1. HOT ISSUES IN HEALTH CARE Sponsored by Rose Community Foundation

2. HEALTH INSURANCE MARKET IN COLORADO W. N. Lindsay Benefit Management & Design, Inc. 1720 South Bellaire Street, Suite 250 Denver, CO 80222 (303) 691-0335 www.bmadinc.com

3. Setting the Stage Urban and Rural Access Urban and Rural Access Small Group Health Insurance Challenges Small Group Health Insurance Challenges Significant and sustained price inflation Significant and sustained price inflation

4. “But Colorado is Unique!” …is it?

5. National Trends? Influenced by large employers Influenced by large employers Health care prices vary by market

6. *Estimate is statistically different form the previous year shown: 1996-1999, 1999-2000, 2000-2001, 2001-2002. Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. SOURCE: KAISER FAMILY FOUNDATION AND HEALTH RESEARCH AND EDUCATIONAL TRUST, SEPTEMBER 5, 2002

7. Can we afford it or are we willing to pay for it? Reden & Anders, Inc. 2000

8. Can we afford it or are we willing to pay for it? Reden & Anders, Inc. 2000

9. The Factors Driving Rising Costs in Healthcare (2001-2002) (PricewaterhouseCoopers)

10. National Rx Drug Trends Source: Mercer/Foster Higgins National Survey of Employer-Sponsored Health Plans 2001

11. Total HMO enrollment and growth rate, July 1992 to July 2001 Note: Growth rates based on total enrollment, not the rounded-off numbers given in this chart SOURCE: EBRI 5/30/02

12. Health Plan Enrollments For Covered Workers, Selected Years 1996-2001 Sources: Kaiser/Health Research and Educational Trust (HRET) Survey of Employer-Sponsored Health Benefits, 1999, 2000, 2001; and KPMG Survey of Employer-Sponsored Health Benefits, 1996, 1998.

13. America’s Health Care Providers Won the Battle vs. Managed Care Network adequacy rules Network adequacy rules Any willing provider requirements Any willing provider requirements External appeals required External appeals required Gag clauses removed Gag clauses removed Out-of-network providers included Out-of-network providers included Prompt pay rules Prompt pay rules Non-contracted reimbursement rates Non-contracted reimbursement rates Health plan liability Health plan liability But they may have lost the war.

14. Consider This! Shift cost to employees No reimbursement until a claim is processed Collections on an individual employee basis No assignment of benefits for non-contracted providers Increased bad debt Removal of copayments from plans Higher deductibles & OOP limits

15. “The leading cause of personal bankruptcy is health care costs.” Source: Prosperity Institute Report 2/2002

16. The States as Laboratories!!

17. Colorado Has Been a Laboratory 1992 RWJ Planning Grant 1992 RWJ Planning Grant 1994 Business Group of One 1994 Business Group of One 1994 Small Group Health Reform 1994 Small Group Health Reform 1994 Modified Community Rating 1994 Modified Community Rating 1994 Small Employer Health Care Purchasing Cooperative 1994 Small Employer Health Care Purchasing Cooperative 1996 Child Health Plan 1996 Child Health Plan 1998 Child Health Plan Plus (SCHIP) 1998 Child Health Plan Plus (SCHIP) And…there have been a few explosions!

19. Colorado HMO Enrollment Total Penetration 39.4% MSA Penetration 36.4% Source: Interstudy Statistical Report 2000

20. Colorado HMO Results 19992002 Number of HMO’s: 185+ Net Income $21 million $60 million (2000) Source: Colorado Division of Insurance, May 2001

21. Insured Status Small Employer Market Source: Colorado Division of Insurance April 30, 2002 1999 Survey 2000 Survey 2001 Survey Change Covered Lives 478,344537,996456,151(81,845) Covered Employers 65,94870,27065,590(4,680) Small Group Carriers 443333(N/C)

22. Employers’ Reactions to Rising Health Care Costs Source: BMAD Employer Surveys Pass on Cost Increase Absorb Cost Change Coverage December 2000 26% 74% 38% December 2001 72% 28% 52% August 2002 88% 12% 52%

23. Contrary Concepts: Guarantee Issue all products (HIPAA) Guarantee Issue all products (HIPAA) Open enrollment required (HIPAA) Open enrollment required (HIPAA) Limits on “pre-ex” (HIPAA) Limits on “pre-ex” (HIPAA) Maternity not pre-ex (HIPAA, Pregnancy Discrimination Act) Maternity not pre-ex (HIPAA, Pregnancy Discrimination Act) Mandated coverage (e.g., Mental Health) Mandated coverage (e.g., Mental Health) Public Policy Insurance Principles

24. Impacts of laws on Insurance Rate regulation Rate regulation Rating restrictions Rating restrictions Market conduct rules Market conduct rules Guaranteed availability Limiting restrictions by insurers Small employers only State Laws Federal HIPAA Law

25. Challenges to Effective Competition The size of the pool is shrinking! The size of the pool is shrinking! Number of uninsured growing Number of uninsured growing Number of small businesses not offering insurance is growing Number of small businesses not offering insurance is growing More employees not electing coverage when offered it More employees not electing coverage when offered it

26. Challenges to Effective Competition Different sets of rules! Different sets of rules! Self-funded small employers8-10%+ Individual insurance3-7%+ Employee leasing companies2-5%+ Others (METS, MEWAs, etc.)3-5%+ Estimates

27. Example of individual insurance Age 25$125.89 Age 35$150.13 Example of small employer group insurance Age 25$193.25 Age 35$206.41 $500 deductible, 90/60% PPO, $5,000 Coinsurance, $20 office copay, 10/30/50 Rx, 6/02 Denver rates Fact Based Assessment

28. Individual Insurance is Cheaper New Pre-ex New Pre-ex Subject to Medical Underwriting Subject to Medical Underwriting Policy limits, restrictions Policy limits, restrictions No state mandates* No state mandates* Fact Based Assessment “TINFL”

29. Current Status? Humana—major off-anniversary rate change Humana—major off-anniversary rate change Sloans Lake HMO is sold Sloans Lake HMO is sold Denver Health HMO withdraws from small group Denver Health HMO withdraws from small group Aetna, Pacificare withdraw from Alliance Aetna, Pacificare withdraw from Alliance Aetna withdrawal from HMO small group Aetna withdrawal from HMO small group Alliance/CHIP fails Alliance/CHIP fails

30. Current Status? On-going challenges: Rate increases (ALL groups) Rate increases (ALL groups) Stop-loss market has hardened Stop-loss market has hardened Small employer pool decreases Small employer pool decreases Rural access to insurance options Rural access to insurance options Over age 65 access to physicians Over age 65 access to physicians

31. What are we to do? Re-entry penalty Re-entry penalty Gather data on insurance coverage Gather data on insurance coverage Define “insurance” Define “insurance” Provider cost data and quality Provider cost data and quality

32. Conclusion "Picking a healthcare financing system is kind of like picking someone to marry--you're picking a set of problems you are prepared to live with.” Marc J. Roberts, Ph.D., Harvard School of Public Health

33. Thank You