state of the industry 3.0
DESCRIPTION
Michael Bertaut, Senior Sales Intelligence Analyst from Blue Cross Blue Shield of Louisiana, came into our office yesterday and gave the following presentation to a small group of our clients.The information he shared with us is extremely timely, given the release of the new Senate bill and a weekend of President Obama’s scheduled visits to the major network news shows to discuss his health reform agenda. As we begin to see a little clarity in what may come, it is important for us all to be prepared.I think everyone should pay particular attention to the discussion of Community Ratings. This is a concept that I believe the general public largely does not understand. It is also what will probably directly impact them the most – in that it will largely determine the price of the coverage they will be required to purchase. This is generally bad news for the healthy and young. It also eliminates the financial incentive for healthy lifestyle choices.The entire video is about 50 minutes. But, it is well worth the time to gain a better understanding of what is happening and some important upcoming deadlines and their impact to business and individuals.TRANSCRIPT
Reform Takes Center StageHealthcare Reform and the State of the Industry
A Product of Marketing Development
Presented by:
Michael Bertaut
Senior Healthcare Intelligence Analyst
2
Sources of Reform Legislation and Influence
President Obama
Senate FinanceCommittee--Baucus
Senate HELPCommittee--Harkin
House Ways & Means,Energy & Commerce,
Education & Labor.Rangel, Waxman, Miller
House Single PayProgressives(77)
CBO
ReformConcepts
& Bills
Current Reform Data
House Blue Dogs(122; 52 Core)
3
The Bills Under Consideration
HR3200—America’s Affordable Health Choices Act. Passed 3 of 3 Committees.
Senate HELP Committee —Affordable Healthy Choices Act. Passed HELP Committee.
Senate Finance—Currently a Proposal, not a bill.
In President’s Speech “Affordable” (10) and “Choice” (5) fell back to “insurance” (67) and “reform” (34).
Current Reform Data
4
The Uninsured: Who are They?
In-Betweeners, 13,220,000,
28%
Monied Opting Out, 11,370,000,
25%
Eligible Not Signed Up, 12,220,000,
26%
Undoc Migrant
Workers, 9,400,000,
20%
Current Reform Data
“46.3M Uninsured @ the end of 2008, Census 9/10/10”
10 September 2009 Census Bureau Conference Call: 2008 Update on Poverty and the Uninsured
5
Who Are the Uninsured?
9.90%
20.30%
1.70%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
% o
f Pop
ulat
ion
Uni
nsur
ed
< 18Years
18-64 65+
Uninsured Rate by Age
Current Reform Data
24.50%21.40%
14.00%
8.20%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
% o
f Po
pu
latio
n
Un
insu
red
<$25k $25k-$49k
$50k-$75k
>$75k
Uninsured Rate by HH Income
10 September 2009 Census Bureau Conference Call: 2008 Update on Poverty and the Uninsured
6*Includes government administration and net cost of private health insuranceSource: Adapted from Centers for Medicare and Medicaid Services (2007)/ BCBSLA “CEO’s Perspective” 2007
3333¢¢HospitalHospital
30¢30¢Physician Physician
and Clinical and Clinical ServicesServices
10¢10¢Admin Admin
Cost Including Cost Including Taxes, Taxes,
CommissionsCommissions
1313¢¢Prescription Prescription
DrugsDrugs
66¢¢DentalDental
ServicesServices
2¢2¢ OtherOther
ProfessionalProfessionalServicesServices
11¢¢NursingNursingHomeHome
2¢2¢Home Home Health Health CareCare
How Your Carrier Spends Premiums.
$761M; 38.6%
$598M; 30.3%
$332M; 16.9%
In 2008, BCBSLA collected $1.97B in risk premiums,
broken out like this:
$279M; 14.2%
3¢3¢Future Claims Future Claims
Reserves/ProfitsReserves/Profits
NATIONAL
AVERAGES
85.8% of Premiums Went to Medical in 20087% Salaries/Admin
4% Commissions
1.5%Taxes
1.2% Reserves
.5% MM/DM/CM
Current Reform Data
7
124%122%
118% 116% 115% 116% 117%119%
122%
129% 129%133%
99%104% 102% 100% 99% 98% 98%
95%92% 92% 91% 91%
94% 95% 96% 97% 96% 95% 96% 96%92%
90%87% 88%
131%
102%
87%80%
100%
120%
140%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Paym
enr-t
o-co
st R
atio
Private Payers Medicare MedicaidNote: Payment-to-cost ratios indicate the degree to which payments from each payer covers the costs of treating that provider’s patients. Data are for community hospitals and cover all hospital services. Imputed values were used for missing data (about 35% of observations). Most Medicaid managed care patients are included in the private payers’ category.Source: Adapted from the American Hospital Association and Avalere Health TrendWatch Chartbook 2007: Trends Affecting Hospitals and Health Systems
Hospital Payment-to-cost Ratios for Medicare, Medicaid and Private Payers1995-2007
Break Even (Payment = Cost)
Why Hospitals Increase Rates.
