Changes In Health Care

1. www.the-HERO.org

2. Changes In Health Care R. William Whitmer, M.B.A. President and CEO Health Enhancement Research Organization (HERO) whitmer@the-hero.org www.the-HERO.org

3. A WAKE UP CALL FOR CORPORATE AMERICA

4. Health Enhancement Research Organization (HERO) • Coalition of employers that united seven years ago to facilitate research and programs that help employees achieve optimal health, lower absenteeism/workers compensation, reduce health care utilization, moderate medical cost increases and enhance work performance. www.the-hero.org www.the-HERO.org

5. Facts of Life THE HEALTH CARE SYSTEM, IN IT’S CURRENT FORM, WILL NOT SURVIVE. It is a matter of economics, plus other stuff. www.the-HERO.org

6. Changes From The Employer Perspective CHAOTIC WORKPLACE THE INFORMATION ECONOMY UNCONTROLLED HEALTH CARE COSTS Each of these factors alone impact corporate profitability and success, in combination they can be catastrophic. www.the-HERO.org

7. Workplace is the most chaotic in modern history. Mergers Downsizing Reengineering Slowing economy Fluctuating stock value Depreciating retirement plans Dishonest conduct of executives. Creates unprecedented levels of uncertainty. The Chaotic Workplace www.the-HERO.org

8. Constant uncertainty converts to: Uncontrolled stress High levels of anxiety Certain mental and physical diseases increase. Decision making becomes less precise. Time management becomes flawed. Work Performance declines. Reduces corporate profitability and success. The Chaotic Workplace www.the-HERO.org

9. The economies of corporations around the world have and will continue to shift from a manufacturing to service industry. This service industry is based on the creation and dissemination of information. This paradigm shift has created an exponential increase in the number of “knowledge workers”. Knowledge workers often create and activate “cerebral” products (ideas) that advance the success and profitability of the corporation. The Information Economy www.the-HERO.org

10. Increases in the number of “KNOWLEDGE WORKERS” require a much greater focus on HUMAN CAPITAL ASSETS The Information Economy www.the-HERO.org

11. Poor Economy “Market carnage hits $8.4 trillion… stock values slashed in half since March 2000 peak” Source: USA Today – 10/08/2 www.the-HERO.org

12. Health Care Costs “Nearly all employers (99%) report being ‘significantly or critically’ concerned about health care costs, while 75% are concerned that employee dissatisfaction with health care benefits is impacting attraction, retention and engagement”. Source: Hewitt Associates Survey of 700 Large and Medium Employers – 2002. www.the-HERO.org

13. Only 18% of employers are confident of their ability to manage current increases in health care costs. Source: 8th Annual WBGH-Watson Wyatt Employer Survey Health Care Costs www.the-HERO.org

14. Increasing employee co-pays and cost sharing. Increasing employee premium contributions. Reducing or eliminating coverage. Targeted clinical interventions for specific diseases. Source: 8th Annual WBGH-Watson Wyatt Employer Survey What Employer’s Are Doing www.the-HERO.org

15. 99% of employers are “significantly or critically” concerned about health care costs. Only 18% of employers have confidence they can manage increases in health costs. The solutions provided by most employers is to “pass it on”, reduce or eliminate coverage. MAJOR CHANGES ARE ON THE WAY. Summary of the Situation www.the-HERO.org

16. Health Care Cost Estimates

17. Increase in Cost of Health Care (Based on Average Annual 7.3% Increase)

18. 2001 * 2012 ** PPO – family $8,173 $17,980 single $3,175 $6,985 HMO – family $7,541 $16,590 single $2,764 $6,080 Source: *Hewitt Associates – 2002 Report/2001 Data ** - Based on CMS Forecasts Cost Of Health CareAverage Annual 7.3% Increase www.the-HERO.org

19. Few believe that increases in health care costs will average 7.3% per year for this decade. Major private sector consulting firms predict increases of 14% - 15% for the next several years. “Unless there is a fundamental change in the way health care is delivered, costs will double in the next five years”. Jack Bruner, Hewitt Associates Change Is On The Way www.the-HERO.org

