1. Health InsuranceHow much?Who pays?Who uses it?How can we control costs?Town of Canaan

2. I. COST OF HEALTH CARE AND INSURANCE Health care costs are increasing at 3-4 times the rate of inflation Most health care not covered by the government is covered by employerinsurance. Typically, employers hold down insurance costs by looking for competitiveinsurance rates, dropping coverage, limiting enrollment, increasing co-pays anddeductibles and requiring employees to pay part of the cost of the premium. Employer cost cutting usually shifts cost to employees at rate higher thaninflation.II. WHAT MAKES UP HEALTH CARE COSTS The four components of health care cost are drugs, physicians, hospitals andinsurance/administrative costs.III. WHAT CAN EMPLOYERS DO? There are strategies that employees and employers can take that would help todrive down the cost of all of these components at the regional level. Administrative costs can be controlled through competitive insurance biddingand consolidated record keeping from primary care to hospitals. Drug costs can be controlled by nationwide bidding. Primary care can be controlled using an accountable care organization(s).A discussion on Employer Health CareTown of Canaan

3. Part IHow High Can the Costs Go andWho Pays For Health Care? Town of Canaan

4. In 2009, the United States federal,state and local governments,corporations and individuals,together spent $2.5 trillion, or about$8,047 per person, on health care.This amount represented 17.3% ofthe GDP, up from 16.2% in 2008.How Much?Town of Canaan"Medical expenses have very steep rate ofgrowth USA TodayJones, Brent (2010-02-04).

5. Health as % of GDP The FutureTown of Canaan

6. Insurance Reimbursement 36%Private Payments 15%Private Donations 4%Federal Government 34%State Government 11%2004 statistics 2007 US CDCSource of Payment forHealth CareTown of Canaan

7. Percent of population that isinsured is 84%Employers 59%Government 28%Individual 9%Population that isInsuredWho pays?Town of Canaan

8. Whos Insured By Whom?Town of Canaan

9. 2000 69%2010 60%How Many Employers PayPremiums?Town of Canaan

10. 2006 Private Employer PoliciesEmployees Contributed:16% of their Premium28% of a Family PremiumPlus deductibles and co-paysWhat do employees pay?Town of CanaanKaiser Family Foundation

11. Assuming that real growth in employer-sponsored insurance premiums does not slowfrom current rates, the Council of EconomicAdvisors project that less than 20 percent ofsmall employers will offer coverage by 2040.In the United States, almost 96% of firms with 50or more employees offer health insurance ascompared with 43% of firms that have fewer than50 workers. Among small firms, the percentageoffering health insurance peaked in 2001 and hasbeen gradually declining since then.Smaller employers aredropping health coverageTown of Canaan

12. How have Deductibles Changed?Town of Canaan

13. 2001 2006 Wages Increased 19%2001 2006 Inflation increased 17%2001 2006Health Insurance PremiumsIncreased 78% - more than 4 timesthe rate of inflation and 113%between 2001 and 2011Wages and Inflation Comparedwith Rate of Increase in Cost ofInsurance PremiumsTown of Canaan2007 & 2011 studies by the Kaiser Family Foundation

14. The health care costs for a family of fourhave doubled in less than a decade from$9,235 in 2002 to over $19,000 in 2011.The Growth in Family CostsTown of Canaan

15. Part IIWhat Makes Up Health CareCost?And What Drives Up Cost?Town of Canaan

16. How our health care dollar is spentRx Drugs10%HospitalCare31%Other22%Physicians &ClinicalServices21%Home Health& NursingHome Care8%Administrative& Net Costs7%*Note: Other includes medical care provided by private employers for employees at their work site,government spending for non-specified medical care by service usually delivered in schools, militaryfield stations, and community centers.Source: CMS, National Health Expenditures, at http://www.cms.hhs.gov/NationalHealthExpendData,accessed January 6, 2009.

