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Strong Medicine for Ailing Strong Medicine for Ailing School Employer School Employer

Health Care CostsHealth Care Costs What are the causes?What are the causes?

What are the remedies?What are the remedies?

What is the prognosis?What is the prognosis?

Is there a cure?Is there a cure?

Chris KerwinChris KerwinCSIUCSIU

570.523.1155 x 2302 570.523.1155 x 2302

22

Employer provided health care:Employer provided health care:

Origins Origins

Growth Growth

Current status Current status

FutureFuture

What can be done to better manage What can be done to better manage employer health care costs employer health care costs

now…and in the future?now…and in the future?

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Health care is ailing because of…Health care is ailing because of…

Changing demographicsChanging demographics Medicare and Medicaid cost shiftingMedicare and Medicaid cost shifting Advanced medical treatment technologyAdvanced medical treatment technology Federal and state mandatesFederal and state mandates Medical malpractice insurance costs/awards (PA Medical malpractice insurance costs/awards (PA

awards against physicians up 13.5% in 2004 to $448 awards against physicians up 13.5% in 2004 to $448 million)million)

Obesity and other lifestyle choicesObesity and other lifestyle choices Cost of treatment of AIDS and other diseasesCost of treatment of AIDS and other diseases Excessive demand for and consumption of medical Excessive demand for and consumption of medical

services...utilization drives 43% of rate increase services...utilization drives 43% of rate increase amountsamounts

Increased use and cost of Rx drugsIncreased use and cost of Rx drugs More mental health/substance abuse treatmentMore mental health/substance abuse treatment And………………………………….And………………………………….

44

It is argued that:It is argued that:A dysfunctional market A dysfunctional market creates few incentives creates few incentives for its participants to for its participants to deliver cost-efficient deliver cost-efficient

carecare

55

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Top Cost-Driving DiseasesTop Cost-Driving Diseases

Heart DiseaseHeart Disease AsthmaAsthma Mental disordersMental disorders CancerCancer HypertensionHypertension DiabetesDiabetes

……..15 diseases ..15 diseases account for 50% of all account for 50% of all cost increasescost increases

from HHS study of from HHS study of 1987-2000 data1987-2000 data

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Are we a nation ofAre we a nation of desk-potatoes?desk-potatoes?

Worker weight problems Worker weight problems result in 36% higher health result in 36% higher health care costs and 77% higher care costs and 77% higher drug costs than others drug costs than others (RAND)(RAND)

39 million annual lost 39 million annual lost workdays are associated workdays are associated with obesitywith obesity

$12.7 billion annual obesity $12.7 billion annual obesity cost to US firms (USBGH)cost to US firms (USBGH)

Bariatric surgery cost is Bariatric surgery cost is $20,000-$40,000….140,000 $20,000-$40,000….140,000 Americans desired the Americans desired the procedure in 2004 (ASBSprocedure in 2004 (ASBS))

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Medical Cost TrendMedical Cost Trend

Medical cost trend affects medical plansMedical cost trend affects medical plans in two ways:in two ways:

The total cost of the service/claim goes upThe total cost of the service/claim goes up Previously uncovered claims enter the Previously uncovered claims enter the

covered cost layer…covered cost layer…...also known as leverage...also known as leverage

This is most pronounced with low fixed This is most pronounced with low fixed dollar deductibles and co-pays.dollar deductibles and co-pays.

99

??????????In 1964, annual incomes were $3,000…In 1964, annual incomes were $3,000…

many deductibles were $100.many deductibles were $100.In 2006, annual incomes are in the range of In 2006, annual incomes are in the range of

$30,000…$30,000…many deductibles are $___many deductibles are $___

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Types of plansTypes of plans

Traditional Indemnity/Major Medical/ Fee for Traditional Indemnity/Major Medical/ Fee for Service (FFS)Service (FFS)

PPO (Preferred Provider Organization)PPO (Preferred Provider Organization)

HMO (Health Maintenance Organization)HMO (Health Maintenance Organization)

POS (Point of Service)POS (Point of Service)

Self-directed/Consumer-driven/HSAs/HRAsSelf-directed/Consumer-driven/HSAs/HRAs

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Types of RatingTypes of Rating

Fully InsuredFully Insured

Firm rate no settlementFirm rate no settlement Partially InsuredPartially Insured

Retrospective settlementRetrospective settlement

Rate stabilizationRate stabilization Self-funded (ASO, cost-plus)Self-funded (ASO, cost-plus)

Used with stop-loss insuranceUsed with stop-loss insurance

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No matter what plan you choose, or No matter what plan you choose, or how it is rated, or how it is funded, how it is rated, or how it is funded, you will not escape paying for your you will not escape paying for your

costs!costs!Employer-provided health care Employer-provided health care

is a financial /banking arrangement…is a financial /banking arrangement…REAL insurance is elusive!REAL insurance is elusive!

