THE COMMONWEALTH FUND Driving Competition, Efficiencies and Innovative Practices Throughout the Health Care System: A Public Health Insurance Plan Karen Davis President, The Commonwealth Fund Alliance for Health Reform Briefing April 27,

THE COMMONWEALTH FUND 2 Affordable Coverage for All: Policies In Path Report Builds on employer coverage and public programs New national insurance exchange –Offers private plans and new public health insurance plan –Pools risk and reduces administrative costs, easy enrollment All required to have coverage, with provisions for affordability –Low income programs expanded –Income-related premium assistance to make coverage affordable Shared responsibility for financing: all employers contribute Insurance market reforms –Minimum national benefit standard –Guaranteed issue, renewal & community rating Provider payment reforms in public plan, Medicare, and Medicaid –Reward primary care; blended medical home fees and FFS –Bundle hospital payment and post-acute care –Slow cost growth over time and share savings with providers Insurers compete on basis of added value Source: The Path to a High Performance U.S. Health System, Commonwealth Fund Feb

THE COMMONWEALTH FUND 3 Transforming Markets: Potential of an Insurance Exchange with a Public Health Insurance Option Exchange with Insurance Market Reforms –Enables continuity and choice: access to regional plans –Transparency: easy to compare and enroll; benchmarks –Reduces administrative costs: marketing, underwriting, churning Public Health Insurance Plan –Broadens foundation for rapid implementation of innovative payment and system reforms and slows growth in employer premiums –Provides less expensive way to cover the uninsured; lower administrative costs; lower federal budget cost –Expands choice/continuity with secure option nation- wide that will always be there –Ensures markets work in the public interest: counterbalance to market power by insurers or providers

THE COMMONWEALTH FUND 4 70%–79% Less than 50% 50%–69% 80%–100% Market Share of Two Largest Health Plans, by State, 2006 Note: Market shares are for the combined HMO+PPO product market. For MS and PA, shading represents shares of top three insurers in Source: American Medical Association, Competition in health insurance: A comprehensive study of U.S. markets, 2008 update, ; J. Robinson, “Consolidation and the Transformation of Competition in Health Insurance,” Health Affairs, November/December 2004; D. McCarthy et al., “The North Dakota Experience: Achieving High-Performance Health Care Through Rural Innovation and Cooperation,” The Commonwealth Fund, May AK HI

THE COMMONWEALTH FUND 5 Benefit Design for Public Health Insurance Plan Offered in Insurance Exchange Current Medicare benefits* New Public Health Insurance Plan in Exchange Deductible Hospital: $1,024/benefit period Physician: $135/year Rx: $275/year** Hospital/Physician: $250/year for individuals; $500 for families Rx: $0 Coinsurance Physician: 20% Rx: Depends on Part D plan Physician: 10% Rx: 25% Reduce for high-value & chronic disease care/medical home Preventive services: 0% Ceiling on out-of-pocket No ceiling $5,000 for individuals $7,000 for families Insurance-related premium subsidies Medicare Savings Programs Low-Income Subsidy Premium cap ceiling of 5% of income for low-income beneficiary premiums or 10% if higher income * Basic benefits before Medigap. ** Part D coverage varies, often deductible. Most have “doughnut” hole and use tiered, flat-dollar copayments. Note: Benefit design also would apply to Medicare Extra supplement option available to Medicare beneficiaries. Source: Commonwealth Fund Commission on a High Performance Health System, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, Commonwealth Fund, February 2009.

THE COMMONWEALTH FUND 6 Percentage Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: Commonwealth Fund Commission on a High Performance Health System, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, February Cost of Administering Health Insurance as a Percent of Claims, Current Law Compared to Insurance Exchange with Reforms, by Group Size

THE COMMONWEALTH FUND 7 Net Insurance/Program Administrative Cost as a Percent of Total Spending, Various U.S. Insurance Markets Percent of claims *Average for firms with 2 to 49 employees **Top five companies based on 2008 corporate financial reports and filings. Computed based on medical loss ratio ***Medicare includes administrative costs of Part D private plans. Medicaid includes eligibility determination. Source: M. Hartman et al. “National Health Spending in 2007” Health Affairs for national, Medicaid and Medicare. Lewin group for market segments of private. SEC filings and corporate reports for top 5 private plans.

