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ACE USA

Benefit Analysis:

PART I: Benefits Matrix

Part II: Inventory of Benefits

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Table of Contents

Exposure Analysis. 1

Inventory of Benefits. 2

Introduction to the Healthcare Plan.. 2

Fully Insured... 2

Self-Insured.. 3

Medical Expenses.... 4

Aetna Health Maintenance Organization (HMO) Plan.. 4

Aetna Choice POS II and Out-of-Area (Indemnity Plan)... 5

High Deductible Health Plan with Health Savings Account... 6

Dental... 8

Vision. 8

Prescription Drug.. 9

Flexible Spending Account (FSA)... 10

Healthcare FSA.. 10

Dependent Care FSA... 11

Loss of Income..... 12

Short-Term Disability (STD) Insurance. 12

Long-Term Disability (LTD) Insurance.. 13

Basic... 13

Supplemental... 13

Retirement.. 13

Other Exposures 14

Educational Assistance. 14

Work / Life... 14

Dependent Care... 14

Property / Liability.. 15


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Part I: Benefits Matrix

Exposure Analysis

Loss ExposureIs Coverage

Provided?Benefit(s) Offered

Medical Expenses:Hospital/Physician Yes Aetna HMO, Aetna Choice POS II, OOA

(Indemnity Plan), FSA, HDHP

Dental Yes Dental DMO, Dental PPO

Prescription Drug Yes ACE Prescription Drug Plan, Flexible SpendingAccount (FSA)

Vision Yes ACE Vision Plan, Flexible Spending Account(FSA)

LTC No LTC Insurance

Retiree Health Care Yes COBRA, Retirement Health Plan, Medicare, 401(k)Plan

Loss of Income Due to Death:Non-Accidental, Non- Yes OASDI, AD&D Insurance, Life Insurance, 401 (k)

PlanOccupational Death

Accidental Death Yes OASDI, AD&D Insurance, Life Insurance, 401 (k)Plan

Occupational Death Yes OASDI, AD&D Insurance, Life Insurance, 401 (k)Plan, Life Insurance, Workers' Compensation

Loss of Income Due to Unemployment:

Unemployment Yes Unemployment Insurance, Severance Package

Loss of Income Due to Non-Occupational Disability:

Short-Term Yes Sick Leave/Sick Pay, STD, OASDI, 401 (k) PlanLong-Term Yes Sick Leave/Sick Pay, LTD, OASDI, 401 (k) Plan

Loss of Income Due to Occupational disability:

Short-Term Yes Sick Leave/Sick Pay, STD,OASDI, Workers'Compensation, 401 (k), AD&D

Long-Term Yes Sick Leave/Sick Pay, LTD,OASDI, Workers'Compensation, 401 (k), AD&D

Loss of Income Due to Retirement:

Retirement Yes OASDI, 401 (k)

Other Types of Loss Exposures:

Educational Assistance Yes Educational Reimbursement Plan (ERP)

Work/Life Exposures Yes Aetna

Dependent Care Yes Dependent Care, Flexible Spending Account (FSA)

Property/Liability Yes MetLife

Legal Expenses No No

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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 Administrator AM Best Rating

Vision Vision Service Plan *A / Stable

Dental Aetna Inc. *A / ExcellentAetna DMO Option

Employee Assistance Program (EAP) Cigna Behavioral Health N/A

Life Insurance (Basic andSupplemental)

Prudential

N/A

AD&D (Basis and Supplemental) ACE Accident and Health N/A

Long-Term Disability (Basic and

Supplemental)

Life Insurance Company of North America *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 ofACEs 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 Administrator AM Best Rating

Medical: Aetna Inc. *A / ExcellentAetna POS II Plan

Aetna AOO (Indemnity Plan)

Aetna HMO

Prescription Drug (Retail and MailOrder)

Caremark (PBM) N/A

Dental: Aetna Inc. *A / ExcellentAetna Dental PPO

Short-Term Disability ESISN/A

Flexible Spending Accounts (FSA's): ADP Flex Direct N/AHealth Care FSA

Dependent Care FSA

Transit Accounts

*= Source of AM Best Rating www.ambest.com

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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 notprovided 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 optionis 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

mustselect 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 *Copay

Generic $10

Preferred Brand (on drug list) $20

Preferred Brand (not on drug list and no drug list alternative) $20

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 andcustomary cost of the drug.

When using a non-network retail pharmacy:

For example:

Cost for a generic drug at non-network pharmacy $75

Cost for the same prescription at a network retail pharmacy $60

Plan pays ($60- $10 copay) $50

You pay the difference ($75-$50) $25

When using the mail service program:

Type of Drug *Copay

Generic $20

Preferred Brand (on drug list) $40

Preferred Brand (not on drug list and no drug list alternative) $40

Non-Preferred Brand (not on drug list with drug list alternative) $70

*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 self-

funded 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 PlanThe 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, degree-

awarding 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 toHealthy 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 Makingand Plan Design

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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).

1 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 out -

of-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

2Workers Motivated by Richer Benefits http://ebn.benefitnews.com/news/workers-motivated-richer-benefits-270378-1.html

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


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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 pre-

tax dollars (also tax-free upon reimbursement)4 to help reduce or minimize these out-of-pocket expenses

4The Cost of Tax-Exempt Health Benefits in 2004 http://content.healthaffairs.org/content/early/2004/02/25/hlthaff.w4.106.citation

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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 short-

or long-term.

Short-Term Disability: ACE provides Short-Term Disability (STD) coverage, a continuation of pay, to

employees who submit a physicians proofof 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.

TheEmployee 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 Programwas 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 Planallows 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.

5Nondiscrimination Testing for Group Health Plans http://www.lewisellis.com/docs/Group%20Health%20Plans%20 -%20Nondiscrimination%20Testing.pdf

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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 ProgramsAs 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.

6Loaded Statements: Web-based Total Compensation Statements Keep Employees in the Know http://ebn.benefitnews.com/news/loaded -statements-web-based-

total-compensation-statements-239135-1.html 7Four 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.

Christina l Desilva - Ace.fall2011

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