Pay now or pay later!Pay now or pay later!

Health care is not an expense!Health care is not an expense!

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Some Rx facts:Some Rx facts: 23 out of 9,991 available drugs responsible for 50% of cost increases 23 out of 9,991 available drugs responsible for 50% of cost increases

in 1991 (Aon)in 1991 (Aon) Drug companies spent nearly $3 billion in 2003 on direct-to-consumer Drug companies spent nearly $3 billion in 2003 on direct-to-consumer

advertising, up from less than $800 million in 1997 (WSJ)advertising, up from less than $800 million in 1997 (WSJ) Every extra dollar spent on consumer ads rings up $4.20 in sales! Every extra dollar spent on consumer ads rings up $4.20 in sales!

(Kaiser/Harvard))(Kaiser/Harvard)) Top drug product web sites had a combined 32.5 million visits in 12 Top drug product web sites had a combined 32.5 million visits in 12

months (MR)months (MR) Many media ads don’t even refer to a condition when touting a drugMany media ads don’t even refer to a condition when touting a drug The 2003 ad campaign for Nexium had a budget of $233 millionThe 2003 ad campaign for Nexium had a budget of $233 million Lipitor is the world’s top selling drug…$10 billion annuallyLipitor is the world’s top selling drug…$10 billion annually 65 million Americans have hypertension…1/3 of US population…up 65 million Americans have hypertension…1/3 of US population…up

30% in ten years!30% in ten years! $26 billion is spent worldwide each year on statins$26 billion is spent worldwide each year on statins Of the ten doctors who recently urged lower levels of cholesterol, nine Of the ten doctors who recently urged lower levels of cholesterol, nine

have received funding from statin producing drug firms. This have received funding from statin producing drug firms. This recommendation would add 7 million people to the ranks of the 36 recommendation would add 7 million people to the ranks of the 36 million now taking such drugs.million now taking such drugs.

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One Plan’s Top 12 Drugs 2004-05One Plan’s Top 12 Drugs 2004-05Total Rx Total Amount Total

Drug Name Users Rxs Paid/Rx Amount Paid Drug Category

LIPITOR 494 1,568 194$ 304,508$ LIPID/CHOLESTEROL LOWERING AGENTSZOCOR 303 1,001 286$ 285,993$ LIPID/CHOLESTEROL LOWERING AGENTSNEXIUM 226 639 350$ 223,672$ PROTON PUMP INHIBITORSENBREL 16 43 3,537$ 152,090$ RHEUMATOLOGICAL AGENTSPREVACID 150 371 353$ 131,079$ PROTON PUMP INHIBITORSZOLOFT 167 519 201$ 104,324$ SELECTIVE SEROTONIN REUPTAKE INHIBITORSCELEBREX 175 393 245$ 96,273$ NSAIDS-SPECIFIC COX-II INHIBITORSSINGULAIR 179 497 185$ 91,775$ PULMONARY AGENTSALLEGRA 282 642 143$ 91,767$ ANTIHISTAMINESEFFEXOR XR 119 404 219$ 88,293$ ANTIDEPRESSANTSADVAIR DISKUS 117 254 324$ 82,332$ PULMONARY AGENTSGLEEVEC 2 8 10,087$ 80,696$ ANTINEOPLASTIC DRUGS

Total 6,339 1,732,802$

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Top 10 Top 10 SpecialtySpecialty Drug Utilization Drug Utilization# of # of Average Cost

Drug Name Therapeutic Category Description Rxs Patients per Patient Plan Cost

ENBREL Rheumatological Agents Arthritis 43 16 9,506$ 152,090$ GLEEVEC Antineoplastic Drugs Cancer 8 2 40,348$ 80,696$ COPAXONE Neurological Therapy Alzheimers, Multiple 29 7 11,287$ 79,006$

Sclerosis (MS)AVONEX Interferons Hepatitis and MS 16 6 7,764$ 46,583$ NEUPOGEN Myeloid Stimulants Cancer 7 4 11,294$ 45,176$ PROCRIT Erythroid Stimulants Cancer 7 5 7,555$ 37,776$ TRACLEER Pulmonary Agents Asthma 4 1 36,953$ 36,953$ BETASERON Interferons Hepatitis and MS 8 2 15,043$ 30,085$ REBIF Interferons Hepatitis and MS 8 2 14,193$ 28,386$ LOVENOX Heparin Blood Clots 11 6 3,829$ 22,976$

