Anthem Blue Cross and Blue Shield of Indiana

Leading Change: Making Health Care Reform Work for Our Customers

Rob Hillman, CLUPresident and General Manager

The New Picture of Health

3

Leading The Coming Change

5

Patient Protection and Affordable Care Act – Health Care Reform – The Law of the Land

• Opportunity / Catalyst for Future Change• Eleven months into Reform• Navigating by the Stars• 30 million new insured, but universal coverage still not

achieved (16M - 20M)

• Many provisions will increase cost of health care

• Bill does not do enough to address underlying cost pressures

• Committed to and focused on making reform work for our customers

• Opportunity we could not afford to squander• Part of national political agenda since 1912

6

What’s Going to Happen to Health Care Now?

What’s Going to Happen to Me?

The Big Questions

7

Implications for our customers

• Changes to benefits, and premiums

• No immediate change to physician or hospital networks

• Future impacts will vary depending on product type and company size

• Legislation will be phased in over several years, and many provisions require federal agencies to issue more detailed regulations

• Premium be impact began with October 2010 effective dates and will continue as additional provisions become effective

8

Reform Impact2010 Provisions

March 23, 2010 (Enactment Date)

June/July 2010 September 2010January 1, 2010

(Retroactive Date)

• Small business tax credits (<25 employees)

• Part D “donut hole” decreased

• Rate review / justification for insured products

• Grandfathered plan status if in effect on enactment

90 Days Out

• Federal high-risk pool

• Earlier retiree reinsurance grants

180 Days Out• HHS regulations on state

Exchange waivers

Product Requirements

• Dependent coverage to 26

• Restrictions on rescissions

• No pre-ex exclusions

< age 19

• Preventative services with no cost sharing

• No lifetime limits; restricted annual limits

9

Reform ImpactLonger-Term Provisions

• MLR rebates• 80% Individual & Small

Group, 85% for Large Group beginning in 2011

• Standardization• Uniform coverage

summaries

• Standard terms and conditions

• Quality initiative reporting

• Medicare Advantage• 2010 payments frozen

• Authority to deny Plan bids (e.g., Medicare Advantage)

• Limits on Out-of-Pocket costs

• HAS/FSA changes - $2,500 limit

2014+ 2018+2011+

• Individual mandate• Employer mandate• Market Reforms

• Individual market guarantee issue

• Rating reforms for Individual and Small Group

• Essential benefits package• New product requirements, no

deductibles on 2000/4000• Subsidize (up to 400% of poverty

level in exchange)• Coverage Expansion (up to 133% of

poverty level• Insurance exchanges• Insurer fee

• $8B in 2014 increasing to $14B in 2018

• Small Group redefined• Product mandates – 60%

• High-cost insurance tax• 40% on single coverage

over $10,200 and family coverage $27,500

• Indexed to Consumer Price Index

10

What It Means for Large Groups

Effective in 2010:• New product requirements at renewal after 9/23/10• Early retiree reinsurance for certain eligible early

retirees• Prohibits different health benefits tied to employee

salary levels

Effective in 2012:• W2 reporting of cost of employer-sponsored

coverage (Voluntary in 2011)

• FSA / HSA - no over-the-counter drugs

11

What It Means for Large Groups (cont’d)

Effective in 2012• 1099 MISC – payments / purchases of $600 or more to

corporate and non-corporate entities for goods and services

•Effective in 2013:• Flexible Spending Account (FSA) contributions limited to

$2,500 per year

•Effective in 2014:• Employer mandate (with auto-enrollment)• Products must meet new requirements, 60% actuarial

value• Health Insurance Exchange vouchers required for some

employees

•Effective in 2018:• High-cost insurance tax – 40% on Single coverage over

$10,200 and family coverage over $27,500

12

Key Elements: Employer Responsibility “Play or Pay”

Requirement: “Play” (2014+)

Employers with >50 full-time employees (FTEs) must offer minimum coverage:

