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Ronald Bachman, FSA, MAAA President & CEO Healthcare Visions, Inc. Senior Fellow, Center for Health Transformation 404-697-7376.

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Presentation on theme: "Ronald Bachman, FSA, MAAA President & CEO Healthcare Visions, Inc. Senior Fellow, Center for Health Transformation 404-697-7376."— Presentation transcript:

1 Ronald Bachman, FSA, MAAA President & CEO Healthcare Visions, Inc. Senior Fellow, Center for Health Transformation A Workbook for Developing a Vision and Roadmap to 2 nd + Generation Healthcare Consumerism

2 1 Table of Contents Page # Topic. 2 Agenda 3 Scope of Work 4Background Info 5Task #1 – Setting Principles for Change 8Task #2 – Vision Statement Development 11Task #3 – Identification of Acceptable Stategies 14Change Formula 18Actuarial Issues 20Consumerism 40Task #4 – Personal Care Accounts 65Task #5 – Wellness, Prevention, & Early Intervention 78Task #6 – Disease Management 93Task #7 – Decision Support Tools 102Task #8 – Incentives & Rewards 111Task #9 – Viewing Consumerism by Generations 145Task #10 – Create Consumerism Plans 154Task #11 – Setting Time Frame for Implementation 158Integrated Health Management 161Potential Savings from Healthcare Consumerism 164Actual Industry Experience Results 170Task #12 (summary) – Potential Savings 171Consumer-driven Healthcare Surveys of Growth

3 2 Agenda Day#Goal 1 MorningAgenda, Scope of Work, Background, (T1-3), Change Formula, Actuarial Issues, Consumerism, Building Blocks (T4), Building Blocks (T5) 1 Afternoon Building Blocks T(6-8), Multi-generational Issues (T9), Create MSFT Plans (T10), Time Frame for Implementation (T11) 2 Review Decisions from Tasks 1-11, Financials Task 12, Final Input to Roadmap Tasks To Be Completed During 1.5 Day “Extreme” Consumerism 1. Principles7. Decision Support Tools 2. Consumerism Vision Statement8. Incentives & Rewards 3. Strategies9. Viewing by Generations 4. Personal Care Accounts10. Create Consumerism Plans 5. Wellness11. Time Frames 6. Disease Management12. Financial Analysis

4 3 Scope of Work for Developing the Roadmap and Beyond Diagnostic and Readiness Assessment Perform Financial & Actuarial Analysis (set metrics) Design Benefits and Contrib. Strategy (The Road Map) Evaluate, Select, Implement Vendors Develop and Implement Education, Comm., Training, etc. Monitor and Evaluate Evaluate current plans Interview stakeholders Identify Basic Principles for Change Create Consumer Vision Stmt Select Strategies Develop Obj. & scope, set timeframe Match HR/business plan Est. Rel. Value of Components HDHP & Accts Wellness & DM Transition strategy Optional Coverages Carve-out Programs Support services Health vs. Healthcare Debit/Credit Cards Incentive Programs Develop baseline costs Co.& Ee contrib. level Model options Evaluate cost impact and revise Develop measures of success Communication Strategy Web-based Training, education Print, video, other media uses Internal vs. External Services Vendors Technology Services Performance Accountability Reliability Periodic reevaluation of baseline metrics Consumer scorecards Survey, measure success, acceptance Vendor/supplier audits Reassess & modify as appropriate

5 4 Background & Issues  Current Benefits,  Design Issues,  Service Issues,  General Concerns,  Anti-selection  Reasons for Change,  Interests in Consumerism,  Driving Forces for Change,  Perceptions of Employee Satisfaction, Dissatisfaction  Other Problems and Positives with Current Plans

6 5 Task #1 – Setting Principles for Change Important…Not Important 1. Have the Right Vision & Vision Stmt Have a 3-5 Year Roadmap/Strategic Plan Consider Other Related Corporate Initiatives Create plan as part of Employer of Choice Consider other HR metrics impacted by Healthcare Provide Information on Rx Costs & Alternatives Provide Information on Dr. & Medical Service Costs Provide Information on Hospital Costs Provide Information on the Quality of Dr. Care Provide Information on the Quality of Hospital Care Focus on Discretionary Costs (Rx and OV) Focus on High Cost Claims & Claimants Focus on Wellness and Preventive Care Focus on an Individual Behavior Changes Focus on Group Behavior Changes

7 6 Task # 1 – Setting Principles for Change Important…Not Important 16. Use Incentives and Compliance Rewards Increase Costsharing to Change Behaviors Increase Employee Contributions to Offset Costs Focus on Overall Plan Cost Reduction Set the Right Measurements for Monitoring Progress Build Broad Employee Agreement for Change Minimize Change from Current Plans Make Choices and Plan Options available Improve Access to Care Maintain Existing Network of Providers Provide $ for post-65 retirement healthcare Provide $ for pre-65 retirement healthcare Provide $ for non-plan medical Provide $ for terminated ee’s healthcare Provide $ for non-healthcare expenses Alternative to cutting benefits or initiating contributions

8 7 Sample Vision Statement: Create health and healthcare program options valued by employees that adapt effectively to environmental trends that increase the quality of services, improve access to care, and lower costs. Task #2 – Sample Vision Statement Positioning to Balance Cost, Quality, and Access Access Cost Quality Consumer Valued Quality Consumer Involvement & Transparency Demand Driven Controls Uncertain, Clinically Oriented Third Party Reimbursement Supply Driven Controls

9 8 Task #2 – Create a Consumerism Vision Statement Sample Vision Statements: 1. Providing high performing highly educated employees and their families with the security of comprehensive health and healthcare coverage that meets their diverse needs and rewards their personal involvement and responsibility as wise users of services to optimize their individual health status and functionality. 2. Affect employee behavior change towards healthier lifestyles and greater consumerism through the use of rewards and incentives. 3. Make employees better consumers of healthcare services by providing them with the necessary health education, decision support tools and useful information including provider cost and quality data. 4. Encourage greater employee awareness and involvement in healthcare and financial decision making, as a building block towards a defined contribution strategy for healthcare in the future.

10 9 Task #2 - Key Words / Phrases for Consumerism Vision Statement or Addition to Guiding Principles __________________________________

11 10 Task #3 - Identification of Acceptable Strategies High Priority...Low Priority 1.Create Transparency – support “employee’s right to know,” minimize distortions of third-party reimbursement system, create transparency in costs, provide education/ training on healthcare costs, use decision support programs Create Personal Involvement – establish greater financial involvement through HDHPs, HRAs or HSAs, reward good behavior, offer valued options, provide long term incentives, provide immediate feedback Be Bold and Creative - Shift from supply-side controls to demand-side control designs. Be an early adopter/fast follower, consider out-of-the box ideas Focus on High Cost “Pareto” Population - Provide financial protection to families in need due to high unexpected medical costs and/or chronic conditions

12 11 Task #3 - Identification of Acceptable Strategies Continued Important…Not Important 5. Focus on Saving Lives and Improving Health – Focus on improving the health of the entire population regardless of plan design selected. Implement prevention & wellness for long term savings and DM for immediate impact Focus on Preventive Care – Create incentive programs that change behaviors towards acceptance and compliance with wellness and early intervention, including pre-natal, non-smoking, diet, exercise, and safety Minimize Impact of Cost Shifting – Use consumerism as an alternative to increased cost shifting or higher contributions Implement Optional Consumerism – Provide new programs and plan options on a voluntary basis

13 12 Task #3 - Identification of Acceptable Strategies Continued High Priority…Low Priority 9. Implement Change on a Multi-Year Program – Establish a consumer-centric program with a pre- determined multi-year introduction of options and use of accumulated HRAs and/or options Focus on Information Sharing Only – Provide ees with decision support systems and information sources w/o accounts or incentives to reward behavioural change Use Packaged Programs – use full integration of plan design, information, disease management, and decision support systems from single vendor Use Existing Vendors – develop consumerist programs through current vendor relationships only Use “Best of Class” Programs – use selected vendors that May overlay core benefit designs as long as integration is Non-disruptive and transparent to members

14 13 A Reason To Consider Change The Definition of Insanity: “Endlessly repeating the same process, hoping for a different result.” - Albert Einstein

15 14 Employee Perceptions Lead to a sense of entitlement… Employees underestimate total premium cost Employees overestimate their share of cost Source: Watson Wyatt 63% Underestimate 16% Close 21% Overestimate 20% Underestimate 11% Close 69% Overestimate

16 15 Requirements & Stages of Change NoCHANGENoCHANGE NO CHANGE Without Desire – “Back Burner” Without Vision – False Starts Without Process – Frustration + + = Alignment CHANGE Awareness Pros & Cons Gather Info Threshold CHANGECHANGE

17 16 The Formula for Making Change Happen Desire for Change + Vision / Roadmap + Process for Change = POSITIVE CHANGE Desire for Change + Vision / Roadmap + Process for Change = Put on Back Burner Desire for Change + Vision / Roadmap + Process for Change = Expensive False Starts Desire for Change + Vision / Roadmap + Process for Change = Frustration Set by Mgmt’s Direction Task at Hand Later - Next Steps Results

18 17 Preliminary Actuarial Work & Issues (NOT performed by CHT) 1. Data Collection and Population Profiling 2. Distribution of claims (low-medium-high-catastrophic claims) 3. Types and Analysis of Chronic & Persistent Conditions 4. Review of Industry Data on Consumerism 5. Use of Actuarial Pricing Model 6. Behavioral Modification Recognition 7. Cost Impact of Strategies and Plan Designs Selected

19 18 Purpose of Actuarial Work Perform the actuarial and financial analysis to determine the impact of options available under a Consumerism Plan. Determine Potential: Plan designs Savings Elements / HRA, HSA, & Account Credits Combinations and interactions of “Building Blocks” Costsharing structure Contribution strategies Participation

20 19 Consumerism Supply Controls vs. Demand Controls “Them” or “You” Reform is Not Enough, Transformation is Required

21 20 Supply Controls or Demand Controls Plan Sponsors and Members have two basic choices to control costs: 1. Managed care & HMOs - The “supply of care” is limited by a third party who controls the access to medical services (e.g. utilization reviews, medical necessity, gatekeepers, formularies, scheduling, types of services allowed), or 2. Healthcare Consumerism - The member controls their “demand for care” because of a direct and significant financial involvement in the cost of care, rewards for compliance, and the information to make wise health and healthcare value driven decisions.

