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Health Insurance Costs Reflect Medical Costs. Economic Impact on Health Care Costs.

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Were you smart enough to go to med school? Insurance companies run this country! ... Goodman, Amy, Nothing to fear but no health care. Amy Goodman, Aspen Daily ... – PowerPoint PPT presentation

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Title: Health Insurance Costs Reflect Medical Costs. Economic Impact on Health Care Costs.


1
Health Insurance Costs Reflect Medical Costs.
Economic Impact on Health Care Costs.
  • Janet Pogar
  • Regional Vice President Network Management

2
Seems like nobody likes us
  • Greedy docs? Were you smart enough to go to med
    school? Insurance companies run this country!
    They are the ones who approve or disapprove a
    procedure a doc may order. They are the ones who
    dictate everything-NOT the docs. At least we get
    discounts for good driving records. Do insurance
    companies give HEALTHY people a break for NOT
    using insurance except for physical exams? No.
    You pay the same premiums! For all the years it
    takes to be a MD they deserve every penny they
    get and more. Blame our Government for ALLOWING
    insurance companies to dictate to doctors.
    Educate yourself on who decides and approves what
    a doc deems necessary for their patient!
    Absolutely amazing that anyone could think of a
    doc as greedy when the Insurance companies are
    1!
  • Letter to the Editor Reno Gazette Journal
    1.25.09

3
See what I mean?
  • We need to look at how much of our health-care
    spending is going toward the record-breaking
    profits earned by the drug and health-care
    industry. Michael Moore, in his film SiCKO,
    includes a recording of John Ehrlichman speaking
    to Richard Nixon, discussing medical-insurance
    profits The less care they give em, the more
    money they (the insurance companies) make. Obama
    is in charge now. Who will he emulate Nixon or
    FDR? People across the political and economic
    spectrum, from big business to the little guy,
    are dying to know.
  • Goodman, Amy, Nothing to fear but no health care.
    Amy Goodman, Aspen Daily News. 1.15.09

4
And these are just a snippet
  • In December 2008, the Denver Business Journal
    conducted an online poll asking respondents to
    identify who-- or what - - is responsible for the
    continued rise in health care costs.
  • One in three of those who responded put the blame
    squarely on health insurers.
  • Are they right?

5
Do the Math
  • 73 cents
  • Hospital (inpatient and outpatient) and physician
    services account for 73 cents of dollar spent on
    health care.

6
Do the Math
  • 14 cents
  • Prescription drug usage accounts for 14 cents of
    every health care dollar.

7
Do the Math
  • 13 cents
  • Health Insurers account for 13 cents of every
    health care dollar.
  • About 8 to 10 of the 13 cents are spent on
    administrative functions. The remaining 3 to 5
    cents are profit (less than our nonprofit
    competitors).

8
So, whats responsible for the rising cost of
care?
  • Many factors are at play, but by far the largest
    driver of health care cost is the cost of medical
    care.
  • Should we blame doctors and hospitals and big
    Pharma. Does this mean that 87 percent of every
    dollar is profit for them?
  • Nope.
  • Its a whole lot bigger than that. Consider what
    we just said about docs, hospitals, pharma and
    insurance and then tack all of these issues on
    top of that

9
The cost of medical care and treatment in the
U.S. is higher than care in other countries
  • Americans receive more costly medical services
    than people in other countries do.
  • On a population -adjusted basis, the number of CT
    scans in 2005 was 72 percent higher in the United
    States than in Germany. U.S. reimbursement rates
    for these CT scans were four times higher. Knee
    replacements were 90 percent more frequent in the
    U.S. than in the average industrialized nation
    and are growing rapidly. In 2005, there were
    750,000 knee and hip replacements, up 70 percent
    in five years, reports the journal Health
    Affairs.
  • And, exacerbating this is that there is no
    transparency around pricing and quality nobody
    knows who charges what and what should be
    charged, nor what quality of medical service is
    being purchased.

