By Jeff Kennedy September 21, 2015

 Increased hospital mergers ◦ Insurers need to offset hospitals bargaining power ◦ Affordable Care Act  Nationwide Rules  State exchanges (i.e., “Covered California”)  Additional Concerns ◦ Pharmaceutical and Biotech companies charging high prices  Conclusion ◦ Insurers moving forward

 Kaufman Hall and Associates Report Kaufman Hall and Associates Report ◦ Shows number of Hospital mergers increased by 44% from 2010 to 2014  Health Care Providers market power increases through ◦ Consolidation, control of entry and other arrangements

 Affordable Act Requirements ◦ Insurers must spend at least 80% - 85% of every premium dollar (80/20 rule) on medical claims and activities that improve quality  Results in lower premiums for the consumer  Since 2011 $9 billion was saved Since 2011 $9 billion was saved ◦ Health-insurance companies must take all customers  No longer about “avoiding sick people”

 Covered California ◦ Requires uniform benefits  Apples-to-apples comparisons  Before there were differences in deductibles, copayments and coinsurance  Led to confusion for consumers ◦ Differences in premiums  Average increase  No. California (7%) vs. So. California (1.8%)  Average premium cost  No. California is 30% higher than So. California  Due to higher prices charged by hospitals and physicians

 Average profit margin ◦ Top 151 pharmaceutical companies – 24% ◦ Top 400 bio tech firms – 23%  Gilead has a 88% profit margin  Insurers (offered by Covered California) profit margin – 1.1%

 Recap ◦ Insurers are merging (not necessarily a bad thing) ◦ Opportunity to offset providers’ market power  Offer lower premiums (80/20 rule)  More value in health care  Moving forward ◦ Organizing or contracting with Accountable Care Organizations (ACO)  Rewarded for higher quality and lower costs of health care ◦ Rewarding volume to rewarding value