Bending Trend – Taking Control of Medical Costs

1. Bending Trend – Taking Control of Medical Costs Michael Turpin, EVP USI

2. I. The System is Failing – How We Got Here

3. Source: Kaiser Family Foundation, CIGNA estimates Employers: A Brief History of Managed Care 1988-2003 • What worked/didn’t • Migration to managed care models initially reduced cost through aggressive contracting and more stringent controls • Doctors were ill-equipped to manage increased volumes at lower rates of reimbursement • Patients rebelled as insurers got greedy • Managed care as the savior? Why? • Provider reimbursement (capitation) focus on wellness and prevention • Negotiated discounts with specialists and hospitals in exchange for volume/exclusivity • Management of unnecessary utilization • Voluntary (if steered) enrollment • The hook for employees/employers • Nominal cost sharing and no claim forms in exchange for • Limits on provider choice and access

4. Employers: 2003-Present • The era of cost cuts and cost shifting to employees is stop gap at best: • Cost shifting • Benefit reductions • Carrier consolidation leading to economies but poorer service • Cost shifting in provider contracting – more to large hospitals and specialists, less to community hospitals and primary care Our Challenge: The cost shifting era must yield to the era of consumer responsibility and physician enablement

5. Employers: We are increasingly out of step….. The cumulative effect of historical trends is overwhelming and eroding worker wages Cumulative Increase in Health Insurance Premiums Compared to Worker Earnings, 2001 - 2007

6. 5+ Risks $10,095 $9,221 3-4 Risks $6,664 $7,268 $5,445 $4,130 $3,432 $3,601 $2,741 $2,025 $4,319 0-2 Risks $3,366 $1,920 $1,515 $1,247 Employees:…in managing healthcare risk Lifestyle and Age Drive Cost Source: Dee Edington, PhD, University of Michigan (risk factors include tobacco usage, sedentary lifestyle, Extremely high/low body weight, high blood pressure, high blood glucose, high stress, depression)

7. We Are Out Of Step With Employees What employees want... • To be left on “$10 Copay Island” • Reduced cost shifting through payroll contributions (when take-home pay is flat) • Choices, but not too many! • Technology to learn about benefits, research on conditions, personal cost modeling • Financial incentives and a roadmap to better health • To avoid the doctor if cost shifting creates too significant a burden

8. Providers

9. We Are Out Of Step With Providers Provider beliefs • Increasingly distracted from the practiceof medicine • Complex, costly administrative process needed to get paid • No time to spend with patients • Medicaid funding inadequate; Medicare funding uncertain • Outrageous malpractice insurance premiums and tort system • Patients are non-compliant and current reimbursement practices make it harder to impact at risk and chronically ill individuals

10. What Next? : Moving from cost shifting to consumer control …. Evolving Solution Landscape • High deductible plans • Catastrophic plans • HRA/HSA based plans • Revised formularies • Revised co-pay structures • Buy downs Health/ Finance Focused Consumer Control Integrated Health Mgmt Consumer Decision Making Enhanced Health Mgmt Cost Shifting Benefits Focused • Guidance at enrollment • Personal health and wealth management • Transitional life stage support • Consumer incentives • Value-based benefits • Personal health record and plan • Integrated provider partners • Benefit design choices • Provider performance information for treatment choices • Provider network and informed consent choices • Patient liability information for budget choices • Wellness plans • Chronic care management • Complex care coordination • Education • Preventive plans • Advanced medical home Total health and wealth convergence Early stage health engagement True consumer engagement Increased awareness Short-term in-year cost savings Source: 2008 Chapter House, LLC

11. II. Bending Trend – 100bps At A Time

12. Focus on Primary Care Providers (PCPs) • Insurer reimbursement practices are accelerating the extinction of the primary care provider • Disability management is best achieved through incented, engaged PCPs and reduced barriers to care • Consider gatekeeper / primary care models and understand insurer reimbursement philosophies for PCPs • Gatekeeper models will drive lower trend if combined with clinical controls such as pre-certification and utilization review

13. A Return to Gatekeeper Models? How do employees become informed consumers? How likely would you be to look for health education or information from the following sources? 91% 84% 67% 59% 57% 25% Source: Yankelovich, Inc., Health and Well-Being in America Survey, 2007

14. Move Toward Performance Based Networks • Clinical variability is significant • Look at the entire episode of care, not the individual charge • Performance based networks can drive trend reduction by steering consumers to high quality, efficient providers • Savings = disruption • Analysis should be conducted on current utilization of premium providers and potential savings through improved steerage to narrower network

15. 80% or more (7) 60 to < 80% (53) 40 to < 60% (139) 20 to < 40% (62) 10 to <40% (7) Insufficient data Not populated Activating ProvidersThe Quality Challenge • Goal - reduce variation to improve quality • Great variation exists in the quality of health care people receive • Variation in care quality contributes to health care cost increases % use of beta blockers Example:Usage of beta blockers following a heart attack NOTE: According to the American College of Cardiology the use of beta blockers following a heart attack should be 100% for all eligible patients without contraindications. Map Source: John E. Wennberg Clinical Research Roundtable/Institute of Medicine 2000

16. Optimizing Your Network Achieving high quality and cost efficiency by: • Identifying top providers • Driving the rest toward health care best practices • Identifying the best care professionals for your employees’ care • As your employees seek care from our Premium Designation network your costs improve. • They receive the right care from the right professional at the right time • Measures based on external medical standards • Powered by our dynamic clinical evidence engine • Produces progressively better care at a more efficient cost • Continually improving • Focused on episodic costs per member • Source: United Healthcare ExemplaryClinicians Quality Value DeficitClinicians Efficiency

