“a crisis in health care costs” october 2003 presented by: & benefitdecisions seminar...

“A Crisis in Health Care Costs”

October 2003October 2003

Presented by:

&

Benefitdecisions Seminar

Created for valued clients of:

© 2003 Benefitdecisions. All rights reserved.

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Agenda

Perspective on Consumer-Driven Health Care and Cost

Humana’s Market Position and Case Study

Consumer-Driven Momentum


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The Pain of Escalating Health Care CostsThe Pain of Escalating Health Care Costs


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About Consumer-Driven Health Care

Sometimes called “defined-contribution” or “self-directed” health care

New breed of medical benefit plans that treats employees as direct purchasers of health services

Variety of programs to engage employees in plan and spending choices

May be the first major trend away from managed health care


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Perspectives on Consumer-Driven Health Care

Source: Aon Consulting, “Forum” communication article, May 2003

“Consumer-driven health plans are unlike any other that employees have seen before. Since the onset of managed care, employees have become accustomed to paying copays and sometimes paying a deductible and coinsurance. While these out-of-pocket amounts have steadily increased over the years, they are still miniscule compared to the actual cost of care. More importantly, the average employee often is not aware of the total cost of the care they receive.”


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“…to maximize their health care dollars, employees need to become smarter health care consumers. You’re asking them to shop for health care much as they would anything else. That’s where a thorough employee education campaign makes all the difference.”

Source: Aon Consulting, “Forum” communication article, May 2003


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“…traditional managed-care plans are ineffective [at controlling costs]. Humana’s goal is to guide employers and employees through the healthcare benefits maze – not make decisions for them.”

-Michael McAllister, CEO of Humana


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Employer’s Challenge – Cost Crisis

10.1%

8.0%

-1.1%

2.1% 2.5%

0.2%

6.1%

7.3%8.1%

11.2%

14.7%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Cost Increases

(%)

Annual % Change in Total Health Benefit Cost

Source: Mercer/Foster Higgins National Survey of Employer-Sponsored Health Plans 2002

1992 20021993 1994 1995 1996 1997 1998 1999 2000 2001


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“I’m a big believer that the most powerful player in understanding and managing costs is going to be the individual consumer. When people are spending their own money, given good and actionable information, they’re going to be much better than the current model at controlling costs.”

-Michael McAllister, CEO of Humana


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Cost DriversCost Drivers

Aging population

Pharmaceutical costs

Technology costs

Hospital capacity

Government mandate

Skyrocketing jury awards/malpractice insurance

Consolidation of suppliers/hospitals/physicians


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The “Big Picture” on CostsThe “Big Picture” on Costs

Health care costs = 13.9% of GNP $4,887 vs. $2,117 (average of

OECD)

@10.9% of its GDP, or $3,248

@10.7% of its GDP, or $2,800

@ 7.6% of its GDP, or $2,000

U.S.

Switzerland

Germany

U.K. (public health system)


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The “Big Picture” on Costs in the U.S.The “Big Picture” on Costs in the U.S.

Increase of 5.1% in 1980s Increase of 3.3% in 1990s Increase of 4.4% in 2000s

76.8 vs. 77.2

2.7/1000 vs. 2.9/1000

8.1/1000 vs. 8.05/1000

2.9/1000 – below average

44% vs. 72%

Growth in health care spending

U.S. life expectancy

Physician to patients

Nurse access

Hospital beds

Public spending


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Overview of the Delivery SystemOverview of the Delivery System

High

Low

HighLow

COSTS

ACCESS

X

HMO

Indemnity

Consumer-driven

PPO


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Critical Success Factors: Employers’ Point of ViewCritical Success Factors: Employers’ Point of View

Products and plan design

Networks

Information tools

R & D investment for improved information flow

Integration of patient-centric delivery platform

Costs


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Critical Success Factors: Employees’ Point of ViewCritical Success Factors: Employees’ Point of View

Introduce additional financial tension to encourage employees to consider treatments and costs

Provide education to choose and consume health care on a timely basis…on demand

Use tax-efficient vehicles Sub Text

Integration of patient-centric delivery platform


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Distribution of Medical Care Costs

