1. Private Sector Options for Improving Access, Quality, and Cost of Care In a The 21 st Century Intelligent Health System Ronald E. Bachman FSA, MAAA President & CEO, Healthcare Visions, Inc. ronbachman@healthcarevisions.net Sr. Fellow – Center for Health Transformation 404-697-7376

2. 1 Creating Change Requires a Common Vision Desire for Change + A Common Vision + Process for Change = POSITIVE CHANGE + Vision + Process for Change = Political Debates & Expensive False Starts The Missing Link Future State A Vision for Transformation NOT Cost Shifting, Tweaking, or Reform

3. 2 Who Do You Trust? Who Do You Distrust? Government & Political Solutions versus Private Sector and Free Markets If one trusts government more than private sector (distrusts greedy profit oriented health companies), then it seems natural to advocate government controlled solutions (e.g. single payer, expanded Medicare, Canadian style) If one trusts the private sector more than government (distrusts inefficient, wasteful, politically motivated lobbyist controlled politics), then it seems natural to advocate free market solutions (e.g. increased competition, individual ownership, personal responsibility, lower taxes, tax credits)

4. 3 What is a 21 st Century Intelligent Health System? In a 21st Century Intelligent Health System, the individual has: 1. accurate, timely knowledge of health needs; 2. access to the best information about how to maintain personal health; 3. knowledge of whom to see and where to go for health services, and 4. confidence that health providers are practicing medicine using the best practices based on the most up-to-date understanding of outcomes-based medicine. Most importantly, the 21st Century Intelligent Health System must provide access to affordable insurance coverage for those currently uninsured. No one can be left behind.

5. 4 Healthcare Consumerism the Basis for a 21 st Century Intelligent Health System Transformation to a 21st Century Intelligent Health System is much more than employers implementing high deductible Consumer-Driven healthcare (CDHC) plans with attached saving accounts. The future is about empowering individuals with information and financial responsibility to support a position of ownership. It’s about supporting and rewarding healthy behaviors regardless of plan design. It’s about engaging employees, employers, providers, carriers, and other stakeholders in a new relationship that deals with health rather than sickness and disease.

6. 5 Supply Controls or Demand Controls Healthcare seems to 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.

7. 6 High Healthcare Costs Climbing Higher Patients have lost control of their own healthcare, and are not truly engaged in the process of managing their health Patients are frustrated with managed care “rules” and the impact on time and productivity Patients don’t understand healthcare costs – costs are not transparent “ After long relying on managed-care companies as their weapon against health costs, U.S. employers are considering a fundamental change in strategy: turning the fight over to their employees.” -Wall Street Journal, February 2000 Supply Controls Are Failing

8. 7 The Moral Imperative: Saving Lives and Improving Health  44,000 to 98,000 deaths annually from medical errors (Institute of Medicine)  7,391 deaths resulted from medication errors (Institute of Medicine)  225,000 deaths annually from medical errors including 106,000 deaths due to "nonerror adverse events of medications" (Starfield)  180,000 deaths annually from medication errors and adverse reactions (Holland)  20,000 annually to 88,000 deaths annually from nosocomial infections  2.9 to 3.7 percent of hospitalizations leading to adverse medication reactions  2.4 to 3.6 percent of hospital admissions were due to (prescription) medication events (Australian study)  42% of people believed they had personally experienced a medical mistake (NPSF survey)

9. 8 The Tragedy of the Uninsureds  18,000 people die every year because they are uninsured.  Uninsured adults have a 25% greater rate of dying than adults with insurance.  Uninsured trauma victims are less likely to be admitted to the hospital or receive the full range of needed services. They are 37% more likely to die of their injuries.  Uninsured children are 70% more likely to go without care for common childhood conditions such as asthma, ear infections, and sore throats.  Uninsured children are five times more likely to have an unmet need for medical care each year

10. 9 The Tragedy of the Uninsureds  Uninsured women are 36% less likely to get a pap smear, and 60% less likely to get a mammogram.  Uninsured men are 40% less likely to get a prostate examination.  The ripple effects of being uninsured and having poor health are felt throughout society. Uninsured children have impaired development and poor school performance. Uninsured adults have more absences from work, more unscheduled sick days, and greater rates of disability.  The 2004 Kaiser Family Foundation study found the societal costs of the uninsured to be $125 billion. Regardless of how one views the issue, the cost to society is high. Without insurance - the health, lives, and financial security of families are at extreme risk.

11. 10 The Private Sector Solution calls for A “300 Million Payer System” The Center for Health Transformation endorses the goal of access to insurance for all Americans with care provided in a 21st Century Intelligent Health System. We can achieve 100% coverage through market-based solutions, private/corporate efforts, tax incentives, direct public subsidies, strong community support, and faith-based outreach programs. Personal responsibility, individual ownership, portability, and healthcare consumerism are the hallmarks of such a system.

