Source: National Association of Health Underwriters Education Foundation Strategies for Getting Greater Value in Healthcare

Source: National Association of Health Underwriters Education Foundation State of U.S. Healthcare 2

Source: National Association of Health Underwriters Education Foundation Projected 2024 U.S. healthcare spending = $5.46 trillion, 19.6% GDP Healthcare Costs & the Economy 3

Source: National Association of Health Underwriters Education Foundation Up, Up and Away: U.S. Healthcare Spending Projections 4 Centers for Medicare and Medicaid Services

Source: National Association of Health Underwriters Education Foundation We spend far more on healthcare than other countries. 5 U.S. Healthcare System: High Costs, Mediocre Results

Source: National Association of Health Underwriters Education Foundation We don’t live as long as people in many other countries. 6 U.S. Healthcare System: High Costs, Mediocre Results

Source: National Association of Health Underwriters Education Foundation ‣ U.S. ranks last in efficiency ‣ U.S. ranks low on safe and coordinated care and patient access to primary care ‣ However, the U.S. ranks best on: ‣ Provision and receipt of preventive and patient-centered care. ‣ Rapid access to specialists. What Do We Get For All This Spending? 7

Source: National Association of Health Underwriters Education Foundation Employers paid 58% of employees’ healthcare costs in ‣ A typical family of four has $23,215 in medical costs each year ‣ Employer pays $13,520 ‣ Employee pays $9,695 ‣ ($5,908 in payroll deductions and $3,787 in out-of-pocket costs.) Employers Foot the Bill 8

Source: National Association of Health Underwriters Education Foundation ‣ There is no single driver responsible for the nation’s high and rising healthcare costs. ‣ There is no single strategy to meet this challenge. What Is Driving Healthcare Costs? 9

Source: National Association of Health Underwriters Education Foundation ‣ Fee-for-service reimbursement ‣ Fragmentation in care delivery ‣ Administrative burden ‣ Population aging, rising rates of chronic disease and co-morbidities ‣ Advances in medical technology ‣ Lack of transparency about cost, quality ‣ Tax treatment of health insurance ‣ Insurance benefit design ‣ Cultural biases influencing care utilization ‣ Healthcare market consolidation ‣ High unit prices of medical services ‣ The health care legal and regulatory environment ‣ Structure and supply of the health professional workforce What Is Driving Healthcare Costs? 10

Source: National Association of Health Underwriters Education Foundation Chronic Disease Drives Healthcare Spending U.S. Healthcare Spending by Number of Chronic Conditions in

Source: National Association of Health Underwriters Education Foundation Quality Varies Widely There is a radical difference in potentially avoidable hospitalization rates across the country 12

Source: National Association of Health Underwriters Education Foundation Price Varies Widely 13

Source: National Association of Health Underwriters Education Foundation Price for service in the U.S. can vary as much as600% Price Varies Widely 14

Source: National Association of Health Underwriters Education Foundation Price Varies Widely: Massachusetts Hospitals 15

Source: National Association of Health Underwriters Education Foundation Payment Reform 16

Source: National Association of Health Underwriters Education Foundation ‣ Most healthcare services are paid for with a fee-for-service model. ‣ Pay regardless of quality, outcomes ‣ Pay for every test and procedure regardless of necessity ‣ Doesn’t pay for some important aspects of care – like coordination Fee for Service: Paying for Volume, Not Value 17

Source: National Association of Health Underwriters Education Foundation ‣ To pay for the care we want, including better prevention, care coordination and disease management ‣ To not pay for care we don’t want (wasteful/harmful care) ‣ To incentivize and reward providers for delivering high-quality, efficient care ‣ To remove financial barriers to improving the deliver of healthcare The Objectives of Payment Reform 18

Source: National Association of Health Underwriters Education Foundation ‣ Payment that reflects provider performance, especially the quality and safety of care that providers deliver; ‣ Payment methods that are designed to spur efficiency and reduce unnecessary spending; ‣ If a payment method only addresses efficiency, it is not considered value- oriented; it must include a quality component. The Elements of Value-based Payment Reforms 19