22 21 High Healthcare Costs Climbing Higher Patients have lost control of their own healthcare, and are not truly engaged in the process of managing their health Patients are frustrated with managed care “rules” and the impact on time and productivity Patients don’t understand healthcare costs – costs are not transparent “ Every System is perfectly designed for the results achieved.” Supply Controls Are Failing

23 22 Mega Trends Leading to Demand Control 1. Personal Responsibility 2. Self-Help, Self-Care 3. Individual Ownership 4. Portability 5. Transparency (the Right to Know) 6. Consumerism (Empowerment)

24 Healthcare Consumerism is about transforming an employer’s health benefit plan into one that puts economic purchasing power—and decision-making—in the hands of participants. It’s about supplying the information and decision support tools they need, along with financial incentives, rewards, and other benefits that encourage personal involvement in altering health and healthcare purchasing behaviors. 23 Healthcare Consumerism - Defined “The job of a leader is to create the possible” – Condi Rice

25 24 Consumerism – Saving Lives & Saving Money The Moral Imperative for Consumerism: Increasing the Quality of Care, Better Health, and Improving Lives The Economic Imperative for Consumerism: Saving Money (Lower Product Prices and More Jobs)

26 25 Objectives Of Consumerism  Change participant health and healthcare purchasing behaviors  Narrow market cost and quality variations using patient decisions Increase transparency of healthcare costs to plan participants Give plan participants more control over and “shared responsibility” for managing own healthcare and related costs Supply participants with the tools to act as better informed healthcare consumers  Reduce costs for “discretionary care” through informed purchasing & incentives  Reduce long term costs with added incentives for “good health”  Reduce costs of Chronic Conditions through improved compliance with treatments and disease management programs  Reduce Acute Care costs with incentive hospital tiering based upon cost and quality

27 26 Basic Requirements for Successful Healthcare Consumerism  Must work for the sickest members, as well as the healthy  Must work for those not wanting to get involved in decision-making, as well as those that do

28 27 The Core of Consumerism The Unifying Theme for a Health and Healthcare Strategy is: Behavioral Change “Implement only if it supports behavioral change consistent with the strategy”

29 28 Healthcare Consumerism Roles & Responsibilities / Implications Employers  Facilitators of change  Provide increased information and decision making tools  Improved employee morale with choice and access  Link to productivity, absenteeism, disability, turnover, etc.  Consumerism can improve costs/budgeting (current & future) Payers (Self-Insured Employers)  Focus on high cost case mgmt/disease mgmt/population mgmt  Will become responsible for more communications, training, education direct to consumers  Value added services may change, including transactions and asset management  Diminished role of managed care for routine care

30 29 Healthcare Consumerism Roles & Responsibilities / Implications Employees  Increased responsibility for own health & healthcare  Involved in own treatment and medical necessity decisions  Improved access to care  Involved in financial costs of health & healthcare (P4C) Providers  More direct involvement with patients and treatment  Service and quality will be determined by consumers  Pricing will become more flexible and visible (P4P) Overall implications  Roles will change for all players  The picture change quickly - your strategy must prepare you for rapid market changes

31 30 Consumerism Choices Involve Options for Behavioral Change Consumerism Choices: Wellness Preventive care Early Intervention Lifestyle Options (diet, exercise, smoking, safety) Self-help, self care Discretionary Expenses (e.g. OV, ER, Rx) Value purchasing (e.g. DXL, o/p vs. in/p) Participation in Disease Management Programs Compliance with Evidence Based Medicine Treatment Plans

32 31 Consumerism – Much Broader than HDHP & Consumer-Driven Healthcare Consumerism is A Strategy ****************** It’s about moving from a “benefit” to an “accumulating asset.”

33 32 Evolution of Healthcare Consumerism FocusImpactChoices First Generation High Deductible Plans with HRAs or HSAs, Decision Support Tools Discretionary Expenses: Rx, ER, OV, D-X-L Initial Level and Type of Accounts with CDHC / HDHP Designs, Information and Decision Support Services Second Generation Behavior Change Through Rewards Chronic and Persistent Conditions, Pre-natal, Preventive Care Covered Benefits, Type and Level of Matching Funds and P4C / P4P Incentives for Prevention, Wellness, and Disease Management Programs Third Generation Health and Performance Organizational Health, Turnover, Absenteeism, Productivity, Disability, and Presenteeism Group rewards, Importance and Impact on non-health Corporate metrics Fourth Generation Personalized Health and Lifestyle Needs Personalized Health and Performance Outcomes, Genetic Predispositions Lifecycle Needs, Culturally Sensitive DM, Holistic Care, Information Therapy

34 33 The Evolution of Healthcare Consumerism Future Generations of Healthcare Consumerism Behavioral Change and Cost Management Potential Low Impact High Impact Traditional Plans with Consumer Information 2 nd Generation Consumerism Focus on Behavior Changes Traditional Plans 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism /CDHC Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare

35 34 The Promises of Consumerism Personal Care Personal CareAccounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease and Case Management Disease and Case Management Information Information Decision Support Decision Support The Promise of Demand Control & Savings The Promise of Wellness The Promise of Shared Savings The Promise of Transparency The Promise of Health It is the creative development, efficient delivery, efficacy, and successful integration of these elements that will prove the success or failure of consumerism. Major Building Blocks of Consumerism

36 35 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

37 36 Creating Healthcare Consumerism Plans  Understand Basic Consumerism Plan Designs  Including Consumerism in All Plan Options Building Blocks  1. Understanding HRAs/HSAs to Create Personal Care Accts as a Basis for Health “Asset Accumulation”  2. Include Wellness Programs that Encourage Healthy Habits  3. Include Disease Management Programs that Encourage Compliance  4. Include Decision Support Tools for All Plans  5. Include Incentives/Disincentives to Change Behavior

38 37 Basic Plan Design Options & Healthcare Consumerism Personal Accounts Incentives & Rewards Rewards Wellness/Prevention Early Intervention Disease Management Case Management HMO&FSAsHRAs? PPO&FSAsHRAs? PPO&FSAswithHRAs HDHPPPO&LtdFSAs&HSAs HDHPPPO& Ltd FSAs &HSAs&LtdHRAs Most Healthcare Consumerism Plan Designs Must Meet HSA / HDHP Legal Definition Information Decision Support TypicalCDHP Traditional Health Plans

39 38 Potential Use of PCAs to Support Consumerism Plan Designs Personal Accounts Incentives & Rewards Wellness/Prevention Early Intervention Disease and Case Management HMO PPO PPO HDHPPPO HDHPPPO Most Healthcare Consumerism Plan Designs Must Meet HSA / HDHP Legal Definition Information Decision Support TypicalCDHP Minimum Co-Payment Designs High Ded & Co-Insurance Designs Health Incentive Accounts? Initial $500- $1000 HRAwithIncentiveHRAs Initial Er HSA Contribution Initial Er HSA Contribution WithHRAMatch& Incentive HRAs & HSAs Traditional Health Plans

40 39 PPO/HRA and PPO/HSA High Deductible Health Plans Four components that work together to improve quality, outcomes, and lower cost. Health Accounts (HRAs or HSAs) “Benefit dollars” to pay for healthcare expenses. 1. Personalized Health Care Web- and Phone- Based Tools Health Tools and Resources Wellness, Condition care Programs, Information and Decision Support Tools and Resources HRA – ER provided $s HSA - ER and/or EE Provided $s HRA/HSA – Individual & Group Reward $s Incentives and Rewards Additional Health Coverage beyond the HRA/ HSA. 2. Health Account (HRA/HSA) Deductible Gap PPO Preventive 100% Coverage

41 40 Task #4 - Personal Care Accounts The Promise of Demand Control & Savings HSAs, HRAs, FSAs, FHSAs “Of the 5 building blocks, the greatest among them is the Personal Care Account”