OTHER 86 24 5,427$ 130,242$

Total 227 65 10,615$ 689,970$

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One Plan’s Rx ClaimsOne Plan’s Rx Claims

$-

$1

$2

$3

$4

$5

$6

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

Millions

Fiscal Year

Rx

Spen

d

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Its Medical ClaimsIts Medical Claims

$-

$2

$4

$6

$8

$10

$12

$14

$16

$18

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

Millions

Fiscal Year

Cla

im D

olla

rs

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The Plan’s Medical and Rx The Plan’s Medical and Rx Total ClaimsTotal Claims

$-

$5

$10

$15

$20

$25

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

Millions

Medical Claims

Prescription Drug Claims

Total Claims

1919

Costs Go UP and UP and UPCosts Go UP and UP and UP . . . . . .

MedicalMedical Claims Claims 2004-052004-05 $ 15,443,928 $ 15,443,928 MedicalMedical Claims Claims 1999-001999-00 $ 8,720,885$ 8,720,885 77%77% IncreaseIncrease RxRx Claims Claims 2004-052004-05 $ 5,537,764 $ 5,537,764 RxRx Claims Claims 1999-001999-00 $ 2,251,715$ 2,251,715 146%146% IncreaseIncrease TotalTotal ClaimsClaims2004-052004-05 $ 20,981,692 $ 20,981,692 Total ClaimsTotal Claims1999-001999-00 $ 10,972,600 $ 10,972,600 91%91% IncreaseIncrease

2020

Example of Claim FactsExample of Claim Facts

In 2004-05:In 2004-05: 2727 claims exceeded claims exceeded $50,000$50,000 Their cost was $Their cost was $2.99 million2.99 million; ; 19.4%19.4% of all costs of all costs

for the yearfor the year 1414 of those claims were dependent and COBRA of those claims were dependent and COBRA

claimsclaims 1414 were malignancy claims were malignancy claims Largest claim = Largest claim = $703,000$703,000 (pulmonary collapse) (pulmonary collapse) Shock claims were Shock claims were $690,000$690,000 more than prior yr more than prior yr

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IT COSTS MORE!!!!IT COSTS MORE!!!! Average Average ContributionContribution Rate: Rate: 2004-052004-05 $698/Em$698/Em

Average Average ContributionContribution Rate: Rate: 1999-001999-00 $392/Em$392/Em

78%78% Increase in five years…. but not Increase in five years…. but not bad by most industry standardsbad by most industry standards

(1977-78 Contribution rate was $40/Em!!)(1977-78 Contribution rate was $40/Em!!)

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The best ways to save moneyThe best ways to save money

Pay less for claims….. with better discountsPay less for claims….. with better discounts

Pay less for retention…lower administration feesPay less for retention…lower administration fees

Pay fewer claims…via plan redesignPay fewer claims…via plan redesign

Shift costs to others (aka employees and other Shift costs to others (aka employees and other employers) through premium sharing, plan redesign employers) through premium sharing, plan redesign and reducing censusand reducing census

Reduce claims by improving participant healthReduce claims by improving participant health

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So what are aggressive employers So what are aggressive employers doing about escalating costs?doing about escalating costs?

Providing/negotiating less costly plansProviding/negotiating less costly plans Redesigning/reducing benefitsRedesigning/reducing benefits Launching consumerism efforts in plansLaunching consumerism efforts in plans Increasing healthy habit/wellness Increasing healthy habit/wellness

incentivesincentives Passing costs to employeesPassing costs to employees

Lesser reimbursementsLesser reimbursements Higher premium sharingHigher premium sharing ““Pay to play” effortsPay to play” efforts

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Some RX ideasSome RX ideas Free generics…. to encourage use Free generics…. to encourage use

vs brand drugsvs brand drugs Annual Rx deductibles…$25 or $50Annual Rx deductibles…$25 or $50 Brand-only retail deductibleBrand-only retail deductible $15 or 10% steps between generic $15 or 10% steps between generic

and brand classesand brand classes Home delivery co-pays of at leastHome delivery co-pays of at least

2 - 2.5 X retail co-pays2 - 2.5 X retail co-pays ““Step Therapy” plans allowing pricey Step Therapy” plans allowing pricey

drugs only after less costly Rxs fail drugs only after less costly Rxs fail to helpto help

Specialty Pharmacy programsSpecialty Pharmacy programs Pill splitting?Pill splitting?

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Strategies that do not work!Strategies that do not work!

