HRMAG

1
HRMAG

• The Path to Consumer Driven Healthcare
• Interpretation Preparation Opportunity
  Impact
• ________________________________________
• Presented by
• Sean Willoughby-Ray
• Scott Benefit Services
• May 5, 2005

2
Key Points

• Trends in Healthcare Demand and Expectation
• Understanding Cost Drivers
• Defining Consumer Driven Healthcare
• Objectives Challenges
• Preparation
• Transition
• Early Results

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Trends in Healthcare Demand Expectation

• Heading in the Wrong Direction??
• Blind to the actual cost
• The Copay defines the value of your benefit
  plan
• Expanding definition of healthcare
• Prescription drug blitz
• Want more.dont expect to pay more
• Lifestyles adding to chronic conditions
• Exponential growth of healthcare consumption

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Trends in Healthcare Demand Expectation
Cost Awareness on the Decline
Source EBRI Brief 247 July 2003
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Trends in Healthcare Demand Expectation

• Employees Perceptions are Distorted
• Employees underestimate what their company pays
  for healthcare coverage by 63
• Employees overestimate what they pay for their
  healthcare coverage by 69
• Source EBN Survey, December 2003

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Trends in Healthcare Demand Expectation

• Entitlement ?
• whereas once health care and health insurance
  were understood as activities related to acute
  injuries and illnesses, they have expanded to
  include preventative and mental health services,
  long term care, complementary medicine, and the
  ability to maintain psychology, social,
  spiritual, and sexual performance far into the
  golden years
• James C. Robinson, PhD
• JAMA May, 2001

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Trends in Healthcare Demand Expectation

• Pharmacy Utilization
• 6 of adult Americans were on maintenance
  prescriptions in 1992
• 62 of adult Americans were on maintenance
  prescriptions in 2003
• Source Express Scripts 2004 Outcomes

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Trends in Healthcare Demand Expectation
RX Growth By Therapeutic Class
Lifestyle Drugs
Asthma
300
300
Gastrointestinal
250
250
Anti-Cancer
In Billions
200
200
Cardiovascular
150
150
100
100
Central Nervous System
50
Anti-infectious
0
119500
1960
1970
1980
1990
2000
2010
Lifestyle Drug a pharmaceutical product
characterized as improving quality of life rather
than alleviating disease".
Source Express Scripts
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Trends in Healthcare Demand

• Tobacco use, lack of regular exercise and poor
  nutrition are the leading lifestyle habits that
  are contributing to the rise of chronic
  conditions in America
• U.S Department of Health Human Services (2003

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Trends in Healthcare Demand
Obesity Trends Among U.S. Adults(BMI ?30, or
about 30 lbs overweight for 54 person)
1996
2003
No Data lt10 1014
1519 2024 25
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Trends in Healthcare Demand

• 61 of American adults are overweight
• 76 increase in Diabetes in adults ages 30-50
  since 1990
• 78 of Americans are not meeting basic activity
  recommendations
• 80 of Americans are not meeting the FDAs
  recommended dietary guidelines
• Source Centers for Disease and Control (2004)

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Trends in Healthcare Demand

The Number of People with Chronic Conditions is
Rising Rapidly
Source Wu, Shin-Yi and Green, Anthony.
Projection of Chronic Illness Prevalence and Cost
Inflation. RAND Corporation, October 2000.
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Trends in Healthcare Demand

• Chronic Diseases account for 75-78 of this
  countrys annual health care costs.
• Lifestyle Driven
• Driven by the Patient Decisions

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Trends in Healthcare Demand
Growth in Per Capita Consumption of Healthcare
Source 2003 Trends - Department of Health
Human Services
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Healthcare Cost Drivers

• Medical technology
• Prescription drugs
• Anti-managed care sentiment
• Consumer demand
• Legislation
• Health plan consolidations
• Provider push back on fees
• Lifestyles

• Carrier profit pressures
• Administrative complexity
• Uninsured
• Aging population (Boomers)
• Cost shifting to private sector
• Waste Quality of Care
• Persistent entitlement mindset
• Third-payer system - no ownership

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Healthcare Cost Drivers

• Healthcare CPI 3-4
• Medical Technology 3-4
• Aging Demographics 2-3
• Healthcare Trend Infinitum..10

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Solutions??

