AAPPO: 2005 Health Care Industry Summit

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AAPPO 2005 Health Care Industry Summit

• Dissecting the Drivers
• Understanding the Complex Challenges Impacting
• Todays Health Care Costs
• May 12, 2005

Confidential Proprietary
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Dynamics
are not being met
The needs

• Health care is now the most expensive benefit.
• Costs more than doubled in the last decade and
  are still on the path to double again in the next
  5 years.
• Average annual dollar increases per employee
  surpass average pay increases for all but the top
  employees.
• In spite of this urgency, most corporate health
  care strategy has been a repeat of a tired old
  formula tweaking the plan
• Benefit redesign/Cost shifting
• Changing administrators to reduce administrative
  costs
• Changing physician networks in search of better
  discounts

• Both benefit consultants and brokers have
  contributed by promoting projects that tweak the
  plan.
• There are diminishing returns from this approach
• Eventually clients have moved to the networks
  with the best discounts
• Cutting administrative costs guts the apparatus
  to manage care
• Costs are increasingly concentrated at the high
  end, reducing the impact of increased co-pays and
  deductibles
• Stand-alone cost shifting leads to employee
  backlash
• There is little differentiation for consulting
  firms emphasizing this approach.

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Strategic Fit

• Our clients health-care strategies must account
  for what we, and they, know
• That costs vary widely.
• That higher costs per case do not reflect better
  outcomes.
• That a high percentage of services is
  discretionary.
• That care is offered in a variety of settings.
• That there are alternatives to treating the same
  disease.
• That there are clinically accepted approaches,
  but they are not followed in the majority of
  cases.

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Strategy Alternatives

• THE STATUS QUO
• Whats being done
• Carrier Selection and Audit
• Seeking Provider Discounts
• Cost-shifting
• Why this approach has limited impact
• Administration costs and accuracy rates of top
  carriers are similar
• Provider discounts are eroding as they integrate
  and gain market power
• Forced fee-schedules lead to massive cost
  shifting
• Shifting the costs to employees doesnt resolve
  underlying problem
• More and more costs are concentrated at the high
  end eliminating low-end costs (through changes
  in deductibles, co-pays and out-of-pocket
  maximums) has less impact each year

• It doesnt address
• Variances in service utilization, quality and
  cost
• Employee and beneficiary demand levels
• Engaging providers in problem solving

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Strategy Alternatives

• THE STRUCTURED OFFERING
• Whats involved
• Fixed employer contribution
• Choice of plans
• Use of market forces to drive provider efficiency
  and effectiveness
• Barriers to success
• Current plan choices are too broad providers
  dont compete for patients
• Consumers havent been educated to shop for a
  plan need information and decision tools

• How to make it work
• Plan choices must reflect competing delivery
  systems
• Employer contributions must reflect disease
  burden to prevent cherry picking
• A large portion of the available market must be
  involved in a short period of time
• At least one choice must be affordable

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Strategy Alternatives

• CONSUMERIST MODELS
• Whats involved
• The change model
• Identify desired behaviors
• Create personal and corporate line-of-sight
• Offer incentives for change
• Provide training, educational content and tools
• Provider support/advocacy/coaching
• Create feedback loop
• Barriers to success
• Concentration of costs at the high end
• Inadequate attention to the change model elements
  a launch-and-forget-it mentality
• Treating the approach as a plan alternative
  healthy selection of the new choice leaves costs
  resident in other plans

• How to make it work
• Communication
• Education
• Decision tools
• Advocacy
• Disease management

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Strategy Alternatives

• CUSTOMIZED DELIVERY SYSTEMS
• Whats involved
• A strategic planning approach
• Identify where are spent
• By disease
• By population segment
• By provider
• Attack problems in an organized fashion
• Public health/prevention
• Disease management
• Possible direct delivery
• Centers of excellence soft steerage
• Barriers to success
• Lack of resolve and staying power
• Failure to understand the covered population

• How to make it work
• Identification
• Stratification
• Prevention
• Detection
• Steerage
• Centers of excellence
• Motivation and use of incentives
• Joint planning with providers

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The New Health Care Strategy Elements
In the emerging view, employer health-care
strategy has many elements, which may be managed
by a variety of vendors
A key strategic decision is selecting the locus
of tools and support the carrier/administrator,
the employer, or an outsourced benefit
administration vendor or a healthcare hub.
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Emerging Issues in the Marketplace

• Integration
• Transparency
• Need for Simplicity
• Need for Context Role of Consumer as Organizing
  Principal

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The Fiduciarys Role and the Carriers Role In
Consumer-Centered Health
The Carrier/TPAs Current Role Panel
Management Claims Adjudication Payment Reporting R
egulatory Interface Sales Marketing Case
Management Data Warehousing
Fiduciary/Outsourcers Current Role Consulting St
rategy Design Assessment Development Outsourcing
Record Administration Event Transaction
Processing Employee Servicing Ancillary
Services Communication Hosted Solutions Software
support (ASP) for similar functions
to outsourcing Banking Health Savings
Accounts Clearing Accounts to integrate other
payment sources
Needed Services For Effective Consumer
Strategies Data Algorithms for identification and
stratification of population at risk On-line
health risk appraisal with update capability
Education Consumer-centered personalized
content Tools Physician Selection Spending
Calculator Rx Alternatives Plan
Comparison Disease Management Linked to content
and tools Integrated approach for identification
and strat. Information Exchange Browser-based
and clinically focused
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Why Consumers Are Not Cost Sensitive
60
49
50
40
34
30
24
20
20
15
14
10
0
1960
1970
1980
1990
2000
2001
Consumer Out-of-Pocket Spending as Share of Total
Health Costs
Source Centers for Medicare and Medicaid
Services
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Why Do Successful Consumerist Models Work?