10
The cost of medical care and treatment in the
U.S. is higher than care in other countries
  • More physicians are becoming specialists - - and
    they charge almost twice as much as primary care
    doctors.
  • Between 1997 and 2006, annual compensation of
    dermatologists increased by 97 for
    gastroenterologists, 78 and for radiologists,
    65. The California Healthcare Foundation says
    that medical price inflation is driving 51 of
    the growth in health care spending. Doctors in
    the United States earn two to three times as much
    as they do in other industrialized countries.
    The lower salaries are a significant part of the
    reason that European countries spend less on
    health care than the United States does.
  • Higher treatment costs are partially a result of
    our uniquely American tort laws, which in the
    context of medicine can lead to defensive
    medicine that is, the application of tests and
    procedures mainly as a defense against possible
    malpractice litigation, rather than as a clinical
    imperative.

11
The cost of medical care and treatment in the
U.S. is higher than care in other countries
  • If primary care dies out, health care will become
    more episodic, expensive and fragmented. A
    patient will have to go to four or five doctors
    to get all their needs met increasing cost and
    decreasing quality and efficiency of what is
    offered through a medical home.
  • Variation in medical treatments by physicians has
    been documented for decades it is estimated
    that up to one-third of spending is on
    unnecessary hospitalizations, redundant tests,
    unproven treatments and excessive end of life
    care. No one knows exactly how much money is
    spent on unnecessary care, but the RAND
    Corporation estimates that one-third or more of
    the care that patients in this country receive
    could be of little value. If that is so,
    hundreds of billions of dollars each year are
    being wasted on superfluous treatments. Adoption
    of evidence-based practices is lacking, as
    documented by a 2003 RAND Corporation study
    showing that only 55 of patients receive
    recommended care.

12
The cost of medical care and treatment in the
U.S. is higher than care in other countries
  • Previously unaffiliated hospitals are being
    acquired by companies that manage entire hospital
    systems.
  • These companies limit insurers ability to
    negotiate lower reimbursement rates and thereby
    contain the cost of care for consumers.
  • Hospital construction spending has also increased
    substantially, up more than 75 since 2002.
  • Hospital systems in Colorado- -profit and
    nonprofit alike-- average double-digit profit
    margins of 12 to 20.

13
The cost of medical care and treatment in the
U.S. is higher than care in other countries
  • Dazzling new technology-- MRI scans,
    computer-controlled insulin pumps- - come at a
    high cost.
  • Some medical experts say that the American
    devotion to the newest, most expensive technology
    is an important reason why the U.S. spends much
    more on health care than other industrialized
    nations without providing better care.
  • In 2005, diagnostic imaging costs were
    approximately 100 billion nationally, an
    increase from 75 billion in 2000. Medical
    technology is the driving force behind the growth
    in U.S. health care spending. Estimates of the
    contribution of medical technology to health care
    spending growth range from 38 percent to more
    than 65 percent.

14
The cost of medical care and treatment in the
U.S. is higher than care in other countries
  • The pharmaceutical industry median profit margin
    has hovered around 17 in the last 10 years.
  • More and more health care dollars are being spent
    on prescription drugs, especially by those who
    have chronic illnesses. Half of all adults in
    this country now take at least 1 prescription
    medication and 7 take at least 5 drugs every
    day. Two-thirds of all patients who walk into a
    doctors office walk out with a prescription.
  • Specialty drugs can miraculously both save and
    extend lives -- but they can also be
    astronomically expensive. A new generation of
    cancer drugs, for example, can cost 100,000 or
    more, per treatment regimen.

15
The cost of medical care and treatment in the
U.S. is higher than care in other countries
  • Profit margins of health benefit companies are
    often attacked as the driver of increasing health
    care costs. The reality is that the cost of
    health insurance is determined by numerous
    factors including medical costs, risk margin,
    profit margin and administrative costs. Profit
    margins comprise the smallest portion of the
    premium dollar while medical costs consume the
    largest portion.
  • For the past several years, health insurance
    profits have ranged from 3 to 6. Over the last
    five years, WellPoint, the nations largest
    insurer and Anthems parent company, had a net
    profit margin ranging from 4.6 - 5.5. By
    comparison, the median profit margin for SP 500
    companies was 6.3 in 2006 and 5.7 in 2007.
    Health plan profit margins are consistently lower
    than many other health care industries, including
    medical products and equipment (15) and major
    drugs (16).