42 41 HSAs and HRAs - Two Very Different Accounts to Support Consumerism  HSA (2003 MMA) - A law, with specific requirements and benefit design requirements. - Most TAX ADVANTAGED vehicle ever created  HRAs (6/26/2002) - A regulatory creation based upon an IRS ruling - Most FLEXIBLE vehicle ever created

43 42 Health Savings Accounts – Advantage Employees  Tax-free savings vehicles for medical expenses, no use-it-or-lose-it rule  Effective January 1, 2004  Eligibility: must be covered under high deductible health plan (HDHP)  Portable

44 43 Health Savings Accounts Individual accounts  To permit saving for qualified medical and retiree health expenses on a tax-free basis  Must be offered in conjunction with a legally defined HDHP - “High Deductible Health Plan” Portable  An HSA is owned by the individual, similar to IRAs, and transfers if the employee changes jobs  Held in a trust or custodial account; trustees – banks, insurance companies, approved non-bank trustees

45 44 Health Savings Accounts: Contributions  Contribution limits determined monthly based on status, eligibility, HDHP coverage as of first day of month (offset by other HSA contributions)  2005 Monthly limit – 1/12 th of lesser of deductible or $2,650 (self-only), $5,250 (family), indexed  Catch-up contributions, age 55 to 64, $600 in 2005, phased up to $1,000 annually in 2009

46 45 HSAs – Real Dollars, Portable, Vested  Can be used or taken in cash at anytime, even when no longer eligible to make contributions  Tax-free if used to pay for qualified medical expenses (IRC Section 213(d))  For other purposes, subject to income tax and 10% penalty - 10% penalty waived in case of death or disability - 10% penalty waived for distributions after age 65 or older  HSA can be transferred tax-free to spouse on death; otherwise taxable to estate or beneficiary  Transfers upon divorce, nontaxable, becomes spouse’s HSA

47 46 HSA Eligible HDHP High Deductible Health Plan – By Law  Self-only: a deductible of at least $1,000; maximum HSA is $2,650; no more than $5,100 maximum out-of pocket expenses (incl. Ded.)  Family coverage: a deductible of at least $2,000; maximum HSA is $5250; no more than $10,200 on out-of pocket expenses (incl. Ded.)  2005 Age 55 and over catch up amount of $600  Preventive services are not subject to the deductible  OK for out of network costs to exceed maximum out-of pocket limits THE ABOVE 2005 AMOUNTS ARE SUBJECT TO ANNUAL INDEXING

48 47 HRAs- Advantage Employers National Accounts, Er Controlled Rules  Employer does not fund and has cash flow value  Employer can determine rules for HRA usage; they are subject to forfeiture; they are not portable, but can be subject to vesting  HRAs are more flexible in plan design, can tailor scope of reimbursements, are less costly for employer  Employer decides if HRA can used for (1) medical plan expenses not otherwise reimbursed, (2) non-plan QME 213(d), and/or (3) insurance premiums

49 48 Important Differences between Use of HRAs and HSAs for Supporting Behavioral Change Generation 1 Initial Account Only Generation 2 Activity & Compliance Rewards Generation 3 Indiv. & Group Corporate Metric Rewards Generation 4 Specialized Accts, Matching HRAs, Expanded QME 1. Any Amount 2. Notional Acct 3. Employer Determined 4. Employer Only Contributions 1. Flexible Activity & Compliance Rewards 2. Employer Determined 3. Can not be cashed out 4. Must be used for healthcare 1. Flexible Indiv & Group Rewards 2. Employer Determined 3. Can not be cashed out 4. Must be used for healthcare 1. Specialized Notional Accts, 2. Can terminate by employer rules 3. Potential IRS Expanded QME Health Savings Accounts 1. Amounts Set by law 2. Real Dollars in Acct 3. Er or Ee Contrib 4. Contributions up to plan deductible of $ Single $ Family 5. Non-substantiation 1. Ltd Potential – (But For Rule) 2. Must give Cash Option 3. Awards must be same $ amt or same % of deductible 3. HSA can be used (with 10% penalty) for non- healthcare expenses 1. Ltd Potential – (But For Rule) 2. All participants must receive same amount or same % of deductible 3. Difficult to use for Group Incentives 1. Ltd Potential – (But For Rule) % Vested & Portable 3. Can use matching HRAs, 4. Potential IRS Expanded QME Health Reimbursement Arrangements Personal Care Accounts

50 49 HSA Contributions Er-Based with HSA Contributions HRAs – Best for Larger Groups? HSAs – Best for Individuals and Small Groups? Current State HRAs HSAs Employer- based Healthcare with Individual Accountability Individual-based Healthcare FSAs Employer- based Healthcare Traditional (Ltd Carry-over) Special Purpose Non- Plan Combination Accounts Employer- based healthcare Special Purpose Accounts Incentive Matching Employer-based Defined Contribution Developments

51 50 Are HSAs the right vehicle for large employer groups? Yes, If……….. Or No, Because……. Need to Understand the Consumer Movement, Federal Health Policies, & the Market Transformation that is Underway

52 51 Are HSAs the Wave of the Future? Which Direction will Legislation Take? Yes, if….  … we recognize the HSA legislation and regulations as a good start and another building block for consumerism and behavioral change.  …Er’s and Ee’s recognize current limitation and optimize available uses  …there is additional legislation/regulation to support large Er interests in providing HSAs (use for healthcare only, Rx coverage problem, combination accounts).  …there is legislative support for the common use of FSAs for targeted needs, HSAs as true “Health Savings Accounts” and HRAs as true “Health Reimbursement Arrangements. No, because….  … they were not legislated/regulated with large employers in mind.  … of a desire to promote individual insurance over individual ownership (under employer and individual policies)  … they are just a tool to cost shift to employees, they can not reward behavior change  … they are only desirable to the young, healthy, and wealthy

53 52 Summary - PCA Comparisons

54 53 Summary - PCA Comparisons (cont)

55 54 The Fundamental Federal Policy Question Will Legislation/Regulation Use HSAs to … mainly promote portable Individual & Small Group Insurance, OR … expand Personal Care Account ownership through in both an employer-based and individual-based healthcare system thru HSAs, HRAs, and FSAs.

56 55 - The Answer - Flexible Health Savings Accounts (FHSAs) FHSAs would have the tax advantages of HSAs and the key flexibilities of HRAs. Basic Principles: 1. Retain personal responsibility goal of HSA/HDHPs 2. Focus on Behavior Change 3. Recognize value of Pay for Compliance as a driver for behavior change and shared savings with personal responsibility 4. Expand adoption and funding of HSAs by large employers

57 56 Flexible Health Savings Accounts (FHSAs) The Next Generation Four needs that would allow FHSAs the flexibility to: 1. Provide financial Rewards and Incentives for Behavioral Change. 2. Encourage Employer/Carrier FHSA contributions towards healthcare 3. Be provided with plan designs other than HDHPs 4. Address FHSA/HSA Technical Issues

58 57 FHSA Flexibilty to Provide Financial Rewards and Incentives for Behavioral Change 1. Allow for compliance incentives under disease management programs (e.g. diabetes, asthma, CHF) and wellness initiatives (e.g. wellness assessments, smoking cessation, etc.). 2. Change Comparability Rule to mean all members under a given program of care or treatment, such as, a disease management or wellness program. 3. Rewards and/or incentives should not be limited by the deductible limit, but should be consistent with expected savings from programs for which participation is being rewarded.

59 58 FHSA Flexibility to Encourage Employer Contributions to Healthcare 1. Allow employers/carriers to voluntarily contract with employees to require employer/carrier funded FHSAs to be used only for healthcare expenses while employed and covered under the plan. 2. Remove cap on employer/carrier funded FHSA contributions or expand to at least the plan’s Maximum Out-Of-Pocket total exposure in a given calendar year.

60 59 FHSAs Flexibility to be Provided with Plan Designs Other than HDHPs 1. Preventive drugs include maintenance drugs. Drugs now defined as preventive by the Treasury Dept. can be covered below the deductible, while the cost of maintenance drugs is now included in the deductible. 2. Allow Rx to exist as carve out benefits at least for prescription drugs associated with chronic and persistent disease states 3. Allow “incentive only based” FHSAs for employer/carrier only funding under non-HDHPs (i.e. no initial FHSA funding or employee funding) 4. Allow some mental health and substance abuse benefits (besides EAPs) to be included under preventive care. 5. Allow use of HSA to pay for pre-65 Retiree and Individual Healthcare premiums

61 60 FHSA Flexibility - Technical Issues 1. Allow FHSA/HSAs to go into effect on the first day of coverage is effective. 2. Allow FHSA/HSA contributions for a full calendar year regardless of when a plan is effective. 3. Allow FHSA/HSAs to be used to pay for health coverage premiums (other than current limited use for (1) Premiums for coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), and (2) premiums for HDHP coverage for those who receive federal or state unemployment compensation). 4. Allow Flexibility to "post-date" the FHSA/HSA effective date so that FHSA/HSA dollars can cover expenses incurred before the account was established. Allow the account to be opened under a "provisional status" until the necessary paperwork is filed, at which time the account becomes active.

