A Case Study in Health Plan
Responses: WellPoint
HealthcareWebSummit
Dana E. McMurtry
Vice President, Health Policy & Analysis
WellPoint Health Networks Inc.
December, 2002
1
Agenda
• Current Cost Trends
• Customer Challenges
• WellPoint’s Response
• The Future?
2
Current Cost Trends
Health Benefit Cost Inflation
Employers Expect Health Care Costs
All Employers to Continue Rising
20 18.6%
16.7%17.1%
16
12.7%*
12.1%
12 11.2%
10.1%
8.0% 8.1%
8 6.9% 7.3%
6.1%
4
2.1% 2.5%
-1.1% 0.2%
0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E
-4
* Estimate
Source:Mercer/Foster-Higgins, 2001
3
Current Cost Trends
Hospital, Physician and Rx Costs
Annual Percentage Change Per Capita
in Health Care Spending
20
Prescription Drugs
15 15.2
12.5
11
10 Hospital Outpatient
7.7
Physician Services
5 4.8
3.5
1.6 Hospital Inpatient
0
1996 1997 1999 2000 2001*
1998
-5 -4.4
-10
* Data through March 2001, compared with corresponding months in 2000.
Source: Health Care Financing Administration, 2000
4
Current Cost Trends
Multiple Cost Drivers
• Hospital Consolidation
• Pharmaceutical Practices
• Consumer Expectations
• Aging Population
• Medical Technology
• Legislation
5
Current Cost Trends
Summary of Cost Drivers
The Factors Driving Costs in Health Care
2001-2002
Increased Other General Inflation (CPI)
Consumer Demand
Litigation & Drugs,
Risk Mgmt Medical
Devices &
other Medical
Advances
Government
Mandates & Rising Provider Expenses
Regulation
Source: PriceWaterhouseCoopers, 2002
6
Agenda
• Current Cost Trends
• Customer Challenges
• WellPoint’s Response
• The Future?
7
Customer Challenges
What Employers Want
Administrative
Ease
Budgetability Choice
Source:PriceWaterhouseCoopers LLP, 2001
8
Customer Challenges
What Employers Want
Strategies to Control Costs
Actions Employers Anticipate Taking to Manage
Health Care Costs in Next 12 Months
Increase Consumerism 19% 43%
Add high-deductible plan 28% 19%
Increase employee choice 19% 14%
Use ROI calculations
in decision-making 8% 15%
Purchase DM programs 5% 15%
Develop direct contracts 8% 11%
Use clinical risk adjustment 3% 11%
in plan selection & pricing
0% 10% 20% 30% 40% 50% 60%
Currently in place Planned in the next year
Source: Watson Wyatt Worldwide, 2002
9
Customer Challenges
What Consumers Want
Competing demands of...
• Choice
• Unlimited benefits
• Access to new medical technologies
• Brand name drugs
• Broad / less restrictive networks
…All at an affordable premium
10
Current Cost Trends
What Consumers Want
U.S. Employers Shoulder the Burden
Consumer Out of Pocket Spending as a Percent of
Total National Health Spending, 1986-1996
30 Austria
25 Denmark
Finland
20
Germany
15
Ireland
10
United
Kingdom
5
New
Zealand
0
United
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 States
Source: OECD, 2000, in PricewaterhouseCoopers’ HealthCast 2010, 1999
11
Agenda
• Current Cost Trends
• Customer Challenges
• WellPoint’s Response
• The Future?
12
WellPoint’s Response
WellPoint’s Response
• Participation in All Markets
• The “Health Security” Model
• Focus on Product Innovation
13
WellPoint’s Response
Participation in All Markets
Size
Individual 1
Senior 1
Small Group 2 – 50
Key Accounts 51 – 250
Major Accounts 251 – 2000
Special Accounts 2001+
Public Entities
State Sponsored Programs
Organized by Customer Segment
14
WellPoint’s Response
The “Health Security” Model
• Choice of Products
• Network Development
• Clinical Collaboration
• Targeted Medical Management
• Member Information
15
WellPoint’s
Focus on Product Innovation Response
Individual & Small Group
PlanScape
LOWER PRICED MEDIUM PRICED HIGHER PRICED
PlanScape Products HMO Coverage
Basic PPO 1000 PPO Share 1500 HMO Saver
PPO Saver PPO Share 1000 Individual HMO
PPO Share 2500 PPO Share 500
EPO BC Life Share 1000
BC Life Share 500
FlexScape
LOWER PRICED MEDIUM PRICED HIGHER PRICED
Basic PPO PPO $40 Copay HMO 100%
High Deduct. PPO PPO $30 Copay PPO $20 Copay
Saver PPO PPO $10 Copay
Saver HMO Ultra Premium
16
PPO $10 Copay
WellPoint’s
Focus on Product Innovation Response
Individual & Small Group
Further choice at the member level
• FamilyElect for Individuals
• EmployeeElect for Small Groups
17
WellPoint’s
Focus on Product Innovation Response
Large Group
• ASO Services
• Rental Networks For Self-insured
• Network-Based Products
• Consumer-Driven Plans
18
WellPoint’s
Focus on Product Innovation Response
Consumer-Driven Plans (Large Group)
Experimenting with Defined Contribution
Component Features
HSA • Employer funded
• First dollar coverage
• Funds can be used for any service covered by the plan
• Applies toward deductible
• Access to negotiated discounts
• Unused funds roll over to following year
FSA • Employee funded
• Pre-tax
• Funds can be used for out of pocket services if HSA depleted,
copays and other IRS allowed services not covered by the plan
• May apply toward deductible
• Use it or lose it
PPO Plan • High deductible
• Preventive care may be covered not subject to deductible
• 90%/70% or 80%/60% once deductible met
• OOP maximums
19
WellPoint’s
Focus on Changing Industry Practices Response
Council for Affordable Quality Healthcare
A coalition of 24 health plans
(representing 100 million members)
& 3 principle health plan
associations who:
• Are committed to improving the
health care experience for
consumers and their doctors
• Share a common vision that some
of health care’s pressing concerns
can best be addressed collectively
20
WellPoint’s
Industry Collaboration Response
CAQH Projects
• Save Antibiotic Strength -
Partnership with CDC & physicians to
educate public on antibotic resistance
• Formulary Website - Easily accessible,
standardized, web-based database of health
plan formularies
• Physician Credentialing - Centralized
electronic database for national single
credentialing application
21
Agenda
• Current Cost Trends
• Customer Challenges
• WellPoint’s Response
• The Future?
22
The Future?
• More consumer choice and
involvement
• The potential of disease management
is realized
• Genomics (and cloning?) will result in
new therapies not yet contemplated
• The interaction between aging, medical
and technological advances, and
consumerism will challenge everyone
23
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