Consumer Directed Health

1. Consumer Directed Health Omaha Association of Health Underwriters December 6, 2006

2. Consumer Driven HealthcareThe Power of an Idea! • Regina Hertzlinger • “Godmother of Consumer Driven Health” • Faculty Member- Harvard Business School • One of the Key Architects of CDHP

3. Strategic Context Powerful industry forces are reshaping the healthcare market Affordability Pressure Evolving Healthcare Market Information Technology Active Legislative/Regulatory Environment

4. Strategic Context All key stakeholders are impacted by the dramatic shifts Evolving Healthcare Market Market Impacts • Consumer Choices and Behavior • New / increasing pressures on providers • Expanding competitive landscape for Insurance Carriers

5. Consumerism Ultimate goal of consumerism is to drive member engagement Primary Consumerism Goals • Consumers are engaged, informed purchasers of healthcare • Consumers able to effectively weigh alternatives based on their needs • Incentives that reward engagement Consumers manage health as their most valuable asset

6. Common Definitions and TerminologyWhat is Consumer Directed Health Care? • Consumer Directed Health Care (CDHC) is a broad umbrella term that refers to a movement in the health care industry to empower members, reduce employer costs, and change consumer health care purchasing behavior. • CDHC provides the member with additional information to make an informed and appropriate health care decision through the use of member support tools, provider and network information, and financial incentives. • As an umbrella term, CDHC encompasses multiple models and services including Consumer Directed Health Plans, high deductible health plans, member health care accounts, debit cards, member support tools, provider cost and profile information, E-business services, and next generation networks.

7. Common Definitions and TerminologyWhat are Consumer Directed Health Plans? • Consumer Directed Health Plans (CDHPs) are high deductible health plans (HDHPs) partnered with member personal savings accounts (PSAs). • High deductible health plans vary in design ( deductible thresholds, preventive coverage, and more), and are offered and administered by a health insurance company, such as a BCBS Plan. • These HDHPs are often partnered with a tax-favored HCA (also sometimes referred to as a member spending/savings account), such as a Health Savings Account, a Health Reimbursement Arrangement, or a Flexible Spending Account, thereby forming a CDHP. • The type of account used in these arrangements has strong implications to the administration of the CDHP, as the IRS regulations governing these tax-favored HCAs vary significantly.

8. SO………… How’s Regina’s idea doing….what’s been the result so far?

9. Market Adoption & Enrollment • If I had a nickel for every statistic that has been published about CDH Plans in the past six months…..you could call me Mr. Buffett…. • 5 Million CDH members (Source: Inside Consumer Directed Care) • 3.2 Million CDH members (Source: Forrester Study) • 4.2 Million CDH Members (Source: HSA Market News) • 30 Million Expected CDH Growth by 2012 (Source: Celent Communications Corp.) • 49 Million Expected in CDH by 2010 (Source: Goldman Sachs, Sept. 2006) • Premiums from CDH Plans will account for 3.6% of total commercial premiums collected in 2006 (Source: Corporate Research Group, Sept. 2006) • 26% of Employers Expect to offer a HDHP/HRA option within the next year- up from 17% in 2005 (Source HSA Market News) • 27% of Employers Expect to offer a HDHP/HSA option within the next year- up from 21% in 2005 (Source: HSA Market News) • Key Point: CDH market growth, although slowing a bit, continues to trend upward and has not reached a point of saturation

10. Market Adoption & Activity • If I had a nickel for every time that Congress said they were going to deliver on something….. • Aggressive Legislative Activity • 19 HSA Related Bills Introduced (Source: Library of Congress, 2006) • 6 HRA Related Bills Introduced (Source: Library of Congress, 2006) • Number of Banks serving as HSA Custodians has tripled since inception (2004) • 25 leading banks have over $1.5 Billion is HSA deposits (Source: HSA Market News, Jly 2006) • Over 2,500 new companies and/or subsidiaries have been created since the introduction of CDH models. • Large employers including General Motors, Wal-Mart and Bank of America have rolled out Consumer Directed Plans

11. Recent Legislative Activity • House Ways and Means Committee Action on HR 6134 (Amended bill approved in committee 24-14 in September of 2006). This bill would: • Allow employees to fund a start-up HSA account by making a one-time tax-free transfer of FSA and/or HRA amounts into the HSA account • Allows taxpayers to make a one-time distribution from an IRA account to an HSA. Rollover cannot exceed the annual maximum HSA contribution amount. • Require the Treasury Department to announce adjustment to HSA contribution limits by June 1st of each year. • Permit accountholders to contribute up to the maximum annual allowable contribution each year regardless of the amount of their high deductible plan • Allow employers to make higher contributions for non-highly compensated employees. Currently employers must contribute comparable amounts to abide by anti-discrimination rules. • Under this provision, employers could make greater contributions to the HSAs of non-highly compensated employees (employees who are neither owners of 5 percent or more of the business or among the most highly paid in the company)

