The Future of Health Care:
Challenges and Implications
2003 National Health Policy Conference
Leonard D. Schaeffer
Chairman and CEO
WellPoint Health Networks Inc.
January 22, 2003
1
Agenda
• What’s Happening Now
• Changing Marketplace
• Health Care Policy in 2003
• How Health Plans Will Respond
• Conclusion
2
What’s Happening Now
• Rising Health Care Costs
• Challenges for Insurers
• Why Costs Could Moderate
3
Rising Health
Care Costs
Health Benefit Cost Inflation
Employers Expect Health Care Costs
to Continue Rising
All Employers
20%
18.6%
17.1%
16.7%
14.7%
14.0%*
15%
12.1%
11.2%
10.1%
10%
8.1%
7.3%
6.1%
8.0%
6.9%
5%
2.1%2.5%
0.2%
0%
1987
1988
1989
1990
1991
-5%
* Estimate
Source:Mercer/Foster-Higgins, 2002
4
1992
1993
1994
-1.1%
1995
1996
1997
1998
1999
2000
2001
2002 2003E
Rising Health
Care Costs
Hospital, Physician and Rx Costs
20
Annual Percentage Change Per Capita
in Health Care Spending
16.3 Hosp. Outpt.
15
13.8 Rx Drugs
11
10
5
0
7.7
1.6
1996
-5
7.1 Hosp. Inpt.
6.7 Phys. Services
1997
1998
-4.4
Source: Center for Studying Health System Change, 2002
5
1999
2000
2001
Share of Overall Cost Trend
Rising Health
Care Costs
Hospital Care Surpassed Drugs
as Key Cost Driver
30%
34%
28%
Physician Services
34%
27%
21%
Prescription Drugs
14%
Hospital Inpatient
Hospital Outpatient
5%
7%
31%
32%
37%
1999
2000
2001
Source: Center for Studying Health System Change, 2002
6
Challenges for Insurers
1. Growing Hospital Clout
2. Legislation, Regulation & Litigation
3. Consistent Profitability
4. The Values Debate
7
Challenges for Insurers
1. Growing Hospital Clout
Percentage Share of Staffed Beds - California
74,801
69,515
33%
Systems
61%
67%
39%
Independents
1995
1999
Source: Office of Statewide Health Planning and Development; company financial statements
8
1. Growing Hospital Clout
Challenges for Insurers
Cost Variations
September 19, 2000
The operation you get often depends
on where you live.
Total Abdominal
Hysterectomy
CA Hospital A
CA Hospital B
$25,100
$ 2,200
$27,000
$ 1,700
$ 28,700
$ 3,000
GA Hospital A
GA Hospital B
$11,400
$ 2,800
$12,500
$ 2,800
$ 21,100
$ 8,700
MO Hospital A
MO Hospital B
$26,200
$ 3,100
$18,200
$ 9,600
$119,400
$ 24,900
TX Hospital A
TX Hospital B
$37,700
$14,700
$18,600
$ 2,100
$ 41,000
$ 24,700
Source: WellPoint internal database systems.
9
Cholecystectomy
Total Knee
Replacement
Challenges for Insurers
2. Legislation, Regulation & Litigation
The Factors Driving Costs in Health Care
2001-2002
General Inflation (CPI)
Other
Increased
Consumer
Demand
Rising
Provider
Expenses
Government Mandates & Regulation,
Litigation & Risk Mgmt
Source: PriceWaterhouseCoopers, 2002
10
Drugs,
Medical
Devices &
other Medical
Advances
Challenges for Insurers
3. Consistent Profitability
25
20
Profit Margin by Industry Segment
20.5%
Industry Averages
15
10
7.6%
6.4%
4.3%
5
0
U.S.
Pharmaceutical
Companies
Rural
Hospitals
Source: Credit Suisse First Boston, 2002
11
Urban
Hospitals
National
Managed Care
Companies
3.4%
Regional
Managed Care
Companies
Challenges for Insurers
3. Consistent Profitability
Underwriting Cycle
Blues’ Underwriting Results as % of Revenue
3.5%
3.3% 3.2%
2.5% 2.5%
2.6%
1.8%
1.5%
1.1%
0.8%
0.4%
0.0%
-0.6%
-1.5%
0.6%
0.2%
0.3%
-0.9%
2.2%
1.1%
2.1%
1.3%
-0.2%
-1.0%
-1.5%
1.3%
0.6%
0.1%
-1.0%
-1.2%
-2.9%
-3.0%
-3.3%
-3.4%
-3.9%
-4.1%
-5.6%
1965
1969
Source: BCBSA, 2002
12
1973
1977
-5.9%
1981
1985
1989
1993
1997
2001
6/30/2002
Challenges for Insurers
4. The Values Debate
•
What constitutes an insurable event?