• Part-time are included on FTE basis in calculating >50 FTE• Full-time employee averages 30+ hours per week• No minimum contribution• Must provide “essential coverage” with 60% actuarial value

minimum

Coverage Penalty: “Pay” (2014+)

Employers with >50 full-time employees:• Not offering coverage and at least one FTE receives tax

credit• $2,000 x total number of FTEs (minus first 30 FTEs)

• Offering coverage at least one FTE receives tax credit but actuarial value < 60% or employee cost is > 9.5% of household income

• Lesser of $2000 x total FTEs or $3000 x number of employees receiving tax credit

13

What It Means for Small Groups

Effective in 2010:• New product requirements for renewals after 9/23/10• Tax credits for certain employers

Effective in 2013:• Limits Flexible Spending Account (FSA) contributions to $2,500

per year

Effective in 2014:• Elimination of premium rate variables may result in a significant

premium increase or reduction• New product requirements, prohibition on deductibles over

$2,000/$4,000• Health insurance exchange as new sales channel• New taxes built into premium costs

Effective in 2018:• High-cost insurance tax – 40% on Single coverage over $10,200

and family coverage over $27,500

14

What It Means for Individual Members

Effective in 2010:• New product requirements for renewals after 9/23/10

Effective in 2014:• Rating reforms with weak individual mandate will lead to

substantial premium increases for many members

• New product requirements with new framework

• Health insurance exchange as new sales channel

• New taxes built into premium costs

The Affordability Challenge

16

Employer Sponsored Insurance lowest since 1987

Government Sponsored Insurance Highest since 1987

Fewer than 40% of Small Employers Offer Insurance

2010 Expenditures $2.5 Trillion/ $8086 per American

Premiums rising 4x Inflation

Facts on Health Insurance Affordability

17

Increased Employee Share of Premiums:2005-2010

20%

47%

$8,167

$2,713

$3,997

$9,773

2005 2010Employer ContributionEmployer Contribution

Employee ContributionEmployee Contribution

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2010

18

Increased Deductibles:Average PPO Deductible 2000-2010

Average PPO Deductible

2000 2004 2006 2008 20102002

$379

$1,200

$1,001

$846

$696

$523

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2010

19

Percent Increase in Prescription Copays:By Formulary Tier 2001-2010

-20%

0%

20%

40%

60%

80%

100%

87%

69%

38%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Tier One Tier Two Tier Three

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2010

20

Hospital Cost-Shifting

Private Payer

Medicare

Medicaid(1)

Aggregate Hospital Payment-to-Cost Ratios, 1981-2006

Sources:• Avalere Health analysis of American Hospital Association

Annual Survey data, 2006, for community hospitals.• (1) Includes Medicaid Disproportionate Share payments.

Numbers represent an industry average and do not necessarily reflect numbers for our health plans

21

Private Insurer Payment Rates to Hospitals as a Percentage of Medicare*

*Source: Ginsburg, Paul B., “Wide Variation in Hospital and Physician Payment Rates Evidence of Provider Market Power”, Research Brief, Center for Studying Health System Change, November 2010.

22

Indiana Hospital Reimbursement Rates Compared to Our Neighbors*

Cost/admit (July 2010)

Facility outpatient PMPM (August 2010)

Indiana $16,424 $98 Kentucky $12,809 (28%) $80 (23%) Missouri $11,858 (39%) $79 (24%) Ohio $14,620 (12%) $87 (13%)

*Source: Enterprise Key Metrics (Anthem only data)

23

MRI Average Cost and Percent of Procedures Meeting Clinical Standards

799

1067

1293

1064

897

680

881

1688

1184

705

1790

732

82%

93%

84% 85%

93%

80% 79%84%

78%

99%91% 89%

0

200

400

600

800

1000

1200

1400

1600

1800

2000

CA OH GA IN CT KY MO ME NH CO WI NV

Ave

rage

Cos

t

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

% o

f pro

cedu

res

mee

ting

clin

ical

sta

ndar

ds

24

Coronary Artery Bypass Graft Cost Variances (by State)

