Helping Small Business Afford Health Insurance

1. Insure New Mexico! November 4, 2004 David R. Scrase, M.D. Helping Small Business Afford Health Insurance

2. The MAIN Problem • Healthcare is underfunded in New Mexico • NM has a much lower percent of people in Commercial Insurance than in Government Programs (Medicare, Medicaid) and uninsured • This puts a significant burden upon employers who experience cost shifting from government programs

3. NM Insurance Laws:Small Group vs. Large Group

4. Uninsured and Underinsured New Mexicans AnUnhealthyCycle Uncompensated and Undercompensated Care Higher CommercialPremiums Doctors and HospitalsIncrease Prices Serving to improve the health of individuals, families and communities

5. New Mexico (2002) 1,851,267- population Uninsured 27.2% Medicare 12.8% Medicaid 18.4% Commercial 41.7% 58.3% Uninsured, Medicare or Medicaid 92% HIGHER BURDEN United States (2002) 286,619,775 - population Uninsured 14.1% Medicare 13.7% Medicaid 14.4% Commercial 57.8% 42.2% Uninsured, Medicare or Medicaid Serving to improve the health of individuals, families and communities

6. Where does the money go? Medical Expenses=85 cents Margin: Community Reinvestment=1¢ Health Plan Administration=8 ¢ Broker Commission + Premium Tax+=6 ¢ Source =2004 PHP HMO Commercial Products Financial Statements.

7. Making Health Insurance Affordable • Managing Benefits • Managing Costs

8. Managing Benefits:Employee View • Nationally, employer strategy is to increase employee cost sharing via: • increased responsibility for premium • increased copays • increased coinsurance • defined benefit • catastrophic plans

9. Managing Benefits:Insurance View • New Products for Small Employer Groups • Consumer Directed Health Plans • Health Savings Accounts (HSAs) and HRAs • Money for “Individual” insurance products (insurance code issues) • Catastrophic plans • Individual Insurance Plans (PPO/Indemnity) • Average premium 30-40% lower • 8,250 new members in 18 months • Subsidization from non-sick to sick and vice versa

10. How is PHP Managing Costs?Non-Medical • Health Plan Administrative Costs • e.g., enrollment, member service, claims, underwriting, finance, legal and regulatory compliance, billing, accreditation, provider services • Broker Commissions and Premium Taxes • Margin: Community Reinvestment Margin: Community Reinvestment=1¢ Health Plan Administration= 8¢ Broker Commission + Premium Tax+=6¢

11. PHP Administrative Costs:1998-2005 (All Products)

12. Broker Commissions and Premium Taxes • Broker Commission as much as 10% on initial year for a small group • Commercial premium tax 3.000% to 3.003% to 4.003%

13. Managing Medical Costs Medical Expenses = 85 cents

14. Managing Medical Costs • Obviously 85 cents on the dollar is “where the money is” • Real interventions that prevent costly medical expenses or reduce unnecessary care are the single best method to making health insurance more affordable to small employers (6 times greater impact than “managing” the benefit and administrative side)

15. Managing Medical Costs Cost per Service x Number of Services = Total Medical Cost

16. How is PHP Managing Costs while Ensuring Necessary Care? • Prevention • Safety • Case Management • Disease Management • Predictive Modeling

17. Prevention • Benefit designs which encourage preventive services • no or low copay for early detection strategies • much lower copays for PCP visits than ER • Problem with behavior based premium differentials

18. Safety • 45,000 to 92,000 unnecessary deaths due to medical errors • Medication errors the primary driver, and cost $4500 per adverse drug event • $50 million in investments in safety of medication administration and computerized medical records

19. Case Management • Targeted individuals via: • self-referral • referral from caregiver • referral from provider • predictive modeling • Coordination of care: reduces morbidity and unnecessary duplication, improves outcomes, and therefore saves money

20. Disease Management • Disease specific programs • Diabetes • Asthma • Coronary Artery Disease • Many others • Emphasis on patient self-management of disease and on coordination of care and removal of barriers to care • Significant savings

21. Two Approaches to the Cost of Health Care • Method A (public policy) • define what benefits you want, determine cost, determine funding • Method B (insurance industry) • define what purchaser can afford, determine funding, determine benefits within budget • Method A always costs more than Method B

22. Respectful Suggestions to Insure New Mexico! • Clarify and fully understand costs early on • Understand that medical costs comprise 85% of the premium, and ensure that this area receives proportional emphasis • Understand the fragile nature of the NM commercial insurance market and ensure that changes proposed do not increase the existing cost shifting burden to employers