12. 11 Mega Trends Leading to Healthcare Consumerism 1. Personal Responsibility 2. Self-Help, Self-Care 3. Individual Ownership 4. Portability 5. Transparency (the Right to Know) 6. Consumerism (Empowerment)

13. 12 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.

14. 13 Healthcare Consumerism If Healthcare Consumerism is the basis for a new system of health and healthcare, it MUST solve our country’s most difficult problems. Healthcare Consumerism must improve ACCESS, QUALITY, and COST. In addition to expanding individual and employer-based insurance, there must be a Consumer-centric Medicaid, Consumer-centric Medicare, a solution to the uninsured.

15. 14 It’s NOT just the Burden of the Consumer: Everybody has a New Role

16. 15 The Core of Consumerism The Unifying Theme for a Health and Healthcare Strategy is: Behavioral Change “Implement only if it supports behavioral change consistent with the strategy”

17. 16 Two Basic Principles for Successful Consumerism 1. Must work for the Sickest Members, as well as the healthy 2. Must work for those not wanting to get involved in decision-making, as well as the “techies”

18. 17 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

19. 18 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

20. 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 and services, information therapy 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

21. 20 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%12-15.0%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

22. 21 Areas of Impact to Improve Health, Save Lives, and Lower Costs Low Users Medium Users High Users Very High Users No Claims Generally Healthy Acute Episodic Conditions. O/P, Low In/P, High Maternity Chronic & Persistent. Conditions. O/P, Low In/P, High Catastrophic % Mem 15% 48% 14% 3% 12%4%1% % Dollars 0% 12% 15% 12% 5% 21% 20% 15% % Mem 63% 32% 17% % Dollars 12% 32%56% Prevention Wellness - Lifestyle Minimize Early Intervention Wellness - Clinical Maximize Minimize Maximize Wellness - Lifestyle Wellness - Clinical

23. 22 A Paradigm Shift HSA & Market Solutions for Old Problems ? 1. Federal Support and Subsidies For HSAs & HDHPs 2. Major initiatives to address the 45 million uninsured problem in the U.S. 3. Major initiatives to restructure the individual and small group healthcare market place. Cross-state selling and new players entering the market. 4. 45-50% Individual Policy ownership in 5-10 years (currently 5-7%). 5. The development of Consumer-centric Medicaid and Consumer-centric Medicare

24. 23 Federal Legislative Proposals Supporting Market-based Solutions 1. Leveling the playing field by making the same tax relief available to individuals and employers. Americans who purchase HSA-qualified insurance policies on their own should have the same tax advantages as people who obtain insurance through their employer. 2. Eliminating all taxes on out-of-pocket spending through HSAs. Americans with HSAs should be able to pay for all of their care tax-free. 3. Making health insurance portable. Americans should be able to own the insurance policy that goes along with their HSA, and keep it when they change or lose their jobs without worrying about paying higher premiums if they become sick.

25. 24 Federal Legislative Proposals Supporting Market-based Solutions 4. Strengthening the buying power of America’s small businesses. Small businesses should have the same access to price efficiencies as large businesses when purchasing health insurance. 5. Passing medical liability reform. Limit costly and frivolous lawsuits that waste scarce resources, increase health care costs, and drive doctors out of business. 6. Improving adoption of health information technology. Electronic health records that reduce costs and improve the efficiency and effectiveness of medical treatment should be widely used.

26. 25 Federal Legislative Proposals Supporting Market-based Solutions 7. Empowering consumers through information. All Americans should be able to obtain easy-to-understand information about the price and quality of the health care they receive from their medical provider and insurance carrier. 8. Providing affordable coverage for vulnerable Americans. Americans with low incomes and persistently high medical expenses should receive additional assistance. 9. Promoting prevention, wellness, and fitness. The President encourages all Americans to lead a healthy lifestyle to prevent disease and improve their overall quality of life.

27. 26 Consumer-centric Medicaid The 21 st Century Medicaid Act Medicaid should be divided into three distinct sub-programs, each administered separately with its own rules and structures. However, all the sub-programs should be based on the following principles: 1. A 21st Century Medicaid System will focus on wellness, prevention, early detection, and independent living. 2. A 21st Century Medicaid System will integrate the family and community into the healthcare and the lives of loved ones. 3. A 21st Century Medicaid system will leverage innovations in science and technology, quality systems, and best practices in every aspect of providing care for its beneficiaries.

