The Future of Consumer Driven Healthcare Ronald E. Bachman FSA, MAAA President & CEO Healthcare Visions Washington, D.C. February 16, 2010 Washington, D.C. February 16, 2010

Healthcare Consumerism the Key to Cost Control “Only Consumers Can Bend the Cost Curve” - CAHI Have we Lost the American Character of PersonalPersonal Responsibility? 1

2 Creating a Healthcare Strategy Starts with a Clear Vision Desire for Change + A Common Vision + Process for Change = POSITIVE CHANGE + Vision + Process for Change = Expensive False Starts The Missing Link Future State A Vision for Transformation NOT Cost Shifting, Tweaking, or Reform

3 Your Choice: Supply Controls or Demand Controls? Plan Sponsors and Members have two basic choices to control costs: 1. Managed care & HMOs - The “supply of care” is limited by a third party who controls the access to medical services (e.g. utilization reviews, medical necessity, gatekeepers, formularies, scheduling, types of services allowed), or 2. Consumerism - The member controls their “demand for care” because of a direct and significant financial involvement in the cost of care, rewards for compliance, and the information to make wise health and healthcare value driven decisions.

4 Mega Trends Creating Demand Control Initiatives 1. Personal Responsibility 2. Self-Help, Self-Care, Self Reliance 3. Individual Ownership 4. Portability 5. Transparency (the Right to Know) 6. Consumerism (Empowerment)

5 Healthcare Consumerism Healthcare Consumerism is about transforming a health benefit plan into one that puts economic purchasing power—and decision-making—in the hands of participants. It’s about supplying the information and decision support tools they need, along with financial incentives, rewards, and other benefits that encourage personal involvement in altering health and healthcare purchasing behaviors.

6 The Core of Consumerism The Unifying Themes For Healthcare Consumerism is: Personal Responsibility & Behavioral Change “Implement only if it supports behavioral change consistent with the strategy”

7 The Evolution of Healthcare Consumerism Future Generations of Consumerism Behavioral Change and Cost Management Potential Low Impact High Impact Traditional Plans with Consumer Information 2 nd Generation Consumerism Focus on Behavior Changes Traditional Plans 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare

8 The Promises of Consumerism Personal Care Personal CareAccounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease and Case Management Disease and Case Management Information Information Decision Support Decision Support The Promise of Demand Control & Savings The Promise of Wellness The Promise of Shared Savings The Promise of Transparency The Promise of Health It is the creative development, efficient delivery, efficacy, and successful integration of these elements that will prove the success or failure of consumerism. Major Building Blocks of Consumerism

2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Performance 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personalized Health & Healthcare Personal Care Accounts Personal Care Accounts Incentives & Incentives & Rewards Rewards Wellness/Prevention Wellness/Prevention Early Intervention Early Intervention Disease and Case Management Disease and Case Management Information Information Decision Support Decision Support Initial Account Only Activity & Compliance Rewards Indiv. & Group Corporate Metric Rewards Specialized Accts, Matching HRAs, Expanded QME 100% Basic Preventive Care Web-based behavior change support programs Worksite wellness, safety, stress & error reduction Genomics, predictive modeling push technology Information, health coach Compliance Awards, disease specific allowances Population Mgmt, Integrated Hlth Mgmt, Integrated Back-to- Work Wireless cyber – support, cultural DM, Holistic care Passive Info Discretionary Expenses Personal health mgmt, info with incentives to access Health & performance info, integrated health work data Arrive in time info, info therapy, social networks Cash, tickets, Trinkets Health Incentive Accounts, activity based incentives Non-health corporate metric driven incentives Personal dev. plan incentives, health status related The Consumerism Grid

10 Acute Case Mgmt Utilization and Case Management NETWORK A / TPA ANETWORK B / TPA B Wellness Prevention Demand Management Disease Mgmt Programs Integrated Absence Mgmt The secret is cooperation and synergy between components supporting the corporate strategies Integrated Health Management Program An Implementation Option for Multiple Generations General Manager Personal Care Accts. FSAs, HRAs, HSAs Process Integration & Disciplined Improvement Company Data Warehouse & Metrics

11 Potential Savings from Full Implementation of Consumerism Achievement of savings and improved outcomes is dependent upon both the Type and Effectiveness of the programs implemented. Gross* Savings as % of Total Plan Costs (Programs Applicable to All Members) Effective Programs Implemented Traditional plans Consumerism Plans Passive1 st Generation2 nd Generation3 rd Gen & Future Basic2%3%7%10% Expanded3-4%5-8% %20.0+% Complete4%7%17%25% Comprehensive (Future)5%10%20%30% *Excludes Carry-over HRAs/HSAs and any added Administrative Costs of Specialized Programs

American Academy of Actuaries 2009 Non-partisan CDH Consumerism Studies 1 st Year Savings: The total savings generated could be as much as 12 percent to 20 percent in the first year. –All studies showed a drop in costs in the first year of a CDH plan from -4 percent to -15 percent. A control population of traditional plans experienced increases of +8 percent to +9 percent. 2+ Year Savings: At least two of the studies indicate trend rates lower than traditional PPO plans by approximately 3 percent to 5 percent. –If these lower trends can be further validated, it will represent a substantial cost-reduction strategy for employers and employees. Cost Shifting: The studies indicated that while the possibility for employer cost-shifting exists with CDH plans, (as it does with traditional plans) most employers are not doing so, and might even be reducing employee cost-sharing under certain circumstances. 12

AAA Consumerism Study – Quality of Care Preventive Care: All of the studies reviewed reported a significant increase in preventive services for CDH participants. Chronic Care: Three of the studies found that CDH plan participants received recommended care for chronic conditions at the same or higher level than traditional (non-CDH) plan participants. Physician Treatments: Two studies reported a higher incidence of physicians following evidence-based care protocols. Care Avoidance: All of the studies indicated that cost savings did not result from avoidance of inappropriate care and that necessary care was received in equal or greater degrees relative to traditional plans. 13

Circle of Life How Long Do We Have? 1. From bondage to spiritual faith; 2. From spiritual faith to great courage; 3. From courage to liberty; 4. From liberty to abundance; 5. From abundance to complacency; 6. From complacency to apathy; 7. From apathy to dependence; 8. From dependence back into bondage 14