1. Insurope 24th General Meeting Stockholm 2004 Consumer Directed Healthcare The Next American Revolution The Next American Revolution

2. Insurope 24th General Meeting Stockholm 2004 Why are We Here?  New Health Benefit Model in US –impacts employers with US ops –may impact PMI: UK & elsewhere –may be model for future benefit developments in other nations  New Health Benefit Model in US –impacts employers with US ops –may impact PMI: UK & elsewhere –may be model for future benefit developments in other nations

3. Insurope 24th General Meeting Stockholm 2004 Healthcare, US Style  Medicare (over 65 & disabled)  Medicaid (low income)  Employer Sponsored (workers) –Employers pay c. 70% of cost –Employer sets benefits –Employer chooses carrier  Medicare (over 65 & disabled)  Medicaid (low income)  Employer Sponsored (workers) –Employers pay c. 70% of cost –Employer sets benefits –Employer chooses carrier

4. Insurope 24th General Meeting Stockholm 2004 The History of US Healthcare  No Insurance (<1945)  Indemnified Care (‘45 - ‘90) –Doctors rule  Managed Care (‘70 - ‘00) –Insurers rule  Consumer Directed Care –Patients rule  No Insurance (<1945)  Indemnified Care (‘45 - ‘90) –Doctors rule  Managed Care (‘70 - ‘00) –Insurers rule  Consumer Directed Care –Patients rule

5. Insurope 24th General Meeting Stockholm 2004 Why the old models failed?  After 1945, the person purchasing the care was no longer the person paying for the care!

6. Insurope 24th General Meeting Stockholm 2004 Enter CDHC  Unleashing the power of free market economics on the health care delivery system

7. Insurope 24th General Meeting Stockholm 2004 Why CDHC Works  Members share in the economic consequences of their health and healthcare buying decisions.

8. Insurope 24th General Meeting Stockholm 2004 What is a CDHC Plan?  ANY health plan, so far as it... –empowers patients –shares economic consequences –rewards good health –promotes consumerism –provides health/healthcare tools –improves healthcare quality  ANY health plan, so far as it... –empowers patients –shares economic consequences –rewards good health –promotes consumerism –provides health/healthcare tools –improves healthcare quality

9. Insurope 24th General Meeting Stockholm 2004 CDHC: The Premises  A free market can’t work unless the consumer is also the payer  Healthcare costs won’t moderate until patients shop for care like they would for a car or TV  The best way to cut healthcare costs is for people to get healthier  A free market can’t work unless the consumer is also the payer  Healthcare costs won’t moderate until patients shop for care like they would for a car or TV  The best way to cut healthcare costs is for people to get healthier

10. Insurope 24th General Meeting Stockholm 2004 Sample CDHC Plan  Plan pays first $1,000 @ 100% –Health Reimbursement Account: HRA  Patient pays next $500 @ 100% –plus 20% of $2,500 thereafter –maximum patient cost = $1,000  Plan pays the balance in full –100% of claims > $4,000  Plan pays first $1,000 @ 100% –Health Reimbursement Account: HRA  Patient pays next $500 @ 100% –plus 20% of $2,500 thereafter –maximum patient cost = $1,000  Plan pays the balance in full –100% of claims > $4,000

11. Insurope 24th General Meeting Stockholm 2004 How HRA Works  Any HRA funds ($1,000) not spent by the patient in the first year automatically roll over to the next year and are added to that year’s HRA contirbution.

12. Insurope 24th General Meeting Stockholm 2004 The Results  70% of patients get 100% coverage –after office visit & Rx co-pays – + they roll over funds to year 2 –average rollover = c. $500  20% of patients spend < $1,000  10% of patients spend $1,000  70% of patients get 100% coverage –after office visit & Rx co-pays – + they roll over funds to year 2 –average rollover = c. $500  20% of patients spend < $1,000  10% of patients spend $1,000

13. Insurope 24th General Meeting Stockholm 2004 3 “Plans” for 3 Populations  < $1,000 claims = “healthy” –wellness tools & incentives  $1,000 - $4,000 = “transitional” –claim cost sharing incentive  > $4,000 = “unhealthy” –disease management –quality of care initiatives  < $1,000 claims = “healthy” –wellness tools & incentives  $1,000 - $4,000 = “transitional” –claim cost sharing incentive  > $4,000 = “unhealthy” –disease management –quality of care initiatives

14. Insurope 24th General Meeting Stockholm 2004 Cost per Population Group  70% of members = 15% of claims  20% of members = 20% of claims  10% of members = 65% of claims  70% of members = 15% of claims  20% of members = 20% of claims  10% of members = 65% of claims

15. Insurope 24th General Meeting Stockholm 2004 Group #1: Prevention  Keep 70% of members healthy  Cover healthcare 100% –build a “benefit bank” (HRA) –subsidize fitness activities  Online & onsite wellness programs –seminars on stress management –exercise programs  Keep 70% of members healthy  Cover healthcare 100% –build a “benefit bank” (HRA) –subsidize fitness activities  Online & onsite wellness programs –seminars on stress management –exercise programs

16. Insurope 24th General Meeting Stockholm 2004 Group #2: Cost Sharing  $500 “cold shower”  $2,500 cost sharing corridor  $1,000 member liability  $500 “cold shower”  $2,500 cost sharing corridor  $1,000 member liability

