H ealth care reform: Will it ever happen? Kathy Galarneau Senior Vice President Actuarial and Underwriting February 16, 2009

Health care reform:Will it ever happen?

Kathy Galarneau

Senior Vice President

Actuarial and Underwriting

February 16, 2009

Agenda

• How we got here• Why reform is important• What causes high health care costs• What reform will accomplish• What’s next?

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A (very) brief history of health care reform

1949

1965

1971

1973

1986

Truman: proposes reform in Fair Deal

LBJ: signs Medicare/Medicaid into law

Nixon: backs national health care reform

Nixon: signs law creating HMOs

Reagan: signs COBRA into law

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From Truman to Reagan: 30+ years

A (very) brief history of health care reform

1993

1996

1997

2006

2007

2009

Clinton: fails to achieve reform

Clinton: Strengthens privacy laws (HIPAA)

Clinton: Enacts CHIP (bi-partisan sponsors)

Bush: Signs Medicare Part D

Bush: twice vetoes CHIP expansion

Obama: expands CHIP

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From Clinton to Obama: 15+ years

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Timeline of key events

2008• In June, Finance Committee

Summit

• In November, Obama elected, promises health care reform

2008• In June, Finance Committee

Summit

• In November, Obama elected, promises health care reform

2nd Quarter 2009• Finance Committee Roundtables

• House and HELP release

bills and begin mark-ups

1st Quarter 2009• In February, Obama sets October deadline for reform bill

• In March, 2010 budget includes $634B health care reserve

• In March, White House holds Summit on reform

Outlook for reform positive

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Timeline of key events

4th Quarter 2009• November 7: House passes bill (220-215)

• Leiberman says he’ll vote against a bill with a public option

• December 24: Senate passes bill (60-39)

3rd Quarter 2009• July 15: Senate HELP approves bill

• July 17: Two House panels pass bills

• August: Debate gets hostile at summer Town Halls

• September 9: Obama addresses Congress

• September 16: Finance Committee releases bill

1st Quarter 2010• Closed door talks

• Dems lose 60th vote

• January 27: State of the

Union deadline missed

• February 25: Obama meeting to “rescue” reform

Outlook For reform unclear

Overview of IBC and “the Blues”

1 in 3 people have “Blue” health coverage

Blues strongly support comprehensive, bi-partisan health care reform

Independence Blue Cross Non-profit organization Largest health plan in five-county region 3.2 million members 48,000 employer customers Partner with 36,000 health professionals,

160 hospitals

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Why is health care reformso important?

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Costs are out of control 1 in 6 dollars is spent on health care Employer premiums doubled in last 10 years Medicare now pays out more than it collects in taxes


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Costs are out of control 1 in 6 dollars is spent on health care Employer premiums doubled in last 10 years Medicare now pays out more than it collects in taxes

Quality inconsistent U.S ranks #1 in the world in health care spending —

$7,500 per capita — yet ranks 20th in life expectancy and 27th in infant mortality

More people in America die after heart attacks in higher-spending regions compared to lower spending regions


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Costs are out of control Health care spending is 17.3% of GDP, or $2.5 trillion By 2020, spending projected to be $4.5 trillion. Employer premiums doubled in last 10 years Medicare now pays out more than it collects in taxes

Quality inconsistent U.S ranks #1 in the world in health care spending —

$7,500 per capita — yet ranks 20th in life expectancy and 27th in infant mortality

More people in America die after heart attacks in higher-spending regions compared to lower spending regions

Too many shut out 46 million uninsured 80% of uninsured come from working families


Adding up the 46 million uninsured: who should not be counted

____ Illegal immigrants

____ Can afford, don’t buy

____ Young adults

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6 million Illegal immigrants

____ Can afford, don’t buy

____ Young adults

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5 million Can afford, don’t buy

____ Young adults

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5 million Can afford, don’t buy

3 million Young adults

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6 million + Illegal immigrants

5 million + Can afford, don’t buy

3 million + Young adults


14 million

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6 million + Illegal immigrants

5 million + Can afford, don’t buy

3 million + Young adults


46 -14 = 32 million uninsured

14 million

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19Source: PriceWaterhouse Coopers, 2008

Why costs go up How can reform help?


Why costs go up

Unhealthy lifestyles are expensiveWe’re not getting any younger

We want the latest and the best care — but don’t always get itWe all pay for the uninsured

How can reform help?

• Incentives for healthy living

• Better care for chronically ill

• Sin taxes(Wishful thinking)

• Health IT funding • Evidence-based care• Pay for performance

Expand access to care


Why costs go upWhen Uncle Sam does not pay, we doDoctors get pay raises, too

Fear of malpractice suits

How can reform help?

Avoid more cost shifting

• Pay for performance• Fund medical school for PCPs

Tort reform and limiting jury awards

Health care profits overstated

According to Fortune Magazine’s recent industry profitability rankings, in 2008, health plans had a profit margin of 2.2% and are 35th on the list:

1 Network & Communications Equipment 20.4%

2 Internet Services and Retailing 19.4%

3 Pharmaceuticals 19.3%

28 Specialty Retailers 3.2 %

32 Beverages 2.9 %

35 Health Care: Insurance & Managed Care 2.2 % 22

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Key stakeholdersAmerica’s Health Insurance Plans

Congressional Budget Office (CBO)

American Medical Association

U. S. Chamber of Commerce

American Labor

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What health care reform aspires to do…

…and how legislation gets us there.

• Expand coverage

• Require all to participate

• Make care more affordable

• Change insurance practices

• Increase choice, competition

• Improve quality of care • Reduce costs

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Expands coverage to 29 - 36 million more Americans, or 94% - 96% of the population.

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Individual • “Shared responsibility” (mandates)• Penalties: start at $95/year to 2.5%

of adjusted gross income

Employer• Pay some or all of subsidy, or up to

8% of payroll

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Premium assistance• Individual subsidies: up to 400% of FPL, or ifcoverage costs more than 12% of income• Employer tax credit: less than 25 workers,

with wages under $40,000

Expand Medicaid• Cover 15 million more people• 133% to 150% of poverty level

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• Eliminate denials based on preexisting conditions or health status

• Prohibit annual/lifetime caps• Change age bands: 2:1 or 3:1 ratio

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• Public option: with or without state opt out

• Exchanges: state-based or national

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• Delivery system reforms• Initiate clinical effectiveness projects• Establish support for medical homes

• Wellness and prevention

• Eliminate cost sharing for Medicare preventive services

• Add smoking cessation programs • Workforce investment

• Increase pay for primary care physicians• Expand scholarship and loan programs

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CMS study: Costs will rise $289B by 2019CBO: Fails to lower premiums for some, lowers deficit by $130B by 2019BCBSA study: Individual premiums will raise on average 54% after reform

Who pays?

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Price tag: $848 billion to $1.05 trillion

Savings Cut Medicare Advantage: $144B

Reduce growth rate $180B

New revenue Tax high income earners: $460B

Tax Cadillac plans: $200B Fees on industry: $133B Insurers ($70B) Pharma ($23B) Medical device makers ($40B)

Penalties on individual/employer$167B

What’s next? (Anyone have a crystal ball?)

Obama convening televised, bipartisan meeting on Feb. 25 to “rescue” reform

How Congress could pass a reform bill Attempt to pass with budget reconciliation Scale down bills for easier passage Start over

Do nothing

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Questions?

Visit ibx.com for more information

Documents

H ealth care reform: Will it ever happen? Kathy Galarneau Senior Vice President Actuarial and Underwriting February 16, 2009