16
More Americans have chronic illnesses and few
follow basic wellness goals
  • About 80 of seniors have one chronic health
    condition and 50 have at least two.
  • The percentage of Americans with three or more
    chronic illnesses rose even more sharply from 13
    percent in 1996 to 22 percent in 2005 for ages
    45 to 64, to 45 percent for ages 65 79, and
    rose from 38 percent to 54 percent for those 80
    and older. Even among all ages, it went from 7
    percent in 1996 to 13 percent in 2005. Chronic
    disease accounts for three-fourths of the more
    than 2 trillion spent on health care yearly in
    the United States.

17
More Americans have chronic illnesses and few
follow basic wellness goals
  • Preventable risk factors such as obesity,
    smoking, poor adherence to drug regimens and
    alcohol abuse drive health spending.
  • An individual with a high number of these risk
    factors costs more than twice as much in health
    care costs as one with a low number of risk
    factors. One-fourth of Medicare spending has
    been attributed to obese beneficiaries in 2002.
    Only about 3 of Americans follow the 4 basic
    wellness goals. Many continue to smoke and gain
    weight. They dont get enough exercise or eat
    healthy foods. A personal commitment to health
    can actually cut the cost of care up to 50.

18
Cost shifting costs everyone
  • Government-funded health care programs like
    Medicaid, SCHIP, and Medicare reimburse
    physicians and hospitals at lower rates than
    private insurers providers receive little to no
    reimbursement for treating the uninsured.
    Accordingly, providers often adjust the prices
    they charge to insurers in order to offset losses
    from partial or non-payers.
  • Overall, the cost shift represents 15 percent of
    the current amount spent by commercial payers on
    hospitals and physicians.
  • Stated differently, if there were no cost shift,
    hospital and physician costs for privately
    insured patients would be 15 percent lower. A
    study commissioned by Families USA found that
    934 of the average 12,000 annual health
    insurance premium in Colorado in 2005 was the
    cost of caring for the uninsured.

19
Administration, payment protocols and compliance
are complex and often inefficient
  • Health insurers spend about 10 cents of each
    premium dollar on administrative functions,
    which include selling costs, enrollment and
    billing, claims processing, customer service,
    fraud detection, pay-for-performance programs,
    disease and care management, provider
    credentialing, product development, network
    management and provider contracting, medical and
    utilization management, information technology
    investments, and premium taxes, fees and
    assessments, among other functions.
  • Many of these costs are designed to contain
    medical cost increases and enhance quality of
    care

20
Administration, payment protocols and compliance
are complex and often inefficient
  • Although administrative costs are not a key
    driver of health insurance premiums, the impact
    of administrative processes across the system
    includes under-use of information technology and
    lack of process coordination across health system
    stakeholders.
  • Every organization has different rules about
    whos eligible for payment, how much to pay and
    when to pay. These complexities add cost to the
    system. Experts recommend that national or
    statewide system reform efforts should include a
    focus on creating a digital information backbone,
    including adoption of electronic health records,
    interoperability and standard setting.

21
Impact of the current economic crisis on health
care costs/trends
  • Based on past recessions, we typically see an
    initial cost spike, followed by a decline in
    trend
  • Short term
  • Employees who are laid off, or fear being laid
    off, will typically increase their use of
    healthcare services before they lose benefits
  • It is likely that we will see increases in stress
    related services, like behavioral health and back
    pain
  • Providers requesting rate increases
  • Longer term
  • Long term health care costs historically track
    personal income changes, lagged 2-4 years
  • After the initial cost spike, we expect to see a
    decline in utilization of both preventive and
    discretionary services
  • Based on a July survey from National Association
    of Insurance Commissioners, 22 of consumers say
    that economic conditions have caused them to cut
    back on doctors visits

22
General Summary
  • While a short term reduction in utilization is an
    expected by-product of the recent economic
    downturn, much of this reduction could be
    classified as under utilization of needed
    preventive services, which could lead to a longer
    term increase in cost of care, absent health plan
    strategies that encourage members to seek needed
    preventive services.