Chronic

13%

67%

Severe

2%

13%

Healthy

85%

20%

Members

Costs

Acute

The minority of members drive the majority of costs


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Episode/Claim Drivers

Diabetes

Cardiac (CHF and CAD/CHD)

Asthma

Cancer (CM focus)


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Integrated Platform

WellnessRecoveryDeliveryof Care

Onset ofIllness

Pre-Illness/Daily Health &Safety Habits

NurseLine Information & Support

Disease Management

Utilization Management

Case Management

Broad Network Access

Wellness Program


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Agenda





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Solving the employer’s dilemma with health benefits…

…for ourselves!

SmartSuite Case Study


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Employer’s Challenge – Cost Crisis

10.1%

8.0%

-1.1%

2.1% 2.5%

0.2%

6.1%

7.3%8.1%

11.2%

14.7%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Cost Increases

(%)

Annual % Change in Total Health Benefit Cost

Source: Mercer/Foster Higgins National Survey of Employer-Sponsored Health Plans 2002

1992 20021993 1994 1995 1996 1997 1998 1999 2000 2001


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49%

34%

24%20%

15%

10%

20%

30%

40%

50%

60%

1960

1970

1980

1990 2000

Consumer Out-of-Pocket Spending as Share of Total Health Costs

Source: CMS

Consumer’s Out-of-Pocket Spending as a Share of Total Health Care Costs

2001

14%

0%

Consumers Not Economically Engaged


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Consumer Education Challenge

Employees underestimate total premium cost and overestimate their share

Source: Watson Wyatt


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Humana’s Experience

is …an insurance carrier… an employer… frustrated with escalating health costs

In 2001, Humana was walking in its customers’ shoes...

• Facing double-digit increases in health care costs

• Expecting a 19% increase in the upcoming plan year

• In need of a bold new approach to health benefits - a solution for the short term AND long term


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Rein in out-of-control health benefits costs Limit financial burden on associates Make future benefit cost increases more predictable

Be recognized as THE employer of choice by treating employees as adults in every facet of employer-employee interaction

Stop the year-after-year agonizing process of evaluating stripping benefits versus shifting cost (long-term solution)

Openly discuss the business problem with associates Together, Humana AND employees must take

responsibility for solving the problem Requesting associate responsibility requires that Humana

allow employees to make their own benefit choices

Humana’s Experience

Business Goal

Humana HR Goals

How?


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Engage employees to become informed, active health care consumers versus passive health care users

Recognize employee diversity – Offer choice of health plan

Close consumer education gap Good consumers respond to actionable

information Drive behavior change through financial

incentives Provide guidance to navigate the complex

health system

Critical Success Factors

Solution Goal



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Retain HMO plan option

• Medium cost; rich benefit; tight access control

• Increase consumer engagement with copays Retain PPO plan option

• High cost; employee balances cost vs. access decisions

• Increase consumer engagement with copays and OOP-Max Introduce new CoverageFirst PPO plan option

• Low cost; higher EE risk through moderate medical expense

• Up-front $500 benefit allowance; high deductible

• Studies show over 55% of insured employees spend less than $500 per year on healthcare

Result: employees consider cost, utilization and risk tolerance when purchasing appropriate health insurance

Recognize employee diversity – Offer choice of plan



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Close consumer education gap Pre-enrollment

- PlanProfessorSM newsletters and stand-alone articles

- Enrollment toolkit

- Educational presentation for employee meetings

- Guides to using online Enrollment Center and Health Plan Wizard

During enrollment (choosing a plan)

- Online Enrollment Center - benefits education and information

- The Health Plan Wizard - online guidance in comparing and selecting plan options, benefits and costs

Result: Employees understand implications of their decisions and have the support needed to choose an appropriate health plan for

their unique needs



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Good consumers respond to actionable information Post-enrollment (using the plan – ongoing support)

•MyHumana: member’s personal page on www.humana.com (decision tools, claims history, benefits detail, etc.)•Maximize Your Benefits: informs employees of lower-cost alternatives to expensive prescription drugs•PlanProfessorSM: year-round consumer education articles and information about Humana value-added services; tips for maintaining good health and getting the most from plan benefits