17. Drug Price Growth 89%Hospitalization 67%Physicians 66%North Dakota Dept. of Insurance 2010Growth Rates Over 10 YearsTown of Canaan

18. Private Business ViewInsurance Company ViewGovernment Health Care ProviderFederal Executive ViewWhat Factors Increase Health CareCosts?Town of Canaan

19. State governments should strengthen health savings accounts, and repeal laws that obstruct them; tax impact of health expenditures premiums paid by an employer would be ataxable benefit; allow consumers to purchase health insurance regulated by any state; avoid the medical tort system through voluntary contracts; and liberalize Medicaid.The federal government should preserve and strengthen health savings accounts, tax impact of health expenditures no differently than non-health expenditures, deregulate health insurance by allowing consumers to purchase healthinsurance regulated by the state of their choice, liberalize Medicare and Medicaid, and liberalize the regulation of pharmaceuticals and medical devices.Town of CanaanCato Handbook for Policy Makers, Chapter 7,Health CareCosts - Private Business View

20. Costs - Insurance Companies ViewRepeal regulationsRegulators impose conditions on deniability increasing risks;Regulators prohibit insurance companies from rating consumers andrequire a rating of a community;Regulations prohibit negotiations with consumers;Regulations limit the right to buy lower levels of coverage at a lowercost;Elective services may be required for all consumers by regulations;Some regulations prohibit negotiation of different rates with providers;Required coverage of extraordinary catastrophic expenses of pre-existing illnessesThe regulations above increase risks to insurance companiesand reduce competitivenessCato Handbook for Policy Makers, Chapter 16,Health Insurance RegulationTown of Canaan

21. Costs - Government Provider ViewIn December 2011, the outgoing Administrator of theCenters for Medicare & Medicaid Services, Dr. DonaldBerwick, asserted that 20% to 30% of health carespending is waste. He listed five causes for thewaste: (1) overtreatment of patients, (2) thefailure to coordinate care, (3) the administrativecomplexity of the health care system, (4)burdensome rules and (5) fraud.Health Official Takes Parting Shot atWaste, New York Times.. Retrieved Dec.20, 2011.Town of Canaan

22. Contain costs by rewarding health and economic effectiveness and efficiency pay only on effectiveness and efficiency;Create a system with choice of primary providers and insurance companies Interstate insurance exchanges, non-profit insurance coverage;Cover everyone through employer or individual policy or federal coverage taxincentives to private employers to provide insurance;Increase revenue to cover new enrollees through income tax, penalties and newadditional premiums (mandated enrollment);Coverage requirements no caps, adult children, deductibles, co-pays, denials,pre-existing conditions and appeal rightsPresident Obama Finalizes Health Care Reform, IceMiller, LLPTown of CanaanCosts - Federal Executive View

23. US Consumers financing most of drug R&DUse of technology as a marketing deviceLack of interstate competition in the insurance industry (exchanges)Inability of consumer to negotiate effectively with sophisticated providersCoverage of uninsured and extraordinary costsFinancing uninsured/under insured careCost of obesityLack of consumer skin or monetary risk in the purchase of careUse of un-necessary service by consumers who do not contributeInsufficient income to cover average per capita costs of $8,000Fraud by providersBurdensome rules and regulations insurers, providers, consumersExtra expense due to incompatible and duplicative record keeping (31%)Rewarding effective/economic treatments rather than specific servicesUniversal coverage of elective and non-life threatening proceduresUnder utilization of personnel, buildings and technologyDoctor and support staff shortage high demand / low supplyCost of malpractice insurance 7% contrasted with claims .5%Address caps, high co-pays, pre-existing conditions, employercontributions, cancellations and service denialsWikipediaSummary of Cost ElementsTown of Canaan

24. We self insure through poolsPlay insurance pools off against each otherLimit who is eligible - (newhires, spouses, families, discontinue)Hire part time employees to avoid benefitsRequire sharing of premium cost with employeesHigher deductiblesHigher co-paysHow do we currently control costs asemployers? Which costs?Town of Canaan

25. We look for competition between insurance pools making the insurance companies provide a leanerservice We restrict the people we cover and reduce the poolwhenever our costs get excessive shifting the costs ofcare to our employees We make the employees pay a larger part of thepremium cost again shifting the cost to the employee We increase deductibles and co-pays againshifting the cost We DO NOT manage actual health care costsWe Dont Manage Health Care Costs -Employers Shift Costs to OthersTown of Canaan

26. Actuarial tables are created on the poolmembership to project costs for a single ormulti year schedule.Quotes are requested of insurance providersfor the anticipated level of service and formanaging customer service and costcontainment.Pools maintain a reserve fund to cover excessclaims during the scheduled termHow do Pools Function?Town of Canaan

27. Encourage healthy livingStress Preventive CareLook for most favorable modelingUrge insurance companies to question un-necessary services or use companies thatalready manage service to cut costsRe-insureWhat Do Pools do toControl Health Care Cost?Town of Canaan