Blaming the planBlaming the plan Blaming the employeesBlaming the employees Passing costs on to the clientsPassing costs on to the clients Giving more benefitsGiving more benefits Adding retirement incentivesAdding retirement incentives Not consulting with the plan Not consulting with the plan early onearly on

regarding benefit changes…or even in the regarding benefit changes…or even in the heat of negotiationsheat of negotiations

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What can work….What can work…. Premium sharing on a percentage basis Premium sharing on a percentage basis

……..……..Indexed by plan, salary and level of coverageIndexed by plan, salary and level of coverage

Fixed dollar co-pays that annually increase, or…Fixed dollar co-pays that annually increase, or… Percentage co-pays when using plan servicesPercentage co-pays when using plan services Incentives that lead to lower cost choicesIncentives that lead to lower cost choices Monetary incentives to reduce censusMonetary incentives to reduce census Health Risk Assessments and care programsHealth Risk Assessments and care programs Efficient plan designs….a la PPOs and HRAsEfficient plan designs….a la PPOs and HRAs

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What has been done in one plan….What has been done in one plan….

For example, the plan ……For example, the plan …… Self-funds benefits, with a best practice stop-loss Self-funds benefits, with a best practice stop-loss

insurance vehicleinsurance vehicle Has a per person retention, not % of claimsHas a per person retention, not % of claims Has great medical network discountsHas great medical network discounts Has powerful Rx discounts and admin costsHas powerful Rx discounts and admin costs Owns all reserves; the insurance carriers own no member $$$Owns all reserves; the insurance carriers own no member $$$

************************************************************************************************************ Yet its costs are going up….despite constant Yet its costs are going up….despite constant

management….and non members report 40% plus rate management….and non members report 40% plus rate increases with some in excess of 50%!!!increases with some in excess of 50%!!!

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Pennsylvania TRUST

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Some employers have:Some employers have: Instituted co-pays, but many are on a flat amount basisInstituted co-pays, but many are on a flat amount basis Required lifestyle “high riskers” to pay a higher share of Required lifestyle “high riskers” to pay a higher share of

costscosts Capped their share of premiums, shifting rate increases Capped their share of premiums, shifting rate increases

to employees in whole or in partto employees in whole or in part Phased out retirement incentives that include health Phased out retirement incentives that include health

insurance…or charge extra.insurance…or charge extra. Required working spouses to pay to be on the plan if Required working spouses to pay to be on the plan if

they have availability of other coverage.they have availability of other coverage. Awarded smaller pay increases as an offset to changing Awarded smaller pay increases as an offset to changing

benefit plans…the holy grail!!benefit plans…the holy grail!!

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School employers bear risks in School employers bear risks in getting tough on costsgetting tough on costs

Tough talk on benefits = labor strikesTough talk on benefits = labor strikes Can’t alter benefits from year-to-year due Can’t alter benefits from year-to-year due

to contracts…status quo prevailsto contracts…status quo prevails Generally rely on carriers for advice, which Generally rely on carriers for advice, which

receive increases in %-based retention receive increases in %-based retention when rates go upwhen rates go up

Face huge challenges with board Face huge challenges with board dynamicsdynamics

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So how do we fix what is ailing?So how do we fix what is ailing?

Make tough choices, despiteMake tough choices, despite the risksthe risks

Get our data and use it!!Get our data and use it!! There is no magic bulletThere is no magic bullet Dialogue with unions?Dialogue with unions? Join a well- managed consortiumJoin a well- managed consortium Realize that if a new plan soundsRealize that if a new plan sounds

too good to be true, it is too good to be true!too good to be true, it is too good to be true! Consult with those who know Consult with those who know beforebefore actingacting Reward healthy lifestyles/penalize others?Reward healthy lifestyles/penalize others?

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Is there a cure???Is there a cure???

Some say that a national system is the Some say that a national system is the remedyremedy

Some believe statewide solutions are the Some believe statewide solutions are the best medicine…best medicine…However….However….

Like politics, all health care is localLike politics, all health care is local One thing is certain: the status quo is One thing is certain: the status quo is

becoming more costly each year…becoming more costly each year…perhaps 8% more in 2006!!!perhaps 8% more in 2006!!!

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What percentage of health care What percentage of health care spending pays for illnesses that are spending pays for illnesses that are

actually preventable?actually preventable?

25 %25 %66%66%33%33%

75%75%50%50%

80%80%??????????????????????????????????

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““Prevention is still a radical concept to Prevention is still a radical concept to most Americans. We are a treatment-most Americans. We are a treatment-

oriented society.”oriented society.”Richard H. CarmonaRichard H. Carmona

US Surgeon GeneralUS Surgeon General June 10, 2003 June 10, 2003

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THE END!!!THE END!!!

THANK THANK YOU!!YOU!!