• HumanaFirst Nurse Line: general nurse assistance line available to all Humana members

• Disease Management programs• PersonalNurse program

Result: employees have the information available – when they need it – to make appropriate decisions in seeking the most effective and efficient health care throughout the plan year



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Office Visit copay differentials: generalist vs. specialist Hospital event copay differentials: outpatient vs. inpatient Rx copay differentials – by cost and efficacy

Financial engagement alone will not “bend the trend”• Combine with INFORMATION to empower behavior change• Combine with EDUCATION to create consumers, not users• Combine with GUIDANCE to support those members experiencing the most complex health system issues

Result: employees are engaged financially – and empowered with knowledge – to make effective and efficient health care choices throughout the plan year


Drive behavior change through financial incentives


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Reinforce preventive practices: eMessaging and VAT Disease and Condition Management: Specialized, focused approach for

members with chronic conditions• Coronary Artery Disease (CAD)• Congestive Heart Failure (CHF)• Rare Diseases

Personal Nurse• Support for members who need personal guidance• Pre- and post- hospital care coordination

eHealth: Online, personalized health tools for self-management Advanced predictive modeling: warning signs identification

Result: highest cost health conditions are prevented or minimized with extensive attention to member knowledge and empowerment over care.


Provide guidance to navigate a complex health system


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Engage employees to become informed, active health care consumers versus passive health care users

Recognize employee diversity – Offer choice of health plan

Close consumer education gap Good consumers respond to actionable

information Drive behavior change through financial

incentives Provide guidance to navigate the complex

health system


Solution Goal


Result… bending the trend…


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Humana’s Louisville Employees (~10,000 members)

Status quo

Introduction of SmartSuite

= $2.1 millionor 14% less than anticipated

2000-2001 2001-2002

19.2

%

4.9%

$14.6 million

$15.3million

$17.4 million

The Impact


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YEAR 1: Humana’s Louisville Employees (~10,000 members)

Plan Option

HMO

Tiered PPO

PPO Standard

CoverageFirst® $1,000

CoverageFirst® $2,000

Totals

06/01/01Enrollment

3,788

5,886

135

0

0

9,809

Assumed07/01/01

Enrollment

3,239

5,935

249

156

230

9,809

Actual07/01/01

Enrollment

3,310

5,140

613

271

264

9,598

Enrollment Results


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YEAR 1: Humana’s Louisville Employees (~10,000 members)

$2.1 millionin savings

=

Benefit Design Changes = $0.4 m

Waiver of Benefits = $0.3 m

Behavior Modification = $1.4 m

Increased consumerism (value proposition)

– Appropriate behavior selecting plan (Inter-Plan Choice)

– Appropriate behavior utilizing resources within the plan (Point of Service Choice)

Financial Results


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Change in Utilization of Selected Services

ServiceSmartSuite

ChangeMarketChange

Hospital InpatientMedical -8% 2%Surgical -4% 4%

Hospital OutpatientEmergency Room -1% 3%Radiology -4% 7%Pathology 1% 14%

PhysicianAllergyImmunotherapy

39% 38%

Office Visits 9% 5%Pathology 6% 6%Physical Exams 23% 19%Well Baby Exams 13% 7%

Behavioral Results


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CoverageFirst®

31% of participants had no claims cost

18% of participants exceeded the $500

5% of participants exceeded the deductible

CoverageFirst Results


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Allowed charges before (2000) and after (2001) SmartSuite for Humana Louisville associates

Eligible Charge Range

OOP Change

2000 2001 2000 2001 2000 2001$1 - $999 51% 47% 84% 81% $60 $75 $15$1,000 - $1,999 17% 19% 85% 82% $215 $263 $48$2,000 - $4,999 17% 19% 88% 84% $397 $532 $135$5,000 - $9,999 10% 9% 90% 85% $707 $1,036 $329$10,000 + 5% 6% 90% 90% $2,313 $2,210 ($102)Total 100% 100% 89% 87% $322 $411 $90