28. Part IIIWhat Can Employers Do To ControlHealth Costs?Town of Canaan

29. Cost of Drugs (14%)Cost of Primary Care (30%)Cost of administration (10%)Fraud% is percentage of total employer health insurancecostWhat Health Care CostFactors Can We Control?Town of Canaan

30. How do we control pharmaceutical cost?Town of Canaan

31. Assure accountability for:Physician cost;Support staff cost;Quality of service;Equipment and building utilization;Seamless record transmission; and communicationReduce co-pay for primary care that is accountable and increase co-pay forprimary care that has no controlsReduce litigation and cost of liability coverage using voluntary scheduledmaximums for injuries for all but intentional or grossly negligentFight politically for coverage of uninsured fromsources other than ratepayersCreate competition on primary care for efficiencyand effectivenessManage costs effectively for all patientsHow can we controlprimary care cost?Town of Canaan

32. What Follows is an example of a rural FederallyQualified Health Clinic in Vermont. We couldtry to structure our health care in a similar way.Primary Care docs would have privileges in alllocal hospitals.This would not affect hospitals and specialistsand out of region coverage.There would still be choice.Town of Canaan

33. The Health CenterPlainfield, VermontTown of Canaan

34. 6 Rural Vermont Towns - Community BoardComprehensive Community HealthIncludes all income levelsQuality ServiceCreated in 1975Initially, primary care,lab, x-ray, counseling,pharmacy and educationWhat Is The Health Center?Town of Canaan

35. Why have a FQHC Community Health Center?Town of CanaanRural communities, suburbs, and city neighborhoods, ifthey are to have accessible care would do very well tohave an Federally Qualified Health Center (FQHC) intheir area, providing an organizational structure,economies of scale, economies of scope, efficient use ofproviders organized in teams of physicians and mid levelpractitioners, integration of behavioral health services,well equipped dental units, community outreach andsocial services, and access to less costly prescriptionmedications .With a community board of directors in charge, theprogram of each FQHC can be tailored to the needs of itsparticular community. These services are not only forthe poor, the uninsured, or the medicaid population.FQHCs provide care to all persons regardless of theirinability or ability to pay.John D. Matthew, MD Director

36. At the start we established The Health Center as a non profitcorporation, which employs the staff and owns the practice. We have alwayshad a board of directors made up of community members and it has alwaysbeen our mission to provide care for everyone from our area who wants tocome to the center, whatever their insurance status. We functioned for yearsas a freestanding Rural Health Clinic (RHC). The RHC caps for cost basedreimbursement were always too low. We lost money on every Medicare andMedicaid office visit and it was a struggle to keep the organizationafloat, though we always did. We had to know where every nickel was and toscrimp and save all we could to pay our staff and operating costs and stillbreak even at each years end. Our sliding scale was self funded, in the sensethat we had no outside monies to support the un-reimbursed care weprovided for the less fortunate. We had to know where every nickel was andto scrimp and save all we could to pay our staff and operating costs and stillbreak even at each years end.J.D.M.The Early Years of The Health CenterTown of Canaan

37. When we became an FQHC higher reimbursement caps providedmore income than we had received as an RHC for the very same work.We reduced our losses on Medicare visits, though the caps still cause usto receive less than our costs, and were able to recoup our costs forMedicaid visits. Our grant has allowed us to have community resourcespersons on staff, to expand the hours of our operations manager tocoordinate fund raising for and construction of an expanded facility, tohave the luxury of time free for program development, and to expandthe number of uninsured persons we serve on sliding scale. We areenabled to provide not just one-on-one care in a series of office calls andhospital visits, but also to innovate, to collaborate, andto reach out to our community and to other agencies andlocal systems that compliment the provision of these services.J.D.M.Going from a Rural Health Center to aFQHCTown of Canaan

38. Primary medical care 60 hours per week using MDs and PAs9 dental chairs with full time dentists and mobile dental serviceLow cost Pharmacy that incorporates automatic dispensingPsychiatric counseling, PTSD treatment, behavioral neurology, andrehabilitation, and social work. Teamed with other FQHCs to set up atele-psychiatry link for consultations with the University of Vermont childand adolescent psychiatristsPhysical therapyLaboratory servicesCommunity transportation system for care47 Full Time Employees and 36 Part Time Employees2009 J.D.M. Report to CongressWhat is currently offered?9,400 PatientsTown of Canaan