Source: National Association of Health Underwriters Education Foundation PERFORMANCE-BASED PAYMENT OR PAYMENT DESIGNED TO CUT WASTE (financial upside & downside depends on quality, efficiency, cost, etc.) BASE PAYMENT MODELS Fee For ServiceBundled PaymentGlobal Payment Increasing Accountability, Risk, Provider Collaboration, Resistance, and Complexity Payment Framework 20 Chart: Catalyst for Payment Reform

Source: National Association of Health Underwriters Education Foundation TypeExamples Upside only for providers Physicians Primary Care Medical Home/payment for care coordination Payment for shared decision making Payment for nontraditional visits (e.g. e-visits) Hospital-physician gainsharing Pay for Performance Shared savings Hospitals Pay for Performance Shared savings Downside only for providers Hospital penalties (e.g. readmissions, Hospital Acquired Conditions, never events, warranties, Length of Stay) Two-sided risk (both upside and downside) Bundled payment Global payment/capitation Shared-risk in Accountable Care Organizations The Payment Reform Continuum 21 Chart: Catalyst for Payment Reform

Source: National Association of Health Underwriters Education Foundation Pay-for-Performance/Bonus Payments ‣ A pay-for-performance model provides performance incentives to providers for increasing quality of care and/or reducing costs ‣ Incentives paid on top of fee-for-service payments 22 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Pay-for-Performance/Bonus Payments for Quality/Efficiency Example: ‣ Bridges to Excellence (BTE) recognizes physician practices that meet performance benchmarks ‣ Participating physicians earn both peer recognition and bonuses from participating health plans. 23 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Payments Not Tied to Individual Services or Visits ‣ Providers get incentives not tied to fee-for-service payments, such as a payment for care coordination given to patient-centered medical homes 24 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Payments Not Tied to Individual Services or Visits Example: ‣ Payment and shared savings for care coordination and case management in a patient- centered medical home. ‣ CareFirst Blue Cross Blue Shield annual medical cost increase dropped to 2 percent for 1 million members in its medical home program 25 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Bundled Payment ‣ A single payment to providers or healthcare facilities (or jointly to both) for all services to treat a given condition or to provide a given treatment ‣ Also known as “episode-based payment” ‣ Providers assume financial risk for the cost of services for a particular treatment or condition 26 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Bundled Payment Example: Surgery Center of Oklahoma ‣ Flat-fee, all-inclusive pricing for dozens of procedures ‣ Quotes prices on its web site 27 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Shared Savings/Shared Risk Models ‣ Shared savings ‣ Providers paid to provide care for a defined population ‣ Providers are incentivized to reduce unnecessary spending because they share savings with payers ‣ Shared risk ‣ Contracts go one step farther: Providers not only share savings, but accept financial liability if they do not meet targets 28 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Shared Risk Example: ‣ Blue Shield of California, Hill Physicians and Dignity Health formed ACO to serve CalPERS ‣ ACO reduced Blue Shield premiums for CalPERS beneficiaries by $59 million, or $480 per member per year, over 3 years Source: The Commonwealth Fund’s Case Studies of Accountable Care Systems 29 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Non-Payment Policies ‣ Providers do not get paid for performing services that are deemed harmful or do not contribute positively to the care process 30 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation ‣ Non-Payment Policies Example: ‣ South Carolina Medicaid and Blue Cross Blue Shield of South Carolina teamed up to stop paying for early elective deliveries ‣ Policy realized substantial savings 31 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Full Capitation/Global Payment ‣ Health plan pays a fixed dollar payment to providers for the care that members receive in a given time period, such as a month ‣ Payment adjusted for performance and severity of illness of the patient population 32 Payment Reform Strategies

Source: National Association of Health Underwriters Education Foundation Pairing Benefit Design & Payment Reform 33

Source: National Association of Health Underwriters Education Foundation Why Discuss Pairings of Benefit Designs and Payment Reform? ‣ Benefit design and payment reform are equally important ‣ Benefit design is taking on broader meaning ‣ Some promising payment reforms are slow to be adopted – benefit design could make a difference ‣ If doctors and patients work together, in the same direction, outcomes and the value are more likely to improve 34

