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Managing Increasing Health Care Costs and Your Employer Sponsored Health Plan Presented by: T Cary Jennings Strategic Business Services

Health Care Costs Continue Climbing

• Health care costs have been increasing at an alarming rate for over a decade. • Average health care costs increased 7.5 percent in 2010 (up from 6.9 percent the year before). • Following years of growth, the rate of increase is projected to slow for 2012, to 7 percent.

National Trends Annual Health Care Cost Increases, National Averages 2004-2012

Source: Hewitt Health Value Initiative™, 2011

National Trends Annual Health Care Costs Per Employee, National Averages 2005-2012

Source: Hewitt Health Value Initiative™, 2011

Contributors to Rising Costs Several factors have led to the climbing health care costs over the past decade, including: • Demographics • Expansion of health care providers • Consolidation of managed care companies • Political environment/government regulation • Increased utilization and consumer demand • New medical technology • Weakening of managed care system • Health care spending and medical cost inflation • Increased prescription drug costs

Contributors to Rising Costs Contributors to the current projected spike in health care costs: •An aging population and workforce •Poor general health among employees

Contributors to Rising Costs • Aging workforce o Population is aging o Slower hiring levels have lead to older workforces o Older workers are more prone to severe and costly health conditions o Employers have seen a rise in the frequency and cost of catastrophic claims, presumably due to the aging workforce

Contributors to Rising Costs • Poor general health o Employees have become more and more unhealthy, which has also contributed to health care cost increases o Preventable risk factors such as obesity and high blood pressure had led to increases in chronic, costly medical conditions such as diabetes and heart disease

What Employers Can Do Employers are becoming more proactive in instituting strategies and programs to reduce overall health care costs, including: •Using health care data to drive health care strategy •Greater emphasis on plan design management, employee cost sharing, consumer-driven health plans and employee education •Investigate funding alternative and reinsurance options •Promoting employee health and wellness and disease management programs •Auditing and increasing cost-sharing for dependents •Strategic vendor management and benefit administrative technologies •Looking at long-term solutions and plans, rather than short-term fixes

What Employers Can Do • Using health care data to make strategic decisions o A top employer strategy for reducing costs, according to a Hewitt Associates study o Using measurable data and analytics to drive health benefits strategy o Important to go beyond accessing the data, and understand how to apply it to making health plan decisions and implementing changes

What Employers Can Do • Greater emphasis on plan design management o Use benchmarking to assure that the benefits you offer are competitive in the marketplace o Analyze deductibles, copays, Rx plans o Incentivize dual or triple option plan designs to encourage change in utilization o Consider association plans for discounts o Consider implementing Employee Insurance Committees to encourage peer education opportunities

What Employers Can Do • Increased employee cost-sharing o Companies will continue to shoulder the burden, but are passing off more costs to employees: - Moving from fixed dollar copayments to coinsurance - Increasing deductibles and out-of-pocket maximums - Increasing cost-sharing for non-network providers - Offering consumer-driven plans - Increasing cost of brand name drugs to incentivize generic use - Wrap your program in inexpensive discount program

What Employers Can Do • Greater emphasis on consumer-driven plans o Consumer-driven health care has become increasingly popular o Balances cost-savings for the employer, with employee empowerment to make own health care decisions o If paired with proper education, employees will become smarter health care consumers - which will save both the company and employees money

What Employers Can Do • Investigate funding alternatives and reinsurance options o Fully Insured • Standard • Refund Eligible • HRA / Fully Insured Gap Programs

o Partially Self Funded o Self Funded

What Employers Can Do • Promoting employee health and wellness o A common initiative, aimed at increasing employee health and effectively lowering health care costs o Many employers targeting specific diseases and creating more comprehensive programs o Incentives for participation, particularly for actions that promote actual behavior change (such as participating in a certain program, rather than just taking a health risk assessment) o Penalties for nonparticipation, especially in the form of higher premiums or other employee cost-shifting o Wellness and disease management programs are highly dependent on quality employee education and communication tactics

