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?