1

11.2%

9.2%

7.7%

6.1%

13.9 12.9

10.9

8.2

5.3

0.8

8.5

14.0

12.0

18.0

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Health Insurance Premiums Workers' Earnings Overall Inflation

Note: Data on premium increases reflect the cost of health insurance premiums for a family of four.Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits 1999 to 2007, KPMG Survey of Employer-Sponsored Health Benefits 1993 to 1996, The Health Insurance Association of America 1988 to 1990, Bureau of Labor Statistics, CPI U.S. City Average of Annual Inflation 1988 to 2007; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1988 to 2007.

Increase in Health Insurance Premiums Compared to Other Indicators, 1988 - 2007

2

PAID vs. GROSS TRENDS

• GROSS TREND = the true underlying increase in medical costs

• PAID TREND = the net increase in insurance claims reflecting any buy downs in benefits.

If the consumer continues to buy lower benefits, the paid trend understates the real trend.

3

Employer-based Health Insurance Benefit Design

• A basic flaw is that health benefits are not related to income levels.

• Other employee benefits e.g. life insurance, disability insurance, pensions are all related to income.

• Underlying purpose of insurance is to prepare for & protect against the consequences of a major change in life circumstances.

4

GOAL

• Common Goal:- Hope for long, healthy and happy lives

• WHO Ideal Definition of Health:- A state of complete physical, mental and social well-being

and not merely the absence of disease or infirmity.

5

Health Measures

• Health attainment is measured as disability adjusted life expectancy (DALE) = life expectancy reduced by years lost to disability and infirmity.

Source: WHO

6

Disability Adjusted Life Expectancy (DALE) (2002)

75

.0

73

.4

73

.3

73

.2

72

.9

72

.8

72

.7

72

.6

72

.6

72

.2

72

.0

72

.0

72

.0

71

.8

71

.5

71

.4

71

.4

71

.4

71

.2

71

.1

71

.1

71

.0

70

.8

70

.6

70

.1

69

.8

69

.8

69

.5

69

.3

69

.2

64

66

68

70

72

74

76

78

Japan (

1)

San M

arino (

2)

Sw

eden (

3)

Sw

itzerland (

4)

Monaco (

5)

Icela

nd (

6)

Italy

(7)

Austr

alia

(8)

Spain

(9)

Andorr

a (

10)

Fra

nce (

11)

Canada (

12)

Norw

ay (

13)

Germ

any (

14)

Luxem

bourg

(15)

Austr

ia (

16)

Malta (

17)

Isra

el (1

8)

Neth

erlands (

19)

Belg

ium

(20)

Fin

land (

21)

Gre

ece (

22)

New

Zeala

nd (

23)

United K

ingdom

(24)

Sin

gapore

(25)

Irela

nd (

26)

Denm

ark

(27)

Slo

venia

(28)

United S

tate

s (

29)

Port

ugal (3

0)

Source: World Health Organization, World Health Report 2005

7

15.4

%

11.5

%

10.6

%

10.5

%

10.3

%

9.9%

9.9%

9.8%

9.8%

9.7%

9.7%

9.6%

9.2%

9.2%

9.1%

8.7%

8.7%

8.7%

8.6%

8.4%

8.1%

8.1%

8.0%

7.9%

7.8%

7.4%

7.4%

7.1%

3.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Unite

d St

ates

Switz

erlan

d

Ger

man

y

Fran

ce

Aust

ria

Icela

nd

Mon

aco

Cana

da

Portu

gal

Norw

ay

Belgi

um

Aust

ralia

Neth

erlan

ds Malt

a

Swed

en Isra

el

Slov

enia Ita

ly

Denm

ark

New

Zeala

nd

Unite

d Ki

ngdo

m Spain

Luxe

mbo

urg

Gre

ece

Japa

n

San

Mar

ino

Finla

nd

Ando

rra

Sing

apor

e

* Countries listed have healthy life expectancies greater than the USA and generally an older population.

Source: World Health Organization, World Health Report 2007

Health Care Spending as % of GDP, 2004*

8

National Health Expenditures as a Percent of GDP1960 – 2016*

* ProjectedSource: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, at http://cms.hhs.gov/NationalHealthExpendData (see Historical; NHE summary including share of GDP, CY 1960-2004; file nhegdp04.zip).Publication: Health Spending Projections Through 2016: Modest Changes Obscure Part D’s Impact, Health Affairs Web Exclusive, February 21, 2007

5.2%7.2%

9.1%

12.4%13.8%

16.0% 16.2%17.5%

19.6%

0%

5%

10%

15%

20%

25%

1960 1970 1980 1990 2000 2005 2007* 2011* 2016*

9

Fundamentals

• Quality – quality of care, quality of health, quality years of life

• Access – universality of access, prompt attention, choice of provider, amenities of facilities

• Cost – system wide cost, fairness of financial contribution by income level

• Inherent conflict among these goals—need balance

10

Results

Country Level of Health DALE Responsiveness Cost Fairness Overall

Japan 9 1 6 13 8 1

Switzerland 26 8 2 2 38 2

Norway 18 15 7 16 8 3

Sweden 21 4 10 7 12 4

Luxemburg 5 18 3 5 2 5

France 4 3 16 4 26 6

Canada 35 12 3 10 17 7

Netherlands 19 13 9 9 20 8

UK 24 14 26 26 8 9

Austria 15 17 12 6 12 10

USA 72 29 1 1 55 15

QUALITY ACCESS COST

11

All Healthcare Systems Receive Strong Criticism

Overall Views of Healthcare Systems, 2001

25%21%

18%21%

18%

53%

59% 60% 60%

51%

19% 18% 20% 18%

28%

10%

20%

30%

40%

50%

60%

70%

Australia Canada New Zealand U.K. U.S.A.