What Employers Can Do • Dependent management strategies o Conducting dependent eligibility audits can save companies huge amounts of money - Studies show that an average of 3 to 12 percent of dependents are not actually eligible o Many companies shifting to a per-member premium fee, rather than just “individual” and “family” o Emerging trend is requiring spouses to pay more in premium or assessing a surcharge, to encourage spouses to enroll in their own employer’s plan

What Employers Can Do • Strategic vendor management o Another recent trend is companies evaluating their vendor relationships more aggressively o Vendors not producing measurable results are being replaced or eliminated o Looking for opportunities to consolidate vendor relationships to get the most for their money

What Employers Can Do • Benefits Administrative Technologies o Single-source vendor to handle many HR concerns • Eligibility • Billing • COBRA / State Continuation • Payroll Services

What Employers Can Do • Long-term strategies vs. short-term fixes o Short-term tactics, such as employee cost-shifting, are still prevalent o Many employers are also looking more closely at multi-year plans and longer-term initiatives to improve overall employee health and strategically manage costs in the future o Especially in the wake of health care reform, many employers are worried about developing strategies that have sustainability in keeping costs down

Cost Impact:

Prescription Drugs

• Prescription drugs are an important part of health benefits and make a big impact on cost • Prescription drug spending has been one of the fastest growing components in health care over the past several years o This growth has slowed lately, partially due to increased availability of generics and decreased medication adherence by patients


Prescription Drugs

Prescription drug cost-cutting strategies: •Instituting or rearranging your drug tier structure, to incentive use of generics and increase cost for specialty drugs •Joining purchasing pools or drug discount programs •Promoting the use of mail-order prescriptions


Prescription Drugs

Prescription drug cost-cutting strategies: •Promoting employee consumerism when buying prescriptions •Encouraging medication adherence o Lack of adherence can cause costly medical complications and exacerbate chronic conditions o An employee education and communication initiative is needed for this to be effective

Determining the Right Strategy for Your Company • Is our program structure, plan design and pricing appropriate? • Do we have all the right vendors, services, contracting and funding in place? • Are our employee communication efforts appropriate and effective – especially in regards to employee health and wellness and consumerism? • Do we have effective disease management and wellness programs for our employees? • Do our pricing and plan design features encourage costconscious behavior on the part of our employees? • Are we thinking about long-term solutions rather than simply quick fixes for this year?

Managing Increasing Health Care Costs and Your Employer Sponsored Health Plan Presented by: Matthew Byrne and Strategic Business Services

Cost Impact:

New Technology

• Dazzling new technology-- MRI, computercontrolled insulin pumps, and more • In 2006, diagnostic imaging costs approximately $100 billion nationally--an increase from $75 billion in 2000 • American devotion to the newest, most expensive technology is a driving force behind growth in U.S. health care spending-much more than other industrialized nations – without providing better care • Estimates of medical technology contribution to health care spending growth range from 38%- 65% Newhouse, JP “Medical Care Costs” & The Robert Wood Johnson foundation

Cost Impact:

Variation in Medical Treatment

• A RAND Corporation study, says up to 1/3 of health spending is attributed to unnecessary hospitalizations, redundant tests, unproven treatments, and excessive end of life care • The RAND Corporation estimates 1/3 of care in the U.S. could be of little value meaning, hundreds of billions of dollars each year are wasted on superfluous treatments • Adoption of evidence-based practices lacking as documented by a 2003 RAND Corporation study showing only 55% receive recommended care

Cost Impact:

Physician Payment System

• Physicians paid piecemeal--for each test or procedure they perform, rather than a flat salary • Physicians have financial incentives to perform procedures that drive up health care spending • Doctors paid little for routine exams & “cognitive services” --researching treatment options, advice without treatment • Doctors paid whether procedures go well or badly & whether they are crucial or not • May perform a test costing $4,000 to make $800 when a cheaper test might work as well

Cost Impact:

