HealthcareWebSummit

1. A Case Study in Health Plan Responses: WellPoint HealthcareWebSummit Dana E. McMurtry Vice President, Health Policy & Analysis WellPoint Health Networks Inc. December, 2002

2. Agenda • Current Cost Trends • Customer Challenges • WellPoint’s Response • The Future?

3. Current Cost Trends Health Benefit Cost Inflation Employers Expect Health Care Costs to Continue Rising All Employers 18.6% 17.1% 16.7% 12.7%* 12.1% 11.2% 10.1% 8.1% 8.0% 7.3% 6.9% 6.1% 2.5% 2.1% -1.1% 0.2% * Estimate Source:Mercer/Foster-Higgins, 2001

4. Prescription Drugs 15.2 12.5 11 Hospital Outpatient 7.7 Physician Services 4.8 3.5 Hospital Inpatient 1.6 -4.4 Current Cost Trends Hospital, Physician and Rx Costs Annual Percentage Change Per Capita in Health Care Spending 20 15 10 5 0 1996 1997 1999 2000 2001* 1998 -5 -10 * Data through March 2001, compared with corresponding months in 2000. Source: Health Care Financing Administration, 2000

5. Current Cost Trends Multiple Cost Drivers • Hospital Consolidation • Pharmaceutical Practices • Consumer Expectations • Aging Population • Medical Technology • Legislation

6. Current Cost Trends Summary of Cost Drivers The Factors Driving Costs in Health Care 2001-2002 Increased Consumer Demand Other General Inflation (CPI) 5% 18% 15% Drugs, Medical Devices & other Medical Advances Litigation & Risk Mgmt 7% 22% 15% 18% Government Mandates & Regulation Rising Provider Expenses Source: PriceWaterhouseCoopers, 2002

7. Agenda • Current Cost Trends • Customer Challenges • WellPoint’s Response • The Future?

8. Budgetability Choice B C Customer Challenges What Employers Want A Administrative Ease Source:PriceWaterhouseCoopers LLP, 2001

9. Customer Challenges Strategies to Control Costs What Employers Want Actions Employers Anticipate Taking to Manage Health Care Costs in Next 12 Months Increase Consumerism Add high-deductible plan Increase employee choice Use ROI calculations in decision-making Purchase DM programs Develop direct contracts Use clinical risk adjustment in plan selection & pricing Currently in place Planned in the next year Source: Watson Wyatt Worldwide, 2002

10. Customer Challenges What Consumers Want Competing demands of... • Choice • Unlimited benefits • Access to new medical technologies • Brand name drugs • Broad / less restrictive networks …All at an affordable premium

11. Current Cost Trends U.S. Employers Shoulder the Burden What Consumers Want Consumer Out of Pocket Spending as a Percent of Total National Health Spending, 1986-1996 Source: OECD, 2000, in PricewaterhouseCoopers’ HealthCast 2010, 1999

12. Agenda • Current Cost Trends • Customer Challenges • WellPoint’s Response • The Future?

13. WellPoint’s Response WellPoint’s Response • Participation in All Markets • The “Health Security” Model • Focus on Product Innovation

14. WellPoint’s Response Participation in All Markets Size Individual 1 Senior 1 Small Group 2 – 50 Key Accounts 51 – 250 Major Accounts 251 – 2000 Special Accounts 2001+ Public Entities State Sponsored Programs Organized by Customer Segment

15. WellPoint’s Response The “Health Security” Model • Choice of Products • Network Development • Clinical Collaboration • Targeted Medical Management • Member Information

16. WellPoint’s Response Focus on Product InnovationIndividual & Small Group PlanScape LOWER PRICED MEDIUM PRICED HIGHER PRICED HMO Coverage PlanScape Products Basic PPO 1000 PPO Saver PPO Share 2500 EPO PPO Share 1500 PPO Share 1000 PPO Share 500 BC Life Share 1000 BC Life Share 500 HMO Saver Individual HMO FlexScape LOWER PRICED MEDIUM PRICED HIGHER PRICED HMO 100% PPO $20 Copay PPO $10 Copay Ultra Premium PPO $10 Copay Basic PPO High Deduct. PPO Saver PPO Saver HMO PPO $40 Copay PPO $30 Copay

17. WellPoint’s Response Focus on Product InnovationIndividual & Small Group Further choice at the member level • FamilyElect for Individuals • EmployeeElect for Small Groups

18. WellPoint’s Response Focus on Product InnovationLarge Group • ASO Services • Rental Networks For Self-insured • Network-Based Products • Consumer-Driven Plans

19. WellPoint’s Response Component Features • Employer funded • First dollar coverage • Funds can be used for any service covered by the plan • Applies toward deductible • Access to negotiated discounts • Unused funds roll over to following year HSA FSA • Employee funded • Pre-tax • Funds can be used for out of pocket services if HSA depleted, copays and other IRS allowed services not covered by the plan • May apply toward deductible • Use it or lose it PPO Plan • High deductible • Preventive care may be covered not subject to deductible • 90%/70% or 80%/60% once deductible met • OOP maximums Focus on Product InnovationConsumer-Driven Plans (Large Group) Experimenting with Defined Contribution

20. WellPoint’s Response Focus on Changing Industry Practices Council for Affordable Quality Healthcare • A coalition of 24health plans (representing 100 million members) & 3 principle health plan associations who: • Are committed to improving the health care experience for consumers and their doctors • Share a common vision that some of health care’s pressing concerns can best be addressed collectively

21. WellPoint’s Response Industry Collaboration CAQH Projects • Save Antibiotic Strength - Partnership with CDC & physicians to educate public on antibotic resistance • Formulary Website- Easily accessible, standardized, web-based database of health plan formularies • Physician Credentialing- Centralized electronic database for national single credentialing application

22. Agenda • Current Cost Trends • Customer Challenges • WellPoint’s Response • The Future?

23. The Future? • More consumer choice and involvement • The potential of disease management is realized • Genomics (and cloning?) will result in new therapies not yet contemplated • The interaction between aging, medical and technological advances, and consumerism will challenge everyone