Affordability: The New Imperative Northeastern University Open Classroom October 27, 2010 Andrew Dreyfus President & CEO Blue Cross Blue Shield of Massachusetts

2 Advice to the Next Governor… Protect coverage advances –Reconcile state and federal reform Make affordability top priority –Understand Cost Drivers –Balance market and government interventions –Lead community to a shared solution: payment reform

3 Blue Cross Blue Shield of Massachusetts Protect Coverage Advances 2.7% 2009 Division of Health Care Finance and Policy

4 Blue Cross Blue Shield of Massachusetts New Law, New Questions 2,167

5 Blue Cross Blue Shield of Massachusetts Reconciling National and Massachusetts Reforms Individual and Employer Mandate Penalties Income Qualifications for Subsidies Role of Exchange (Connector) Definition of Insurance Pools Actuarial Rating Rules Minimum Creditable Coverage Definitions

6 Blue Cross Blue Shield of Massachusetts Make Affordability Top Priority Health Insurance Premiums Skyrocket April 30, 2010 Boston’s Budget Includes $20m hike for health care February 28, 2010 Runaway health costs are rocking municipal budgets Rising health costs making small biz ill March 25, 2009

7 Blue Cross Blue Shield of Massachusetts Massachusetts has the Highest Costs per Capita in the World… Massachusetts United States Germany Canada France Australia United Kingdom Sources: Commonwealth Fund (2008), CMS (2007), U.S. Census (2009). Note: U.S. dollars are current-year values. Other currencies are converted based on purchasing power parity.

8 Blue Cross Blue Shield of Massachusetts …And per Capita Heath Care Spending is Projected to Nearly Double by Note: The health expenditures are defined by residence location and as personal health expenditures by CMS, which exclude expenditures on administration, public health, and construction. Data for 2005 – 2020 are projected assuming 7.4% growth through 2010 and then 5.7% growth through Source: Centers for Medicare & Medicaid Services (CMS), Office of the Actuary, National Health Statistics Group, Projections by the Division of Health Care Finance and Policy. Massachusetts Per Capita Health Care Expenditures:

9 Blue Cross Blue Shield of Massachusetts BCBSMA Medical Trend vs. Inflation/Wages MA Workers’ Earnings (Allowed Trend) Overall Inflation Renew As Is Trend Sources: 1) BCBSMA Medical Trend: HMO/POS fee-for-service Pricing trend. Projected values as of 1Q Rating. 2) Overall Inflation: ( 3) MA Worker’s Earnings: ( from the Economic Analysis and Research Network. Note: Trend data points assume a margin of error of +/- 1-3% points

10 Blue Cross Blue Shield of Massachusetts Advice to the Next Governor: Affordability Understand cost drivers Balance market and government intervention Lead community to a shared solution: payment reform

11 Blue Cross Blue Shield of Massachusetts Understand Cost Drivers Hospital/Facility 42.0% Professional 32.0% Ancillary 3.8% Approximately 90 cents of every premium dollar is used to purchase health care services on behalf of our members Administrative Expenses 10.7% Prescription Drugs 13.2% Operating Margin -1.7%

12 Blue Cross Blue Shield of Massachusetts Understand Cost Drivers Total Gross Trend 10 – 11 % BCBSMA HMO/POS fully insured 12 months ending March 2009 vs. 12 months ending March 2008

13 Blue Cross Blue Shield of Massachusetts Market or Regulation – A False Choice Government Regulation Market Reform

14 Blue Cross Blue Shield of Massachusetts July 17, By Philip Shishkin In Massachusetts, A New Idea for How to Pay Shared Solution: Payment Reform BOSTON – A Massachusetts panel proposed that the state scrap traditional payments to doctors and hospitals for each office visit …and instead adopt a system, where they receive a monthly or annual fee per patient.

15 Blue Cross Blue Shield of Massachusetts Payment Reform: Pay for Quality Not Volume  Incentives for increased volume  Incentives to deliver more costly services  Little or no incentive for achieving positive results or for care coordination  Little or no incentive to deliver preventive services or other services with low financial margins. Fee-for-ServiceAQC/Global Payment  Emphasizes quality improvement  Quality-based incentives comprise as much as 10 percent of the overall budget  Eliminates incentives to increase volume, for all or most service types  Eliminates incentives to provide higher-cost services over lower-cost services that are equally effective, for all or most clinical needs  Emphasizes the role of primary care providers  Encourages integration and coordination for care, both within acute care episodes and for patients with chronic conditions  Reinforces the goals of medical homes. * AQC/Recommendations of the Special Commission on the Health Care Payment System

16 Blue Cross Blue Shield of Massachusetts Our AQC Partners Lowell General Physician Hospital Organization

17 Blue Cross Blue Shield of Massachusetts AQC: Early Results Demonstrated Success –Quality –Global Budget Demonstrated Investment –Patient Education on Chronic Illness –Pharmacy Management

18 Blue Cross Blue Shield of Massachusetts State Must Advance Issue Payment Reform Commission Recommendations Medicaid Group Insurance Commission (GIC)

19 Blue Cross Blue Shield of Massachusetts Everyone’s Problem, Everyone’s Solution

20 Blue Cross Blue Shield of Massachusetts Questions?