12. Other Pending Proposals • Permit early adopters of HRAs to convert to HSAs • Permit prescription drug coverage to be offered without a high deductible to encourage utilization • Eliminate aggregate deductible requirements • Increasing Contribution Levels to even Higher Amts • Allow employers with HSA to offer FSA and/or HRAs that could pay for benefits below the high deductible. • Permit employer contributions to be reserved for health expenses only. • Amend comparable contribution rules to allow employers to contribute greater amounts for lower paid employees • Permit early retirees (under age 65) to use HSA funds to pay for health insurance premiums • Permit individuals to purchase Medigap coverage with HSA funds • Permit employees over age 65 to continue to contribute to an HSA

13. Consumerism: Health Insurance Carrier’s Ongoing Role • Creating and Delivering Seamless Consumer Directed Healthcare Solutions Empowering Partnering with Equipping Consumers Providers Sales Channels

14. Consumerism: Health Insurance Carrier’s Ongoing Role • Creating and Delivering Seamless Consumer Directed Healthcare Solutions Empowering Consumers

15. Empowering & Educating ConsumersInternet is Accepted Way of Life 1998 2005 Percent of all adults who are online 38% 74% Percent of all adults who have looked for health information online 27% 53% 54 Million 117 Million Estimated numbers of adults who have looked for health information online Harris Poll, WSJ, July 15, 2006

16. Empowering & Educating Consumers • Consumer Engagement • Consumer centric tools that educate and empower members. • Account Management Resources • Ease of Single Sign-On • AccessBlue Web Portal

17. Empowering & Educating Consumers • Consumer Centric Tools- Demo

20. Empowering & Educating Consumers • Promoting Consumerism does not mean sending employees to a distant URL in a galaxy far, far, away and expecting them to be empowered to make good health care choices. • It is a cohesive and collaborative effort that is carefully planned out and communicated to employees and their families. • An ongoing dialogue, not just at open enrollment

21. Empowering & Educating Consumers • Adoption Rates and Levels of Satisfaction of Consumer Centric Tools & Services* • On-Line adoption rates have been low but are steadily growing • Satisfaction Levels have also been low driven by lack of training and/or education for given tools or services. *Source:: HSA Insider, June 2006)

22. Empowering Consumers • Benefit Plan Designs that Promote Consumerism • Preventive Care Benefits @ 100% (Not Subject to Deductibles) • Multiple High Deductible Options (Flexibility) • HRA and HSA Compatible • Wellness & Disease Management Components • E.g. (Completion of Smoking Cessation = $500 Addl HRA Funds) • Incentives for Completion of Health Risk Assessments • Special Chronic Condition Health Reimbursement Accounts • Active Enrollment & Participation in Disease Mgmt Program • Employer Contributions to HSA/HRA • Employee enrollment increases by 20% when Employer Contributes to the health care account (Source: HSA Insider, Aug 2006) • Managing Risk & Adverse Selection • Low deductible insurance more attractive to sicker people and CHDP plans more attractive to healthier folks.

23. Consumerism: Health Insurance Carrier’s Ongoing Role • Creating and Delivering Seamless Consumer Directed Healthcare Solutions Partnering with Providers

24. Partnering With Provider Community • AMA Position on Consumer Directed Health Care • Outward Support for CDH, but with some reservations….. • Concerns over impact on Revenue Cycles • Will HDHP have an overall impact on revenue? • Multiple Payment Sources (HSA/HRA Debit Cards, Multi-Purse arrangements) • Point Of Service Experience • How will the patient react? • Are we exchanging the hassles of getting paid by the carrier for hassles of getting paid by the patient? • Potentially damaging doctor/patient relationships • Potential Increases in Administrative Office Expense • Price Transparency and Cost Estimate Concerns • The interests of the uninsured and the consumer driven health care movement are converging (priorityhealth.com) • Concerns over patient’s foregoing healthcare treatment

25. Health Insurance Carrier’s Role • Partnering with Provider Community • Consumer Education • Newsletters & Mailings • Educating Consumers on POS Experience • Provider Communication • Provider Web Portal • Newsletters & Special Bulletins • Ongoing Dialogue about how CDH impacts the provider and the patient

26. Consumerism: Health Insurance Carrier’s Ongoing Role • Creating and Delivering Seamless Consumer Directed Healthcare Solutions Equipping Sales Channels

27. Health Insurance Carrier Role • Equipping Sales & Distribution Channels • CDH Product/Program Training • Engagement with Broker Partners to ensure clear and consistent messages about CDH • Sales & Marketing Tools that assist Employers in CDH decision making

28. Consumer Directed Health Thank you for your time this morning! Questions? Dennis P. Wheeler VP, Product Strategy & Marketing Services Blue Cross Blue Shield of Nebraska December 2006