62 61 Growth of Personal Care Accounts HRAs HSAs 2000* None None 2001* 19,000 None 2002* 53,000 None 2003*394,000 None 2004(est) 1-1.5M 400, (est) 3.2M 1,000, (est) 6.0+M ??? 2007(est) 12-15M ??? * Deliotte Consulting

63 62 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

64 63 Task #4 - Discussion on Type(s) and Use of Personal Care Accounts ____________________________________________________________

65 64 Task #5 - Wellness, Prevention, and Early Intervention The Promise of Wellness

66 65 Wellness - Defined Wellness is a proactive organized program providing lifestyle and medical/clinical assistance to employees and their family members in maintaining good health. Wellness programs encourage voluntary behavior changes and support compliance with proven approaches to maintain health, reduce health risks and enhance their individual productivity.

67 66 Wellness – The Need For every 100 members:  23-30% smoke (70% want to quit, 35% try each year)  29% have high blood pressure  30% have cardiovascular disease  80% do not exercise regularly  55% or more are overweight or obese  30% are prone to low back pain (many linked to obesity)  6-9% have diabetes  10% are depressed  35% are under significant stress  50% do not wear their seat belts

68 67 Wellness – The Desire for Change For every 100 members:  47% are trying to improve their diet  37% plan to undergo some health screening  30% state they exercise regularly  Only 23% are aware of the health promotion and wellness programs offered by their employer sponsored health plans  76% of employers with over 11,000 employees offer health management programs Kaiser Family Foundation Survey, 9/03

69 68 Wellness - How Does It Impact Employees and Family Members? Well e.g., Low Risk, Good Nutrition, Active Lifestyle At-Risk / Acute Condition e.g., Inactivity, High Stress, Overweight, High Blood Pressure, Smoking Chronically-Ill e.g., Diabetes, Musculoskeletal, Heart Disease, Asthma, MH/SA Catastrophic e.g., Cancer, Rare Diseases, Head Trauma No Claims Generally Healthy O/P (Low) In/P (High) MaternityO/P (Low)In/P (High) % Ee 15% 48% 14% 3% 12%4%1% % $ 0% 12% 15% 12%5% 21% 20% 15% % Ee 63%20%17% % $ 12%32%56% Prevention Wellness – Lifestyle Wellness - Lifestyle Minimize Acute Episodes Minimize Complications Maximize Recoveries Maximize Stabilization Early Intervention Wellness - Clinical Traditional Wellness Programs

70 69 Wellness – Examples for Employer Sponsored Programs Common Programs  Weight Management  Fitness/exercise/health clubs  Smoking cessation Employer Support  Communication and awareness (newsletters, health fair, posters)  Screening (health awareness profiles, blood pressure check, blood tests, body fat analysis)  Education (seminars/classes, self help kits, group discussions, lunch and learn)  Behavioral Change (on-site fitness center, flu shots, lunchtime walks, yoga classes)

71 70 Wellness – Working within Consumerism Traditional Plans  Cover selected wellness in benefit plan at 100%  Supplement with non-plan wellness and work-site programs  Other: same * as below PPO/HRA incentives PPO/HRA  Include Employer defined wellness/prevention benefits at 100% *Include HRA Incentive for Wellness Appraisal *Include HRA Incentives for personal wellness activities *Include HRA Incentives for work-site wellness participation PPO/HSA  Include IRS defined Preventive Care benefits at 100%  Benefits contingent upon HSA contribution? Wellness Appraisal  Other: same * as above with PPO/HRA incentives

72 71 Consumerism - Programs and Services Prescription Drugs Information Evidence Based Medicine  Medical Care Guidelines  Health Library Disease Management  Condition Specific Assessment Tools  Chronic & Persistent Wellness  Voluntary Participation  Voluntary & Incentive Based  Mandatory Participation  Mandatory & Incentive Based Self Care Management Information On-Line Health Risk Assessment  Personal and Family Tracking Health & Performance  Population Management  Case Management  Cost & Quality Management Stress Management  Assessment Tools  Self Help Tools Depression Screening Preventive Care – Lifestyle  Lifestyle  Nutrition  Fitness  Personal Health Management Preventive Care – Clinical  Immunizations  Hypertension Screening  Cholesterol Testing  Mammograms  Pap Smears  Blood Pressure Checks  Colorectal Cancer Testing  Diabetes Testing  Osteoporosis Testing  Chlamydia Tests Early Prevention Wellness  Online News Safety Pre-Natal Well Baby Care New Mom Programs Medical Services Support  FAQ, Preparation for In/P End of Life Care Provider Cost/Quality Incentives Regional Centers of Excellence

73 72 Wellness & Preventive Care for HSAs Preventive care includes, but is not limited to, the following:  Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals.  Routine prenatal and well-child care.  Child and adult immunizations.  Tobacco cessation programs.  Obesity weight- loss programs.  Screening services However, preventive care does not generally include any service or benefit intended to treat an existing illness, injury, or condition.

74 73 HSA Safe Harbor Preventive Care Screening Services Cancer Screening Breast Cancer (e.g., Mammogram) Cervical Cancer (e.g., Pap Smear) Colorectal Cancer Prostate Cancer (e.g., PSA Test) Skin Cancer Oral Cancer Ovarian Cancer Testicular Cancer Thyroid Cancer Heart and Vascular Diseases Screening Abdominal Aortic Aneurysm Carotid Artery Stenosis Coronary Heart Disease Hemoglobinopathies Hypertension Lipid Disorders Infectious Disease Screening Bacteriuria Chlamydial Infection Gonorrhea Hepatitis B Virus Infection Hepatitis C Human Immunodeficiency Virus (HIV) Syphilis Tuberculosis Infection Mental Health/Subst. Abuse Screening Dementia Depression Drug Abuse Problem Drinking Suicide Risk Family Violence

75 74 Wellness – Planning  Will the wellness program be for employees only, or employees and dependents?  Will you purchase from vendor, internally developed, or a combination  Consider in conjunction with plan covered wellness benefits (immunizations, mammograms, screening, EAP, physical exams, pre- natal care, well child care, etc.)  Consider in conjunction with worksite programs (safety, ergonomics, work-life programs, etc.)  Incentives/rewards provided for compliance

76 75 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

77 76 Task #5 - Discussion on Type(s) and Use of Wellness and Prevention ____________________________________________________________

78 77 Task #6 - Disease Management Programs The Promise of Health The “Holy Grail” of Cost and Quality Improvements

79 78 Disease or Condition Management – the Holy Grail of Potential Savings Primary cost drivers are chronic disease and serious acute conditions.  The direct impact on productivity is comparable to the direct cost of health care 80% of costs 20% of claimants Driven by For a typical employer, 15-30% of costs are driven by controllable health risks 50% of costs Have a behavioral root cause (CDC 1999)

80 79 Disease Management Potential Focus on Hi-Volume / Hi-Cost Users Cost Curve % Members % Costs 1% -> 20% 15% -> 68% 50% -> 95% EBRI -Stakeholders in Consumer-Driven Health Care

81 80 Disease Management - Defined Disease Management is an proactive organized program providing lifestyle and medical/clinical assistance to employees and their family members with chronic and persistent conditions. Disease Management programs encourage voluntary behavior changes and support compliance with proven medical practices which stabilize conditions, reduce health risks and enhance their individual productivity.

82 81 Disease Management – The Need  60+% of an employer’s total medical costs come from chronic and persistent diseases such as, diabetes, asthma, congestive heart failure, back pain, and depression.  45% of Americans live with at least one chronic disease. 14% live with two or more chronic diseases.  76% of hospitalizations, 72% of physician visits, and 88% of Rx is due to chronic conditions  The average cost of health care for a diabetic is $13,200/yr compared to $2,600/yr for a non-diabetic.  61 million Americans live with cardiovascular disease  50% of chronic disease deaths are traced to cardiovascular disease.  Coronary artery disease is a leading cause of premature permanent disability.  Obesity is becoming the #1 preventable cause of death

83 82

84 83 Disease Management – The Desire for Change Very Little under Traditional System:  50% do not follow recommended standards of care  33% will high blood pressure do not know  33% of diabetics do not know it  Patient’s lack of knowledge and information  Patients without financial incentives to change health and healthcare behaviors  Distortions of current 3 rd party reimbursement medical financing system.  Plans pay for treatments not prevention or compliance  Physicians without incentives to take time and effort to deal effectively with chronic conditions

85 84 Disease Management – Elements for a Successful Program There are four elements of a successful disease management: 1. A delivery system of health care professionals and organizations closely coordinating to provide medical care and support the patient’s compliance throughout the course of a disease. 2. A process that monitors the compliance and describes outcome- based care guidelines for targeted patients. 3. A process for continuous improvement that measures clinical behavior, refines treatment standards, and improves the quality of care provided. 4. Incentive awards that support the disease management medical and clinical care services

86 85 20 Priority Areas per the Institute of Medicine 1. Asthma, supporting and treating those with chronic conditions. 2. Care coordination for patients with multiple chronic conditions. 3. Children with special health and care needs, particularly those with chronic conditions. 4. Diabetes, which can lead to high blood pressure, heart disease, blindness and other complications. 5. End-of-life care for people with advanced organ failures, concentrating on reducing symptoms. 6. Frailty - preventing accidents, treating bedsores and improving advanced care. 7. High blood pressure - left untreated it can lead to heart attack, stroke and kidney failure. 8. Immunization. 9. Evidence-based cancer screening, which can reduce death rates for many cancers, including colorectal and cervical. 10. Ischemic heart disease, also known as coronary heart disease. Efforts should focus on prevention.

