Consumercentric Healthcare

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Consumer-centric Healthcare The Future is Now
Ronald E. Bachman FSA, MAAA Principal 678-419-1388
ronald.e.bachman_at_us.pwc.com
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If the Future is Now Are You Ready for the
Change?
Desire for Change
Vision
Process for Change
POSITIVE CHANGE



Desire for Change
Vision
Process for Change
Put on Back Burner



Desire for Change
Vision
Process for Change
Expensive False Starts



Desire for Change
Vision
Process for Change
Frustration



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Where are You and Your Organization with Regards
to Healthcare?

• Adoption of change occurs as follows
• 2.5 Innovators - are venturesome,
  risk-takers and pioneers
• 13.5 Early Adopters - opinion leaders
• 34.0 Early Majority - deliberate follow
  peers
• 34.0 Late Majority - skeptical - pressured by
  economics and peers
• 16.0 Laggards - last and resistant to change

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Managed Care Is No Longer Managing Cost
Increasing Annual Trend

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Cost Management Results Are No Longer Driven By
Plan Type

Expected 2002 Health Care Cost Increases by Plan
Type (medians)
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Two Traditional and Predominant Choices

• 1. Reduce Benefits higher copays, increased
  deductibles, tighter formulary, etc.
• 2. Reduce Pay more employee contributions

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Leading-Edge Strategies For Cost Reductions Are
Supplementing Traditional Methods
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Consumerism Defined

• Consumerism is about transforming an employers
  health benefit plan into one that puts economic
  purchasing powerand decision-makingin the hands
  of participants.
• Its about supplying the information and decision
  support tools they need, along with financial
  incentives, rewards, and other benefits that
  encourage personal involvement in altering health
  and healthcare purchasing behaviors.

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Consumerism Much Broader than CDHC

• Consumerism is
• A Strategy
• NOT JUST a CDHC
• Plan Design

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Building Blocks for Consumerism

• Design Specific
• Include aspects of consumerism in all plan
  options
• Include Wellness programs that encourage healthy
  habits
• Include Disease Management programs that
  encourage compliance
• Include Decision Support Tools
• Provide Incentives/Rewards Change Behavior

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Basic Cost-sharing Differences Consumer-Centric
Plans
Most Consumer-Centric Plan Designs
Traditional Plans
HDHP PPO
EPO
POS
PPO
PPO
HDHP PPO
Personal Accounts
HMO
Must Meet HSA Legal Definition
Typical CDHP

Wellness/Prevention Early Intervention
Deductible Co-Insurance Designs
Co-Payment Designs
Disease Management Case Management
Information Decision Support
0 Zero Balance HRA Accounts ? Incentive HRAs
No HRA or HSA or Incentive Awards
Initial 500-1000 HRA Incentive HRAs
HRA Match Incentive HRAs HSAs

• Incentives Rewards

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Basic Requirements for a Successful Consumerism
Platform for Healthcare Benefits

• Must work for the Sickest Members, as well as
  the healthy
• Must work for those not wanting to get involved
  in decision-making, as well as the techies

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The Evolution of Healthcare and
ConsumerismFuture Generations of Consumer
Directed Healthcare

2nd Generation CDHC Focus on Behavior Changes
Traditional Plans with ConsumerInformation
1st Generation CDHC Focus on
Discretionary Spending
4th Generation CDHC Personalized
Health Healthcare
3rd Generation CDHC Integrated Health
Performance
Traditional Plans
Behavioral Change and Cost Management
Potential Low Impact ---- ---- ---- ---- ----
---- ---- ---- ---- High Impact
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1st Gen. Consumer-centric Healthcare

• Focus on Plan Design and implementation of
  HRAs/HSAs and basic decision support tools.
• Impact Discretionary Expenses

2nd Gen. Consumer-centric Healthcare
Focus on Behavior Changes. How to use plan
design to effectively change health and
healthcare purchasing behaviors with individual
and group incentives/rewards. Impact Chronic
Persistent Conditions, Pre-Natal, Wellness
Preventive care.
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CDHC Components1st Generation CDHC 1-3 Only2nd
Generation CDHC 1-4
Four components that work together to improve
quality, outcomes, and cost.
PPO
HRA/HSA Incentives Individual Group Rewards
Deductible Gap
HRA or HSA
HRA or HSA
Preventive 100 Coverage
Incentives and Rewards
4.
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HSAs and HRAsTwo Very Different Accounts to
Support Consumerism