• Provider Networks
• Managed Care
• Pharmacy Benefit Managers
• --------------------------------------
• Increase premium contribution
• Adjust plan design
• _______________________
• Disease Management
• Health Risk Management
• Initiate Consumerism

Supply Side Controls
Cost Shifting (short term)
Demand Side Controls
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Objective of Demand-Side Controls

• 1. Use Less Healthcare!
• Health Risk Management
• Consumerism
• 2. Make it Insurance.again!
• Consumer Driven Health Plans (high deductible
  plans with limited first dollar coverage)

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Defining Consumer Driven Healthcare

• Not a product
• A concept.philosophy.a strategy in healthcare
  access
• Supported by Consumer Directed plan designs
• Facilitates the engagement of the Patient
• Leverage the most effective form of cost
  controlconsumer purchasing power
• Patient has more choice, flexibility, control
  over healthcare decisions and expenditures
• Patient has more skin in the game

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Consumer Driven Healthcare
Source IFTF, Centers for Disease Control and
Prevention
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Defining Consumer Driven Healthcare

• Objectives of Consumer Driven Healthcare
• Raise Patient awareness and participation in the
  cost of care
• Improve satisfaction by providing more control
  and choice
• Shift expectations greater self reliance
• Reduce Healthcare Cost
• Short Term Impact healthcare inflation through
  efficient utilization and reducing unnecessary
  utilization.
• Near Term Impact provider pricing. Increased
  public awareness of providers that offer the
  highest quality/value proposition. Promote
  prevention
• Long Term Impact lifestyles. Reduction of
  chronic conditions.

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Defining Consumer Driven Healthcare

• The Chassis of Consumer Driven Healthcare
• Health Reimbursement Account (HRA)
• Health Savings Account (HSA)

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Health Reimbursement Account (HRA)

• Section 105 (June 2002)
• Employer funded only
• Employee contribution prohibited
• Roll over allowed
• Employer controlled sponsored
• Employer determines portability
• Highly flexible and customizable
• Adjudication required
• can be used to reimburse medical expenses
  under IRS Section 213 (FSA)

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Defining Consumer Driven Healthcare
HRA Bridge Model
Sample Plan with 2,000 deductible
Health Reimbursement Account 1,000
First coverage for medically necessary
expenses. Employer determines rollover
parameters of unused funds (IE 50 to a maximum
of 2,000)
Annual employer pre-tax allocation to an
employees HRA
Employee is responsible for paying an
out-of-pocket amount to Bridge to more coverage
Bridge 1,000
Traditional HealthCoverage
Coinsurance up to a specified out-of-pocket-maximu
m.
Employer provides coverage above the deductible
100 after out of pocket max
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Health Savings Account (HSA)

• Similar in concept to a Healthcare IRA
• Individually owned controlled account held by a
  bank or other IRS approved custodian
• HSA balances roll over each year
• Tax deductible contributions can be
  investedearnings grow tax free
• Distributions are tax free (for qualifying
  medical expenses)
• Eligible individuals cannot be Medicare eligible
• An HSA must be paired with a High Deductible
  Health Plan
• No formal adjudication required
• between you, the IRS and God

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Health Savings Account (HSA)

• Qualified Expenses under an HSA
• Diagnosis, cure, mitigation, treatment, or
  prevention of disease
• Prescription drugs
• Qualified Long Term Care services and insurance
• COBRA premiums
• Health insurance for those on unemployment
  compensation
• Medicare Part A and B premiums. Medicare HMO
  premiums

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Health Savings Account (HSA)

• Qualifications for a High Deductible Health Plan
• Annual Deductibles
• Individual 1,000 minimum / 5,000 maximum
• Family 2,000 minimum / 10,000 maximum
• Deductibles do not Stack
• Maximum out-of-pocket limit
• 5,100 maximum out of pocket for single
• 10,200 maximum out of pocket for family
• Includes deductibles and coinsurance
• Maximum out of pocket amounts do not Stack
• Strict limits on first dollar coverage
• No first coverage (copays, etc)
• Only routine preventive care can be covered on a
  first dollar basis
• Rx copays after deductible has been met

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Health Savings Account (HSA)