87 Major depression, which currently has a much lower treatment rate that other major diseases. 12. Medication management to prevent errors. 13. Noscomal infections. These are infections acquired in the hospital and kill an estimated 90,000 Americans annually. 14. Obesity, which is blamed for as many as 300,000 deaths annually in the United States. 15. Pain control in advanced cancer. 16. Pregnancy and childbirth, especially improving the quality of prenatal care. 17. Self-management and health literacy, using public and private organizations to increase the level of health education. 18. Severe and persistent mental illness; improving mental health care in the public sector, including state hospitals and community centers. 19. Stroke, the third highest cause of death in America. 20. Tobacco-dependence treatment for adults. 20 Priority Areas per the Institute of Medicine

88 87 Disease Mgmt - How Does It Impact Employees and Family Members? Well e.g., Low Risk, Good Nutrition, Active Lifestyle At-Risk / Acute Condition e.g., Inactivity, High Stress, Overweight, High Blood Pressure, Smoking Chronically-Ill e.g., Diabetes, Musculoskeletal, Heart Disease, Asthma, MH/SA Catastrophic e.g., Cancer, Rare Diseases, Head Trauma No Claims Generally Healthy O/P (Low) In/P (High) MaternityO/P (Low)In/P (High) % Ee 15% 48% 14% 3% 12%4%1% % $ 0% 12% 15% 12%5% 21% 20% 15% % Ee 63%20%17% % $ 12%32%56% Prevention Wellness – Lifestyle Wellness - Lifestyle Minimize Acute Episodes Minimize Complications Maximize Recoveries Maximize Stabilization Early Intervention Wellness - Clinical Disease Management Program

89 88 Disease Management Programs Designed and Financially Aligned for Success

90 89 Disease Management Program Planning  Identify key populations  Focus on Compliance  Manage expectations  Respect privacy  Follow Best practices (EBM, Outcomes Based Medicine)  Integrate demand management, disease management and utilization management  Give patients their own data  Align Incentives for patients, providers, and Employer

91 90 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

92 91 Task #6 - Discussion on Type(s) and Use of Disease Management Programs ____________________________________________________________

93 92 Task #7 - Decision Support Tools The Promise of Transparency & The “Right to Know”

94 93 Healthcare Consumerism – Already Active Consumers Consumers Search Internet for Medical Content Consumers Ask Physicians for Genetic Testing Consumers Work with Providers on Personalized Health Plans Consumers Monitor and Track Their Own Medical Status Regularly Consumers and Providers Coordinate Care and Understanding through Integrated Clinical and Information Therapies

95 94 Decision Support Tools Survey of Attitudes Employer Role: Recognize the “consumer-preference spectrum” Provide consumer-focused decision support tools for:  Choice of Health Plan  Choice of Provider  Choice of Treatment  Current and Future Financial Considerations Patient decision making preferences “INFORMED” PARENTAL INTERMEDIATE SHARED DECISION MAKING PATIENT AS DECISION- MAKER 4.8% 17.1% 45% 11% 22.5%

96 95 Decision Support Tools for Consumerism Basic Design InformationProvider Selection Support HRA Fund Accounting Physician Quality Comparison Underlying PPO Plan Design Physician Cost Comparison Disease and/or Medical Management Hospital Quality Comparison HSA Fund Accounting Hospital Cost Comparison Debit/Credit Card Personal Benefit SupportCare Support Plan Comparison Cost Estimator On-line Provider Directory Account Balance Provider Scheduling On-line Claim Inquiry On-line Rx Comparisons SPD On-line Patient Decision Support 24/7 Nurse Line Personal Health Management Health Risk Appraisal Health & Wellness Information Targeted Health Content Medical Record, History Health Coach

97 96 Decision Support Tools Employer Considerations Employee Readiness  Sophistication and orientation  Internet competency and access Due Diligence  Accuracy  Usability  Independence  Stability  Integration issues Targeted Clinical Support:  Value-based Evidence Based Medicine  Personalized Chronic Care Management Tools  Consumer-Focused Stress Management

98 97 Consumerism – a new force Consumerism can be a force to address quality and cost variations in a given market

99 98 Align Strategy with the “Value Purchasing”  Awareness  Pay for Performance  Tiered Networks  Regional Centers of Excellence Cost Efficiency Quality Variation in Cost & Quality Hospitals – CABG*  Fewer Adverse Affects  Lower Complication Rates  Lower Mortality  Lower LOS  Lower Cost  Episodes of Care * Healthshare/SelectQualityCare weighted averages Decision Support Tools for Cost & Quality Information

100 99 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

101 100 Task #7 - Discussion on Type(s) and Use of Decision Support Tools ____________________________________________________________

102 101 Task #8 - Incentives, Rewards, The Promise of Shared Savings Pay for Compliance & Pay for Performance “Two sides of the same coin”

103 102 Consumerism Incentives – Participation Based Incentives must be participation and activity-based rather than outcomes-based. HIPAA laws prevent rewards based on health standards. The law allows incentive designs if the following requirements are met:  Limit the reward to a specified amount (not to exceed between 10%-20% of the cost of employee-only coverage).  Be reasonably designed to promote health or prevent disease.  Be available to all similarly situated individuals. There must be a feasible alternative for those that cannot reach the health standard because of a medical condition.  Inform employees that individual accommodations and alternatives are available.

104 103 Wellness Incentives – Outcomes Based While HIPAA generally prohibits plans from differentiating benefits or premiums based on health status, employers can still design and implement wellness programs with financial incentives. Only a "bona fide wellness program" can provide a reward based on a health standard or health outcome (i.e., a low cholesterol level). To be a "bona fide wellness program," the law specifies that the program must meet four requirements: 1. Limit the reward to a specified amount (not to exceed between 10%-20% of the cost of employee-only coverage). 2. Be reasonably designed to promote health or prevent disease. 3. Be available to all similarly situated individuals. There must be a feasible alternative for those that cannot reach the health standard because of a medical condition. 4. Inform employees that individual accommodations and alternatives are available. - National Business Group on Health

105 104 Wellness Incentives – Participation Based All wellness programs that are based on participation rather than outcomes are permitted. For example, financial incentives or premium discounts for participating in a health fair, joining a health club, or attending smoking cessation program, regardless of the health outcomes or results, are allowed. - National Business Group on Health

106 105 Rewards & Incentives for Smoking Cessation The NGBH conducted a Quick Survey in December 2003 on "Smoking Cessation Incentives/Disincentives." The results from 26 respondents showed:  69% of the respondents offered discounts on annual health care premiums/contributions for non-smokers, and 15% offered another type of benefit enhancement.  Similarly, 45% of the respondents offered premium discounts for employees that participated in smoking cessation/wellness programs.  57% included smoking cessation as part of a broader wellness initiative/incentives at the worksite. - National Business Group on Health

107 106 Incentive Awards - Three Very Different Personal Care Accounts 1. Flexible Spending Accounts (FSAs) – Traditional Group Plans with Use-it-or-Lose-it 2. Health Reimbursements Arrangements (HRAs) – Employers’ choice for cash flow flexible incentive based medical plan benefit designs (best suited for self-insured groups) 3. Health Savings Accounts (HSAs) – Employees’ choice for funded portable triple tax advantaged with “High Deductible Health Plans” (best suited for individuals and small groups) 4. Combination Accounts – creative but confusing

108 107 Using Information & Incentives To Address Wellness & Disease Management Behavioral Changes Low Users Mediu m Users High Users Very High Users No Claims Generally Healthy Acute Episodic Conditions O/P, Low In/P, High Maternity Chronic & ersistent. Conditions. O/P, Low In/P,High Catastrophic % Mem 15% 48% 14% 3% 12%4%1% % Dollars 0% 12% 15% 12% 5% 21% 20% 15% % Mem 63% 32% 17% % Dollars 12% 32%56% Prevention Wellness - Lifestyle Minimize Early Intervention Wellness - Clinical Maximize Minimize Maximize Wellness - Lifestyle Wellness - Clinical

109 108 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

110 109 Task #8 - Discussion on Type(s) and Use of Incentives & Rewards ____________________________________________________________

111 110 Review of Plan Design Concepts by Generation Task #9 – Viewing Healthcare Consumerism by Generations

112 111 1 st Generation Healthcare Consumerism Focus on Plan Design and implementation of HRAs and/or HSAs and basic decision support tools. Impact: Discretionary Expenses Choices: Level and Type of Accounts with Plan Designs, information and Decision Support Services

113 112 Preventive Care (Insurance) Health Reimbursement Arrangement Deductible Gap S.M.M. Insurance Ensures good health Neutralizes “hoarding” Part of the Insurance Plan Employer Funds Only Notional Account Section 105 Plan Balance rolls over year to year Employer controls growth % Employer controls exit rules Vesting COBRA Retiree medical Qualified long-term care Participant responsibility Can fund thru Section 125 plan 1st Generation HRA Prototype Education and Decision-Support Tools Consumer education Chronic disease management Health Promotion Online tools Telephonic support

