New Health Plan Strategies for New Health Plan Strategies for Containing Medical CostsContaining Medical Costs

Leonard Davis Institute of Health EconomicsLeonard Davis Institute of Health Economics

2002/2003 Health Policy Seminar Series2002/2003 Health Policy Seminar Series

University of PennsylvaniaUniversity of Pennsylvania

John W. Rowe, M.D.John W. Rowe, M.D.February 21, 2003February 21, 2003

Health Insurance Premiums v. General InflationHealth Insurance Premiums v. General Inflation

Sources: Towers Perrin (red) and the Department of Labor (blue)

4.0%3.0%

10.0%

2.0%

12.0%

6.0%

12.0%13.0%

15.0%

7.0%

4.0%

2.5%3.2%3.2%

3.2%2.8%

1.0%1.9%1.9%

2.3%2.5%

2.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Health Insurance Premium ChangeGeneral Inflation

Factors Driving Rising Costs in HealthcareFactors Driving Rising Costs in Healthcare

Percentage Points

Percent of Total Increase

Medical Trend 13.7% 100%General Inflation (CPI) 2.5% 18%

Drugs, Medical Devices and Medical Advances

3.0% 22%

Rising Provider Expenses 2.5% 18%

Government Mandates and Regulation

2.0% 15%

Increased Consumer Demand 2.0% 15%

Litigation and Risk Management 1.0% 7%

Other Categories 0.7% 5%

Source: PricewaterhouseCoopers, April 2002.

Shares of Overall Health Care Spending GrowthShares of Overall Health Care Spending Growth

31% 32% 37%

34% 27%

21%

30% 34% 28%

14%7%5%

0%

20%

40%

60%

80%

100%

1999 2000 2001

Physician Services Physician Services

Prescription Drugs Prescription Drugs

Hospital Inpatient Hospital Inpatient

Hospital Outpatient Hospital Outpatient

1999 - 20011999 - 2001

Source: Milliman USA Health Cost Index

OverviewOverview

Why are Medical Costs Rising?

What are Health Plans doing to control Medical Costs?

Q. Why Are Healthcare Costs Rising So Dramatically?

A. Medical Cost = Volume (V) x Unit Cost (C)

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

The Erosion of Managed Care – V+C

Backlash

Managed Care Lite

The Erosion of Managed Care – V+C

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

Prescription Medication – V+C

Aging - V

The Erosion of Managed Care – V+C

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

Prescription Medication – V+C

Aging - V

The Erosion of Managed Care – V+C

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

Prescription Medication – V+C

Provider Consolidation - C

Leveraging - C

Aging - V

The Erosion of Managed Care – V+C

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

Prescription Medication – V+C

Provider Consolidation - C

Cost Shifting & Government Funding - C

Leveraging - C

Aging - V

The Erosion of Managed Care – V+C

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

Prescription Medication – V+C

Provider Consolidation - C

Government Mandates & Legislative Changes - C

Leveraging - C

Cost Shifting & Government Funding - C

Aging - V

The Erosion of Managed Care – V+C

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

Prescription Medication – V+C

Provider Consolidation - C

Technology - C

Leveraging - C

Cost Shifting & Government Funding - C

Government Mandates & Legislative Changes - C

Aging - V

The Erosion of Managed Care – V+C

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

Prescription Medication – V+C

Provider Consolidation - C

Expectations - V

Leveraging - C

Cost Shifting & Government Funding - C

Government Mandates & Legislative Changes - C

Technology - C

Aging - V

The Erosion of Managed Care – V+C

Why are healthcare costs rising so dramatically?Why are healthcare costs rising so dramatically?

Prescription Medication – V+C

Provider Consolidation - C

Perspectives on DeathPerspectives on Death

Scotland - Imminent

France - Inevitable

United States - Optional

What do people want from their health care system?What do people want from their health care system?

Afghanistan

Portugal

Canada

United States

California

West Los Angeles

Reduce mortality

Reduce morbidity

Improve functionality

Feel better

Look better

Look real good

Source: Jamie Robinson - The Aetna Executive Speaker Action Series Presentation January 9, 2002

Strategies to Control CostsStrategies to Control Costs

Pharmacy - Formulary- Tiering- Mail Order

Hospital and Physician Contracts

Benefits Structures

Patient Care Management- Disease Management - Care Management- Utilization Management- Hospitalists

Consumer Driven Health Plans

Consumer Driven Health PlansConsumer Driven Health Plans

Provide a greater role for employees in:

Selecting Providers

Choosing Health Plans

Designing Benefit Packages

Sharing Financial Risk

Co

nsu

mer

Co

nsu

mer

Recep

tion

Recep

tion

Consumer InvolvementConsumer Involvement

Tiered NetworksTiered Networks

Health Reimbursement ArrangementsHealth Reimbursement Arrangements

A La CarteA La Carte

Customized PackagesCustomized Packages

Traditional PlansTraditional Plans

Courtesy of Ken Sperling, Hewitt Associates, February 2003

Co

nsu

mer

Co

nsu

mer

Recep

tion

Recep

tion

Consumer InvolvementConsumer Involvement

Tiered NetworksTiered Networks(PacifiCare, HealthNet)(PacifiCare, HealthNet)

Health Reimbursement ArrangementsHealth Reimbursement Arrangements(Aetna, Lumenos)(Aetna, Lumenos)

A La CarteA La Carte(Vivius, My Health Bank)(Vivius, My Health Bank)

Customized PackagesCustomized Packages(Humana, Highmark)(Humana, Highmark)

Traditional PlansTraditional Plans(Cigna, United)(Cigna, United)

Courtesy of Ken Sperling, Hewitt Associates, February 2003

The Aetna HealthFund, Release 1.0The Aetna HealthFund, Release 1.0

Health Care Spending Account

1. Employer Funded2. High Deductible3. Expenditures Apply 100% Toward Deductible4. Single & Family Options5. Unused Balances Roll Over

Full Coverage for In-Network Preventive Services

Linked to PPO Networks

No Referrals Self Insured & Fully Insured Models

Fully Integrated Services & Features

Aetna HealthFund, Release 1.0Aetna HealthFund, Release 1.0 Patient Care Management

-Disease Management-Case Management

Decision Support Tools-Hospital Comparison-Price a Medical Procedure-Evaluate Doctors-Price a Drug

Claims Management-On-Line Adjudication

Benefit Explanation – Eligibility (On-Line)

Information Therapy (SimpleSteps, Informed HealthLine)

Monthly Statement

The Jury is Out!The Jury is Out!

Will These Products Sell?

Will Consumers Access Information and Use it Effectively?

Will Information Regarding the Quality of Individual Physicians and Hospitals become Sufficiently Robust?

Will Access to Care Expand or Contract?

Will We Witness Selection Bias?

Will the Appeal of Consumer Driven Health Plans Serve to Ultimately Reduce the Ranks of the Uninsured?