23
Impact to health plans
  • We will likely realize a short term decline in
    utilization of discretionary services
    specifically, by members with higher cost shares
  • Reductions in discretionary symptomatic
    medications
  • Office visits (PCP, specialist, chiro) for
    symptom relief
  • ER visits for non life threatening events
  • Discretionary hospital procedures (IP and OP)
  • Knee and Hip replacements, back surgery, etc
  • Supply driven diagnostic tests (by-product of
    less office visits)
  • Sales of new imaging equipment (to providers) is
    expected to decline over the next few years.
    Less supply often equals less demand with respect
    to imaging services
  • Based on a recent AHA survey, 30 of hospital
    respondents report a moderate to significant
    decline in patients seeking elective procedures
    and 40 report declines in admissions

24
Economic Impact ..
  • Increased utilization of generic and formulary
    brand medications AND increase in OTC equivalents
  • Increases in mail order for members with
    incentive benefit designs
  • More consumer engagement / more shopping
  • Non par utilization should decline
  • Cost conscience members will be more inclined to
    leverage in network benefits less inclined to
    use non par providers
  • To drive lower premiums, employers may be more
    tolerant of network disruption and more willing
    to support provider terminations

25
Economic impact .
  • Provider margins will decrease putting more
    pressure on private payor revenue sources
  • Medicaid enrollment will grow, yet State pressure
    to cut funding will increase, Likely resulting in
    decreased Medicaid funding
  • Per AHA, 39 states have FY09 and/or FY10 budget
    gaps
  • Loss of investment income
  • Especially hard for hospitals with defined
    benefit pension plans
  • Lower patient demand
  • Based on AHA survey, 30 of respondents report a
    moderate to significant decline in patients
    seeking elective procedures and 40 report
    declines in admissions
  • Moderate to significant increases in
    uncompensated care and bad debt
  • May lead to more provider consolidation, as
    providers seek partners with greater solvency
    (physicians and hospitals)
  • May lead to higher frequencies of provider (and
    member) fraud
  • Increase in legislative impacts and tougher
    stances from regulators

26
Economic Impact..
  • Short term under utilization will likely have
    negative long term effects
  • Less preventive screenings
  • Sub optimal medical treatment for members not
    using medications as directed
  • Cholesterol, diabetes, blood pressure, etc
  • .leading to
  • Lower HEDIS scores
  • Lower Member Health Index scores
  • Increased ER visits and admissions through the ER
    (short term)
  • Increased inpatient utilization and higher
    incidence of complications (longer term)
  • Utilization of behavioral health services will
    likely increase in response to significantly
    increased demand for services. This includes
    behavioral health medications
  • If Generic Dispensing rates increases
    significantly, rebate dollars may actually drop
  • Increased utilization of 4 medication programs
  • A portion of the discretionary services that
    consumers are now deferring will likely rebound
    in subsequent years, after the economy improves

27
What do we need to do as a payer?
  • Accelerate strategies that reward adherence to
    evidenced based medicine
  • P4P expansion to incent appropriate care
  • Benefit designs that incent preventive visits,
    vaccinations and medications
  • Accelerate strategies that leverage engaged
    consumers
  • Domestic Medical Tourism strategies
  • Anthem Care Comparison
  • Continued promotion of initiatives that maximize
    RX benefit performance (Generic Select, ½ tab,
    etc)
  • RX mail order marketing strategies
  • Increased member communication regarding options
    for obtaining needed medications
  • Focused strategies that target ER utilization

28
Colorados Rural network
  • Statewide service area (literally members in all
    counties of the State)
  • A mix of both local and national employer groups
  • Shortage of providers
  • Access and availability (both primary care and
    specialty physicians)
  • How can Anthem partner with the rural provider
    community so we can stifle the uninsured trend?
  • How can we work closer with the CRHC to assist in
    the rural markets?
  • Suggestions?

29
A little information about Anthem in CO
  • We cover more than 880,000 Coloradans across
    the whole state. Last year we insured 100,00
    people who werent previously insured
  • We credential and support a network of more than
    8,500 providers
  • We improve safety and quality of care and promote
    evidence-based medicine and we provide tools to
    help consumers make more informed decisions.
  • We employ 1800 people in Colorado and pay
    competitive salaries
  • We paid more than 1.3 billion in claims to
    hospitals, physicians, laboratories and other
    providers. And, we paid more than 40 million in
    income and premium taxes to the State
  • We processed more than 7.5 million each year
    over 640, 000 per month
  • We offer inexpensive, consumer-friendly, rich
    benefit plans
  • We invest in the community - 1.6 million in
    Colorado in 2008
  • We help improve the health of our members were
    all about health
  • And we do that for a 3-5 percent profit margin.

30
QUESTIONS
  • Thanks for your time and attention today!
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