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Jeremy Nurse Consulting Actuary Mike Williams Senior Consultant ( United Kingdom ) Saturday, 4 September 2010

Jeremy Nurse

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Page 1: Jeremy Nurse

Jeremy NurseConsulting Actuary

Mike WilliamsSenior Consultant

( United Kingdom )

Saturday, 4 September 2010

Page 2: Jeremy Nurse

© 2010 Towers Watson. All rights reserved.

Cost containment in Health businessHydra conference 4 September 2010

Mike WilliamsJeremy Nurse

Page 3: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Agenda

Focus on cost containment and developments

European health expenditure and performance

US cost containment in health plans

UK cost containment in health insurance / developments in the NHS

Page 4: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

4

Europe - health expenditure and performance

Page 5: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Europe - health expenditure and performance

What we’ll cover Health spending – public and private

Health performance

Drivers of cost

Page 6: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Public and private health expenditure vary significantly across Europe

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Den

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Tur

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Source: OECD, WHO

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% G

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DP

Page 7: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Public and private health expenditure as % GDPalso varies significantly

0

2

4

6

8

10

12

Fra

nce

Sw

itzer

land

Ger

man

y

Bos

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Aus

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Por

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l

Den

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k

Bel

gium

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ece

Sw

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Public Private

Source: WHO, European Health For All Database (2008 data updated July 2010)

Page 8: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

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Private contribution % healthcare spend

Public contribution % healthcare spend

Higher or lower private spend does not correlate with overall spend

Source: OECD, WHO

Public

Private

Page 9: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

While health expenditure varies widely, but appears to be influenced by GDP

Source: WHO

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GD

P/c

apita

(U

S$)

Health expenditure, PPP$ per capita

GDP PPP$, per capita

Page 10: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Healthcare performance – the Netherlands leads the way

Source: Health consumer powerhouse, Euro Health Consumer Index 2010

0

100

200

300

400

500

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800

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garia

Tot

al s

core

Page 11: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

0

100

200

300

400

500

600

700

800

900

Net

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0

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$PP

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apita

Total Score Health $PPP

Source: Health consumer powerhouse, Euro Health Consumer Index 2010, WHO

Performance and total health spending are related – to a degree

Page 12: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

0

100

200

300

400

500

600

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Linear (Total Score) Linear (Health $PPP)

Source: Health consumer powerhouse, Euro Health Consumer Index 2010, WHO

Performance and total health spending are related – to a degree

Page 13: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Drivers of cost include:

Longevity

Growth in diseases

Medical advances

Higher expectations

Page 14: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Drivers of cost - longer life and disease growth

70

71

72

73

74

75

76

77

78

79

80

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Life

Exp

ecta

ncy

at b

irth

(yea

rs)

Source: WHO

European Union life expectancy

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Num

ber

of n

ew c

ance

r ca

ses

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Germany (RH scale)SwedenNetherlandsBelgium

Selected countries - new cancer cases

Page 15: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Total health expenditure per capita and life expectancy

Source: WHO

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1995

1997

1999

2001

2003

2005

2007

1996

1998

2000

2002

2004

2006

2008

1995

1997

1999

2001

2003

2005

2007

1996

1998

2000

2002

2004

2006

2008

Hea

lth e

xpen

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re p

er c

apita

(U

S$P

PP

)

15

16

17

18

19

20

21

22

Life

exp

acta

ncy

at 6

5, in

yea

rs

Health Expenditure $PPP per capita

Life Expectancy at 65 years, in years

France Germany Spain UK

Page 16: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

What does this mean?

There is a broad correlation between health spending and performance

The best performers do generate efficiencies against the general trend

Public/private split doesn’t seem to directly influence performance

Many drivers of cost are unavoidable

But health is a complex business…

Page 17: Jeremy Nurse

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17

US - cost containment in health plans

Page 18: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

US - cost containment in health plans

What we’ll cover Consistent performers and their attributes

Consumer-driven health plans

Page 19: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Public and private health expenditure as % of the GDP

0

2

4

6

8

10

12

14

16

18

US

A

Fra

nce

Sw

itzer

land

Ger

man

y

Bos

-Her

z

Aus

tria

Por

tuga

l

Den

mar

k

Bel

gium

Gre

ece

Sw

eden UK

Ital

y

Net

herla

nds

Irel

and

Spa

in

Nor

way

Fin

land

Cro

atia

Slo

vaki

a

Slo

veni

a

Mal

ta

Hun

gary

Bul

garia

Luxe

mbo

urg

Cze

ch R

ep

Cyp

rus

Pol

and

Latv

ia

Lith

uani

a

Est

onia

Rus

sia

Tur

key

Rom

ania

Public Private

Source: WHO, European Health For All Database (2008 data updated July 2010); *USA data for 2007, from WHO Global Health Observatory.

Page 20: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

US experience

The Keys to Continued Success: Lessons Learned From Consistent Performers 15th Annual National Business Group on Health/Towers Watson Employer

Health Care Survey

Consumer control gaining momentum High deductibles – consumer appreciation of costs

Savings accounts – act as an incentive towards more healthy lifestyle

Page 21: Jeremy Nurse

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US – jargon-buster!