Source: National Association of Health Underwriters Education Foundation 1. Cost sharing ‣ Co-insurance, co-pays, deductibles 2. Financial incentives around lifestyle choices and use of services ‣ Consumer-directed healthcare ‣ Value-based insurance design 3. Financial incentives around choice of provider ‣ Reference pricing ‣ Centers of excellence ‣ Narrow networks 4. Policies ‣ Prior authorization ‣ Required referrals to specialists 5. Transparency ‣ Price and quality ‣ Benefit design features fall into the following five domains: 35 Benefit Designs in Play Today

Source: National Association of Health Underwriters Education Foundation ‣ Reference Pricing establishes a standard price for a drug, procedure, service or bundle of services, and generally requires that health plan members pay any allowed charges beyond this amount. $5K $20K $10K $15K Frequency and Cost of Services Performed REFERENCE PRICE $0 Consumers seeking care from providers above the reference price may be subject to additional out-of- pocket financial liability Consumers seeking care from providers at or below the reference price are typically responsible for normal or no cost-sharing Price Variation Identical Service 36 What is Reference Pricing? Catalyst for Payment Reform

Source: National Association of Health Underwriters Education Foundation ‣ CalPERs sets a reference price of $30,000 for hip/knee replacement surgery. ‣ Members who seek care at a higher price provider pay the difference above the reference price. ‣ In the first nine months: ‣ Number of enrollees who chose a designated high- value hospital increased from 50% to 64% ‣ Average price fell from $42,000 to $27,000 ‣ 40 hospitals cut prices 37 Effective Pairing: Reference Pricing & Bundled Payment

Source: National Association of Health Underwriters Education Foundation ‣ Plans with narrow networks of providers limit the doctors and hospitals their enrollees can use. ‣ Go to doctor A or hospital A, and the plan will pay all or most of the bill ‣ Go to doctor B or hospital B, and the enrollee may have to pay all or most of the bill herself x AB 38 What is a Narrow Network?

Source: National Association of Health Underwriters Education Foundation Effective Pairing: Narrow Network & Shared Savings (and Risk) ‣ Intel has a direct contract with Presbyterian Health System (PHS) ‣ Employees who select the PHS option must use a narrow network of PHS providers ‣ Intel pays PHS directly to manage quality and cost ‣ PHS shares in both savings and risk 39

Source: National Association of Health Underwriters Education Foundation ‣ Specially trained, multidisciplinary teams coordinate closely with primary care teams to meet the needs of patients with multiple chronic conditions or advanced illness. *Issue Brief, Caring for High-Need, High-Cost Patients: What Makes for a Successful Care Management Program? The Commonwealth Fund, August What is Case Management for High-Cost Employees?

Source: National Association of Health Underwriters Education Foundation Effective Pairing: Case Management & Shared Risk ‣ Blue Cross Blue Shield of North Carolina created program to identify patients who frequently use emergency rooms ‣ Identifying and educating identify high ER users eliminated 1,300 inappropriate ER visits in a year ‣ Case management pairs well with shared risk. ‣ Incents providers to work in cross-disciplinary teams to ensure the needs of complex patients are being met outside the hospital. 41

Source: National Association of Health Underwriters Education Foundation Price Transparency 42

Source: National Association of Health Underwriters Education Foundation Price and Quality Transparency ‣ Transparency is important to: ‣ Create educated healthcare consumers ‣ Create accountability for price and quality variation among providers ‣ Enable purchasers to judge value 43

Source: National Association of Health Underwriters Education Foundation The National Association of Health Underwriters defines price transparency as “empowering the healthcare consumer with the cost and quality information necessary to make an educated and informed choice on a particular service, treatment, procedure or appliance before they make a buying decision.” Defining Price Transparency 44

Source: National Association of Health Underwriters Education Foundation ‣ Employers are asking employees to get engaged, educated and empowered ‣ Empowered employees can help drive better quality and efficiency ‣ Unwarranted price variation needs to be exposed to help identify high-value providers. Employers’ Need for Price Transparency 45