“Medicaid is already under-reimbursed, with Louisiana hospitals
only receiving 83 cents for every dollar they use for Medicaid”
John Matessino-President, LHA
Current Reform Data
8
Key Specialty Shortage
Average Annual Increases in Physician Salaries By Specialty, CAGR 2003-2007
0.0%
9.0%
18.0%
CAGR
GastroUrology
OrthopedicsInternal MedicineNeurology
Family PracticeGeneral SurgeryHospitalist
CardioAnesthesiologyPediatricsEmergency
RadiologyInflationWages
OB/GYN
Physician Salary offers on average are increasing at multiples of both inflation and wage growth in other sectors.
InflationAverage
Joe’s Wages
Merritt Hawkins & Associates: 2007 REVIEW OF PHYSICIAN AND CRNA RECRUITING INCENTIVES
Bidding War Nationwide for 5 Key
Specialties
Current Reform Data
9
Important Healthcare Reform Concepts/Levers
Individual/Employer Mandates —law that states everyone must purchase or sign up for health insurance.
Community Rating —No Underwriting except for age, geography, family status.
Public Plan Option —a government-sponsored healthcare plan available to everyone. Could be similar to Medicare in form and function.
Insurance Connector/Exchange —quasi-government agency to manage public and private plan offerings with subsidies & tax credits. “Health Choices Administration.” “Health Choices Commissioner”
Guaranteed Issue —No one can be denied coverage, unlimited COBRA amendment (House).
Current Reform Data
10
Important Healthcare Reform Concepts
Subsidies—range from expansion of Medicaid to supplements to small business to buy coverage.
Budget Reconciliation Process —special rules for Budget Items that allow passage through Senate with 50% +1 vote margin instead of 2/3 rds super-majority.
Medicare Changes— adjustments to the popular senior program include changing doctor payments up/down and reducing market-based adjustments
Patient Centered Outcomes Research Institute —new federal agency to study and recommend appropriate treatments for different medical conditions.
Current Reform Data
11
Important Healthcare Reform Concepts
Lifetime Benefit Limits – outlawed under reform
Qualified Health Plans – Federal Government’s definition of health insurance. Very rich benefits.
Specified Actuarial Value/Benefit Options-- New Federal requirements for richness of benefit plans by level of payment.
Health Care Co-Ops-- “non-government” entities designed to offer health insurance as not for profits with federal start up money.
Current Reform Data
12
The Proposal Grid: Resolving Differences
Provision Detail Finance HELP House
Mandate Individual Y Y Y
Mandate Employer Y, >50e Y, >25e 8% Pay
Subsidies Individual 300% PL 400% PL 400% PL*
Subsidies Small Group Y Y Y
Public Opt Medicare-like Co-OP Y Y
ReformsCommunity Rating Y; 5 to 1 Y; 2 to 1 Y; 2 to 1
Reforms MLR Rules Report Report Y; 85%
Reforms Guarantee Issue Y Y Y
Current Reform Data
* Medicaid to 133% of FPL
13
Public Plan Option: A Level Playing Field? (from HR3200)
Government Plan will pay Provider Medicare Rates Government Plan will NOT be subject to State by
State Mandates Government Plan will NOT pay any state premium
subsidies or taxes Government Plan cannot be sued for damages, pain
and suffering, or punitive damages. Government Plan will not be required to follow RBC
or Reserve requirements Government Plan will negotiate one contract with
Pharma for entire nation. Government Plan will not have limitations on MLR.
Current Reform Data
14
Effects of Reform on Rates: Individual Market (About 10 million people today, 200k in La.)
Provision Detail Projected Rate Increase
Notes
No Medical UW Community Rating 30% or 45% 5:1 or 2:1 Age
Open Pool Guarantee Issue +25%
Least Healthy will seek insurance first.
Actuarial Standards
72-76% Minimum
+12% Average
Most Individual Insurance <80% AV
Latent Demand Newly Insured ?New insured seek
lots of care.
