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ALASKA HEALTHCARE COMMISSION
Jeffrey W. Davis
President, Premera Blue Cross Blue Shield of Alaska
June 20, 2013
AGENDA
Healthcare costs are unsustainable
What is health insurance?
Where does the money go?
Will the Affordable Care Act fix the problem?
What is being done by insurers to address cost?
Questions?
UNSUSTAINABLE?
35
30
25
20
15
10
5
0
% of GDP
1970 1980 1990 2000 2010 2020 2030 2040
Projected Tax Revenues
Actual Projected
35%
All other non-interest spending
Social Security
Medicare, Medicaid,
CHIP, Exchange Subsidies
Interest on the debt
Source: CBO and George Mason University
ANATOMY OF A CRISIS… 35
30
25
20
15
10
5
0
Pe
rce
nt
of
GD
P
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
Year Projected Tax
Revenues
Actual Projected
Interest on the debt
All other non-interest spending
Social Security
Medicare, Medicaid, CHIP, Exchange Subsidies
Source: CBO and George Mason University
UNSUSTAINABLE?
Healthcare costs rising much faster than GDP
Consuming a greater and greater portion of GDP
In 1982 – 8% of GDP
In 2013 – 18% of GDP
AK SPENDING COMPARED TO OTHER MARKETS
• AK Small group premiums - $650 PMPM
• WA Small group premiums - $325 PMPM
• Employers and individuals being crushed under the financial burden
WHAT IS HEALTH INSURANCE? Three things make an “event” insurable
Undesirable
Unpredictable / Individual
Predictable / Population
WHAT IS HEALTH INSURANCE?
Has been blended with social policy
Impacts health status
Viewed by many as a “right”
Not always an “undesirable” event
- Preventive care
Originally financial protection
WILL THE ACA FIX THIS PROBLEM?
Guarantee issue
No pre-existing condition waiting periods
Federal subsidies in the exchanges
Minimum essential benefits
11,000 pages of regulations and growing
January 1, 2014
THE HEALTH INSURANCE DOLLAR
From a dollar of premium to Premera:
Administration – 6%
Premium Taxes and commissions – 2%
Profit – 1%
Healthcare – 91%
WHERE DOES THE MONEY GO?
AK Division of Insurance approves rates
Standard – “adequate, but not excessive”
Health care cost trends
Administrative costs
Contingency and risk charges
Reserves – not directly considered
Reserves exist to cover the future healthcare needs of our clients
WHERE DOES THE MONEY GO?
Reserves not explicitly considered in rate review
Reserves exist to cover the future health care needs of covered person – promise to pay
Adequate reserves are required as a condition of operation – consumer protection
Expressed as a percentage of “risk based capital”
Should reserves be used to subsidize rates?
WHAT ARE INSURERS DOING ABOUT COSTS?
Improve quality by reducing waste 30-40% of care is “waste”
‐ does no good and often does harm
‐ $1,000,0000,000,000 opportunity
Engage and empower consumers
Reward educated consumers
Choosing wisely
Cost Transparency
Integrated Health Management
WHAT ARE EMPLOYERS DOING ABOUT COSTS?
Personal health status improvement
Robust, effective worksite wellness
High deductible plans – with HSA/HRA
Moral hazard
30% reduction in claims
Cost transparency
Worksite clinics
Medical tourism
DELIVERY SYSTEM TRANSFORMATION
Empower Primary Care
Additional pay for quality improvement/ waste reduction
Transparency tools
Data
Global outcomes contracts
Provider led with carrier support
SUMMARY
Status quo is unsustainable
Affordable Care Act will not fix it
Costs and quality are uneven
We all have a role to play
QUESTIONS?
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