Health NetHealth Net
Steve SellPresident, Health Net of California
& Western Region Health Plan
2010 Health Care Forecast ConferenceIrvine, CA
February 25-26, 2010
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AgendaAgenda
I.The Environment (Economy and Health Care
Reform)
II.Implications
III.Evolution of Healthcare Model
IV.The Health Net Experience
V.The Outlook
Economic Conditions: Economic Conditions: Where Does Your Health Care Dollar Go?Where Does Your Health Care Dollar Go?
Hospital Payment to Cost Ratios
70%
80%
90%
100%
110%
120%
130%
140%
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
1. Unprecedented Unemployment (peaked) 2. Job loss increases public burden
9.0%
1%
Increase in National Unemployment Rate
=
1.01.1
Increase in Medicaid and
SCHIP Enrollment(million)
Increase in Uninsured(million)
&
$2.0
$1.4
$3.4
Increase in Medicaid and SCHIP Spending
(billion)
State
Federal
3. Providers increasingly cost shift to private sector
4. Premiums escalate (Start Back at Step (1)
California Unemployment
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2000
Q1
2000
Q3
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
Commercial
Medicare
Medicaid
Economic Conditions: Economic Conditions: “The Escalation of Unaffordability”“The Escalation of Unaffordability”
Health Care Reform: Health Care Reform: A Solution to Universal Affordable Access to A Solution to Universal Affordable Access to Health CareHealth Care
Accelerates the “Escalation of Unaffordability” Expands Government Programs (escalates the cost structure) Increases Opportunity for high risk population to have access to
coverage (a good thing but escalates cost structure) Collapses administrative fees as a percentage to commercial insurers
and adds additional tax burden (caps 13% of the cost structure + adds cost)
The Senate Bill: Health Insurance Reform (No Pre-Existing Conditions, UW restrictions
etc.) Insurance Exchange with Subsidies for individuals up to 400% FPL Alternatives to the Private Market (Co-Op Plan) Expansion of Medicaid Medicare Advantage Cuts Insurer Fees, Medical Loss Ratio Limits Tax Incentives (“requirement”) for Individuals to Purchase Coverage
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6
Implications:Implications:Insurers/ Providers must Provide Affordable Insurers/ Providers must Provide Affordable SolutionsSolutions
1. Health Care is Unaffordable (with or without reform)• Employers can not afford increases in premiums• Individuals can not afford the increases in coinsurance or contributions
2. The Private Sector Must Respond (with or without reform)• Legislation does not fundamentally address affordability• Legislation may increase the cost shift• The private sector needs to maintain affordability with an increase in risk
3. Delivery System Viability will depend on Cost Management and Commercial Volume (with or without reform)• Will need increased Commercial volume to offset Medicaid expansion & Medicare cuts • Commercial premium inflation is unsustainable and they are 87% of the premium dollars
Implications:Implications:Back to the Future of HMOBack to the Future of HMO
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Re-emergence of HMO and managed care model:• The HMO model manages cost without passing the burden to the consumer• HMO share grew 7% since 2007 in CA• HDHP growth has changed little during the same period
Sources: California Health Care Foundation (CHCF)/NORC California Employer Health Benefits Survey: 2007-2009, 2005-2006, 2004, Kaiser/HRET CHCF Survey: 2001-2003, 2001-2009, December 2008
54%
47%
49%
52%
54%
31%
35%
34%
29%
25%
11%
13%
17%
17%
21%
5%
4%
1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2009
2007
2005
2003
2001
Conventional
HMO
PPO
POS
HDHP/SO
California Commercial Market Share by Product Type
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Value of Capitation/HMO Model• A distinct business model built on provider relationships• A “medical home” to manage overall health• Predictable: costs and pricing • The most cost-effective delivery system• Integrates care/avoids duplicative or unnecessary
procedures• Care starts at low cost setting, “steps-up” only as
necessary• Provides health plan with a quarterback to collaborate on
cost and quality initiatives (reduced risk)• Capitated HMO 30% less vs. PPO (So CA)
Affordable Premiums
Minimum Benefit Sets
HMO Model+
Implications:Implications:Back to the Future of HMOBack to the Future of HMO
The Health Net ExperienceThe Health Net ExperienceNarrow Network HMO has grown through The Narrow Network HMO has grown through The RecessionRecession
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200,000
210,000
220,000
230,000
240,000
250,000
260,000
270,000
280,000
Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 Q4'09
Total NarrowNetworkProducts
Health Net Narrow Network Products Membership
OutlookOutlook
•Economic recession/HC reform serves as a catalyst (regardless of economic improvement) for a re-emergence of HMO and managed care models
• Industry will find ways to manage cost
– Evidence of escalating healthcare cost combined with lowering revenue (not sustainable in the long run)
– Requires better integration of the delivery system and aligned incentives (i.e. risk sharing)
– Especially important with health care reform
•Commercial business will continue to subsidize government business (cost shift)
– Delivery systems will strive to find innovative solutions to capture commercial business
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