28. 27 Consumer-centric Medicaid To achieve real transformation in Medicaid: One program design cannot meet the needs of such distinct and separate groups of beneficiaries – 1. the poor. 2. people with disabilities (Aged, Blind, Disabled), and 3. the frail elderly. Consumer-centric Medicaid as described in this presentation focuses on the first group

29. 28 Cost Control Levers A comparison between Managed Care and Consumer-centric Medicaid 1. Eligibility 2. Benefit Design 3. Cost Sharing 4. Premium Sharing 5. Service Costs 6. Utilization Consumer-centric Medicaid Graduation to Private Ownership Asset Accumulation Shared Savings-Pay 4 Compliance Income based Shared Savings-Pay 4 Performance Demand Controlled Managed Medicaid Legislated Reductions Fairly Fixed Minimal Non-existent Forced Price Controls Supply Managed Creating the Possible…

30. 29 Two Choices for the Future of Medicaid: Managed Care or Consumerism Behavioral Change and Cost Management Potential Low Impact ---- ---- ---- ---- ---- ---- ---- ---- ---- High Impact Traditional Medicaid Plans with Consumer Information & Managed Care 2 nd Generation Consumerism Focus on Behavior Changes Traditional Medicaid Plans 3 rd Generation Consumerism Integrated Health & Productive Citizenry 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personal Ownership of Health and Healthcare 2 nd Gen Managed Care Ltd Eligibility, In/P Review, O/P Review 3 rd Gen Managed Care Restrictive Rx Formulary, Social Service Benefit Reductions 1 st Gen Managed Care Ltd Benefits, Ltd Network Providers, High Discounters 4 th Gen Managed Care More Supply Controls, Scheduled Benefits, Prioritized Diagnoses Consumerism & Demand Control Managed Care & Supply Control

31. 30 2 nd Generation Consumerism Focus on Behavior Changes 3 rd Generation Consumerism Integrated Health & Productive Citizenry 1 st Generation Consumerism Focus on Discretionary Spending 4 th Generation Consumerism Personal Ownership of Health and Healthcare Personal Care Accounts Personal Care Accounts Incentives & Incentives & Rewards Rewards Health Management Health Management Disease and Case Management Disease and Case Management Education, Communication, Information Education, Communication, Information & Decision Support Tools & Decision Support Tools Allocation to purchase Private Coverage Individual Activity & Compliance Rewards Individual, Family & Group Rewards Conversion to Private HSAs, Use for non-Healthcare 100% Preventive Care thru Debit Cards Web-based behavior change support programs Wellness, Stress, Juv Justice, Violence, MH/SA Genomics, predictive modeling push technology Information, health coach, Cash & Counseling Disease specific focus, (Diabetes, MH/SA), Special Case Mgmt Svcs Functionality Focus, Population Mgmt, Cultural DM, Integrated Hlth Mgmt, Wireless cyber – support, Holistic care Payor / Intermediary Sponsored, Paper Based Tele, Personal and Family hlth mgmt, Community Resources Info on Quality and Health Disparities, Multi-Cultural needs, Faith Based Outreach Personal Responsibilities, Self-care, information therapy Potential if unexpected Funds Zero balance acct, activity based incentives,P4P,P4C Non-health State initiatives Subsidies for movement to Indiv. or Employment Based Coverage The Consumer-centric Medicaid Grid

32. 31 Consumer-centric Medicare with Health Opportunity Accounts (HOAs) Add to Medicare a Health Opportunity Account (HOA). The account starts with a zero balance and would be funded through a number of sources including employers offering post retirement healthcare supplements, tax deductible individual contributions, and Medicare deposits based upon voluntary patient participation in cost effective treatments, and through compliance incentives programs. Like Health Savings Accounts, HOAs would be funded individual accounts under the control of the Medicare beneficiary.

33. 32 Ways to increase the level of Consumer-centric Medicare HOA funds: 1. Employers could provide post retirement health insuirance contributions directly into the HOA. 2. Medicare could establish incentive programs to reward compliance with “best practices” medical care and treatments. 3. Medicare could reward patients that with HOA incentives if they use hospitals with proven cost effective programs for the diagnosis being treated. 4. Medicare beneficiaries that use hospitals with recognized quality standards would receive an HOA incentive bonus.

34. 33 Ways to increase the level of Consumer-centric Medicare HOA funds: 5. HOA incentives could be awarded to encourage using physicians with better outcomes. 6. Medicare beneficiaries could be allowed to contribute to their HOAs with tax deductible contributions. 7. Medicare beneficiaries could be allowed to transfer (tax free) a certain amount of life insurance cash value directly into their HOA. 8. HOAs would accumulate tax-free. As with current HSAs, investments would be through government approved financial investment vehicles.