HOT ISSUES IN HEALTH CARE

Sponsored by

Rose Community Foundation

<<!-- PICOTITLE= "Health Insurance Market in Colorado" --> <!-- PICODATESET mmddyyyy=08202001 -->

HEALTH INSURANCE MARKET IN COLORADO

W. N. LindsayBenefit Management & Design,

Inc.1720 South Bellaire Street, Suite 250

Denver, CO 80222(303) 691-0335

www.bmadinc.com

Setting the Stage

Urban and Rural Access Small Group Health

Insurance Challenges Significant and sustained

price inflation

“But Colorado is Unique!”

…is it?

National Trends?

Influenced by large employers

Health care prices vary by market

Increases in health insurance premiums compared with other indicators, 1988-2002

12.7%*

11.%*

8.3%*

4.8%*

0.8%

8.5%

12%

0

2

4

6

8

10

12

14

1988 1993 1996 1999 2000 2001 2002

Health Insurance Premiums Medical Inflation Overall Inflation Workers' Earnings

*Estimate is statistically different form the previous year shown: 1996-1999, 1999-2000, 2000-2001, 2001-2002.

Note: Data on premium increases reflect the cost of health insurance premiums for a family of four.

SOURCE: KAISER FAMILY FOUNDATION AND HEALTH RESEARCH AND EDUCATIONAL TRUST, SEPTEMBER 5, 2002

Can we afford it or are we willing to pay for it?

$90

$290

$490

$690

$890

$1,090

$1,290

$1,490

1999 2001 2003 2005 2007 2009

Employee Only Rate Family RateReden & Anders, Inc. 2000

3.03.54.04.55.05.56.06.57.07.58.0

1999 2001 2003 2005 2007 2009

% of $50,000 Salary

Can we afford it or are we willing to pay for it?

Reden & Anders, Inc. 2000

The Factors Driving Rising Costs in Healthcare (2001-2002)

(PricewaterhouseCoopers)

Increased Consumer Demand

15% Govt Mandates & Regulation

15%

Other5%

General Inflation (CPI)18%

Litigation & Risk Mgt7% Rising Provider

Expenses18%

Drugs, Medical Devices & Other

Medical Advances22%

National Rx Drug Trends

Large EmployerPrescription Drug Cost Trend

17.8%18.3%16.9%13.8%

0%

5%

10%

15%

20%

1998 1999 2000 2001

Source: Mercer/Foster Higgins National Survey of Employer-Sponsored Health Plans 2001

Total HMO enrollment and growth rate, July 1992 to July 2001

38.842.1

47.1

53.4

63.3

72.1

78.6 80.5 78.9 78

0.063

0.085

0.119 0.134

0.185

0.139

0.089

0.026

-0.02-0.011

0

10

20

30

40

50

60

70

80

90

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Years

En

roll

me

nt

in m

illi

on

s

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Gro

wth

ra

te

Enrollment Growth RateNote: Growth rates based on total enrollment, not the rounded-off numbers given in this chart

SOURCE: EBRI 5/30/02

Health Plan Enrollments For Covered Workers, Selected Years 1996-2001

POS14%

Conventional27%

HMO31%

PPO28%

1996

POS24%

Conventional14%

HMO27%

PPO35%

1998

POS22%

Conventional8%

HMO29%

PPO41%

2000POS22%

Conventional7%

HMO23%

PPO48%

2001

Sources: Kaiser/Health Research and Educational Trust (HRET) Survey of Employer-Sponsored Health Benefits, 1999, 2000, 2001; and KPMG Survey of Employer-Sponsored Health Benefits, 1996, 1998.

America’s Health Care Providers Won the Battle vs. Managed Care

Network adequacy rules Any willing provider requirements External appeals required Gag clauses removed Out-of-network providers included Prompt pay rules Non-contracted reimbursement rates Health plan liability

But they may have lost the war.

Consider This!

Shift cost to employees

No reimbursement until a claim is processed

Collections on an individual employee basis

No assignment of benefits for non-contracted providers

Increased bad debt

Removal of copayments from plans

Higher deductibles & OOP limits

“The leading cause of personal bankruptcy is health care costs.”

Source: Prosperity Institute Report 2/2002

The States as Laboratories!!

Colorado Has Been a Laboratory

1992 RWJ Planning Grant 1994 Business Group of One 1994 Small Group Health Reform 1994 Modified Community Rating 1994 Small Employer Health Care

Purchasing Cooperative 1996 Child Health Plan 1998 Child Health Plan Plus (SCHIP)

And…there have been a few explosions!

Colorado HMO Enrollment

Total Penetration

39.4%

MSA Penetration

36.4%

Source: Interstudy Statistical Report 2000

Colorado HMO Results

1999 2002

Number of HMO’s:

18 5+

Net Income $21 million $60 million(2000)

Source: Colorado Division of Insurance, May 2001

Insured StatusSmall Employer Market

Source: Colorado Division of Insurance April 30, 2002

1999 Survey

2000 Survey

2001 Survey Change

Covered Lives 478,344 537,996 456,151 (81,845)

Covered Employer

s65,948 70,270 65,590 (4,680)

Small Group

Carriers44 33 33 (N/C)

Employers’ Reactions to Rising Health Care Costs

Source: BMAD Employer Surveys

Pass on Cost Increase

Absorb Cost

Change Coverage

December 2000

26%

74%

38%

December 2001

72%

28%

52%

August 2002

88%

12%

52%

Contrary Concepts:

Guarantee Issue all products (HIPAA) Open enrollment required (HIPAA) Limits on “pre-ex” (HIPAA) Maternity not pre-ex (HIPAA,

Pregnancy Discrimination Act) Mandated coverage (e.g., Mental

Health)

Public Policy

Insurance Principles

Impacts of laws on Insurance

Rate regulation Rating restrictions Market conduct rules

Guaranteed availability

Limiting restrictions by insurers

Small employers only

State Laws

Federal HIPAA Law

Challenges to Effective Competition

The size of the pool is shrinking! Number of uninsured growing

Number of small businesses not offering insurance is growing

More employees not electing coverage when offered it

Challenges to Effective Competition

Different sets of rules!

Self-funded small employers8-10%+Individual insurance 3-

7%+Employee leasing companies 2-

5%+Others (METS, MEWAs, etc.) 3-5%+

Estimates

Example of individual insuranceAge 25 $125.89Age 35 $150.13

Example of small employer group insuranceAge 25 $193.25Age 35 $206.41

$500 deductible, 90/60% PPO, $5,000 Coinsurance, $20 office copay, 10/30/50 Rx, 6/02 Denver rates

Fact Based Assessment

Individual Insurance is CheaperNew Pre-exSubject to Medical UnderwritingPolicy limits, restrictionsNo state mandates*

Fact Based Assessment

“TINFL”

Current Status? Humana—major off-anniversary rate

change Sloans Lake HMO is sold Denver Health HMO withdraws from

small group Aetna, Pacificare withdraw from Alliance Aetna withdrawal from HMO small group Alliance/CHIP fails

Current Status?On-going challenges: Rate increases (ALL groups) Stop-loss market has hardened Small employer pool decreases Rural access to insurance options Over age 65 access to physicians

What are we to do?

Re-entry penalty Gather data on insurance coverage Define “insurance” Provider cost data and quality

Conclusion

"Picking a healthcare financing system is kind of like picking someone to

marry--you're picking a set of problems you are prepared to live

with.”Marc J. Roberts, Ph.D., Harvard School of Public

Health

Thank You