• HSA A law, with specific requirements and
  benefit design requirements.
• Most TAX ADVANTAGED vehicle ever created
• 
  
• HRAs No Law, this is a regulatory creation
  based upon an IRS ruling.
• Most FLEXIBLE vehicle ever created

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HSA Eligible High Deductible Health Plan

• Self-only a deductible of at least 1,000 no
  more than 5,000 on out-of pocket expenses
• Family coverage a deductible of at least 2,000
  no more than 10,000 on out-of pocket expenses
• Preventive services are not subject to the
  deductible
• OK for out of network costs to exceed out-of
  pocket limits

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HSAs Contributions

• Limits determined monthly based on status,
  eligibility, HDHP coverage as of first day of
  month (offset by MSA or other HSA contributions)
• Monthly limit 1/12th of lesser of deductible or
  2,600 (self-only), 5,150 (family), indexed
• Catch-up contributions, age 55 to 64, 500 in
  2004, phased up to 1,000 annually in 2009

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HSAsReal Dollars, Portable, Vested

• Can be taken at anytime, even when no longer
  eligible to make contributions
• Tax-free if used to pay for qualified medical
  expenses (IRC Section 213(d))
• For other purposes, subject to income tax and 10
  penalty
• 10 penalty waived in case of death or disability
• 10 penalty waived for distributions after age 65
  or older
• HSA can be transferred tax-free to spouse on
  death otherwise taxable to estate or beneficiary
• Transfers upon divorce, nontaxable, becomes
  spouses HSA

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HRAsNotional Accounts, Er Only, At Risk

• HRAs, must be employer-only credits, unused
  amounts can be carried over, typically unfunded,
  subject to forfeiture, not portable
• But, HRAs more flexible plan design, can tailor
  scope of reimbursements, can subject to vesting,
  less costly for employer

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More Building Blocks for Consumerism

• Health Reimbursement Arrangements (6/2002)
• Health Savings Accounts (12/2003, eff 1/2004)
• Addition of Over-the-Counter Rx as QME (2003)
• Removal of Provider 1099s (2003)
• Electronic Processing Approved for Debit cards
  (2003)
• Non-Substantiation of HSA reimbursements
  (12/2003)
• Preventive care definition (3/2004)
• Clarifying HSA Regulations (Interactions between
  HSAs, HRAs, and FSAs (5/2004)
• Pending FSA legislation (500 carry-over)

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The Need for 2nd Generation Behavorial Changes

• 1. Is there waste in the healthcare system?
• 2. Are emergency rooms used unnecessarily?
• 3. Are prescription drugs used excessively or
  inefficiently?
• 4. Are disproportionate amounts being spent on
  re-hospitalizations and medical complications as
  a result of patients non-compliance with
  treatment plans?
• 5. Are wellness programs in areas like prenatal
  care being adequately used?
• 6. Are patients with major conditions like
  diabetes, asthma, and congestive heart failure
  being treated effectively
• 7. Are cost/quality measures being used to select
  healthcare providers?
• 8. Are some employers essentially subsidizing
  unhealthy lifestyle choices?

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Consumerism 2nd Generation A New Incentive
Based Approach for Wellness
Prevention
Wellness - Lifestyle
Wellness - Lifestyle
Minimize
Minimize
Maximize
Maximize
Wellness - Clinical
Early Intervention
Wellness - Clinical
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Consumerism 2nd Generation A New Incentive
Based Approach to Disease Management
Evidence Based Medicine
Evidence Based Medicine
Pre-Natal care
Safety Programs, Regional Centers of Excellence
Disease Management
Discretionary Expenses
Stress Management / Health Performance
Sample Impact Areas Rx Rx
Rx Rx
Rx Rx Rx