• Changing the design alone results in short-term
  savings at best.
• At Mellon, we believe that successful consumerist
  health plan models have worked because
• They focus on employee engagement.
• Leaders understand and apply the dynamics of
  behavior change.
• Benefit design elements are understood in the
  context of a larger vision of behavior change.
• Employee and dependent change is itself seen as a
  step toward provider behavior change.

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Change Fundamentals
Incentives
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Building from Bottom to TopA Sequence for
Building Member Engagement
Move to Lifetime Health (Individual Group
Sponsor Modeling)
Empower the Purchasing of Complex Care
Create a Trusted Agency (Disease
Management/Health Coaching)
Install an Infrastructure for Personal Health
and Health Care Management (Content and Decision
Tools)
Create a Platform for Serious Change (Incentives,
communication, framing the issue)
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Trust Is Essential and Significant

• The existing medical model was built on trust
  between patient and physician. Although it is
  eroding, it is still very strong.
• People are reluctant to provide information to
  any party they dont trust.
• People are reluctant to rely on information from
  sources they dont trust.
• People are reluctant to accept advice from
  sources they dont trust.

Companies with the most solid brands will have an
advantage in engaging consumers.
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Desired Future State for Health Plan Members

• Health-related benefits beyond health coverage
  that members value
• Access to provider discounts
• Quality educational content about health and
  health care
• Provider-specific comparative information
• Decision tools to support selection of coverage,
  network, physician, hospital and pharmaceuticals
• Personal health management tools, including the
  ability to create and control access to a secure
  mini-electronic medical record
• The ability to fund a FSA or HSA to gain
  tax-favored purchasing power
• The availability to capture and summarize
  information about health-care services purchased,
  and how they were financed
• Availability of credit to finance co-insurance
  and uncovered services
• Health Reimbursement Arrangements or Health
  Savings Accounts that allow employees to build an
  account to meet future health care needs

• Members value these additional health care
  program features in measurable ways that
  translate into increased employee retention.
• The creation and installation of an integrated
  employer health care program has resulted in
  improved productivity, reduced absenteeism and
  greater employee perceived value of the health
  care benefit.

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Change Summary

• Behavioral Change requires that one address
• Beliefs
• Attitudes
• Knowledge, and
• Skills
• The use of HSAs supports the Mellon vision of
  employers adopting health-care rather than
  benefit strategies, because it accomplishes a
  shift in thinking from coverage to assets, and is
  compatible with other shifts
• From acute care to preventive care
• From paper-based information flow to the Web

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Health Savings Account Solution
Excess Balance
Dreyfus Mutual Funds Brokerage Option
Debit Card
Transactional Balance
Health Care Transactions
Check Book
Direct Bill
Health Savings Account
Health Savings Account
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Mellons HSA Model An Overview
Insurance Co. / Claims Processor
Direct Bill ACH Debits
Automated Clearinghouse
Enrollment Data
Customer Service
Real-time Debits
Employers
Mellon HSA Solution
Receivables Payables Processing
Account Record-keeping
Real-time Balance
On-line Debit Card Debits
MasterCard
Contact Center Support Investment Management
Debit Card Management
On-line Direct Bill Fund Requests
Individuals Deposits
PBMs
Confidential and proprietary
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Medical Claims Workflow Direct Bill
Participant
Mellon HSA
Direct Bill
6. Payment Request
7. Approval Funding
Insurance Pool
1. Request for Services
9. EOB
Provider
Insurer(Claims Admin.)
5. Covered Services
2. Claim
Employer Funds
8. EOP Total Payment
3. Pricing 4. Adjudication
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Medical Claims Workflow Direct Bill to Multiple
Financing Sources
Participant
Mellon HSA
FSA
HRA
Credit
Direct Bill
6. Payment Request
7. Approval Funding
Insurance Pool
1. Request for Services
9. EOB
Provider
Insurer(Claims Admin.)
5. Covered Services
2. Claim
Employer Funds
8. EOP Total Payment
3. Pricing 4. Adjudication
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Debit Card Workflow Real-time Payment from
Multiple Sources?
Participant
Provider
Providers Bank
1. Card Presentation
6. Payment
2. Authorization
5. Approval
Mellon HSA
MasterCard
FSA
3. Authorization
HRA
4. Approval
Credit
Personal Funds
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In Conclusion

• The context for Health Savings Accounts is the
  context of the change-based corporate health-care
  strategy.
• The introduction of HSAs has led to a sequence of
  change for TPAs, carriers and HMOs Integration
  Transparency Simplicity Context/Consumerism.
• What was begun with HSAs extends to other sources
  of payment for healthcareand the need to
  integrate them.
• Integration is also key for the program elements
  of corporate health care strategy.
• The elements of health care strategy are on a
  critical path.
• Corporate Health Care strategy must move beyond
  its current elements to include help in buying
  complex care and help in creating a personalized
  long-term plan with financial consequences of
  decisions made explicit. This will lead people to
  amass the amount of assets they really need.