Minor Changes Fundamental Changes Completely Rebuild

Source: Blendon, R.J., et.al., Health Affairs, May/June 2002

12

Private VS. Public & The Uninsured

CountryPrivate % of Health

ExpendituresInsurance % of Private

Expenditures Uninsured Cost %

Japan 18.7% 1.9% 16.8%

Switzerland 41.5% 21.1% 32.7%

Norway 16.5% 0% 16.5%

Sweden 15.1% 1.9% 13.6%

Luxemburg 9.6% 17.6% 7.9%

France 21.6% 57.3% 9.2%

Canada 30.2% 42.3% 17.4%

Netherlands 37.6% 50.6% 18.6%

UK 13.7% 8.2% 12.6%

Austria 24.4% 33.6% 16.2%

USA 50.3% 66.4% 16.9%

SOURCE: WHO and OECD HEALTH DATA (2003 report).

13

The Uninsured

• Approximately 15% of population is uninsured.

• Approximately 65% of the uninsured have incomes below 200% of the Federal poverty level.

• Approximately 25% of the uninsured are eligible for Medicaid programs but have not enrolled.

• Source: NHIS 1997-2006, US Census Bureau; Urban Institute/Johns Hopkins 2004

14

Why The Higher Spending

• USA ranks #1 in access which adds approximately 10% to healthcare costs.

• USA has fewer physicians per 1,000, fewer hospital beds per 1,000 and fewer nurses per 1,000 than OECD countries on average.

• Price of care is much higher – physician earnings, amenities, greater use of technology, prescription drug costs.

Source: Health Affairs, Volume 24, Number 4. (2005)

15

Physician Earnings

Country Range of Averages (2002)

USA 136 – 268 K

Canada 81 – 154 K

Netherlands 57 – 175 K

UK 103 – 128 K

France 57 - 116 K

Sweden 57 – 61 K

USA is approximately 80% higher.

Source: NERA Economic Consulting

16

Technology

6.58.2

13.6

3.9

2.5

8.1

0.2 0.41.5

CT Scanners MRI Units Lithotripsy Units

Access to Modern Medical Technology in the U.S., Britain and Canada (2000)

(Units per million people)

U.K.

Canada

U.S.

Sources: Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey ad Varduhi, Petrosyan, "It's the Prices, Stupid: Why the United States is So Different From Other Countries," Health Affairs, Vol. 22, No 3 May/June 2003, Exhibit 5, p.97: and Stephen Pollard, "European Health Care Consensus Group Paper," Centre for the New Europe, January 4, 2001.

17

TECHNOLOGYUse of High-Tech Medical Procedures

(Procedures per 100,000 people per year)

27 41 5145.765 80.886.5

203

388.1

Dialysis Patients Coronary Bypass Coronary Angioplasty

U.K.

Canada

U.S.

Source: Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey and Varduhi Petrosyan, "It's the Prices, Stupid: Why the United Stats Is So Different from Other Countries, "Health Affairs, Vol. 22, No. 3, May/June 2003: 89 - 105.

18

Drug Expenditure per capita, public and private spending, 2004

0

100

200

300

400

500

600

700

800Public Private

752

599559

520494

477434 429 425 424 421

407400 393 377 375 364

348 344321 318 315 308

299270 261

238

138

USD PPP

(1) 2003, (2) 2002 Source: OECD Health Data October 2006

19

Share of pharmaceutical expenditure in total health spending, 2004

0

5

1015

20

25

30

3540

45

50

% o

f tot

al h

ealth

spe

ndin

g

(1) 2003; (2) 2002

Source: OECD Health Data October 2006

20

Percentage Change in Sales and Number of Prescriptions, 1999 - 2000

0%

5%

10%

15%

20%

25%

30%

35%

50 Most HeavilyAdvertised Drugs

All Other Drugs 50 Most HeavilyAdvertised Drugs

All Other Drugs

Sales Number of Prescriptions

Sales and Number of Prescriptions

21

Lifestyle vs. DALE

• USA• UK• CANADA• NETHERLANDS• NORWAY• SWEDEN• SWITZERLAND• FRANCE• JAPAN

Source: OECD Health Data 2004, WHO Data

66.3% 32.2%63.0% 22.7%57.5% 14.9%46.5% NA42.7% 6.2%42.6% 10.0%37.1% 7.7%34.6% NA24.9% 3.1%

Overweight: BMI > 25 BMI>30

22

Disease Trends / Lifestyle

• Diseases related to overweight:

• Diabetes• Heart Disease• Back and Joint Problems• Digestive Disorders• Cancers

23

INDUSTRY DATA

North Carolina Per Resident

Tobacco Use $4.75 billion $536

Nutrition, Overweight & Obesity $12.1 billion $1,366

Physical Activity $9.0 billion $1,013

Total $25.85 billion $2,915

Source: NC Prevention Partners

Lifestyle Healthcare Costs

24

Lifestyle

• Not Smoking

• Healthy Weight

• 5 Servings of Fruit & Vegetables

• 30 Minutes of Exercise, 5 Times a Week

• Source: 2005 Behavioral Risk Factor Surveillance System Survey, National Center for Chronic Disease Prevention and Health Promotion

25

Non-Medical Factors

• Social Ethics• Distinction between social solidarity and personal autonomy.

• Family ethic of loose intergenerational family bonds leads to demands for non-medical support from medical care system.

• Economics• Free-market economics versus more socialistic economics.