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“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
© 2003 Benefitdecisions. All rights reserved.
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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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Perspectives on Consumer-Driven Health Care
“…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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Perspectives on Consumer-Driven Health Care
“…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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Perspectives on Consumer-Driven Health Care
“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
© 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
© 2003 Benefitdecisions. All rights reserved.
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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
Critical Success Factors
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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
Critical Success Factors
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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
Critical Success Factors
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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
Critical Success Factors
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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
Critical Success Factors
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.
Critical Success Factors
Provide guidance to navigate a complex health system
© 2003 Benefitdecisions. All rights reserved.
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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
Critical Success Factors
Result… bending the trend…
© 2003 Benefitdecisions. All rights reserved.
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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
© 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
© 2003 Benefitdecisions. All rights reserved.
888-412-7180
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.
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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.
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