• Contributions to an HSA
• Single The lesser of the in-network deductible
  or 2,600 Family The lesser of the
  in-network deductible or 5,150
• Employee contributions can be made through a
  Section 125 plan.and can be adjusted at anytime.
• Employers can contribute to an employees HSA
• Comparable contribution and non-discrimination
  rules apply
• Employer cannot direct use of contribution or
  require formal proof of use for qualified medical
  expenses

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Anatomy of an High Deductible Plan for an HSA

• Parameters of a HDHP (Example assumes 80/20
  coinsurance)

FAMILY
SINGLE
Minimum Deductible 1,000
Minimum Deductible 2,000
Maximum Annual Out of Pocket 5,100
Maximum Annual Out of Pocket 10,200
20 Coinsurance
20 Coinsurance
100
100
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Market Reaction to HSAs

• Interpretation / clarification still needed from
  IRS
• Carriers scrambling to be able to provide
  qualifying HDHPs
• Much confusion with Employers
• Excitement the silver bullet ??
• HDHPs are being priced all over the Map.10 to
  40 less than traditional plans.
• Employers considering funding part of an
  employees HSA
• Not much discussion on preparation or
  transitioning strategies

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Todays Users. Not Consumers

• Confusion with current plan designs
• Three-tier Rx copay ??
• Generic vs Brand vs Over the counter
• Contrast Media vs Non-Contrast Media MRI ??
• Dont know the questions
• Employees confused and suspicious

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Critical Ingredients of CDH Plan

• Decision Support (limitedbut growing)
• Web Based
• Current examples Include
• Nurse Line
• Healthcare Cost Estimator
• Pharmaceutical Advisor
• Hospital Comparative Tool
• Employee education and awareness

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Turning Towards CDH..What To Do Now?

• Here you go Joe
• Transition Strategy
• Establish your starting point
• WhyEstablish awareness
• HowOpportunities for to access care more
  efficientlyuse less!
• Incremental steps...Training wheels
• Here you go Joe

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1. Establish Your Starting Point

• Claims Utilization patterns
• Culture.Expectations and Cost Awareness
• Benefits philosophy
• Web penetration
• Plan Design and Enrollment
• How high is your deductible / Coinsurance max
  now?
• Contribution strategy.do employees pay very
  little?
• Decision Support Utilization Website/ nurse
  line/ preventive measures/ DM
• Resources available to educate, communicate,
  support
• FSA success?
• 401K success?

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2. Why.Establish Awareness

• Benefits Committee
• Connectors
• Regular communications highlighting cost issues
  and trends
• Uncover and communicate YOUR utilization trends
• Share the numbers
• Reframe the issue

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3. HowOpportunities to access care smarter

• Highlight decision support tools
• Examples of Consumerism in accessing healthcare
• Highlight cost savings to them

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3. HowOpportunities to access care smarter
4,115 annual plan savings
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3. Incremental Steps.Training Wheels

• Defined employer contribution with plan choice
• Offer a Flexible Spending plan
• Fund your dental through an HRA
• Fund your Rx through an HRA

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Consumer Driven Healthcare Results Penetration

• Depends on who you ask
• Earlyno credible trends.
• HRA Bridge
• 12 penetration in 2003 (mostly Fortune 1000)
• 3.6 penetration in small to mid market (100
  3,000 employees)
• High employee satisfaction.87 reenrollment rate
• 65 rolled over in their HRA
• Average age less than 3-4 of norm
• Equally diversified participating population
• Higher preventative care
• 10 more generics used / Higher formulary
  compliance / Mail order up by 7
• Overall reduction in office visits and Rx
  utilization by 5-15
• Overall utilization dropped 10
• First year healthcare trend was in the range of
  -5 to 10

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Final Thoughts

• Health care costs will continue to rise
• Real solutions cant be short term cost-shifting
  tactics
• Supply-Side solutions are exhausted
• CDH plans are work in progress but have
  significant market traction
• Health Risk and Disease Management are critical
  strategies too
• Consumers are NOT ready to take on total
  responsibility
• But, there is real opportunity and the outlook is
  positive
• Your employees are looking to you for guidance
  and leadership
• Dont underestimate the rate of change that can
  happen within your organization

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Thank You!

• Sean Willoughby-Ray
• Scott Benefit Services
• sray_at_scottins.com
• 336-510-0070