•
•
•
Who should fund experimental treatments?
– “Lifestyle” drugs
– Clinically unproven therapies
– Alternative therapies
What should be the role of the legal system?
Can a free society. . .
– Mandate coverage for individuals who can
–
13
afford it?
Require compliance with medical protocols?
Why Costs Could Moderate
• Hospital sensitivity
• Physician markets remain competitive
• Tiered prescription drug benefits
moderating trend
• Care/Disease Management programs
showing results
• New products with enhanced consumer
participation
14
Agenda
• What’s Happening Now
• Changing Marketplace
• Health Care Policy in 2003
• How Health Plans Will Respond
• Conclusion
15
Changing
Marketplace
Percentage of All Health Spending
Employers Shoulder the Burden
The Percentage of Health Care Costs Paid by
Consumers Has Dropped Dramatically
15%
40%
Since 1970
13%
35%
34%
30%
25%
20%
10%
7%
15%
15%
5%
10%
5%
0%
0%
1970
1980
1990
2000
Consumer Out-of-Pocket Spending
NHE as a Percent of GDP
as a % of NHE
Source: Centers for Medicare and Medicaid Services, 2001
16
Changing
Marketplace
But, Consumer Role Changing
Employers Plan Increased Cost-Shifting to
Employees in Next Two Years
75%
Increase employee premium contribution
Increase employee cost-sharing
Increase amount employee must pay for
spouse/dependent coverage
70%
68%
59%
Increase choice of voluntary benefits
Increase choice of plans offered to employees
38%
Significantly restrict or reduce the Rx benefit
Employ more contract, temporary, or part-time
employees and not provide them with coverage
38%
28%
20%
Decrease the scope of covered benefits
Drop some or all employees coverage
Drop some or all employee dependent coverage
9%
6%
Source: Harris Interactive, Survey of Corporate Human Resource Directors, Oct 11, 2001
17
Changing
Marketplace
The “New” Consumer-Driven Market
Consumers
Health Plans
(and Consumer
Sponsors)
Exercise:
• Choice
Provide:
•
•
•
•
Negotiated lower cost
Quality assurance
Information/ analysis
Cost/ quality transparency
Adapted from Robert S. Galvin, M.D., General Electric, 2002
18
Hospitals
Physicians
Other Clinicians
Compete on:
• Quality
• Service
• Price
Agenda
• What’s Happening Now
• Changing Marketplace
• Health Care Policy in 2003
• How Health Plans Will Respond
• Conclusion
19
Health Care Policy in 2003
• Public Attitudes
• Republican Agenda
• Covering the Uninsured
20
Health Care Policy
in 2003
Public Attitudes
Two Most Important Issues: Security & Jobs
Terrorism / War / National
Security / Iraq
64%
32%
Economy / Jobs
Education
7%
Health care / Medicine
7%
Taxes
Source: Harris Poll #50, Sept. 27, 2002
21
3%
Public Attitudes
Single Payer Overwhelmingly
Rejected by Oregon Voters 4:1
22
Health Care Policy
in 2003
Measure
23
•
•
•
11.5% increase in employer payroll tax
•
Opposed by labor, business, insurers,
hospitals and health systems
Up to 8% increase in individual income tax
No premiums, no deductibles, no copays
and no limitations on treatment
Health Care Policy
in 2003
Republican Health Care Agenda
Republicans view health care as a domestic
vulnerability and a key opportunity to define
their vision…
• Senior prescription drug benefit
23
•
•
Medical malpractice reform
•
State Demonstration Projects
Covering the Uninsured
– AHPs
– Tax credits
– Community health center funding
Health Care Policy
in 2003
The Uninsured: Not a Single Group
• The current public and private system has the
capacity to cover most of the uninsured
Eligible for public
programs but not
enrolled
(~ 12 million)1
<100% FPL
10.1 million2
Poor but not
eligible for
public
programs
(~10 million) 1
100%-199%FPL
12.1 million2
Moderate to high income
(18.8 million) 2
200-299% FPL
7.4 million2
• Awareness
• Affordability
• Stigma
• Not offered at work
• Enrollment barriers • Transitions
• Undocumented
300% + FPL
11.4 million2
• Perceptions of Affordability
• Transitions (Employment, age)
• Value (Cultural, age)
• Small employer/Individual market
1. Urban Institute, 2001
2. U.S. Census Bureau, Current Population Survey, 2002 Annual Demographic Supplement
Adapted from NIHCM, 2002
24
Health Care Policy
in 2003
The Uninsured: Not a Single Group
Cost Perception, Willingness to Pay &
Available Products
Monthly Premiums
$250
Purchase Intent
$200
$150
Actual
Range
$100
$50
19-29
30-39
40-49
50-59
AGE GROUPS
Perceived Price
Source: California HealthCare Foundation, 1999
25
Willing To Pay
Health Care Policy
in 2003
The Uninsured: Recommendations
• Maximize capacity of Public/Private system
– Public Programs: Expand Medicaid/S-CHIP to all
poor people without access to group coverage
– make concerted effort to enroll all eligibles
– Private Health Plans: Promote private coverage
through tax incentives and subsidies for small and
low-wage employers, and low-income workers
• Support state high-risk pools
• Permit product innovation
• Allow state experiments
26
Agenda
• What’s Happening Now
• Changing Marketplace
• Health Care Policy in 2003
• How Health Plans Will Respond
• Conclusion
27
How Health Plans Will Respond
• The “Health Security” Model
9 Product Design
9 New Network Concepts & Quality
9 Health Management
9 Service Innovations
9 Member Information
28
Health Security Model
How Health Plans
Will Respond
What is a Health Security Company?