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

CA CO CT GA IN KY ME MO NH NV NY OH VA WI

Aver

age

Cost

25

CalPERS-Anthem Value Based PurchasingDesign: Knee/Hip Replacement

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

0502

3905

0056

0503

5929

0041

0501

69

0504

8505

0122

0501

6805

0290

0503

51

0505

6905

0335

0502

35

0501

2805

0588

0503

36

0505

6705

0502

0505

0605

0516

0502

34

0506

8805

0496

0507

14

0503

5705

0108

0500

43

0503

9605

0125

0501

95

Average Cost for Total Hip by Facility

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

2900

5305

0726

0500

1305

0057

0507

0805

0193

0503

2705

0006

0503

5105

0280

0504

8505

0022

0501

2705

0039

2900

5405

0116

0503

6605

0419

0501

0705

0058

0501

5205

0077

0500

4205

0696

0507

6605

0488

0500

0705

0231

0501

95

Average Cost for Total Knee by Facility

Reference Pricing of $30,000 Reference Pricing of $30,000

CA Hospitals CA Hospitals

26

Private Insurer Payment Rates to Physicians as a Percentage of Medicare

Physician Payment

Cleveland Indianapolis Los AngelesMiami-South Florida

MilwaukeeRichmond,

Va.San

FranciscoRural

Wisconsin

Standard Rates 101% 110% 92% 82% 166% 112% 108% 176%

Rates for Practice (75th Percentile)

Internal Medicine/Family Medicine

112 117 * 89 175 128 * 169

Cardiology 155 156 * 110 223 145 * 234

Orthopedics 124 140 * 101 212 144 * 195

Anesthesiology 251 217 177 * * * 177 *

Radiology 166 147 * 134 238 153 * 240

Oncology - Physician Services Component

138 138 * 116 204 132 * 195

Source: Paul Ginsburg, “Wide Variation in Physician and Hospital Payment Rates Evidence of Provider Market Power,” November 2010. Data includes analysis of hospital payment rates of four large national insurers, Aetna, Anthem Blue Cross Blue Shield, CIGNA and UnitedHealth Group. * Fewer than three insurers reported.

27

Indiana Physician Reimbursement Rates Compared to Our Neighbors

Addressing The Affordability Challenge

29

Lessons From Massachusetts

The results from Massachusetts demonstrate continued need to implement responsible reform that addresses cost and quality:

• Covered about half of the uninsured (already exhibited lowest uninsured rate in U.S.)

• Premium costs for individuals in Massachusetts are the second highest in the U.S.

• Overall, the costs of Massachusetts health reforms have been much higher than expected

• Lack of an effective, enforceable individual mandate only exacerbates the cost issue in Massachusetts, and there is evidence of enrollment gaming

30

The Path for the Future Role of Health Plans

• Improve system transparency creating a true functioning marketplace for health care

• Work with health care providers to promote a business model that can help provide the best quality at lowest cost

• Create products that incent consumerism

• Form partnerships within and beyond our industry to improve health and health care in America

• Addressing increased utilization of health care due to anticipated rise in chronic illness

31

Payment Reform Approaches to Achieve Affordable Care

Anthem Payment Reform Initiatives

▪ Paying for clinical quality and outcomes

▪ Bundled payments

▪ Centers of Excellence

▪ Patient Centered Medical Homes

▪ Accountable Care Organizations

Other Strategic Initiatives▪ Value Based benefit designs

▪ Narrow networks

▪ Shopper programs

▪ Transparency Tools

▪ Healthy Rewards

▪ Wellness Strategies

Meaningful health care reform must reward physicians and hospitals for improving quality and managing costs

32

Resources

• www.makinghealthcarereformwork.com

• Small Business Tax Credit Calculator in Partnership with H&R Block

• Grandfathering Decision Tool with customized feedback - #1 on Google

• www.healthychat.com

33

Thank You