Hospital Mergers & Construction

• Previously unaffiliated hospitals are being acquired by companies that manage entire hospital systems • These companies limit the ability to negotiate lower reimbursement rates • Hospital construction spending has increased substantially, up more than 75% since 2002 • MedPAC advised Congress that hospital construction for 2006-2007 was up 20% • Other providers such as testing labs and medical suppliers have seen consolidations, as well

BlueCross Blue Shield Association “Hospital Construction Spending” 2008 Medical Cost Reference Guide: Facts &Trends Driving Healthcare Costs


Cost of Care

Initiatives – Health improvement & preventive care programs – Cost-effectiveness treatment comparisons – Disease Management programs Pipeline Initiatives – Contracting strategies – Innovative reimbursement methods Watch list Initiatives – New technology effectiveness and cost – Innovative treatments costeffectiveness

Case Study - Serigraph • • • • • • • • • • • • • • • • •

Self insured with 1200 lives High deductibles of $750, $1,000 and $1,500 Coinsurance of 30 in network Premiums have increase just 3 times in seven years, each by a very small amount. Health Reimbursement Account ranging from $468 to $3120. Flexible Spending Accounts available. Max out of pocket: $3250-$6,000 per person in network Stop loss at $200K Free preventive Requires annual mini-physicals Up to 2 healthy days off for healthy lifestyles Rebates coworkers $250 to $2000 for selecting, “Center of Value” providers. Transparent price and quality rankings n intranet site. Free on-site clinic Free Primary care thru retained doctor Proactive disease management Onsite fitness center

Case Study - Serigraph • In 2003, Kaiser Family Foundation estimated the average medical costs at $9,068 per family. – In 2003, Serigraph costs were $8,302 per family, 8.5% below the national average. • In 2009, Kaiser Family Foundation estimated the average medical costs at $13,591 per family. – In 2009, Serigraph costs were $8,631 per family, 36% below the national average. • The Serigraph gap continues to widen.

So, how did they do it?


Cost Containment

• Give employees the right incentives to change their behaviors. • Trust and encourage employees to get their heads in the game of controlling costs. • Go to a consumer driven, high deductible plan, offset by personal health accounts (HRA, HSA). • Chasing discounts is a failed strategy. • Get co-workers to understand that they and the company need to work together. • Show how savings flow to the employees. The Company that Solved HealthCare, John Torinus



• Utilization drops sharply with adoption of an employee-empowered plan. • Cost shifting is NOT the objective of a well designed consumer driven plan. • Savings flow to workers in multiple ways. • Individual responsibility has to be built into any plan to attain cost control • Personal health accounts are popular with employees, giving the power to make decisions. • Actuaries factor behavior change into lower renewal increases. • The higher the level of engagement, the better the plan works in reducing costs. The Company that Solved HealthCare, John Torinus


Making the Marketplace

• Move your health care to providers with the best value. • Take advantages of price variations across systems and within systems. • Create a marketplace where none now exists. • Pay incentives to employees to get them to select the best medical deals. • Cut deals for bundled prices. • Remember, high price does not equal high quality. • Go abroad or out of your immediate market for elective surgery is you want real deals. The Company that Solved HealthCare, John Torinus


Primary Care

• Free or low priced clinics can markedly improve delivery • Primary care must be restored as the foremost provider in any system • Primary care that is owned by payers provide great efficiency helping reduce automatic steerage to high priced specialists and hospitals. • Care in on-site clinics can be far more intimate and organized than a big hospital system. • New competitors allow payers to contract on a flexible basis for any primary care needed by their employees.

The Company that Solved HealthCare, John Torinus



• Health improvement and cost containment won’t happen without education and good information. • Don’t just communication, hyper communicate on health matters. • Transparency on costs and quality is imperative. • New web based tools offering medical information helps immensely. Educate your people on how to use them • Urge employees to share decision making with their doctor. The Company that Solved HealthCare, John Torinus

T Cary Jennings

(614) 889-0250

Matthew S Byrne

(614) 336-3636


Managing Health Care Costs and Your Employee Health Plan