Affordability:The New ImperativeNortheastern University Open ClassroomOctober 27, 2010

Andrew DreyfusPresident & CEOBlue Cross Blue Shield of Massachusetts

2Blue Cross Blue Shield of Massachusetts

Advice to the Next Governor…

• Protect coverage advances– Reconcile state and federal reform

• Make affordability top priority– Understand Cost Drivers– Balance market and government interventions– Lead community to a shared solution: payment reform

3Blue Cross Blue Shield of Massachusetts

Protect Coverage Advances

Massachusetts: Uninsured as % of Population

10.20%

11.30%

9.2%

10.4%

5.4%

2003 2004 2005 2006 2007

Sources: Current Population Survey, 2003-2008, US Census Bureau

2.7%

2009

Division of Health Care Finance and Policy

4Blue Cross Blue Shield of Massachusetts

New Law, New Questions

2,167

5Blue Cross Blue Shield of Massachusetts

Reconciling National and Massachusetts Reforms

• Individual and Employer Mandate Penalties

• Income Qualifications for Subsidies

• Role of Exchange (Connector)

• Definition of Insurance Pools

• Actuarial Rating Rules

• Minimum Creditable Coverage Definitions

6Blue Cross Blue Shield of Massachusetts

Make Affordability Top Priority

Health Insurance Premiums Skyrocket

April 30, 2010

Boston’s Budget Includes $20m hike for health care

February 28, 2010

Runaway health costs are rocking municipal budgets

Rising health costs making small biz ill

March 25, 2009

7Blue Cross Blue Shield of Massachusetts

Massachusetts has the Highest Costs per Capita in the World…

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Massachusetts

United States

Germany

Canada

France

Australia

United Kingdom

Sources: Commonwealth Fund (2008), CMS (2007), U.S. Census (2009).Note: U.S. dollars are current-year values. Other currencies are converted based on purchasing power parity.

8Blue Cross Blue Shield of Massachusetts

…And per Capita Heath Care Spending is Projected to Nearly Double by 2020.

Note: The health expenditures are defined by residence location and as personal health expenditures by CMS, which exclude expenditures on administration, public health, and construction. Data for 2005 – 2020 are projected assuming 7.4% growth through 2010 and then 5.7% growth through 2020.Source: Centers for Medicare & Medicaid Services (CMS), Office of the Actuary, National Health Statistics Group, 2007. Projections by the Division of Health Care Finance and Policy.

Massachusetts Per Capita Health Care Expenditures: 1991-2020

9Blue Cross Blue Shield of Massachusetts

BCBSMA Medical Trend vs. Inflation/Wages

MA Workers’ Earnings(Allowed Trend)

Overall Inflation

Renew As Is Trend

Sources:1) BCBSMA Medical Trend: HMO/POS fee-for-service Pricing trend. Projected values as of 1Q Rating.2) Overall Inflation: (http://stats.bls.gov/ro1/9140.htm).3) MA Worker’s Earnings: (http://www.earncentral.org/members/StateofWorkingXX/index.php) from the Economic Analysis and Research Network.

Note: Trend data points assume a margin of error of +/- 1-3% points

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

2004 2005 2006 2007 2008 2009 2010 2011

10Blue Cross Blue Shield of Massachusetts

Advice to the Next Governor: Affordability

• Understand cost drivers

• Balance market and government intervention

• Lead community to a shared solution: payment reform

11Blue Cross Blue Shield of Massachusetts

Understand Cost Drivers

Hospital/Facility

42.0%

Professional

32.0% Ancillary

3.8%

Approximately 90 cents of every premium dollar is used to purchase health care services on behalf of our members

Administrative Expenses

10.7%Prescription Drugs

13.2%

Operating Margin

-1.7%

12Blue Cross Blue Shield of Massachusetts

Understand Cost Drivers

Provider Mix

20%

Unit Cost

50%

Utilization

25%

Severity 5%

Total Gross Trend 10 – 11 %

BCBSMA HMO/POS fully insured12 months ending March 2009

vs. 12 months ending March 2008

13Blue Cross Blue Shield of Massachusetts

Market or Regulation – A False Choice

Government Regulation

Market Reform

14Blue Cross Blue Shield of Massachusetts

July 17, 2009 -- By Philip Shishkin

In Massachusetts,

A New Idea for How to Pay

Shared Solution: Payment Reform

BOSTON – A Massachusetts panel proposed that the state scrap traditional payments to doctors and hospitals for each office visit …and instead adopt a system, where they receive a monthly or annual fee per patient.

15Blue Cross Blue Shield of Massachusetts

Payment Reform: Pay for Quality Not Volume

Incentives for increased volume

Incentives to deliver more costly services

Little or no incentive for achieving positive results or for care coordination

Little or no incentive to deliver preventive services or other services with low financial margins.

Fee-for-Service AQC/Global Payment Emphasizes quality improvement

Quality-based incentives comprise as much as 10 percent of the overall budget

Eliminates incentives to increase volume, for all or most service types

Eliminates incentives to provide higher-cost services over lower-cost services that are equally effective, for all or most clinical needs

Emphasizes the role of primary care providers

Encourages integration and coordination for care, both within acute care episodes and for patients with chronic conditions

Reinforces the goals of medical homes.* AQC/Recommendations of the Special Commission on the Health Care Payment System

16Blue Cross Blue Shield of Massachusetts

Our AQC Partners

Lowell General Physician Hospital Organization

17Blue Cross Blue Shield of Massachusetts

AQC: Early Results

•Demonstrated Success–Quality–Global Budget

•Demonstrated Investment–Patient Education on Chronic Illness–Pharmacy Management

18Blue Cross Blue Shield of Massachusetts

State Must Advance Issue

• Payment Reform Commission Recommendations

• Medicaid

• Group Insurance Commission (GIC)

19Blue Cross Blue Shield of Massachusetts

Everyone’s Problem, Everyone’s Solution

20Blue Cross Blue Shield of Massachusetts

Questions?