39. Income & Expense Summary

40. Detailed Expense

41. Board & Professional Compensation

42. Total Patients 9,400Total Cost $5,951,569(including education & outreach)Annual per Patient Cost $633Net Revenue per Patient (after grants) $91Summary2009Town of Canaan

43. Bargain and pay for care of people not specific functions toreduce redundant service and repetitive itemized billingIncrease coordination of record keeping betweenPayer, Primary Care, Pharmacy, Hospitalization, Specialistsand Patient to reduce staff & systems and prevent mistakesReduce number of providers requiring duplication of effortand inconsistent informationHow can we controladministrative costs?Town of Canaan

44. Spread risk over a longer period 3-5 yearsArbitrage earnings on payments based on a five year cycleLocal management of fraudVoluntary limitations on non-intentional negligenceOffer our efforts to reduce costs through consumerparticipation/responsibility, active consumer basedmanagement of costs and better utilizationHow can we controlinsurance cost?Town of Canaan

45. Flow of Funds DiagramTrust CertificatesFlow of Funds Diagram-Trust Certificates Cash OutTrust AgreementTrustAll cash invested in accordance withestablished investment policyNo cash disbursed for claim paymentsor administrative fees unless coverageratio adequateDebt ServiceClaim PaymentsAdministrativeFeesCash ProceedsFrom LoanEmployerMonthlyRemittancePaymentsCash In1Interest IncomeThis is an example of insuring for multiple years and arbitraging thepayments to make a .5% spread on the full cost over the multipleyears

46. 4646Advanced Funding Model Self InsuredEmployers ObligationRemittance =$56 MillionFixed for 36 Months36-Month Spend$2.016 BillionFully CollateralizedAaa Rated Grantor TrustIssues DebtTrust PaysPrincipal& InterestVariableCostsFixedCostsVariable Costs = 85 to 95%Fixed Cost = 5 to 15%Surplus = 0 to 25%FIXED Financing Rate FIXEDInvestment Rate1.85% 2.35%InvestmentSurplus = $184 Million$184 MillionYears 4-6Tax-FreeRolling SurplusAble to budget expense / PredictabilityInvestment Opportunity Build SurplusNon-Balance Sheet Footnoted on P & LCurrent IBNR removed from Balance Sheet$2.108 Billion

47. 4747Adjusted Remittance with InvestmentReturn Compatibility Model$156,059,368$149,732,637$162,386,099$158,168,278$164,495,009$172,930,651$185,584,113$189,801,934$198,237,575$194,019,755$198,237,575$100,000,000$120,000,000$140,000,000$160,000,000$180,000,000$200,000,000$220,000,000Q310Q410Q111Q211Q311Q411Q112Q212Q312Q412Q113Q213With a Lending Rate of 1.85% and the InvestmentReturn to the Trust at 2.35%$184 Million Returned to the Trust --- Total Spending Projection $1.832 BillionPay As You GoOne GlobalRemittance PaymentsSurplus Effect On Trust

48. Long term cost stabilityCompetitive customer serviceIncreases at rates no more than Inflation or 2x InflationMultiple plan levels for co-pay & deductiblesConsumer responsibilityConsumer choice and obligation for higher cost primary carealternativesCost containment & full utilization and coordination rolewith providersReduced defensive medicine costsLower malpractice insurance costs throughvoluntary contracts with scheduled liabilitymaximumsWhat are our Long TermGoals?Town of Canaan

49. Broad based local participation from public and private customers 75% coverage of employer plans.Competitive Drug Pricing using consumers doing bidding or bulkpurchasing Reduce drug costs by 60%.Lowest cost insurance customer service and rate settingShared control and funding of regional primary care 1 center ornon-central program for 10,000 patients costs average $1000 perperson per year for savings of 50%.Customer incentives to assure full utilization of staff, equipmentand buildings higher co-pays to use primary care locally that isnot a participating cost contained local clinic.Service negotiations with hospitals and specialists -reward healthy patients rather than procedures.Reduced redundancy.Cost Containment ObjectivesTown of Canaan

50. System RelationshipsTown of CanaanPink is paid &managed throughthe traditionalinsurance companyand green is paidthrough atraditionalinsurance companyand has consumermanagement andrevenue arbitrage

51. EmployeesPremium PayersEmployee UnionsLocal Primary Care ProvidersLocal HospitalsSpecialistsLocal Non-ProfitsInsurance PoolsInsurance CompaniesState & Federal GovernmentsWho Do We Need To WorkWith?Town of Canaan