17. Access 10% Genetic 20% Environmental 20% Behavior 50% Compliance Designs Individual employees are our best hope for improving quality and cost efficiency Factors that affect health are principally behavioral. Getting individuals engaged in their personal health is the best way to effect change! Source: IFTF, Center for Disease Control and Prevention

18. Plan Design-Based Incentives – Integrating Incentives With Plan Design Strategies In addition to health management strategies, benefit designs are evolving to incent healthy behaviors and treatment compliance through customized benefit schedules. Value-Based Benefit Design • Out-of-pocket adjustments based on an assessment of the clinical benefit to the specific patient population to improve health regimen compliance • Diabetes, asthma, and coronary heart disease ILLUSTRATIVE Description Risk Populations Examples Example Source: 2008 Chapter House

19. Plan Design-Based Incentives – Integrating Incentives With Plan Design Strategies In addition to health management strategies, benefit designs are evolving to incent healthy behaviors and treatment compliance through customized benefit schedules. Engagement-Based Benefit Design ILLUSTRATIVE • Out-of-pocket adjustments based on participation in health assessments and appropriate wellness/disease management programs • All members with potential risk factors Description Risk Populations Examples Example Source: 2008 Chapter House

20. Performance Guarantees - - For Everyone • That which gets measured, gets done • Carriers • Trend guarantees • Claim picks • Retention / expense factors • Service performance / service center, sales office • Network disruption • Employee turnover • Implementation guarantee • Pre-implementation audits • Brokers • Service (account timeline) • Pre-Renewal • Financial outcomes (medical trend, insurance cost) • Strategic projects (call center support, wellness activation) • Legislative / compliance • Third Party Vendors – EB administration, communications

21. RX – Plan Design And Carve Outs • RX costs increasingly most inflationary component of medical trend • National carriers will continue to manipulate formularies to reduce exposure to brand name drugs • Many plans do not return discounts to employers – insurers margins are favorably improved through their pharmaceutical benefit management plans • Carve-outs can recover discounts, return control on formulary changes and leverage incumbent insurers into more balanced pricing

22. Ask For Your Renewal Early • Insurers will wait until the last minute to deliver your increase recognizing that the administrative burden of moving carriers is increasing • Ask for two year rate guarantees • Carriers underwrite business in blocks – early renewals that gain early concessions put pressure on underwriters to not offer concessions for later stage renewals • Manually underwritten <200 Lives 90 Days Partial experience rated <300 Lives 120 Days Experience rated >300 Lives 180 Days • First year renewals can include up to 5% additional increase attributable to carrier’s new business discounts

23. Figure Out Who Is Next - - Predictive Modeling • Over half of your future large claimants have not filed a claim over $1,000 in the last two years • Disease management is reactive and depends on the insurer effectively intervening between a treating physician and chronically ill patient. Predictive modeling is proactive • Plan designs should not be adjusted to avoid obligations to reimburse those at risk for chronic illness but instead eliminate barriers to reduce the risk of illness and/or manage that condition

24. Controlling Future Cost

25. Staying Healthy Getting Healthy Living with Illness 5% - 15% high risk population 40% low risk population 40% - 60% elevated risk population Asymp-tomaticIllness/ Disease Chronic, Unstable Chronic, Stable Healthy with Risk factors Acute Illness Minor Acute Illness Major Catastrophic Healthy Condition-specific and wellness Prevention and wellness Intensity-based and condition-specific • Predictive outreach … claims, health risk assessments • Case management • Integrated pharmacy, medical and behavioral, dental • Targeted interventions • Educational, specific mailings • Healthy living (e.g., pregnancy) • Wellness programs • Online health assessments • Screening exams and immunizations • Treatment programs • Disease management • Compliance support • Integrated pharmacy, medical, behavioral, dental • Source: United Healthcare Continuum of Employee/Consumer Activation Taking action all along the continuum helps create long-term quality and cost efficiencies overall

26. You can impact medical trend and save significant dollars….. • Medical trend will only get worse as insurers cave to large hospital systems. Are you ready to drop a major hospital system to save money. What is disruption worth ? • The next three years are on you – Obama is going to be busy trying to save the economy. The burden will remain and actually increase for employers • A company that is engaged with its workforce will achieve better retention and business results – think “ loss control for healthcare” • Set a target for medical trend and hold everyone accountable to achieve it

27. Health Healthy Employees = Healthy Company 16% Cost Difference Group A Companies Cost increases near Medical CPI (~4-5%) Aggressively support improvement in employee’s health and healthy behavior Group B Companies The Average (All Companies in the study) Group C Companies Cost increases are in double digits Consistently less support for employee health and healthy behaviors Source: September 2007 Health Care Survey by Towers Perrin

28. Closing Thoughts

29. Closing Thoughts Looking into the distance • External market forces will continue to push health care costs upward • However, investments in wellness and health promotion will yield lower costs and improved outcomes for those who adopt a culture of health • Concepts of consumerism will be the rule, not the exception, with robust financial tools and resources • Consumers will come to accept their new financial reality, and aggressively manage discretionary health spending • Cost avoidance through prevention and active management will prove to be superior to cost reduction • New entrants may emerge to supplant the current universe of larger, less effective players – new payers, new providers Focus on consumerism and improving health can yield a trend line at or below CPI

30. Closing Thoughts Looking over the horizon • Federal and state governments will try(but probably not succeed) to rationalizethe system—expect more mandates and pass through costs from insurers. Taxation of benefits is now in play • Obamacare will feature increased regulation, broader public programs such as expanding Medicare to more families and a possible federal opt out plan for all children which could accelerate private insurance crowd out • Few employees will be able to afford to retire before Medicare age (which will get progressively higher and include a means test to restructure contributions based on income) • What can Massachusetts teach us about health reform ? The private, employer-sponsored system will be the primary model of U.S. health insurance for the balance of the decade, but ……….