1. National Medicare Prescription Drug Congress
The Perspective of Health Plans
Leonard D. Schaeffer
Chairman and CEO
WellPoint Health Networks Inc.
February 26, 2004

2. Agenda
The Need For Change
Role of Health Plans
Challenges
Conclusion

3. The Need For Change Rising Costs Shift to Chronic Illness
Medicare must be enhanced to address:
Rising Costs
Shift to Chronic Illness
The Baby Boomers
Spending vs. Outcomes

4. Medicare Spending, 1966-2001 Rising Health Care Costs $236.8B $1.8B
The Need for Change
Medicare Spending,
$236.8B
$1.8B
Source: Centers for Medicare and Medicaid Services, 2003

5. Shift to Chronic Illness
The Need for Change
Shift to Chronic Illness
Age and demographic change drive evolution to a system to manage health status and chronic illness
Percent of health care services used by people with chronic conditions
88%
Prescriptions
72%
Physician visits
76%
Inpatient stays
Source: Agency for Healthcare Research and Quality, Medical Expenditure Survey, 1998

6. Seniors Consume More Health Care
The Need for Change
The Baby Boomers
Seniors Consume More Health Care
Relative Per Capita Health Spending, By Age Cohort (Age Equals 1), 1999
Relative Spending
Source: Health Affairs, Nov/Dec 2003

7. Senior Population To Expand
The Need for Change
The Need for Change
The Baby Boomers
The Baby Boomers
Senior Population To Expand

8. Tools & Information to Support
Boomers Expect Choice
The Baby Boomers
The Need For Change
Choice
Plan
PPO
POS
Open access
HMO
ASO
Choice
Price
Choice
Provider
Choice
Treatment
Tools & Information to Support

9. The Need for Change
Spending vs. Outcomes
Dartmouth Study: Medicare patients receiving the most care did not fare better
Patients in higher-spending areas received 60% more care, but not improved survival
Utilization driven by local supply of physicians, specialists and hospital resources
Study concluded that savings of up to 30% of Medicare spending might be possible
Source: Annals of Internal Medicine, 2003; darker shading = higher spending

10. Agenda
The Need For Change
Role of Health Plans
Challenges
Conclusion

11. Product Opportunities
Role of Health Plans
Product Opportunities
MMA provides two-year window for:
M+C HMO Payment Increases
Rx Drug Discount Card
Medicare Advantage Plans
Stand-alone Prescription Drug Plans
Medigap Changes
Health Savings Accounts

12. Quality Opportunities
Role of Health Plans
Quality Opportunities
MMA will support current efforts and stimulate others:
Plans required to have quality assurance systems
Hospital annual payment updates tied to quality reporting
IOM to develop pay-for-performance strategy for Medicare
FFS disease management demonstrations
Electronic prescribing standards

13. Health Plan Experience
Role of Health Plans
Health Plan Experience
Serving Seniors
IT Infrastructure for Data Collection
Chronic Care Management
Physician Connectivity
Pay-For-Performance
Consumer Information

14. Private sector familiar with seniors’ needs and managing drug benefits
Role of Health Plans
Health Plan Experience
Serving Seniors
Private sector familiar with seniors’ needs and managing drug benefits
Medigap plans serve 10 million*
Medicare+Choice serves 4.6 million**
Rx benefit nearly universal in commercial market
PBMs serve 200 million**
PBMs currently administer Drug Discount Cards for million enrollees***
*GAO/2001; **2003; ***GAO /Feb 2003 ( administered on behalf of retail pharmacies, employee assns, and insurance companies)

15. IT Infrastructure for Data Collection
Role of Health Plans
Health Plan Experience
IT Infrastructure for Data Collection
Shift to using information --not controls-- to improve efficiency & quality
Intersection of key data flows --claims, Rx, lab-- creates opportunity
Capture, integration, & analysis of data used to identify effective care
Emergence of
Infomediaries
Knowledge transfer to providers and patients to improve outcomes
Sources: James C. Robinson, “Beyond Managed Care” (presentation); AcademyHealth Reports: Knowledge Transfer: Building Better Bridges

16. Admissions per 1000 members
Role of Health Plans
Health Plan Experience
Chronic Care Management
Admissions per 1000 members
500
2000 Baseline
400
2001
-53%
300
2002
2003
200
-29%
100
-16%
-36%
Asthma-
CHF-Total
Diabetes-
Diabetes-
Related
Total
Related
Program
Source: WellPoint Experience with Prior Disease Management Programs

17. Physician Connectivity: iDOC
Health Plan Experience
Role of Health Plans
Physician Connectivity: iDOC
WLP invested over $100M in its own IT strategy in ‘03. To encourage physicians to adopt technology, WLP will:
Provide an additional $40 million in new information technology to 19,000 network physicians
Enhance patient care, reduce admin costs and improve physician communication
Offer physicians a choice of:
Prescription Improvement Package
Paperwork Reduction Package
Negotiate discounts for 170,000 physicians in our networks

18. Role of Health Plans
Why WLP?
“Somebody has to do something and it is just incredibly pathetic it has to be us.”
Jerry Garcia
Courtesy Martha Marsh, President & CEO, Stanford Hospital & Clinics

19. Health Plan Experience
Role of Health Plans
Pay-For-Performance
Historically, both mistakes and corrections reimbursed
Providers paid the same regardless of outcomes
Leading plans now using pay-for-performance programs
Providers respond to comparative information and financial incentives
Challenge is raising consumer sensitivity to clinical quality differences

20. Consumer Information: Subimo
Role of Health Plans
Health Plan Experience
Consumer Information: Subimo

21. Agenda
The Need For Change
Role of Health Plans
Challenges
Conclusion

22. Immediate Challenges Product development without knowing:
Regulatory requirements
MA payment rates
Definitions (e.g. “actuarial equivalence”)
Degree of design flexibility (e.g. formularies)
Late enrollment penalty
Service areas
Regional PPO Networks
NAIC Redesign of Medigap
Beneficiary Education

23. Estimated $35/month premium
Immediate Challenges
Beneficiary Education
Outreach & education needed to:
Explain “donut hole” design
Understand plan choices
Underscore importance of enrolling early to minimize selection problems
Out of Pocket
Spending
Catastrophic
Coverage 5%
$5,100
No Coverage
$2,850
$2,250
Partial
Coverage
25%
$250
Deductible
Estimated $35/month premium
Source: Kaiser Family Foundation, 2003

24. Long-Term Issues Senior response to new coverage options
Feasibility and flexibility of regulations
CMS resources and staffing
Sustained commitment to quality incentives
Risk inherent in government partner
Legislative amendments/new requirements

25. Agenda
The Need For Change
Role of Health Plans
Challenges
Conclusion

26. Conclusion MMA complex, but most plans optimistic
Successful implementation requires feasible, flexible regulations
Modernizing Medicare requires meeting the needs and expectations of baby boomers
A 21st century health care system should provide seamless transitions
Ultimately. . .

27. Conclusion, cont.
Health care systems are a reflection of social values– not science and not economics
A system that works for all should be evidence-based, choice-based, equitable and affordable
We can hope that outcomes will improve, but we can count on patient expectations continuing to rise and total cost continuing to increase