114 113 Preventive Care (Insurance) Health Savings Account Deductible Gap S.M.M. Insurance Ensures good health Neutralizes “hoarding” Part of the Insurance Plan Defined by IRS Employer HSA &/or Ee Contributions Interest earning Real Dollars in Real Accounts Legally Defined by 2003 MMA Balance rolls over year to year 100% Vested at Point of Contribution by Er 10% Penalty and Taxable Income for W/D for Non-health if <65 Non-substantiation W/Ds Participant responsibility Can funded thru Employee Tax Advantaged HSA Contributions Can Not be Funded by FSA, HRA or other Insurance 1st Generation HSA/HDHP Prototype Education and Decision-Support Tools Consumer education Chronic disease management Health Promotion Online tools Telephonic support

115 114 Year 2: Employee elects $$ Option, maintaining $1,000 risk corridor. Employee has $1,000 in claims, allowing Personal Account to carry over $1,000. Personal Acct $1,500 Deductible $1000 Ins. Personal Acct $1,500 Deductible $1500 Ins. Personal Acct $1500 Deductible $2,000 Ins. Year 1 $$$ Option $$ Option $ Option Year 1 Year 3 Personal Acct $1,500 + $500 Deductible $1,500 Ins. Personal Acct $1500 +$1,000 Deductible $2,000 Ins. Year 1: Employee elects $$$ Option with $1,000 risk corridor. Employee has $1,000 in claims, allowing Personal Account to carry $500 over. Year 3: Employee elects $ Option, again maintaining $1,000 risk corridor. Employee no longer has a need for the $$$ Option. HRA/HSA Healthcare Consumerism – Multiple Options Year 2

116 115 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

117 116 2 nd Generation Healthcare Consumerism Focus on Behavior Changes. How to use plan design to effectively change health and healthcare purchasing behaviors with individual and group incentives/rewards. Impact: Chronic & Persistent Conditions, Pre-Natal, Wellness & Preventive care. Choices: Covered Benefits, Type and Level of Matching Funds and Incentives for Prevention, Wellness, and Disease Management Programs

118 117 2 nd Generation Healthcare Consumerism with Focus on Behavioral Changes Healthcare Consumerism models require a shift in responsibility from the employer to the employee in the purchase and use of health and healthcare. Communication, information, and education along with the reward system drives this change. Passive Users of Health Care Services Educated, Engaged, and Empowered Health Care Consumers Basic Health Care Information Benefit Education Consumerism Behavior Support Access to Information & Decision Support

119 118 2 nd Generation Behavioral Change a Key Determinant of Health

120 119 Healthcare Consumerism Drives New Behaviors from All Participants Employee Active & Empowered Patient/Consumer, P4C Passive Participant Employer Plan Facilitator Financial Contributor Primary Purchaser Health Plan Enabler / Education & Information Barrier Provider Clinical and Service Standards, Care Manager, P4P Contracted Supplier

121 120 Consumer Behavioral Changes 1. Focus on Preventive Care 2. Live Healthy & Safely 3. Use Nurse Line for Common Issues 4. Treatment Compliance for Chronic Persistent Problems 5. Consider Health and Healthcare Issues Together 6. Use Lower Cost / Higher Quality Alternatives

122 121 Consumer Behavioral Changes 7. Choose Rx Substitutions 8. Talk to Doctors as Informed Consumers 9. Be Compliance with Disease Mgmt Treatment Plans 10. Learn About Diagnosis/Condition 11. Act Like a Consumer - Demand Value and Service 12. Consider Plan as an Accumulated Asset rather than a Time Limited Benefit

123 122 Health Promotion Health Management Chronic Disease Management High Cost Case Management Website Wellness Appraisal Patient Identification and enrollment Targeted Behavior Modification Care Coordination Practice Guidelines Healthy Lifestyle Promotion Physical Activity Campaign Address Comorbid Conditions Integrated Services, Communications, Measurement and Evaluation 2 nd Generation Programs to Change Behaviors Acute Conditions e.g., Infections, Respiratory, Lacerations Navigational Support Patient Advocacy Care Coordination Address Comorbid Conditions At Risk / Acute Condition e.g., Inactivity, High Stress, Overweight, High Blood Pressure, Lacerations, Infections Chronic Conditions e.g., Diabetes, Depression, Heart Disease, Asthma, MS/SA Catastrophic Conditions e.g., Cancer, Hepatitis C, Head Trauma Well e.g., Low Risk, Good Nutrition, Active Lifestyle

124 123 2nd Generation Consumerism – Improving Health and Lowering Costs with Behavioral Changes Low Users Medium Users High Users Very High Users No Claims Generally Healthy Acute Episodic. Conditions. O/P, Low In/P, High Maternity Chronic & Persistent. Conditions. O/P, Low In/P, High Catastrophic % Mem 11% 29% 17% 9% 4%18%11%1% % Dollars 0% 2% 11% 17% 3% 18% 35% 14% % Mem 40% 30% % Dollars 2% 31%67% Sample Impact Areas: Rx Rx Rx Rx Rx Rx Rx Office Visits Office Visits Hosp Admits Hosp Admits OfficeVisits Hosp Admits Hosp Admits DXL DXL, ER ER ER Specialists Specialists High Tech Disease Management Discretionary Expenses Safety Programs, Regional Centers of Excellence Pre- Natal care Evidence Based Medicine Stress Management / Health & Performance

125 124 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

126 125 3 rd Generation Healthcare Consumerism Focus on Health & Performance. How healthcare consumerism plan design and behavior change affects work performance and the corporate bottom line. Impact: Manageable Costs - Organizational health, turnover, absenteeism, productivity, disability, and presenteeism

127 126 What are “Manageable Employment Costs”? 1.Health care: the dollars spent on health care whether self-insured or insured. 2.Turnover: the direct hiring costs, temporary replacement costs, learning curve costs, and lost productivity costs. 3.Presenteeism: the time an employee is at work and assumed to be productive, but is not productive. 4.Disability: the direct costs associated with workers’ compensation and non- occupational disability. 5.Unscheduled Manageable Absence: the cost of absence that could be positively influenced with proactive intervention. Five components of “Manageable Employment Costs”:

128 127 3 rd Generation Health & Performance Strategy Health & Performance is a benefits strategy that is designed to balance the rising costs of health care while optimizing employee health & performance through targeted, strategic, and value-added interventions. Targeted, Strategic, Value-added Interventions Better HealthEmployee Performance

129 128 3 rd Generation – Incentives and Rewards Holistic Health & Productivity Focus Culture of Health & Wellbeing Seamless Population Management Shared Responsibility/Accountability Organizational Alignment & Support Data Driven Process Excellence Wellness Prevention Demand Management/ EAP Disease Management Case Management Absence Management Optimizing Individual and Organizational Health & Performance 3 rd Generation “Account Based” Benefits and Incentives Platform

130 129 3 rd Generation Health & Performance ROI Health & Performance ROI will be measured by:  Reduced unscheduled sick days  Reduced paid time off  Fewer disability claims, more and faster recoveries  Reduced turnover  Improved survey results on teaming, creativity, staff moral Resulting in:  More productive employees  More effective employees  Increased teaming, creativity, moral, workplace conflicts  Better bottom line results

131 130 3 rd Generation Creating the Health & Performance ROI Keep in mind:  This is a multi-year strategy that results in cumulative savings over time  ROI estimates are based on static number of members expect more to enroll each year which will increase savings  Estimates assume the same benefit levels changes to the plan design could increase the ROI in the shorter term

132 131 Example of 3 rd Generation Concept Consumerism Stress Management Consumerism Stress Management is a process improvement methodology designed to quickly improve bottom line saving and progresses into a business strategy that optimizes a company’s human capital an innovation efforts. Consumerism Stress Management emphasizes employee participation, the inclusion of corporate and operational performance metrics, and the power of the Internet to achieve savings by quantifying and positively influencing stress-related “Manageable Employment Costs”.

133 132 3 rd Generation – Stress Management and Corporate Impact 21.5% of total health care costs 40% of the primary reasons that employees leave a company 50% of presenteeism is a function of stress 33% of all disability and workers’ compensation costs 50% of the primary reasons that employees take unscheduled absence days Research suggests that stress has been directly attributed to:

134 133 Related / Imbedded Health Costs From Stress Source of DemandMajor Body Systems And PressureAffected by Stress JobMuscular System FamilyDigestive System PersonalCardiovascular SocialEmotional FinancialEndocrine, Immune EnvironmentCognitive

135 134 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

136 135 4 th Generation Healthcare Consumerism Focus on Lifestyle, Lifecycle, and Personal Health needs. How healthcare consumerism plan design and behavior change affects personal health and healthcare based on lifestyle and personalized needs. Impact: Lifecycle needs, Personal health, genetic pre-dispositions, predictive modeling, healthy habits, and wellness.

137 136 4th generation – Individual Ownership and Portability 1. Ownership, security, and portability of the PCA. 2. Access to accounts post-employment. 3. Vesting will be important to employees to secure the value of the accounts. 4. Compared to HSAs, employees may ultimately expect “notional interest” on HRAs. 5. Demand for more immediate use of the funds for non-plan QMEs and use of HRAs for paying health premiums.

