Affordability: The New Imperative

1. Affordability:The New Imperative Northeastern University Open Classroom October 27, 2010 Andrew Dreyfus President & CEO Blue Cross Blue Shield of Massachusetts

2. Advice to the Next Governor… • Protect coverage advances • Reconcile state and federal reform • Make affordability top priority • Understand Cost Drivers • Balance market and government interventions • Lead community to a shared solution: payment reform

3. 2.7% 2009 Division of Health Care Finance and Policy Protect Coverage Advances

4. New Law, New Questions 2,167

5. Reconciling National and Massachusetts Reforms • Individual and Employer Mandate Penalties • Income Qualifications for Subsidies • Role of Exchange (Connector) • Definition of Insurance Pools • Actuarial Rating Rules • Minimum Creditable Coverage Definitions

6. April 30, 2010 Health Insurance Premiums Skyrocket March 25, 2009 Rising health costs making small biz ill February 28, 2010 Boston’s Budget Includes $20m hike for health care Runaway health costs are rocking municipal budgets Make Affordability Top Priority

7. Massachusetts has the Highest Costs per Capita in the World… Massachusetts United States France Germany Australia Canada United Kingdom Sources: Commonwealth Fund (2008), CMS (2007), U.S. Census (2009). Note: U.S. dollars are current-year values. Other currencies are converted based on purchasing power parity.

8. …And per Capita Heath Care Spending is Projected to Nearly Double by 2020. Massachusetts Per Capita Health Care Expenditures: 1991-2020 Note: The health expenditures are defined by residence location and as personal health expenditures by CMS, which exclude expenditures on administration, public health, and construction. Data for 2005 – 2020 are projected assuming 7.4% growth through 2010 and then 5.7% growth through 2020. Source: Centers for Medicare & Medicaid Services (CMS), Office of the Actuary, National Health Statistics Group, 2007. Projections by the Division of Health Care Finance and Policy.

9. BCBSMA Medical Trend vs. Inflation/Wages Renew As Is Trend MA Workers’ Earnings (Allowed Trend) Overall Inflation Note: Trend data points assume a margin of error of +/- 1-3% points Sources: 1) BCBSMA Medical Trend: HMO/POS fee-for-service Pricing trend. Projected values as of 1Q Rating. 2) Overall Inflation: (http://stats.bls.gov/ro1/9140.htm). 3) MA Worker’s Earnings: (http://www.earncentral.org/members/StateofWorkingXX/index.php) from the Economic Analysis and Research Network.

10. Advice to the Next Governor: Affordability • Understand cost drivers • Balance market and government intervention • Lead community to a shared solution: payment reform

11. Understand Cost Drivers Administrative Expenses 10.7% Professional 32.0% Prescription Drugs 13.2% Operating Margin -1.7% Ancillary 3.8% Hospital/Facility 42.0% Approximately 90 cents of every premium dollar is used to purchase health care services on behalf of our members

12. Understand Cost Drivers Total Gross Trend 10 – 11 % BCBSMA HMO/POS fully insured 12 months ending March 2009 vs. 12 months ending March 2008

13. Market or Regulation – A False Choice Market Reform Government Regulation

14. Shared Solution: Payment Reform In Massachusetts, A New Idea for How to Pay July 17, 2009 -- By Philip Shishkin BOSTON –A Massachusetts panel proposed that the state scrap traditional payments to doctors and hospitals for each office visit …and instead adopt a system, where they receive a monthly or annual fee per patient.

15. Incentives for increased volume Incentives to deliver more costly services Little or no incentive for achieving positive results or for care coordination Little or no incentive to deliver preventive services or other services with low financial margins. Payment Reform: Pay for Quality Not Volume Fee-for-Service AQC/Global Payment • Emphasizes quality improvement • Quality-based incentives comprise as much as 10 percent of the overall budget • Eliminates incentives to increase volume, for all or most service types • Eliminates incentives to provide higher-cost services over lower-cost services that are equally effective, for all or most clinical needs • Emphasizes the role of primary care providers • Encourages integration and coordination for care, both within acute care episodes and for patients with chronic conditions • Reinforces the goals of medical homes. * AQC/Recommendations of the Special Commission on the Health Care Payment System

16. Our AQC Partners Lowell General Physician Hospital Organization

17. AQC: Early Results • Demonstrated Success • Quality • Global Budget • Demonstrated Investment • Patient Education on Chronic Illness • Pharmacy Management

18. State Must Advance Issue • Payment Reform Commission Recommendations • Medicaid • Group Insurance Commission (GIC)

19. IF YOU ARE NOT PART OF THE PROBLEM YOU CANNOT BE PART OF THE SOLUTION Everyone’s Problem, Everyone’s Solution

20. Questions?