The University of North Carolina Healthcare – Current Realities – New Opportunities

Agenda The state of health care in the United States The state of health care in The University of North Carolina New Opportunities Questions

The State of Health Care in the U.S. Health Care Costs Went Up Again in 2004 Source: Hewitt Health Value Initiative. $3,907 $4,713 $5,427 $6,857 $4,276 $6, % *Includes health care costs for employees and all covered dependents.

Medical Plan Models/Features Indemnity: All expenses covered by deductible and coinsurance, with an out-of-pocket maximum. No differentiation of benefits based on provider used. Usually only used for “out-of-area” or catastrophic coverage. Preferred Provider Organization (PPO): Benefits are richer when a network provider is used (e.g. 90% coinsurance in- network, 70% out-of-network). Most common model used today. Point-of-Service (POS): Similar to PPO, but primary care physician used as a “gatekeeper” with referrals required to see specialists. Becoming less common. Health Maintenance Organization (HMO): Strict definition is an insured network-only plan that has a limited geographic coverage range and a tighter provider network, with more third- party managed care requirements. Today, HMO could refer to any network-only plan, whether insured or self-insured, local or national.

The State of Health Care in the U.S. Employers Respond with Cost-Shifting Source: Hewitt Associates. Annual Employee Contribution $1,054 $1,231 $1,311 $1,641 $2,126 $2, %

The State of Health Care in the U.S. A Ray of Sunshine? Source: Kaiser Family Foundation.

The State of Health Care in the U.S. Aging population Ongoing cost shift from the public sector (Medicare and Medicaid) and from the uninsured population Hospital and Physician group consolidation that limits network negotiation leverage/competition for patients Provider malpractice liability What’s Driving the Increases?

The State of Health Care in the U.S. Prescription drug innovation and direct-to- consumer advertising Worsening health status of the general population (particularly obesity/weight-related complications) Increasingly expensive treatment technologies A consumer/employee that is insulated from the costs What’s Driving the Increases? (cont.)

The State of Health Care at UNC State of N.C. Comprehensive Major Medical Plan rate increases over the past 5 years for employee/family coverage +98% Monthly Premium for Family Coverage Health Care Costs for Family Coverage

The State of Health Care at UNC UNC system recently participated in a benchmarking exercise with 18 other research universities representing over 290,000 employees and over $1.7 billion in health care costs Health care plans were compared to other universities, labor market, and overall national programs Costs of UNC’s health care plan, represented by the rates paid into the State Plan pool, are very favorable Competitiveness of the benefits and employee costs are not The following pages outline some of the key results of the benchmarking exercise

Health Plan Costs per Employee UNC’s per employee plan costs ($4,203) are among the lowest largely due to low dependent coverage Per employee contributions ($1,026) are similar to other universities, but this is deceiving  Zero for employee  Full cost for dependents UNC’s overall percentage subsidy (76%) is lower than other universities (81%) UNC Research Universities Labor Mkt Large Employers Employee Contributions $1,026$1,096$1,461$1,298 Employer Cost $3,177$4,784$4,652$5,489 Total Health Plan Cost $4,203$5,880$6,113$6,787 Employer Subsidy Percent76%81%76%81% All Plans Employee Contributions Employer Cost

Dependent Coverage Low dependent count is clearly a result of the high contributions required for dependent coverage UNC is positioned favorably on employee subsidy, but Research Universities are still over 90% for employee coverage UNC lags far behind on dependent coverage, to the point of being noncompetitive BUT…adding dependents means adding cost, so this presents a cost issue that will need to be overcome by savings in other areas Employer Subsidy:UNC Research Universities Large Employers For Employee Coverage100.0%91.7%82.3% For Dependent Coverage0.0%64.1%77.1% Subsidy Difference100.0%27.6%5.2% UNC Research Universities Large Employers Total Employees 36,468 15,33216,582 Dependent Estimate 23,903 16,41622,234 Dependents Per Employee *Average Enrollment Dependents Employees

Employee Costs for Health Care All employees pay for health care in two ways: through out-of-pocket costs (plan design) and through employee contributions UNC employees on average actually pay as much or more for health care ($2,109) as the Research Institutions ($2,091), despite the fact that they cover far fewer dependents and the health insurance plan costs appears to be very low UNC Research Universities Labor Mkt Large Employers Out-of-Pocket Costs$1,083$995 $1,195 $1,062 Employee Contributions$1,026$1,096 $1,461 $1,298 Total Employee Costs$2,109$2,091 $2,656 $2,360 All Plans Employee Contributions Out-of-Pocket Costs

Cost Sharing Mix UNC’s plan design is much less rich than the Research Universities’ average  Roughly 20% in out-of-pocket cost- sharing  No options for buying up to richer coverage Contribution percentages also higher Net UNC cost is only 60% of the total health care expenses NOTE: Represents percentage of total estimated health care expenses, not just health insurance plan costs UNC Research Universities Labor Mkt Large Employers Out-of-Pocket Costs20%14% 16%14% Employee Contributions19%16% 20%17% Employer Cost60%70% 64%70% All Plans Out-of-Pocket Costs Employee Contributions Employer Cost

Distribution of Plan Types UNC is the only member of the Research Universities group to offer only a straight indemnity plan design with no network provider incentives The Research Universities are more likely to use an HMO model design than most other employers UNC Research Universities Labor Markets Large Employers Indemnity 100.0% HMO 33.2% POS 19.7% PPO 40.1 % Indemnity 7.0% POS 19.1% HMO 36.7% Indemnity 3.2% PPO 41.0% Indemnity 16.9% HMO 44.8% PPO 27.6% POS 10.6% Number of Employees Enrolled Plan TypeUNC Research Universities Labor Mkt Large Employers HMO0130,574233,5962,629,612 POS 0 30,936138,3251,369,239 PPO080,528281,5492,935,444 Indemnity36,46849,27549,329228,961

New Opportunities Committee appointed by the UNC President to develop a pilot health care plan that would be an alternative to the State Health Plan for UNC employees and their dependents Proposal will be presented to the UNC Board of Governors and, if the Board views it positively, it will be presented to the N.C. General Assembly Steering Committee Members include representatives from the State Health Plan, Office of State Personnel, UNC Faculty Assembly, UNC Health Care System, and UNC campus representation First meeting held on August 24, 2004 Consultant and actuary retained Improved Health Care Steering Committee

Questions 1.What is currently not included under the State Health Plan that you would like included?

Questions 2.What types of incentives would cause you to engage in healthier behaviors? 3.What information or tools would assist you in making good health care decisions?

Questions 4.If you knew your health care costs would be less but the quality of care would be equal if you used a particular group of providers (doctors, hospitals, etc.), would you switch to the low cost provider?

Questions 5.What information or incentives would you need to switch to generic drugs if they were available for a particular prescription?

THANK YOU!