Strong Medicine for Ailing School Employer Health Care Costs

1. Strong Medicine for Ailing School Employer Health Care Costs What are the causes? What are the remedies? What is the prognosis? Is there a cure? Chris Kerwin CSIU 570.523.1155 x 2302

2. Employer provided health care:Origins Growth Current status Future What can be done to better manage employer health care costs now…and in the future?

3. Health care is ailing because of… • Changing demographics • Medicare and Medicaid cost shifting • Advanced medical treatment technology • Federal and state mandates • Medical malpractice insurance costs/awards (PA awards against physicians up 13.5% in 2004 to $448 million) • Obesity and other lifestyle choices • Cost of treatment of AIDS and other diseases • Excessive demand for and consumption of medical services...utilization drives 43% of rate increase amounts • Increased use and cost of Rx drugs • More mental health/substance abuse treatment • And………………………………….

4. It is argued that:A dysfunctional market creates few incentives for its participants to deliver cost-efficient care

6. Top Cost-Driving Diseases • Heart Disease • Asthma • Mental disorders • Cancer • Hypertension • Diabetes …..15 diseases account for 50% of all cost increases from HHS study of 1987-2000 data

7. Are we a nation ofdesk-potatoes? • Worker weight problems result in 36% higher health care costs and 77% higher drug costs than others (RAND) • 39 million annual lost workdays are associated with obesity • $12.7 billion annual obesity cost to US firms (USBGH) • Bariatric surgery cost is $20,000-$40,000….140,000 Americans desired the procedure in 2004 (ASBS)

8. Medical Cost Trend Medical cost trend affects medical plans in two ways: • The total cost of the service/claim goes up • Previously uncovered claims enter the covered cost layer… ...also known as leverage This is most pronounced with low fixed dollar deductibles and co-pays.

9. ?????In 1964, annual incomes were $3,000…many deductibles were $100.In 2006, annual incomes are in the range of $30,000…many deductibles are $___

10. Types of plans • Traditional Indemnity/Major Medical/ Fee for Service (FFS) • PPO (Preferred Provider Organization) • HMO (Health Maintenance Organization) • POS (Point of Service) • Self-directed/Consumer-driven/HSAs/HRAs

11. Types of Rating • Fully Insured Firm rate no settlement • Partially Insured Retrospective settlement Rate stabilization • Self-funded (ASO, cost-plus) Used with stop-loss insurance

12. No matter what plan you choose, or how it is rated, or how it is funded, you will not escape paying for your costs! Employer-provided health care is a financial /banking arrangement… REAL insurance is elusive! Pay now or pay later! Health care is not an expense!

13. Some Rx facts: • 23 out of 9,991 available drugs responsible for 50% of cost increases in 1991 (Aon) • Drug companies spent nearly $3 billion in 2003 on direct-to-consumer advertising, up from less than $800 million in 1997 (WSJ) • Every extra dollar spent on consumer ads rings up $4.20 in sales! (Kaiser/Harvard)) • Top drug product web sites had a combined 32.5 million visits in 12 months (MR) • Many media ads don’t even refer to a condition when touting a drug • The 2003 ad campaign for Nexium had a budget of $233 million • Lipitor is the world’s top selling drug…$10 billion annually • 65 million Americans have hypertension…1/3 of US population…up 30% in ten years! • $26 billion is spent worldwide each year on statins • Of the ten doctors who recently urged lower levels of cholesterol, nine have received funding from statin producing drug firms. This recommendation would add 7 million people to the ranks of the 36 million now taking such drugs.