Office Visits Office Visits Hosp Admits
Hosp Admits OfficeVisits Hosp Admits Hosp
Admits
DXL DXL, ER ER
ER Specialists
Specialists High Tech
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3rd Gen. Consumer-centric Healthcare
Focus on Health Performance. How consumer
centric healthcare plan design and behavior
change affects work performance and the corporate
bottom line. Impact Organizational health,
turnover, absenteeism, productivity, disability,
and presenteeism.
4rd Gen. Consumer-centric Healthcare

Focus on Lifestyle, Lifecycle, and Personal
Health needs. How consumer centric healthcare
plan design and behavior change affects personal
health and healthcare based on lifestyle and
personalized needs. Impact Lifecycle needs,
Personal health, genetic predispositions,
predictive modeling, healthy habits, and
wellness.
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3rd Generation CDHC Integrated Health
Performance
Optimizing Individual and Organizational Health
Performance
CDHC Account Based Benefit Incentive Platform

• Culture of Health Wellbeing
• Seamless Population Management
• Shared Responsibility/Accountability
• Organizational Alignment Support
• Data Driven Process Excellence

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Example Effect of stress onHealth and
Performance
Research suggests that stress has been directly
attributed to

• 21.5 of total health care costs7
• 40 of the primary reasons that employees leave a
  company8
• 50 of presenteeism is a function of stress 9
• 33 of all disability and workers compensation
  costs 10
• 50 of the primary reasons that employees take
  unscheduled absence days 11,12

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4th Generation CDHCPersonalized Health
Healthcare

• Genomics testing will add to the personalized
  approaches as future scientific developments
  occur
• Sophisticated predictive modeling programs that
  identify problem conditions and produce early
  warning notices
• Push technology can both identify potential
  problems, well before the high cost stages are
  generated, and suggest courses of action
• Decision support systems and wireless connections
  that link each person to a personalized health
  and healthcare cyber-support system
• Monitors that will provide real time feedback on
  health status, lifestyle, and health concerns

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Developing the Business Case for
Consumer-centric Healthcare

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Sample Value Proposition

• 5-8 Net Savings over 5 years with 2 lower
  trends
• Low Range of Savings
• 5 x 5 years 2 x 5 years 35
• High Range of Savings
• 8 x 5 years 2 x 5 years 50
• 20-35 lower Rx costs
• Low Range 20 x 20 4
• High Range 35 x 20 7

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General Impact of ConsumerismAchievement of
savings and improved outcomes is dependent upon
both the Type and Effectiveness of the programs
implemented.Typical CDHC programs implemented
today by large employers are expected to reduce
claims through better decision-making and
outcomes by 5 15.
Excludes Carry-over HRAs/HSAs and any added
Administrative Costs of Specialized Programs
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Who Has Adopted?
Market Reaction

• Abbott Labs (Healthcare)
• Amazon.com (Retail)
• Aon (Financial Services)
• Baylor University Medical Center (Healthcare)
• Budget Group (Travel/Auto Rental)
• Burger King (Quick Service Dining)
• CIBA Vision (Healthcare)
• CVS Pharmacy (Retail/Pharmacy)
• Charter Communications (Communications)
• ConAgra (Consumer Products)
• Coors (Consumer Products)
• Countrywide Credit (Financial Services)
• FEHBP (Government)
• Federated Stores West (Retail)
• Gerber (Manufacturing/Consumer Products)

Intel (Technology) Medtronic (Healthcare) Mitsubis
hi (Manufacturing) Novartis (Healthcare) PBGH
(Major Employer Coalition) Pharmacia
(Healthcare) Pitney Bowes (Manufacturing) Raytheon
(Manufacturing/Aerospace) Scientific-Atlanta
(Telecommunications) Textron (Manufacturing/Aerosp
ace) Trinity Industries (Manufacturing) United
Postal Workers (Taft-Hartley) University of
Minnesota (Education) Wells Fargo (Financial
Services)
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2nd Generation CDHC Focus on Behavior Changes

1st Generation CDHC Focus on
Discretionary Spending
4th Generation CDHC Personalized
Health Healthcare
Summary A peek into the future of Consumerism
3rd Generation CDHC Integrated Health
Performance
Personal Accounts
Wellness/Prevention Early Intervention
Disease Management
Information Decision Support
Incentives Rewards
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Questions Answers
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