CDHP - Consumer-driven health plan

ABHP – Account-based heath plan

HSA – Health savings account

HRA – Health reimbursement arrangement

Page 22: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Companies show dramatic differences in their ability to reduce health care cost trends

Median two-year cost trend for calendar years 2008 and 2009 is 6.5%. Best-performers report significantly lower cost trends at 0.3%.

Page 23: Jeremy Nurse

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Consistent performers have outpaced other companies in containing costs over the last four years…

Consistent performers experienced median annual costs increase 2.5% in 2009, versus median increase for all companies of 7.0%.

41 consistent performers in this year’s analysis

Page 24: Jeremy Nurse

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Key drivers of performance; extent to which consistent and best performers implement programs relative to poor

Maximizing health and productivity

Effective information delivery

Appropriate financial incentives

Metrics and evidence

Quality care delivered efficiently

21%

20%

18%

17%

16%

10%

9%

9%

8%

5%

Consistent Performers (relative to Poor Performers)

Best Performers (relative to Poor Performers)

…and have exceeded all other companies in five key areas

Page 25: Jeremy Nurse

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More employers increasing point-of-care cost sharing and making changes to plan design

2009 2010 2011*

PERCENTAGE POINT

CHANGE FROM 2009 TO 2011

Increase the share of total health care costs paid by employees

34% 43% 56% 22%

Significantly increase employee premium contributions

23% 30% 37% 14%

Significantly increase deductibles in all/most plan options

18% 28% 38% 20%

Significantly increase pharmacy copays, deductibles or coinsurance

17% 23% 28% 11%

Significantly increase employee medical copays or coinsurance

16% 21% 27% 11%

Change plan options 25% 27% 52% 27%

Restrict eligibility 16% 19% 23% 7%

Use spousal waivers or surcharges 18% 21% 28% 10%

(*) Planned for 2011.

Page 26: Jeremy Nurse

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Employers support account-based health reform initiatives

VERY SUPPORTIVE

SOMEWHAT SUPPORTIVE

NOT VERY SUPPORTIVE

NOT SUPPORTIVE

AT ALL

Account-based plans 34% 34% 17% 15%

Status quo 7% 38% 36% 19%

Private insurance 9% 34% 28% 27%

Individual mandate 8% 29% 33% 30%

Pay-or-play mandate 7% 29% 34% 30%

ERISA pre-emption 8% 16% 29% 47%

Tax policy/refund credits 3% 9% 35% 53%

Page 27: Jeremy Nurse

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Continued growth in CDHPs

Today, 54% of companies have a CDHP in place—a 6% increase over last year.

Page 28: Jeremy Nurse

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Lower health care costs for companies with higher CDHP enrollment in 2009

Page 29: Jeremy Nurse

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What does this mean?

US experience shows that it’s possible to stabilise health care spending, and consistent performers are leading the way

Appropriate use of tactics in five areas drives best performance Effective use of financial incentives Effective information delivery Emphasis on high-quality care Use of data and evidence Maximising health improvement

Many best-performing companies have adopted CDHPs, but for most, this is just one component of a larger consumer-oriented model

Increasing CDHP enrollment is key to moderating cost trends

CDHPs continue to grow in adoption and acceptance. All data show that aggressive promotion of CDHP gets results.

Page 30: Jeremy Nurse

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30

UK - cost containment in health insurance / developments in the NHS

Page 31: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

What we’ll cover

UK perspectives on cost containment Insurance

Role of Public Private Partnerships

NHS and the private sector

Page 32: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

UK medical insurance - cost containment

A mixed picture

Insurers working hard to remain competitive Claims management

Efficiency

Hospital negotiation

Networks

Care guidelines

Page 33: Jeremy Nurse

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UK medical insurance - cost containment

Employers have other priorities

Medical insurance is relatively low cost

Employees

Still a benefit – interventions limited

Page 34: Jeremy Nurse

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The NHS and PPPs

Two main public private partnerships used by Department of Health:

The Private Finance Initiative (PFI)

NHS Local Improvements Finance Trust (NHS LIFT)

Provision of infrastructure and services

Little interaction with insurers

Page 35: Jeremy Nurse

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Bringing together public and private care

March 2009

Followed Professor Mike Richards report

‘NHS organisations should not withdraw NHS care simply because a patient chooses to buy additional private care.’

Page 36: Jeremy Nurse

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Personal health budgets

Source: Department of Health

Page 37: Jeremy Nurse

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‘Liberating the NHS’ 2010

Published 12 July 2010

Putting patients and public first

Improving healthcare outcomes

Autonomy, accountability and democratic legitimacy

Cutting bureaucracy and improving efficiency

Page 38: Jeremy Nurse

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What does this mean?

Cost containment among insurers primarily aimed at competiveness

For employers it’s primarily an employee benefit

NHS changes point towards prospects for ‘softer’ divisions

Page 39: Jeremy Nurse

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39

Conclusions

Page 40: Jeremy Nurse

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Conclusions

Costs should be contained and efficiencies realised

The role and contribution of the private sector varies

The US and UK provide insights

Consumer direction is growing

The private sector plays an important role

Page 41: Jeremy Nurse

towerswatson.com© 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Cost containment in Health businessHydra conference 4 September 2010

Mike WilliamsJeremy Nurse