% of Total Subscribers Benefit Percentage Average Out-of-Pocket

Note: Does not include pharmacy claims

Out-of-Pocket Results


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Recognize: The marketplace is changing…

…Supply-side management and managed care will give way to consumerism in health care

Act: Deliver an employer solution with a consumer-centric value proposition

• Significant investment in technology to deliver products and information that empower consumers

• Investment in consumer behavior analytics and predictive modeling capabilities to add value to the consumer healthcare experience

• Humana’s “living laboratory” provides the opportunity to develop new solutions, test internally, and deploy proven solutions

Humana’s Commitment


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Agenda





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Consumer-Driven Programs Emerging as Viable Options

“Top 10” Actions Employers Anticipate in the Next 12 Monthsto Manage Health Care Costs

11%

16%

20%

21%

21%

29%

60%

71%

75%

32%

0% 10% 20% 30% 40% 50% 60% 70% 80%

1: Employee education using the Internet

2: Reduce benefits/increase copays

3: Targeted interventions

4: More aggressive managed care

5: Change medical vendors

6: Change dental vendors

7: Change prescription drug vendors

8: Defined contribution (consumer-driven) approach

9: Change behavioral health vendors

10: Less aggressive managed care

Source: Health Care Costs 2002 survey by Watson Wyatt Worldwide


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Growing Momentum for Consumer-Driven Plans

Source: 2003 Healthcare Strategy Survey by Deloitte & Touche

45% of companies believe that consumer-driven health care will be part of most employer plans by 2005

52% of employers feel that consumer-driven plans will result in immediate employer cost savings

41% of companies offering plans report that more than one-fifth of eligible employees have enrolled in the new plans


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More Employers Adopting or Considering Plans

Source: Deloitte & Touche 2003 Consumer-Driven Health Care Survey

35%

32%

14%

11%

8%

Reviewing; may offer

Will consider if cost-saving

Not considering

Currently offer

Will offer within next two years


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Reasons for the Momentum

Why Employers Are Adopting or Considering Consumer-Driven Approaches

6%

14%

30%

70%

85%

23%

0% 20% 40% 60% 80% 100%

Control program costs

Return control of health care decisions to employees

Limit liability from being sued

Transfer health management activities to a third party

Use insured products to eliminate financial risk

Other

Source: Health Expectations: Future Direction and Strategy, 2001 survey by Hewitt Associates LLC

% of Employers


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More Responsibility for Employees

How comfortable are employees with taking more responsibility for health-care selection*?

* Evaluating critical health plan, coverage and provider selectionsSource: Health Expectations: Future Direction and Strategy, 2002 survey by Hewitt Associates LLC

33%

55%

12%

Extremely comfortable

Not at all comfortable

Somewhat comfortable


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One More Reason: IRS Ruling

In June 2002, the IRS issued guidelines for health-reimbursement accounts (HRAs)

Clarified tax treatment of the accounts

Gave employers great flexibility in designing and implementing HRAs

“With this new guidance, we clear the way for employers to adopt health plans with patient-directed features so that employees have more choice and greater control over their health-care coverage” -U.S. Treasury Secretary Paul O’Neill


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FREE Guide Offer!

Considering a consumer-driven plan?

Call BENEFITDECISIONS for “An Employer’s Guide to Consumer-Directed

Healthcare Benefits,” for details about consumer-driven options

and practical “how to” advice.

The Employer’s Choice for Insurance

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Summary

The employee benefit environment is complex, competitive and dynamic. Benefitdecisions’ goal is to work with you to positively direct the course of your benefit programs through strategic planning, insight and execution. In these complex times, the demands and challenges on Human Resources are greater than ever, requiring the involvement of an experienced benefit consultant. Our firm is uniquely qualified in the benefits area, and our knowledge and expertise allow us to consistently deliver results that will exceed your expectations – guaranteed!

We are pleased to have had this opportunity to discuss one of the emerging trends today in employee benefits management.

The Employer’s Choice for Insurance

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“a crisis in health care costs” october 2003 presented by: & benefitdecisions seminar...

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