TOTAL HR320067%+ on Average
93% of 10M Individual Insured
get increase.
Current Reform Data
Assumes “weak” mandate.
15
Effects of Reform on Rates: Group MarketProvision Detail Projected Rate
IncreaseNotes
No Medical UW Community Rating 30% or 45% 5:1 or 2:1 Age
Open Pool Guarantee Issue +25%
Least Healthy will seek insurance first.
Open Pool New Uninsured +20%
Uninsured tend to be less healthy.
Actuarial Standards
72-76% Minimum
+12% Average
50% of Individual does not meet new
standard
Latent Demand Newly Insured ?New insured seek
lots of care.
TOTAL HR320087% on Average
93% of 10M Individual Insured
get increase.
Current Reform Data
16
FMAP/Medicaid/DISH Train Wreck!
State, $1.50B
18%
DiSH, $0.80B
10%
FMAP, $5.90B
72%
Current Medicaid Funding$8.2B Approximately
FMAP reducing from 80% to 63% By 1/1/2011 (-$1.0B)
HR3200 adds 600,000 new Medicaid recipients in La. By year 2019, we are 35-40% responsible.
Reform lowers/eliminates DISH Funding
Uncertain future for Charity Hospital System
Louisiana already owes CMS for using $800m in DISH funds improperly
Current Reform Data
By 2019, State will have to find $4B annually in new funding!!!
17
Funding Mechanisms—Total Cost at least $1T over 10 Years
Tax employee health benefits (FIT, FICA, FUTA) ($60-190B/Year) (high cost plans as well)
New Fee on Private Insurers, Pharma, Device Providers (Market Share Tax $6,4,2B/year)
Lower (streamline) Medicare Payments ($30-60B/Year) Wealth Tax on Individuals over $280k, families $350K ($40-
$50B/year) Lower uninsured compensation ($30-$60B/Year) Eliminate charitable deductions for high income earners ($25-
30B/Year) Subsidy from Cap and Trade Legislation ($45-60B/year) Adjust H.S.A. and H.R.A. contributions downward ($.5 to
$1B/year)
Current Reform Data
18
Healthcare Reform Fib of the Week!
“In addition, Baucus would seek to raise a smaller amount by imposing a fee on all health insurance companies according to their market share -- a measure intended to extract some sacrifice from an industry that stands to gain 46 million new customers. Baucus proposes a variety of mechanisms to enhance competition and transparency to ensure that the firms do not simply pass the fee through to their customers. “
Current Reform Data
Shailagh Murray: Baucus Urges GOP to Support His $900B Reform Bill, Washington Post, 9/8/2009
19
• All Americans have health coverage regardless of pre-existing conditions• Government subsidies help support a personal responsibility requirementto obtain and maintain health coverage• Payments for healthcare services are tied to quality outcomes andpatient safety• Individuals are healthier, with a greater focus on wellness and bettermanagement of chronic conditions•We support reforms that make the market work for everyone, by bringing more people in rather than creating a new government-run health plan that would cause millions of Americans to lose their private coverage.•For healthcare reform to work, it must include more than insurance reforms…..
The Blue Official Position on Reform
Contact Information:[email protected]
“Let’s see, I’ve been called a Villain, Immoral, Shark, Untrustworthy, Needs to be Kept Honest, Obstructionist, Evil Profiteer, Political Terrorist, Traitor, wow have I been busy!!!”
Appendix: Detail on Health Reform Levers
22
Cost Shifting
Biggest fear of Public Plan option is that if it pays Medicare Rates to docs and hospitals, and then becomes the dominant payer, irreparable damage will be done the delivery system.
Medicare on average covers 91% of the average hospital stay. Medicaid covers 88% nationally, about 83% in Louisiana.
House Bill specified Medicare payments to hospitals, Medicare +5% to docs.
Current Reform Data
23
Recent Cost Shifting Quotes
“It is with great sorrow that we file this lawsuit against the State Insurance Plan. We simply cannot continue to survive on government payments of $.64 for every dollar of care that we deliver”
--Language in Press Release from Boston Medical Center, July 16, 2009
Current Reform Data
24
Recent Cost Shifting Quotes
“Medicaid is already under-reimbursed, with Louisiana hospitals only receiving 83 cents for every dollar they use for Medicaid!”
--John Matessino, President, Louisiana Hospital Association, June 4, 2009.
