Medical Care Costs: Action Time

1
Medical Care CostsAction Time

• June 18, 2002

Joseph Marlowe 610-834-2137
2
Health Care Environment2002 - 2003

• 15 to 30 cost increases
• Third year of cycle
• Focus on profitability
• Industry consolidation
• HMO enrollment declining
• Health care costs a key HR priority

3
Aon Trend Survey

• 19.2

Percentage Increase
Drugs
Indemnity
Indemnity
PPO
PPO
POS
POS
19.2
DHMO
HMO
PPO
16.8
15.7
17.8
Dental
14.4
7.7
12.4
Source Aon Consulting, May 2002
4
2002
5
Cost of Health Care

• Utilization increases driven by
• Aging population
• Expansion of technology and treatment options
• Direct-to-consumer advertising
• Poor quality of care
• Consumer insulated from true costs

6
Managed Care Frustrations

• HMO restrictions
• Gatekeeper on decline
• PPO membership up, HMO down
• Service performance deteriorating
• Less cost management
• Reduce patient/physician hassles
• Declining health plan satisfaction

7
Popular Employer Responses

• Increased employee cost sharing
• Vendor restructuring
• Prescription drug changes
• Disease management
• Consumer-driven plans
• Wellness/health promotion
• Hospital-tiered benefits

8
Cost Sharing
Percent Increasing
70
59
60
50
33
31
40
Percent
25
20
30
18
20
10
0
CoPay
No Change
Deductibles
Out-of-Pocket
Contributions
Co-insurance
Source Aon Consulting, Winter 2002 Survey
9
Plan Design Options

• How high do we go?

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Pharmacy Action Plan

• PBM networks
• Formulary
• Co-payments
• Coinsurance
• Drug Utilization Management
• Step Therapy
• Mail Service

11
Pharmacy Benefit Action Plan
Plan Design
Cost Sharing Behavior Modification - Generic
Substitution Administration Costs Exclusions
Price
Network Size - Discounts (AWP, MAC) - Dispensing
Fees Formulary - Rebates
Utilization Review - Concurrent -
Retrospective Dispensing Limits - Days - Dosage
Quantity
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Why Disease Management?

• 10 individuals spend 70 dollars
• 1 individuals account for 30
• 33 expenses for preventable conditions
• 50 to 60 hospital admissions due to chronic
  conditions

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Disease Management Objectives

• Assist patient in navigating health system
• Save money
• Improve clinical outcomes
• Improve functional status/productivity
• Enhance patient satisfaction

14
Targeted Diseases

• Asthma
• Cancer
• Heart Disease
• Diabetes

• Depression
• Hypertension
• Low Back Pain

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If Managed Care Declining, Whats Next?
Consumer-Driven Health Care
More personalized communications to change
employee perceptions and improve behavior
Greater consumer financial role
More choice to improve satisfaction
16
Differing Perceptions On Choice

• More choice
• Less restrictive plans
• Willing to pay more

• Increased administration
• Employee confusion
• Reduced negotiating clout

17
Consumer-Driven Health Plan
Health Tools and Resources

• Personal Care Account (PCA)
• Employer funded
• Roll over at year-end
• Health Coverage
• Preventive care, 100
• Annual deductible
• Health Tools and Resources
• Easy-to-use information and services (even fees)

Health Coverage
Member Responsibility
Annual Deductible
Web- and Phone-Based Tools
PCA
18
Consumer-Driven Assumptions

• Employees spend own money more judiciously and
  conservatively
• Employers want knowledgeable and assertive
  employee/patients
• e-Health tools/decision support services
  available

19
Advantages / Disadvantages
Advantages
Issues/Concerns

• Employees
• Ability to roll-over unspent funds into next year
• Enhances employee autonomy in decision making
• Preventive coverage
• Decision support tools
• Employer
• Limits liability for non-catastrophic care
• Shares risk of cost/ utilization with employee

• Employees
• Member responsibility
• Employee with chronic disease
• Employer
• Adverse selection
• Actual cost savings
• DM/Care Management for acute and chronic disease
• Accuracy of actuarial assumptions

20
Wellness/Health Promotion

• Impact varies by industry/workforce
• ROI can be several years
• Good investments
• Early detection
• High blood pressure breast cancer depression
• Behavior change
• Nutrition, smoking, exercise flu vaccine
• Demand management
• Self-care books

21
Integrated Health Productivity

• Challenge 5 employees account for 70 costs
• Integrate program management to enhance
  productivity
• Medical plans
• STD/LTD
• Workers compensation
• Productivity enhanced by reduction in
• Absenteeism
• Presenteeism
• Employee turnover
• Lost training investments