17. Insurope 24th General Meeting Stockholm 2004 Group #2: Intervention  Side-by-side Rx drug comparison  Median cost of procedure by area  Health libraries & data bases  Personal Health Risk Assessment –follow-up with opt-in, targeted e-mail  Weight loss/Smoking cessation  Side-by-side Rx drug comparison  Median cost of procedure by area  Health libraries & data bases  Personal Health Risk Assessment –follow-up with opt-in, targeted e-mail  Weight loss/Smoking cessation

18. Insurope 24th General Meeting Stockholm 2004 Group #3: Management  Personal Health Coach  Disease Management Programs  Absence Management –focuses on return to work –cuts health costs 20%  Online Second Opinions (no cost)  Personal Health Coach  Disease Management Programs  Absence Management –focuses on return to work –cuts health costs 20%  Online Second Opinions (no cost)

19. Insurope 24th General Meeting Stockholm 2004 Disease Management: Asthma  1.5 million work days lost  $14 billion of lost productivity  33% improvement in drug use  50% reduction in hospital visits  1.5 million work days lost  $14 billion of lost productivity  33% improvement in drug use  50% reduction in hospital visits

20. Insurope 24th General Meeting Stockholm 2004 Online 2nd Opinions  Partners Telemedicine  Specialists @ Harvard Medical –Boston area teaching hospitals  No cost to patient  Online registration  Opinion delivered in 5 days  Partners Telemedicine  Specialists @ Harvard Medical –Boston area teaching hospitals  No cost to patient  Online registration  Opinion delivered in 5 days

21. Insurope 24th General Meeting Stockholm 2004 2nd Opinion: Results  5%: Diagnosis Reversed –Patient doesn’t have the disease s/he’s being treated for  85%: Change Recommended –Specialist suggests a more effective or less invasive approach  5%: Diagnosis Reversed –Patient doesn’t have the disease s/he’s being treated for  85%: Change Recommended –Specialist suggests a more effective or less invasive approach

22. Insurope 24th General Meeting Stockholm 2004 2nd Opinion: Cost Savings  10% of patients = 65% of claims –5% of those don’t have disease –Potential savings = 3%  If 85% save 25%; savings = 14%  Plus: claims cost only = 1/3rd of the real cost of illness –lost productivity  10% of patients = 65% of claims –5% of those don’t have disease –Potential savings = 3%  If 85% save 25%; savings = 14%  Plus: claims cost only = 1/3rd of the real cost of illness –lost productivity

23. Insurope 24th General Meeting Stockholm 2004 Old Economic Model  Highest quality = Highest cost –works for cars –works for electronics –works for consumer goods –does NOT work for healthcare  Highest quality = Highest cost –works for cars –works for electronics –works for consumer goods –does NOT work for healthcare

24. Insurope 24th General Meeting Stockholm 2004 New Economic Model  Highest Quality = Lowest Cost! –less unnecessary treatment –fewer “do-overs” –fewer unforced complications –shorter disabilities/absences –more complete recovery return to greater productivity  Highest Quality = Lowest Cost! –less unnecessary treatment –fewer “do-overs” –fewer unforced complications –shorter disabilities/absences –more complete recovery return to greater productivity

25. Insurope 24th General Meeting Stockholm 2004 Example: Chemotherapy  40% less effective each try  Cost per positive outcome: –1st time: 1x –2nd time: 3x –3rd time: 10x  40% less effective each try  Cost per positive outcome: –1st time: 1x –2nd time: 3x –3rd time: 10x

26. Insurope 24th General Meeting Stockholm 2004 CDHC Success To Date  Still largely anecdotal  50% of employers plan to move some or all of their employees to a CDHC plan by the end of 2005  High level of employee satisfaction  Employer reported savings: 4% to 11%  Still largely anecdotal  50% of employers plan to move some or all of their employees to a CDHC plan by the end of 2005  High level of employee satisfaction  Employer reported savings: 4% to 11%

27. Insurope 24th General Meeting Stockholm 2004 Application #1: US  Multi-national employers with operations in US  Need CDHC plan to compete –recruiting employees –employee productivity & morale –cost control  Multi-national employers with operations in US  Need CDHC plan to compete –recruiting employees –employee productivity & morale –cost control

28. Insurope 24th General Meeting Stockholm 2004 Application #2: UK (PMI)  Purchase contract with high excess –can reduce premium up to 30%  Allocate funds to HRAs  Beware the tax! –HRA payouts would be taxable –cheaper to pay tax on premium? –More incentive to build bank?  Purchase contract with high excess –can reduce premium up to 30%  Allocate funds to HRAs  Beware the tax! –HRA payouts would be taxable –cheaper to pay tax on premium? –More incentive to build bank?

29. Insurope 24th General Meeting Stockholm 2004 Application #3: World  Model for health benefit reform  New Economic Model –control cost by raising quality  Politically acceptable cost shift  Model for health benefit reform  New Economic Model –control cost by raising quality  Politically acceptable cost shift

30. Insurope 24th General Meeting Stockholm 2004 THANK YOU David Cowles Co-founder & Principal Benemax www.benemax.com David Cowles Co-founder & Principal Benemax www.benemax.com