14. One Plan’s Top 12 Drugs 2004-05

15. Top 10 Specialty Drug Utilization

16. One Plan’s Rx Claims

17. Its Medical Claims

18. The Plan’s Medical and Rx Total Claims

19. Costs Go UP and UP and UP . . . • Medical Claims2004-05 $ 15,443,928 • Medical Claims1999-00 $ 8,720,885 • 77% Increase • Rx Claims2004-05 $ 5,537,764 • Rx Claims1999-00 $ 2,251,715 • 146% Increase • TotalClaims 2004-05 $ 20,981,692 • Total Claims 1999-00 $ 10,972,600 • 91% Increase

20. Example of Claim Facts In 2004-05: • 27 claims exceeded $50,000 • Their cost was $2.99 million; 19.4% of all costs for the year • 14 of those claims were dependent and COBRA claims • 14 were malignancy claims • Largest claim = $703,000 (pulmonary collapse) • Shock claims were $690,000 more than prior yr

21. IT COSTS MORE!!!! • Average Contribution Rate: • 2004-05 $698/Em • Average Contribution Rate: • 1999-00 $392/Em • 78% Increase in five years…. but not bad by most industry standards (1977-78 Contribution rate was $40/Em!!)

22. The best ways to save money • Pay less for claims….. with better discounts • Pay less for retention…lower administration fees • Pay fewer claims…via plan redesign • Shift costs to others (aka employees and other employers) through premium sharing, plan redesign and reducing census • Reduce claims by improving participant health

23. So what are aggressive employers doing about escalating costs? • Providing/negotiating less costly plans • Redesigning/reducing benefits • Launching consumerism efforts in plans • Increasing healthy habit/wellness incentives • Passing costs to employees • Lesser reimbursements • Higher premium sharing • “Pay to play” efforts

24. Some RX ideas • Free generics…. to encourage use vs brand drugs • Annual Rx deductibles…$25 or $50 • Brand-only retail deductible • $15 or 10% steps between generic and brand classes • Home delivery co-pays of at least 2 - 2.5 X retail co-pays • “Step Therapy” plans allowing pricey drugs only after less costly Rxs fail to help • Specialty Pharmacy programs • Pill splitting?

25. Strategies that do not work! • Blaming the plan • Blaming the employees • Passing costs on to the clients • Giving more benefits • Adding retirement incentives • Not consulting with the plan early on regarding benefit changes…or even in the heat of negotiations

26. What can work…. • Premium sharing on a percentage basis ……..Indexed by plan, salary and level of coverage • Fixed dollar co-pays that annually increase, or… • Percentage co-pays when using plan services • Incentives that lead to lower cost choices • Monetary incentives to reduce census • Health Risk Assessments and care programs • Efficient plan designs….a la PPOs and HRAs

27. What has been done in one plan…. For example, the plan …… • Self-funds benefits, with a best practice stop-loss insurance vehicle • Has a per person retention, not % of claims • Has great medical network discounts • Has powerful Rx discounts and admin costs • Owns all reserves; the insurance carriers own no member $$$ ****************************************************** • Yet its costs are going up….despite constant management….and non members report 40% plus rate increases with some in excess of 50%!!!

28. PennsylvaniaTRUST

29. Some employers have: • Instituted co-pays, but many are on a flat amount basis • Required lifestyle “high riskers” to pay a higher share of costs • Capped their share of premiums, shifting rate increases to employees in whole or in part • Phased out retirement incentives that include health insurance…or charge extra. • Required working spouses to pay to be on the plan if they have availability of other coverage. • Awarded smaller pay increases as an offset to changing benefit plans…the holy grail!!

30. School employers bear risks in getting tough on costs • Tough talk on benefits = labor strikes • Can’t alter benefits from year-to-year due to contracts…status quo prevails • Generally rely on carriers for advice, which receive increases in %-based retention when rates go up • Face huge challenges with board dynamics

31. So how do we fix what is ailing? • Make tough choices, despite the risks • Get our data and use it!! • There is no magic bullet • Dialogue with unions? • Join a well- managed consortium • Realize that if a new plan sounds too good to be true, it is too good to be true! • Consult with those who know beforeacting • Reward healthy lifestyles/penalize others?

32. Some say that a national system is the remedy Some believe statewide solutions are the best medicine… However…. Like politics, all health care is local One thing is certain: the status quo is becoming more costly each year…perhaps 8% more in 2006!!! Is there a cure???

33. What percentage of health care spending pays for illnesses that are actually preventable? 25 % 66% 33% 75% 50% 80% ?????????????????

34. “Prevention is still a radical concept to most Americans. We are a treatment-oriented society.”Richard H. Carmona US Surgeon General June 10, 2003

35. THE END!!!THANK YOU!!