138 137 4th generation – Individual Ownership and Portability (cont.) 6. Added HRA credits from unused vacation or sick leave. 7. PCA will need to accommodate personal lifestyle expenses items such as, alternative medicines and acupuncture. 8. Ability to use debit/credit cards to cover internet purchases and cyber-office visits. 9. The IRS will have pressure to expand the definition of QME to cosmetic surgery and other personal care services.

139 138 4 th Generation – Personalized Health and Healthcare  Based on genomics, predictive modeling, and push technology.  Preventive care will include both lifestyle and clinical factors.  Treatments will include culturally sensitive care and guidance  Cyber-health Aides - decision support systems and wireless connections that link each person to a personalized health and healthcare cyber-support system (e.g. diabetes phone).  Personalized Internet Search engines based upon individual profile health and healthcare needs. Cyber-support systems built to profile activity and anticipate areas of interest (e.g. TIVO/Travelocity)  Connected to services through monitors that will provide real time feedback on health status, lifestyle, and health concerns. (e.g. Health Buddy)

140 139 4th generation – Decision Support tools and Individual needs “Arrive in time” information and services at critical moments for care. “Information therapy” is the active use of patient oriented information with clinical evidence based medicine. Information needs to be embedded into the process of clinical care—as information therapy. Potential areas for Information Therapy: Prostate surgery Back surgery ACL surgery Coronary artery bypass surgery Medication for depression End-of-life care Prescription of beta-blockers following heart attacks Early-stage breast cancer testing Colon cancer screenings Immunizations and eye test reminders for diabetics

141 140 Nondiscrimination Rules Health plans may not discriminate against similarly situated individuals on the basis of a health status-related factor with respect to 1) eligibility for the plan, or 2) premiums for the plan. Health plans may not charge an individual a higher premium than applies to similarly situated individuals because of health status- related factors. However, health plans are allowed to make enrollment in the plan, or receipt of particular benefits, contingent on regular completion of health awareness or promotion activities that do not require individuals to satisfy a particular health standard. Moreover, employers are allowed to provide any kind of financial incentive to plan enrollees who provide documentation of completion of such activities.

142 141 Individuals & Health Status Factors Health status-related factors include diagnosis of overweight, obesity, results of cholesterol tests and a history of overweight or eating disorders. They are defined in a variety of ways, as follows: Health status Medical condition (including both physical and mental illnesses) Claims experience Receipt of health care Medical history Genetic information Evidence of insurability Disability

143 142 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Accounts Personal Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease Management Disease Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, IHM, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal development plan incentives, health status related The Consumerism Grid

144 143 Task #9 - Additional Considerations for Building Blocks of Healthcare Consumerism PCAs ______________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Wellness____________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Disease Management _________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Decision Support ____________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Incentives _________________________________________________________ ____________________________________________________________________ ____________________________________________________________________

145 144 Task #10 – Create/Design Basic Framework of MSFT Consumerism Options Design: Deductibles, Copays, Coinsurance, Max OOP, Fund Balances, Wellness, Disease Mgmt, Incentives, Carve-outs, etc.  Traditional PPO Plan  PPO with HRA  PPO with HSA  Other

146 145 Potential Anti-Selection from Consumerism on an Optional Basis Introduction of Consumerism on an optional basis will limit the cost reduction. In particular, with HDHP’s fewer members will be impacted and are those selecting HDHP’s are likely to have an existing favorable health status (anti-selection). Companies and members can benefit most by introducing consumerism with both a HDHP option and consumerism features for current plans. Example - Selection in An Option Environment OPTION # 1OPTION # 2 % Members Participating Clms/Part.Mbr. Vs Clms/All Mbrs. Remaining Members Clms/Part.Mbr. Vs Clms/All Mbrs. 10%75%90%103% 30%85%70%106% 50%100%50%100%

147 146 Design a PPO Plan Preventive Deductible 20% Coins to a Maximum OOP 100% Coverage PPO 80% Coverage In-Network Traditional PPO Preventive Deductible 20% Coins to a Maximum OOP 100% Coverage PPO 80% Coverage In-Network Desirable PPO What would you Include? Any Coinsurance? How large of a Deductible? In-Network Coins? In-Network Max OOP? OON Coins? OON Max OOP? Plan Maximum? Other: Carve-out Vision, Dental?

148 147 Design a High Deductible PPO/HRA Option PPO 80% Coverage In-Network What would you Include? Any Coinsurance? How Large of a Deductible Gap? In-Network Coins? In-Network Max OOP? OON Coins? OON Max OOP? Plan Maximum? Other: Carve-out or Incl.?: Rx, MH & SA, Vision, Dental Preventive HRA ($500-$1000) Deductible Gap ($ ) 20% Coins to a Maximum OOP $2-5, % Coverage PPO 80% Coverage In Network PPO / HRA Preventive HRA Deductible Gap 100% Coverage PPO __% Coverage In Network OOP of $______ Sample PPO / HRA How Much in Initial HRA? HRA Incentives? Wellness, DM. Other? __% Coins to a Maximum OOP of $_______

149 148 Design a High Deductible PPO/HSA Option Preventive HSA=($1000=2600) 20% Coins to a Maximum OOP $5000 (incl deductible) 100% Coverage PPO 80% Coverage In Network PPO / HSA Preventive HSA = _____ ___% Coins to a Maximum OOP _______ 100% Coverage PPO __% Coverage In Network Sample PPO / HSA What would you Include? Any Coinsurance? In-Network Coins? In-Network Max OOP? OON Coins? OON Max OOP? Plan Maximum? Other: Carve-out or Incl.?: Rx, MH & SA, Vision, Dental How Much in Initial HSA? HSA Incentives? HRA Incentive? Wellness, DM. Other?

150 149 A Unified Theory of Plan Design All Medical Plans can be view as catastrophic plans with first dollar benefits funded by: 1. Post-tax self pay – Pure high deductible 2. Insurance – traditional HMO, EPO, POS, PPO, or Indemnity 3. Health Reimbursement Accounts (HRAs) - HRA with Deductible Gap 4. Health Savings Accounts (HSAs) – Legally defined High Deductible Health Plan (HDHP) 5. Flexible Spending Accounts (FSAs) 6. Combinations of the above

151 150 PPO Plans Differ Mainly in the Way Initial Dollars are financed Preventive HSA 20% Coins to a Maximum OOP 100% Coverage PPO 80% Coverage Preventive HRA Deductible Gap 20% Coins to a Maximum OOP 100% Coverage PPO 80% Coverage Preventive Deductible 20% Coins to a Maximum OOP 100% Coverage PPO 80% Coverage Traditional PPO Insurance Funding of Early Expenses PPO with HRA Funding of Early Expenses PPO with HSA Funding of Early Expenses Similar Catastrophic Protection

152 151 Sample Consumerism PPO Plan Designs Traditional PPO Insurance Funding of Early Expenses PPO with Er HRA Funding of Early Expenses PPO with Voluntary Ee HSA Funding of Early Expenses and Er HRA Match Preventive 100% coverage Voluntary Ee Funded HSA up to $1000 $1000 HRA Er Match to HSA to cover part of: 20% Coins to a Maximum OOP of $4, % Coverage PPO 80% Coverage Preventive 100% coverage Er HRA $1000 Deductible Gap $1,000 20% Coins to a Maximum OOP of $4, % Coverage PPO 80% Coverage Preventive 100% coverage Deductible $250 20% Coins to a Maximum OOP of $4, % Coverage PPO 80% Coverage Max OOP = $5000 Max Ee Cost = $5000+Prem Max OOP = $5000 Max Ee Cost = $5000+ Lower Prem Max OOP = $5000 Min OOP = $4000 w/ HRA Match Max Ee Cost = OOP+ +HSA+Lowest Premium Incentive HRAs from Initial “$0” Balance Incentive HRAs from Initial $1000 Balance Incentive HRAs for CY Co-Insurance Only

153 152 Task #10 – Create/Design Basic Framework of Healthcare Consumerism Options PPOPPO/HRAPPO/HSAOther Preventive Care Benefits Front-end Deductible Beginning Account Balance Deductible Gap PPO Coinsurance – In/Net PPO Coins Max OOP-InNet PPO OON Coinsurance PPO OON Coins Max OOP Carve-out Programs: Rx, Vision, Dental Incentives - DM Incentives - Preventive Care Matching Er HRA to Ee HSA Other Decision Support Tools

154 153 Task #11 – Implementation Planning & Time Frames The Challenges and A framework for Implementation

155 154 Consumerism Pay-for-Performance Focus on High Cost / High Volume Users Standardize IT Platforms Collaboration Building the Future Employer Benefits Program Lower Costs, Increased Employee Satisfaction, Quality/Value Driven Healthcare, Improved Access to Care Healthcare Consumerism Demand-Driven Healthcare Employer Challenges in Developing a Healthcare Consumerism Strategy Enterprise-wide Impact of Health & Healthcare

156 155 Communication Milestones Employee Decision-Making Cycle Awareness Education Practical Application Acceptance What is it? How does it work? What does it mean to me? I accept the changes Communications Process Accept Health Plan as an Accumulating Asset Rather than a Short Term Benefit