52. Created Customer responsibility in the selection of drugs and primary careMore competition for drugsBenchmarking primary care through a community clinic with salaried employees that must answerto consumers regarding quality while still allowing choiceConsumer payments increase by choice of ineffective/non competitive serviceLess rationing due to affordability and more focus on efficiency and effectivenessIncreased use of competitive insurance coverage through un-bundling services and nationalbiddingReduced risk through long term (5 year) financing and contractingCreated economies of scale with manpower and equipmentImproved record consistency between local pharmacy, primarycare, insurance, specialists, hospitalsDesigned a system that the user community wantsIncreased community participation as payers and patientsEffectiveness, quality and efficiency is self decided by community of local consumersCost Elements AddressedTown of Canaan

53. US Consumers financing most of drug R&DUse of technology as a marketing deviceLack of interstate competition in the insurance industry (exchanges)Inability of consumer to negotiate effectively with sophisticated providersCoverage of uninsured and extraordinary costsFinancing uninsured/under insured care taxable benefitsCost of obesityLack of consumer skin or monetary risk in the purchase of careUse of un-necessary service by consumers who do not contributeInsufficient income to cover average per capita costs of $8,000Fraud by providersBurdensome rules and regulations insurers, providers, consumersExtra expense due to incompatible and duplicative record keeping (31%)Rewarding effective/economic treatments rather than specific servicesUniversal coverage of elective and non-life threatening proceduresUnder utilization of personnel, buildings and technologyDoctor and support staff shortage high demand / low supplyCost of malpractice insurance 7% contrasted with claims of .5%Address caps, high co-pays, pre-existing conditions, employercontributions, cancellations and service denialsComparison / Management of Cost ElementsTown of Canaan

54. Cost Elements AddressedTown of Canaan30%14%45%10%Primary CareDrugsHospitals/Spec.Administrative

55. PrimaryCare, 15%SavingsPrimary, 15%Hospitals, 45%Drugs, 6%SavingsDrugs, 9%Administrative,10%SavingsAdministration,2%Primary CareSavings PrimaryHospitalsDrugsSavings DrugsAdministrativeSavings AdministrationCost Elements - Containment GoalsTown of CanaanTotal Goal for Containment 26% andcontinuing

56. The strategies can be implementedin part or completelyTown of CanaanThe Parts We Can Implement:Pool CompetitionExtending years of premium coverageArbitraging a .5% spread between borrowing and paymentBidding DrugsParticipation in cost management of primary care through aAccountable Care Organization or FQHC.Negotiating with hospitals and specialistsNegotiating terms with insurance companies where weimplement ACO management and get benefits

57. Call For ActionHealth costs are increasing 3 or 4 times the rate of inflation.Private employers cant absorb this cost and be competitive.Public employers cant absorb this cost and pass budgets.As costs increase dramatically, fewer employers will insure and more costs will beshifted to employees.Employees cant absorb a $22,000 annual family cost for care.Reducing the covered employees, raising the employee share of premiums,increasing co-pays and deductibles shift costs to employees that they cant afford.Federal and state governments are trying to avoid the cost of uninsured workers bypassing it on to doctors and hospitals who cant afford it.Hospitals are the largest & most sophisticated area to manage and have littleconsumer representation and consumer accountability is harder to implement. Drugsand primary care services are the most effective way we as ratepayers andconsumers can try to slow costs.Without a real effort to control medical costs employers will not be insuring people;they will not be able to pay their medical bills and hospitals; they will be picked by afederal plan that will be overwhelmed as employer insured employees shift to afederally subsidized system where a smaller employer penalty is a mere fraction ofthe previous level of premium support; and doctors will not have customers.All of us: ratepayers; patients; docs and hospitals; need to have a collaborativemanagement system to contain cost. HOW WILL WE COLLABORATE?

58. Proposed DiscussionsMeeting with Public Sector Employers in Upper ValleyMeeting with Public Sector Union Representatives in UVMeeting with Private Sector Employers offering coverage in UVDetermination whether there is interestMeeting with NHIT, School Care and LGCMeeting with all unique Primary Care Providers in UVMeeting with Bid RX and TrendlineTour and review of The Health CenterMeeting with NH Insurance DepartmentMeeting with UV Hospitals and SpecialistsFuture Plans for ImplementationTown of Canaan