Source: National Association of Health Underwriters Education Foundation States Are Not Filling the Void… 2015 Report Card on State Price Transparency Laws 1-A 2-Bs 2-Cs 45-Fs 46

Source: National Association of Health Underwriters Education Foundation Private Price Tools on the Rise ‣ The private sector is stepping up with information about price and in some cases quality. ‣ Health plans ‣ Independent vendors: Castlight Health, Change Healthcare, Fair Health, Guroo, Healthcare Bluebook, Zest Health 47

Source: National Association of Health Underwriters Education Foundation The Data Sharing “Spat” Many health plans restrict data use by self-funded purchasers ‣ Some plans do not allow purchasers to give price data to other third party vendors ‣ They argue that price information is proprietary and confidential ‣ Plans making significant investments in more sophisticated and proprietary transparency tools worry that providing data to other vendors supports competing products 48

Source: National Association of Health Underwriters Education Foundation Employers Using Price, Quality Information for Reference Pricing $5K $20K $10K $15K Frequency and Cost of Services Performed REFERENCE PRICE $0 Consumers seeking care from providers above the reference price may be subject to additional out-of- pocket financial liability Consumers seeking care from providers at or below the reference price are typically responsible for normal or no cost-sharing Price Variation Identical Service 49 Catalyst for Payment Reform

Source: National Association of Health Underwriters Education Foundation What Employers Can Do About It ‣ Incentivize employees ‣ campaign ‣ Follow up promotion strategy ‣ Engage spouses and dependents Tips to Encourage Employee Use of Plan Cost Tools ‣ Engage influencers and stakeholders ‣ Use testimonials ‣ Highlight health plan tools in existing benefits communications ‣ Incorporate tools in new hire onboarding 50

Source: National Association of Health Underwriters Education Foundation Value-based Insurance Design 51

Source: National Association of Health Underwriters Education Foundation A New Approach to Benefits: Recognize Clinical Nuance 52 University of Michigan Center for Value-Based Insurance Design

Source: National Association of Health Underwriters Education Foundation Value-based Insurance Design ‣ Sets consumer cost-sharing level on clinical ‣ Reduce or eliminate financial barriers to high-value clinical services and providers ‣ Successfully implemented by hundreds of public and private payers 53 University of Michigan Center for Value-Based Insurance Design

Source: National Association of Health Underwriters Education Foundation Example: Waiving Co-Pays for Medications after a Heart Attack ‣ Study assessed impact of free access to preventive medications for Aetna members who had a heart attack ‣ Random trial reported in New England Journal of Medicine ‣ “Enhanced prescription coverage improved medication adherence and rates of (heart attacks) and decreased patient spending without increasing overall health costs.” 54

Source: National Association of Health Underwriters Education Foundation Implementing V-BID: Connecticut State Employees Health Plan ‣ Participating employees receive a reprieve from higher premiums if they commit to: ‣ Yearly physicals, age-appropriate screenings/preventive care, two free dental cleanings ‣ Employees with certain chronic conditions must participate in disease management programs (which include free office visits and lower drug co-pays) ‣ Early results: ‣ 99% of employees enrolled ‣ Decrease in ER and specialty care ‣ Increase in primary care visits ‣ Increase in chronic disease medication adherence ‣ Medical spending trend declined 55

Source: National Association of Health Underwriters Education Foundation Steering Employees to Centers of Excellence ‣ Lowe's eliminates co-pays and pays travel costs if employees use the Cleveland Clinic for elective heart procedures ‣ Cleveland Clinic’s negotiated bundled price beats price of local hospitals 56

Source: National Association of Health Underwriters Education Foundation 57 ‣ More than 25% of employers now offer High Deductible Health Plans, many with qualified Health Savings Accounts ‣ The clinical downside: Higher out-of-pocket costs may discourage employees from getting evidence-based medical services ‣ The upshot: There is a movement to changes the rules to encourage enrollees with chronic diseases to get the care they need to manage their conditions HSA-qualified HDHPs: Making Them Work for the Chronically Ill Graphic: Western Health Advantage