20. Average Family Coverage: 20022006 $ 9,160 $ 14,545 The 41 million without formal health care coverage will increase to 51-56 million by 2006. Source: National Coalition on Health Care And…It Gets Worse www.the-HERO.org

21. Facts of Life THE HEALTH CARE SYSTEM, IN IT’S CURRENT FORM, WILL NOT SURVIVE. It is a matter of economics, plus other stuff. www.the-HERO.org

22. NEJM – Blumenthal Purchaser-provider partnerships, stronger marketing forces, improved managed care services, governmental cost controls. JAMA - Robinson Broaden physician panels, remove restrictions, revert to fee-for-service. Harvard Business Review - Herzinger Employee driven purchasing system. Health Affairs - Garber Financial assessment of technology and dissemination of cost effectiveness data. What Changes Are Being Recommended www.the-HERO.org

23. Factors Influencing Health Care Costs Present THERE WAS NOT A SINGLE MENTION OF INVESTMENT IN HUMAN CAPITAL AS A LITIGIMATE METHOD FOR UTILIZATION OR COST CONTROL. WHY?? www.the-HERO.org

24. The $1.9 trillion “Health Care” system has little to do with achieving or maintaining optimal health. In reality, it is a $1.9 trillion “Diagnosis and Treatment” system. A Problem www.the-HERO.org

25. The cost of health care is beyond what employers can afford and will increase exponentially over the next decade. Employers don’t know what to do. An unprecedented opportunity to establish the importance and effectiveness of optimal health as an investment in human capital. A Window of Opportunity www.the-HERO.org

26. IHC Reduce health care utilization Moderate increases in costs. A Window of Opportunity www.the-HERO.org

27. Employers are already highly Invested in Human Capital. Pay for 80% of disease diagnosis and treatment services. Paid vacation time. Paid sick leave….EAP programs. Company supported retirement plans. Education – job training programs Skills – leadership programs UNDERSTANDING THE IMPORTANCE OF OPTIMAL HEALTH AS AN INVESTMENT IN HUMAN ASSETS. Investment In Human Capital www.the-HERO.org

28. On average, the employer spends $_________, per covered life, per year for diagnosis and treatment. On average, the employer spends about $ 75, per employee, per year for IHC. Investment in Optimal Health www.the-HERO.org

29. Not the intent of this presentation to go into the details of IHC. This will be done by others. Are employees considered a corporate asset or corporate liability? Are employees considered a corporate profit center or cost center? Do employers view human assets different than other corporate assets? Investment in Human Capital www.the-HERO.org

30. Human Assets influence all these Physical Assets Intellectual Assets Proprietary Assets Cash/Credit Assets Experience/Expertise Assets Image/Reputation Assets Knowledge Assets Attraction/Retention Assets Investments in Human Capital www.the-HERO.org

31. “I am convinced that preventing disease by promoting better health is a smart policy choice for our future. Our current health care system is not structured to deal with the escalating costs of treating diseases that are largely preventable through changes in our lifestyle choices”. HHS Secretary Tommy Thompson Baltimore, MD – April 15, 2003

32. Investment In Human Capital • On average, employers pay about $4,000 per covered life, per year, for diagnosis and treatment and about $75 per employee, per year, for health oriented investment in human capital. • 50% to 70% of all diseases and medical problems are associated with, or caused by modifiable health risks. - Obesity - Uncontrolled Stress - Smoking - Inadequate Exercise - Poor Nutrition - Etc., Etc., Etc. www.the-HERO.org

33. There have been over 125 health enhancement research studies peer reviewed and published showing positive clinical, behavioral and/or ROI results. Does It Work? www.the-HERO.org

34. Who is going to do it? Will not be the health care plan. If the employer accepts the responsibility to pay for diagnosis and treatment after the fact, then they must be pro-active in the reallocation of existing funds for investment in human capital. Investment In Human Capital www.the-HERO.org

35. Optimal Health Investments in Human Capital Equals: Enhanced Employee Health Utilization Control Moderation of Costs Increased Work Performance A Window of Opportunity www.the-HERO.org