A company with the financial, technical
and intellectual capital to assure its
customers that health care services
and information will be available and
affordable to them over a
lifelong relationship.
29
Product Designs That
Meet Customer Needs
30
How Health Plans
Will Respond
PlanScape
Low price point products
for individuals
FlexScape
Defined contribution plan
for small employers
Power
HealthFund
Resources to assist members
with health care decisions
Short-Term
PPO Plan
Interim health coverage for
temporarily uninsured
individuals and families
Ethnic Marketing
Outreach to Hispanic, Asian &
African American communities
New Network Concepts & Quality
Segmented Networks
Hospitals
Subspecialists
Specialists
Primary Care Physicians
31
How Health Plans
Will Respond
New Network Concepts & Quality
How Health Plans
Will Respond
Quality Incentive Programs
32
•
HMO program rewards quality and best
practices more heavily than utilization
control
•
PPO program indicators measure
performance on clinical quality, access,
generic prescribing and administrative
simplicity
How Health Plans
Will Respond
Targeted Health Management
Membership
Population <65
Medical Costs
8%
24%
70%
68%
23%
7%
33
How Health Plans
Will Respond
Health Management
Diabetes Results
200
per 1000 members
18%↓
150
1998 (Baseline)
2000
100
50
9%↓
22%↓
0
Admissions
Days
ER Visits
Results are statistically significant.
34
Service Innovations
How Health Plans
Will Respond
Meet Customer Needs & Expectations
•
•
35
E-Business
–
–
–
–
–
Member Self-service
Employer Access
Provider Access
AgentFinder &
AgentConnect
Virtual call centers
•
•
One-call resolution
Enhanced work flow
management
–
•
–
Advanced imaging
technology
Bar coding applications
Telemedicine
How Health Plans
Will Respond
Service Innovations
Improved Claims Submission
“WellPoint pays bills on time, irking analysts”
Multiple PO Boxes
Physicians
Hospitals
Other
Health Care
Professiona
ls/
Suppliers
Large Group
MBUs
Individual and
Small Group
MBUs
Senior/ State
Sponsored
MBUs
One Virtual PO Box
Physicians
Hospitals
Other
Health Care
Profession
als/
Suppliers
Provider
Access
One
Point of
EDI
Entry/
and
autoBig
adjudication
Front
End
FileNet
EFT
Training & Education
36
Large
Group
MBUs
Individual
and Small
Group
MBUs
Senior/
State
Sponsored
MBUs
Member Information
How Health Plans
Will Respond
Consumer Cost Guide
Each hospital is placed into
one of four cost categories
In general, least expensive
In general, less expensive
In general, more expensive
In general, most expensive
37
Member Information
How Health Plans
Will Respond
Quality Indicators: Subimo
38
Agenda
• Health Care Cost Trends Economic
• Changing Marketplace
• Health Care Policy in 2003
• How Health Plans Will Respond
• Conclusion
39
Conclusion
40
•
•
Cost has re-emerged as the major issue
•
More cost will shift to consumers and they
will react
•
Different solutions required for different
subgroups of uninsured
•
Health care’s stakeholders may be ready to
maximize instead of optimize
Federal policymakers have an opportunity
to help the nation frame the issues
Health Policy
Challenges
Conclusion: Optimize or Maximize
Stakeholder
• Consumers
• Purchasers
• Providers
• Health Plans
Trade-Offs
• Access
• Cost
• Quality
Choice
• Optimize
1 winner/
3 losers
• Maximize
4 almost
winners
41
42