THE COMMONWEALTH FUND 8 Estimated Premiums for New Public Plan Compared with Average Individual/Small Employer Private Market, 2010 Average annual premium for equivalent benefits at community rate* Public plan with private payment rates saves 9%; public plan with Medicare payment rates and system reform saves 17-30% relative to current small firm premiums. * Adjusted for Path benefits and average enrollees. Benefits used for modeling include full scope of acute care medical benefits; $250 individual/$500 family deductible; 10% coinsurance for physician service; 25% coinsurance and no deductible for prescription drugs; reduced for high-value medications; full coverage checkups/preventive care. $5,000 individual/$7,000 family out-of-pocket limit. Data: Estimates by The Lewin Group for The Commonwealth Fund.

THE COMMONWEALTH FUND 9 Three Insurance Exchange Scenarios: Cumulative 11-Year Savings in National Health Expenditures, 2010–2020 Cumulative National Health Expenditures Savings compared with baseline (trillions) Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: Commonwealth Fund Commission on a High Performance Health System, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, Commonwealth Fund, February 2009.

THE COMMONWEALTH FUND 10 Path Net Cumulative Impact on National Health Expenditures (NHE) 2010–2020 Compared with Baseline, With and Without Public Health Insurance Plan, by Major Payer Groups Total NHE Net federal government Net state/local government Private employers Households With Public Health Insurance Plan –$2,998$593–$1,034–$231–$2,325 Without Public Health Insurance Plan -$766$1,112-$655$905-$2,128 Dollars in billions Note: A negative number indicates spending decreases compared with projected expenditures (i.e., savings); a positive indicates spending increases. Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Commonwealth Fund Commission on a High Performance Health System, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, (New York: The Commonwealth Fund, February 2009).

THE COMMONWEALTH FUND 11 Total National Health Expenditures (NHE), 2010–2020 Current Projection and Alternative Scenarios NHE in trillions Note: GDP = Gross Domestic Product. Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Commonwealth Fund Commission on a High Performance Health System, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way, (New York: The Commonwealth Fund, February 2009). $2.7 $5.2 $5.0 $ % annual growth 5.5% annual growth 6.7% annual growth

THE COMMONWEALTH FUND 12 Total National Health Expenditure Growth for Hospitals and Physicians, Current Projections and with Policy Changes, 2009–2020 Hospital Expenditures (trillions)Physician Expenditures (trillions) Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: The Lewin Group, The Path to a High Performance U.S. Health System: Technical Documentation (Washington, D.C.: The Lewin Group, 2009). $0.8 $1.6 $1.4 $0.7 $1.3 $1.1

THE COMMONWEALTH FUND 13 Implications for Stakeholders of Path Coverage and Savings –Coverage for all with $3.0 trillion system savings with public health insurance plan; $0.8 trillion without –Coverage for all with $593 billion federal budget cost with a public health insurance plan; $1.112 trillion without Employers and Employees –Public health insurance plan more affordable than premiums now in small business market: 20-30% lower premiums –Savings to employers including payment and system reforms of $231 billion over Providers –Provider revenues enhanced by increasing Medicaid payment to Medicare levels and buying in uninsured at Medicare rates –Payment reforms reward primary care and high performers but slower revenue growth over time than current law Insurers –Rewards integrated delivery system and private insurers that enhance value –Administrative savings of $337 billion over

THE COMMONWEALTH FUND 14 Thank You! Stephen C. Schoenbaum, M.D., Executive Vice President and Executive Director, Commission on a High Performance Health System, Cathy Schoen, Senior Vice President for Research and Evaluation, Stu Guterman, Assistant Vice President, Sara Collins, Assistant Vice President, Kristof Stremikis, Research Associate, For more information, please visit: Rachel Nuzum, Senior Policy Director