HOT ISSUES IN HEALTH CARE

1. <<!-- PICOTITLE= "Health Insurance Market in Colorado" --> <!-- PICODATESET mmddyyyy=08202001 --> HOT ISSUES IN HEALTH CARE Sponsored by Rose Community Foundation

2. HEALTH INSURANCE MARKET IN COLORADO W. N. Lindsay Benefit Management & Design, Inc. 1720 South Bellaire Street, Suite 250 Denver, CO 80222 (303) 691-0335 www.bmadinc.com

3. Setting the Stage • Urban and Rural Access • Small Group Health Insurance Challenges • Significant and sustained price inflation

4. “But Colorado is Unique!” …is it?

5. National Trends? • Influenced by large employers • Health care prices vary by market

6. *Estimate is statistically different form the previous year shown: 1996-1999, 1999-2000, 2000-2001, 2001-2002. Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. SOURCE: KAISER FAMILY FOUNDATION AND HEALTH RESEARCH AND EDUCATIONAL TRUST, SEPTEMBER 5, 2002

7. Can we afford it or are we willing to pay for it? Reden & Anders, Inc. 2000

8. Can we afford it or are we willing to pay for it? Reden & Anders, Inc. 2000

9. The Factors Driving Rising Costs in Healthcare (2001-2002) (PricewaterhouseCoopers)

10. National Rx Drug Trends Source: Mercer/Foster Higgins National Survey of Employer-Sponsored Health Plans 2001

11. Total HMO enrollment and growth rate, July 1992 to July 2001 Note: Growth rates based on total enrollment, not the rounded-off numbers given in this chart SOURCE: EBRI 5/30/02

12. Health Plan Enrollments For Covered Workers, Selected Years 1996-2001 Sources: Kaiser/Health Research and Educational Trust (HRET) Survey of Employer-Sponsored Health Benefits, 1999, 2000, 2001; and KPMG Survey of Employer-Sponsored Health Benefits, 1996, 1998.

13. America’s Health Care Providers Won the Battle vs. Managed Care • Network adequacy rules • Any willing provider requirements • External appeals required • Gag clauses removed • Out-of-network providers included • Prompt pay rules • Non-contracted reimbursement rates • Health plan liability But they may have lost the war.

14. Consider This! Shift cost to employees Higher deductibles & OOP limits No reimbursement until a claim is processed Removal of copayments from plans Collections on an individual employee basis Increased bad debt No assignment of benefits for non-contracted providers

15. “The leading cause of personal bankruptcy is health care costs.” Source: Prosperity Institute Report 2/2002

16. The States as Laboratories!!

17. Colorado Has Been a Laboratory • 1992 RWJ Planning Grant • 1994 Business Group of One • 1994 Small Group Health Reform • 1994 Modified Community Rating • 1994 Small Employer Health Care Purchasing Cooperative • 1996 Child Health Plan • 1998 Child Health Plan Plus (SCHIP) And…there have been a few explosions!

19. Colorado HMO Enrollment Source: Interstudy Statistical Report 2000

20. Colorado HMO Results Source: Colorado Division of Insurance, May 2001

21. Insured StatusSmall Employer Market Source: Colorado Division of Insurance April 30, 2002

22. Employers’ Reactions to Rising Health Care Costs December 2000 26% 74% 38% December 2001 72% 28% 52% August 2002 88% 12% 52% Pass on Cost Increase Absorb Cost Change Coverage Source: BMAD Employer Surveys

23. Contrary Concepts: Public Policy Insurance Principles • Guarantee Issue all products (HIPAA) • Open enrollment required (HIPAA) • Limits on “pre-ex” (HIPAA) • Maternity not pre-ex (HIPAA, Pregnancy Discrimination Act) • Mandated coverage (e.g., Mental Health)

24. Rate regulation Rating restrictions Market conduct rules Guaranteed availability Limiting restrictions by insurers Small employers only Impacts of laws on Insurance State Laws Federal HIPAA Law

25. Challenges to Effective Competition The size of the pool is shrinking! • Number of uninsured growing • Number of small businesses not offering insurance is growing • More employees not electing coverage when offered it

26. Challenges to Effective Competition Different sets of rules! Self-funded small employers 8-10%+ Individual insurance 3-7%+ Employee leasing companies 2-5%+ Others (METS, MEWAs, etc.) 3-5%+ Estimates

27. Fact Based Assessment Example of individual insurance Age 25 $125.89 Age 35 $150.13 Example of small employer group insurance Age 25 $193.25 Age 35 $206.41 $500 deductible, 90/60% PPO, $5,000 Coinsurance, $20 office copay, 10/30/50 Rx, 6/02 Denver rates

28. Fact Based Assessment Individual Insurance is Cheaper • New Pre-ex • Subject to Medical Underwriting • Policy limits, restrictions • No state mandates* “TINFL”

29. Current Status? • Humana—major off-anniversary rate change • Sloans Lake HMO is sold • Denver Health HMO withdraws from small group • Aetna, Pacificare withdraw from Alliance • Aetna withdrawal from HMO small group • Alliance/CHIP fails

30. Current Status? On-going challenges: • Rate increases (ALL groups) • Stop-loss market has hardened • Small employer pool decreases • Rural access to insurance options • Over age 65 access to physicians

31. What are we to do? • Re-entry penalty • Gather data on insurance coverage • Define “insurance” • Provider cost data and quality

32. Conclusion "Picking a healthcare financing system is kind of like picking someone to marry--you're picking a set of problems you are prepared to live with.” Marc J. Roberts, Ph.D., Harvard School of Public Health

33. Thank You