• Average employer contribution is between 75-80.

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Medical Device in MA Benefits Benchmarking

• Dental plans also tend to be fully insured
  (although self-funding has little risk), and the
  most popular carrier is, again overwhelmingly,
  Delta Dental.
• A single DPO offering is the most popular
  option.
• When getting started, some Med Device companies
  go with a more basic plan and gradually upgrade
  to include Major Services and a higher benefit
  maximum.
• The most common Calendar Year Maximum is still
  1,000, but this is gradually increasing (a
  handful are even at 2K).
• A number of companies do offer Orthodontia,
  primarily for children only, but its still
  considered to be an extra.
• Employer contributions typically follow Medical,
  at 75-80.
• Stand-alone Vision plans are not particularly
  common in the industry. Companies rely on basic
  Medical carrier coverage discounts, and
  encourage FSA utilization.

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Medical Device in MA Benefits Benchmarking

• Life/ADD benefits are employer-paid, usually 1x
  or 2x salary (some include an Executive class).
• Short Term Disability benefits are typically
  employer-paid and are often self-funded. The most
  common benefit is 60 for 13 weeks.
• The industry-standard Long Term Disability
  benefits are also 60, with a 90-day elimination
  period and a 2-year own occupation clause (may
  also include an Executive class).
• Giving employees the option to pay the premium
  (for tax advantage) is becoming the norm.
• Flexible Spending Accounts are a standard
  offering.
• 401K plans are by far the most popular retirement
  benefit. Companies will often start a plan with
  no match (or a discretionary one), but gradually
  work up to a defined employer-match with a
  vesting schedule.

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Medical Device in MA Competing with Large
Companies

• How do you compete with those extremely
  comprehensive benefit plans that large companies
  provide? Dont!
• There may be less variety, but less really can be
  more. Small things that can make a difference
• Dont forgo a good EAP and BTA policy theyre
  not overly expensive, and these benefits do
  matter to people
• Do cover Domestic Partners, and students to age
  25
• Dont have a benefits waiting period
• Do offer tax choice LTD, and consider a parental
  leave policy
• Do offer employee-paid insurance options (Vision,
  Auto, Pet, etc.)
• Dont be shy about selling your benefits
  program
• Do establish a wellness plan, and then back it up
  with regular communication and small incentives

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Medical Device Benefits General Observations

• Employees are overwhelmingly satisfied with
  their jobs, due in large part to competitive
  wages and attractive benefit packages.
• The Medical Device benefits approach in MA is one
  of cautious generosity. Benefits are definitely
  competitive, but they are practical, not
  extravagant.
• Companies actively solicit feedback from
  employees on the benefits programs - whats
  working and what might need improvement.
• Med Device companies are very focused cost
  containment, but not at the expense of quality
  and taking care of employees.
• As an industry, there is more interest in health
  care cost transparency and consumer-driven
  models, as well as promoting wellness
  initiatives.

MDDI 2003 survey
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In Conclusion for MassMEDIC Members

• The cost of providing benefits, particularly
  Medical, will continue to rise. Do not hesitate
  to tell employees how much youre spending on
  them! One suggestion simple employee benefit
  statements.
• Sometimes small improvements can make a big
  difference. Add an EAP with good work / life
  benefits, and then encourage utilization.
• As the demand for experienced, senior-level
  employees grows, you may want to consider
  executive benefits such as supplemental Life,
  LTD, Long Term Care or perhaps a Deferred
  Compensation plan.
• Add voluntary benefits to the menu. They dont
  cost the company money, and employees do
  appreciate the convenience.

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• Thank You!
• Any Questions?
• The following sources were reviewed in developing
  this presentation
• WGAs book of business and Medical Device clients
• Booz Allen Hamiltons State of the Medical
  Device industry and Trends for 2006
• The Medical Device Industry In MA, UMass Boston
  (for MassMEDIC)
• Innovation and the MA Medical Device Industry
  (MassMEDIC, 2002)
• MDDI Salary Survey, 2003 (devicelink.com)