157 156 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Care Accounts Personal Care Accounts Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease and Case Management Disease and Case Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Integrated Hlth Mgmt, Population Mgmt, Integrated Back-to-Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information Therapy Cash, tickets, Trinkets Health Incentive Accts, activity based incentives Non-health corporate metric driven incentives Personal dev. plan incentives, health status related Time Frame for Implementation of Consumerism (may be Dependent Upon Vendor Capabilities) Yr__- __ Incentives & Incentives & Rewards Rewards

158 157 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Integrated Hlth Mgmt, Population Mgmt, Integrated Back-to-Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info and services, information therapy Cash, tickets, Trinkets Zero balance acct, activity based incentives Non-health corporate metric driven incentives Personal dev. plan incentives, health status related Integrated Health Management A Logical Stake in the Ground ? Personal Care Accounts Wellness / Prevention Early Intervention Disease Mgmt & Case Management Information & Decision Support Tools Incentives & Rewards

159 158 Education Communication Acute Case Mgmt Utilization and Case Management NETWORK A / TPA ANETWORK B / TPA B Wellness Prevention Demand Management Disease Mgmt Programs Integrated Absence Mgmt The secret is cooperation and synergy between components supporting the corporate strategies Integrated Health Management Program Implementation Option for Multiple Generations General Manager Personal Care Accts. FSAs, HRAs, HSAs Process Integration & Disciplined Improvement Company Data Warehouse & Metrics

160 159 Potential Savings & Actual Industry Results from Early Generation Implementations More than just Theory and Promises “To achieve transformation to a 21 st Century Intelligent Health System, all participants must advance in a consistent way to the future model.”

161 160 The Value Proposition  5-8% Savings over 5 years with 2% lower trends  Low Range of Savings 5% x 5 years + 2% x 5 years = 35%  High Range of Savings 8% x 5 years + 2% x 5 years = 50%  20-35% lower Rx costs Low Range: 20% x 20% = 4% High Range: 35% x 20% = 7%

162 161 Potential Savings from Full Implementation of Consumerism Achievement of savings and improved outcomes is dependent upon both the Type and Effectiveness of the programs implemented. Gross* Savings as % of Total Plan Costs (Programs Applicable to All Members) Effective Programs Implemented Traditional plans Consumerism Plans Passive1 st Generation2 nd Generation3 rd Gen & Future Basic2%3%7%10% Expanded3-4%5-8% %20.0+% Complete4%7%17%25% Comprehensive (Future)5%10%20%30% *Excludes Carry-over HRAs/HSAs and any added Administrative Costs of Specialized Programs

163 162 Healthcare Consumerism Experience Results

164 163 Aetna Health Fund (AHF) Product Type:HRA with high deductible PPO Study by:Aetna Study Basis:13,800 members (19 groups) enrolled in AHF vs. “randomly selected similar population” in traditional PPO Comparison of Jan-Sept, 2003 to Jan-Sept, 2002 experience Released March, 2004 Results Experience vs Experience for Members Enrolled in AHF in % increase in preventive care office visits vs. 14% for traditional group % medical cost increase per employee per month vs. 15.7% for traditional group % decrease in ER visits, 10.3% decrease in outpatient visits, and 14.5% decrease in inpatient admits 4. 51% with HRA balances left over 5. 31% of total HRA dollars rolled over 6. 48%+ more use (than traditional group) of consumer health info (e.g. Intellihealth) % more use (than traditional group) of pharmacy price and generic substitution information 8. 13%+ more use (than traditional group) of online provider directories Results - One Group with Integrated Pharmacy in the High Deductible Plan 11.1% decrease in prescriptions per 1000 for AHF members vs. 1.8% increase for traditional plans 34-44% increase (2002 to 2003) in generic usage for AHF vs % increase for traditional plans

165 164 United Healthcare Product Type: HRA with high deductible PPO Study by: United Healthcare Study Basis: Two years experience for 20,000 members enrolled in traditional plan year one and in iPlan year two Two years experience for 25,000 members enrolled in traditional plans for two years Released June, 2004 Results for iPlan Members 1. Higher registration rate on myuch.com than non-iPlan members 2. Higher use of preventive services than non-iPlan members 3. Decrease in total emergency room visits; indication of more selective, responsible use of emergency services after enrollment in AHF (in year two) 4. Reductions in the use of specialists, outpatient procedures, and radiology and lab in year two 5. Less than 1% (per member/per month) year-over-year cost increase when iPlan was a full replacement 6. Most iPlan members carried an HRA balance into In-network utilization was in the 90 th percentile 8. Satisfaction ratings greater than 90% with customer service and decision- support tools

166 165 Humana Product Type:SmartSuite Multi-Option plans Study by:Humana Study Basis:10,000 Humana employees in ; 5.6% enrolled in consumerism plan (SmartSuite), remainder in traditional HMO/PPO Released December, 2002 Results % enrollment in SmartSuite (consumerism) products 2. Early adopters of consumerism were “super-healthy”, of average age, and of higher average salary than non-adopters 3. More SmartSuite enrollees waived dependent coverage 4. Apparent “spillover” of behavioral changes to traditional products due to communications and tools resulted in a 4.9% cost increase for 2003 for entire group (10,000 employees) vs. 19.2% projected trend Plan Option PMPM: 7/1/01 – 6/30/02 Expected (Trended) PMPM: 7/1/01 – 6/30/02 Actual HMO$127$139 Tiered PPO$163$141 PPO Standard$101$110 SmartSuite Option 1$64$39 SmartSuite Option 2$78$51

167 166 Definity Health (Now United Health Care) Product Type:HRA or HSA with high deductible PPO Study by:Galen Institute Briefing on Consumer Choice Health Care Study Basis:85 self-insured clients with 300,000 consumer-driven members, experience for Jan-Nov, 2003 Released February, 2004 Results 1. 10% enrollment average for first year clients where Definity is an option 2. Enrollment from a broad demographic cross-section of the population, no apparent favorable demographic selection 3. Large claim (> $50K)incidence rate of 4.6 per 1,000 members compared to standard claim distribution incidence rate of about 2.3 per 1,000 members 4. 95% re-enrollment rate 5. 90% member satisfaction 6. Overall renewal increase over Definity book of business of 0% in 2003 and 3.2% in Average pharmacy utilization rate for groups range from.57 to.69 prescriptions per member per month (12% below the low industry benchmark and 34% below the high industry benchmark) 8. Generic drug substitution rate of 95%, compared to “norm” of 85% 9. Hospital admits of 44.3 per 1000 vs. “norm” of 59.0 per Hospital days of per 1000 vs. “norm” of per 1000

168 167 Actual Published Consumerism Experience In 2004, Aetna consumerism plans showed cost increases of only 1.5% versus increases of more than 10% for traditional health plans. Employers that offered only consumerism plans had an average decrease in premiums of 2.9%. In 2004, United Health Care showed average cost increases of less than 1% for consumerism plans. Humana, Blue Cross Blue Shield, and other health insurers are finding similar results from their new consumerism products. Forrester Research predicts 24% of Americans will be covered under such plans by 2010.

169 168 Task #12 (Summary) - Medical Plan Costs and Potential Consumerism Savings Worksheet Well e.g., Low Risk, Good Nutrition, Active Lifestyle At-Risk e.g., Inactivity, High Stress, Overweight, High Blood Pressure, Smoking Chronically-Ill e.g., Diabetes, Musculoskeletal, Heart Disease Catas-trophic e.g., Cancer, Rare Diseases No Claims Generally Healthy O/P (Low)In/P (High)MaternityO/P (Low)In/P (High) Distribution of MSFT Med Costs ___% Avg $ Cost (000’s) $0 $____ $______$_____$______ Est. CDHC Savings Pct. 0%15%12.5%8%5%15%20%8% $ CDHC Savings (000’s) $0$____ $_____$______ Incremental HRA Costs $____ $_____$______ AmountPct. Est. CDHC Savings $_______ _____% Incremental HRA Costs $____________% Net Annual Savings$____________%

170 169 Consumer-Driven Healthcare Surveys A Fad or Exponential Growth ?

171 170 Milliman 10/2004 CDHC Survey 89% of those responding expect to offer a CDHC plan to employers within the next year, up from 29% in last year's survey. Specifically, these 89% currently offer or plan to offer within the next year a high deductible plan with an integrated employee account (i.e., HRA or HSA). Milliman Group Health Insurance Survey CDHC Available Currently or Within 2005 Offer a Tiered Offer a High Offer a % Prem Provider Network Deductible Plan CDHC Plan From CDHC 2004 Survey 42% 96% 89% 7.8% (in 2005) 2003 Survey 17% 48% 29% 3.4% (in 2004) Percentage of Respondents

172 171 Survey Information on CDHC Mercer 4/2004 Nearly three-quarters (73%) of employers asked by Mercer Human Resource Consulting said they were likely to offer the new accounts to their workers by 2006, according to a survey to be released this week. "We're looking at a major market change," says Linda Havlin, Mercer's Midwest health care practice leader, noting that a 73% interest in adopting a new program within two years "is unprecedented.“ Forrester Research 9/2003

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