Current Reform Data
25
Recent Cost Shifting Quotes
“Both Medi-Cal and Medicare already severely underpay healthcare providers in California…If ½ of our private patients move to a government plan that pays like Medicare, every hospital in California will run net losses.”
--C. Duane Dauner, CEO & President, California Hospital Association, quoted in July 17, 2009 AHIP Study.
Current Reform Data
26
Streamlining Medicare
Current Reform Data
27
Individual Mandate Notes
Currently the law in Massachusetts. Combined with subsidy program/tax credits. Big questions about enforcement on National
Scale, probably through income tax policy. Blue Plans support the Mandate to spread
costs more evenly Exceptions already being mentioned
(“hardship cases”). Supposed to help alleviate 47+ Million
uninsured
Current Reform Data
28
Community Rating/Guarantee Issue
Implies very little or no UW; i.e. “fair” rates None of the standard UW issues (weight, sex,
medical history, etc) except age and geography. Current proposals are age & geography only, 2:1
(HELP/House) to 5:1(Baucus) on age, depending on who’s bill.
No creditable coverage, no waiting periods BCBSA says it will support Community Rating IF
there is an Individual Mandate. Would result in large rate increases for the healthiest
groups, i.e. the “wellness focused” groups, and significant decreases for the sickest groups.
Current Reform Data
29
Insurance Connector Quasi-Government Agency to qualify customers and
market insurance plan. Funded by premium tax on carriers involved (3%). May have authority to set standards for insurance
plan coverage, commissions, non-producers. May operate in a for-bid environment among carriers,
or may stipulate pricing. Will manage sliding scale subsidy for coverage based
on ability to pay. Mass. Plan has connector products from all carriers,
but no government plan except Medicaid which cuts off at 150% FPL.
Likely to require plans in three or four actuarial value buckets: 93%, 87%, 82%, 76%, so far, nothing under 76% proposed.
Current Reform Data
30
Budget Reconciliation Process Normally, massive changes in Federal Programs with tax
and revenue implications require super majority (58 Yeas) or 2/3rds majority (67 Yeas) for passage.
In recent years, to insure Fed continues to pay its obligations when fiscal years end, certain budget items are available for “reconciliation” where they can be passed quickly with a 51% margin and very limited debate, and then “reconciled” later.
8 Years ago, Senate Republicans invoked the process to cut taxes, without Dem approval. Dems were furious.
Democrats in the House passed by 227-196 vote to use the reconciliation process to pass healthcare/insurance reform without Republican input or intervention. (4/22/2009).
Deadline for Bi-Partisan Solution is October 15, 2009. At that time, Dems will invoke Reconciliation and make their own bill which they will pass without Republican Support.
Current Reform Data
31
Minimum Loss Ratios
Specifies what % of total premiums collected must be spent on Medical Expenses.
Favors inefficiency, non-profits, encourages raising premiums more quickly to keep ratios in line.
Supposed to nullify “obscene profits”! Movement underway to reclassify
Medical/Disease Management expenses into denominator.
Current suggestions range from 80-85% minimum.
Current Reform Data
32
Appropriate Medicine Department
Officially the “Patient-Centered Outcomes Research Institute”
Funded, set up in ARRA Government agency to establish
standards for treatment and care Likely to be the basis of the new “quality
based physician reimbursement” program mentioned in all the bills.
Current Reform Data
33
Sources of Reform Legislation and Influence (To Re-cap)
President Obama
Senate FinanceCommittee--Baucus
Senate HELPCommittee--Kennedy
House Ways & Means,Energy & Commerce,
Education & Labor.Big Dogs= Rangel/Waxman
House Single PayProgressives(77)
CBO
ReformConcepts
& Bills
Current Reform Data
House Blue Dogs122 Support
34
AHIP/Blues Goals for Reform Reduce Growth in
Healthcare Costs Build information about
appropriate use of technology
Optimize Healthcare workforce
Public/Private partnerships to address chronic diseases
Paying for value, not volume
Transparency from medical system to consumer
Integrated (Medical Home Model) delivery of care
Examine motives of provider consolidation
Properly Fund Government programs and pay fairly for services
Current Reform Data
35
Timeline for Reform
All Three Versions of HR3200 have passed Committee, House Returns after Labor Day.
HELP bill passed committee. Senate Finance Chairman has vowed to stay through
recess to finish bill prior to leaving DC. Senate will take up full measure on return from
recess in September. All changes in place prior to 1/1/2013. Some
changes will happen sooner. October 15, 2009 drop dead date for reconciliation
vote.
Current Reform Data