Solution-Oriented Approaches to Control Health Care Costs

Alpha BenefitsMarch 31 & April 1, 2004

• HealthAmerica & HealthAssurance

• Subsidiary of Coventry Health Care, Inc.

• Statewide health plan founded in 1975

– Licensed in 59 of 67 counties

• Over 715,000 members

• 474 inpatient facilities & 19,000 providers

• Revenue run rate of $1.6 billion in 2004

• Full product spectrum

• Progressive medical management philosophy

HealthAmerica & HealthAssurance Overview

“The Perfect Storm”

Recovering Economy

MedicalMalpractice Increased

Uninsured&

Unemployment

Federal & State Budget Deficit

Increased Federal & State Regulation

ClinicalLabor

Shortage

Aging Baby Boomers

Emerging Expensive Technology

Rising Premium RatesUnhealthy Lifestyles

Insatiable Appetite for Health Care

Services

End-of-Life Issues

Lack of Checks and Balances

Health Delivery System

Consolidations

Cost Shifting - Public Sector To Private Sector

•Network management

Solutions That Work

•Effective utilization management

•Disease management programs•Quality improvement

Controls currently in place

•Administrative efficiencies•Benefit plans featuring cost-sharing

•Evidence-based medicine

Solutions That Work

•Network management

Controlling unit cost demands

Solutions That Work

•Network management

• Effective utilization managementAppropriate service,

appropriate place, fair & reasonable price

Solutions That Work

•Network management •Effective utilization management

•Appropriate service, appropriate place, fair & reasonable price

•Containing Rx costs

Industry trend information is from Buck Surveys.

12.00%

14.00%

16.00%

18.00%

20.00%

22.00%

1999 2000 2001 2002 2003 2004

HealthAmerica

Industry

Containing Rx Cost:A Case Study

Comparison of Rx Trends

•Network management •Effective utilization management

• Appropriate service, appropriate place, fair & reasonable price

• Containing Rx costs

•Disease management programs

Solutions That Work

Effective Disease Management:A Case Study

2003

Report

6 MonthsPre-

Intervention

6 MonthsPost-

Intervention

$1,103,650.86

$250,660.69

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

INPATIENT DOLLARS PAID

6 Months Pre-Intervention

6 Months Post-Intervention

Total Inpt Admits Pre Intervention-104Total Inpt Admits Post Intervention-32

Cardiac Case ManagementHealthAmerica and HealthAssurance

•Network management•Effective utilization management

•Appropriate service, appropriate place, fair & reasonable price

•Containing Rx costs•Disease management programs

Solutions That Work

• Quality improvement

•Network management •Effective utilization management

•Appropriate service, appropriate place, fair & reasonable price

•Containing Rx costs•Disease management programs•Quality improvement

Solutions That Work

• Evidence-based medicine

•Network management•Effective utilization management

•Appropriate service, appropriate place, fair & reasonable price

•Containing Rx costs•Disease management programs•Quality improvement•Evidence-based medicine

Solutions That Work

• Administrative efficiencies

•Network management •Effective utilization management

•Appropriate service, appropriate place, fair & reasonable price

•Containing Rx costs•Disease management programs•Quality improvement•Evidence-based medicine•Administrative efficiencies

Solutions That Work

• Benefit plans featuring cost-sharing

Solutions Long Overdue

•Lifestyle choices

•Emphasis on prevention and wellness

Opportunity still exists

Solutions Long Overdue

•Lifestyle choices

Big Spending:The Price We Pay

StateObesity Related

Expenditures

% of Total Medical

Spending

CA

NY

TX

PA

FL

IL

OH

MI

NJ

NC

5.5%

5.5

6.1

6.2

5.1

6.1

6.1

6.5

5.5

6.0

$7.68 billion

6.08

5.34

4.14

3.99

3.44

3.30

2.93

2.34

2.14Source: CDC

States with the highest burden of the country’s $75.1 billion in estimated medical expenditures attributable to

adult obesity.

•Lifestyle choices•7 in 10 Americans do not exercise regularly

•4 in 10 Americans are not physically active

•64% of all Americans are overweight

•440,000 people die each year from smoking

•It’s time to “walk the talk”

Solutions Long Overdue

•Lifestyle choices

Solutions Long Overdue

•Emphasis on prevention and wellness

One way to control the demand for health care services

Opportunity for Improvement

•Changing health care system’s economic orientation from treatment to prevention

•End-of-Life issues

• Inefficiencies in the health care system

•Modify physician and consumer behavior

•Eliminating medical errors•Fixing reimbursement•Regional planning approach to new technology expansion and health care services

•Medical malpractice reform

Final Take-Aways

Health benefit costs are only one component; employers need to be heard

•Support tort reform

•Embrace evidence-based medicine•Insist on regional planning for new technology and expansion

•Speak out against new benefit mandates

•Base employee cost sharing on lifestyle

Final Take-Aways

•Accept that you cannot have access to every provider, unlimited coverage, and control costs at the same time

•Accept a little noise from your employees (Rx formulary)

•Engage employees in true cost of health care

The Solution ….

• Pursue cost controls privately• Fix what we have today before

putting in a new system• Terrific opportunity still exists

– Make a goal for all constituents to work for single-digit medical trends

– Allow businesses to retain health care choices for their employees

Future

•Real cost containment requires real sacrifice

•If we are to cover everyone, we cannot cover everything

•We ration care now• Challenge is to ration in a way that

is more efficient and equitable.