1. Health Insurance
How much?
Who pays?
Who uses it?
How can we control costs?
Town of Canaan

2. I. COST OF HEALTH CARE AND INSURANCE
• Health care costs are increasing at 3-4 times the rate of inflation
• Most health care not covered by the government is covered by employer
insurance.
• Typically, employers hold down insurance costs by looking for competitive
insurance rates, dropping coverage, limiting enrollment, increasing co-pays and
deductibles and requiring employees to pay part of the cost of the premium.
• Employer cost cutting usually shifts cost to employees at rate higher than
inflation.
II. WHAT MAKES UP HEALTH CARE COSTS
• The four components of health care cost are drugs, physicians, hospitals and
insurance/administrative costs.
III. WHAT CAN EMPLOYERS DO?
• There are strategies that employees and employers can take that would help to
drive down the cost of all of these components at the regional level.
• Administrative costs can be controlled through competitive insurance bidding
and consolidated record keeping from primary care to hospitals.
• Drug costs can be controlled by nationwide bidding.
• Primary care can be controlled using an accountable care organization(s).
A discussion on Employer Health Care
Town of Canaan

3. Part I
How High Can the Costs Go and
Who Pays For Health Care?
• Town of Canaan

4. In 2009, the United States federal,
state and local governments,
corporations and individuals,
together spent $2.5 trillion, or about
$8,047 per person, on health care.
This amount represented 17.3% of
the GDP, up from 16.2% in 2008.
How Much?
Town of Canaan
"Medical expenses have 'very steep rate of
growth‘” USA Today
Jones, Brent (2010-02-04).

5. Health as % of GDP – The Future
Town of Canaan

6. Insurance Reimbursement 36%
Private Payments 15%
Private Donations 4%
Federal Government 34%
State Government 11%
2004 statistics – 2007 US CDC
Source of Payment for
Health Care
Town of Canaan

7. Percent of population that is
insured is 84%
Employers 59%
Government 28%
Individual 9%
Population that is
Insured
Who pays?
Town of Canaan

8. Who’s Insured – By Whom?
Town of Canaan

9. 2000 69%
2010 60%
How Many Employers Pay
Premiums?
Town of Canaan

10. 2006 – Private Employer Policies
Employees Contributed:
16% of their Premium
28% of a Family Premium
Plus deductibles and co-pays
What do employees pay?
Town of Canaan
Kaiser Family Foundation

11. Assuming that real growth in employer-
sponsored insurance premiums does not slow
from current rates, the Council of Economic
Advisors project that less than 20 percent of
small employers will offer coverage by 2040.
In the United States, almost 96% of firms with 50
or more employees offer health insurance as
compared with 43% of firms that have fewer than
50 workers. Among small firms, the percentage
offering health insurance peaked in 2001 and has
been gradually declining since then.
Smaller employers are
dropping health coverage
Town of Canaan

12. How have Deductibles Changed?
Town of Canaan

13. 2001 – 2006 Wages Increased 19%
2001 – 2006 Inflation increased 17%
2001 – 2006
Health Insurance Premiums
Increased 78% - more than 4 times
the rate of inflation and 113%
between 2001 and 2011
Wages and Inflation Compared
with Rate of Increase in Cost of
Insurance Premiums
Town of Canaan
2007 & 2011 studies by the Kaiser Family Foundation

14. The health care costs for a family of four
have doubled in less than a decade from
$9,235 in 2002 to over $19,000 in 2011.
The Growth in Family Costs
Town of Canaan

15. Part II
What Makes Up Health Care
Cost?
And What Drives Up Cost?
Town of Canaan

16. How our health care dollar is spent
Rx Drugs
10%
Hospital
Care
31%
Other
22%
Physicians &
Clinical
Services
21%
Home Health
& Nursing
Home Care
8%
Administrative
& Net Costs
7%
*Note: “Other” includes medical care provided by private employers for employees at their work site,
government spending for non-specified medical care by service usually delivered in schools, military
field stations, and community centers.
Source: CMS, “National Health Expenditures,” at http://www.cms.hhs.gov/NationalHealthExpendData,
accessed January 6, 2009.

17. Drug Price Growth – 89%
Hospitalization – 67%
Physicians – 66%
North Dakota Dept. of Insurance 2010
Growth Rates Over 10 Years
Town of Canaan

18. Private Business View
Insurance Company View
Government Health Care Provider
Federal Executive View
What Factors Increase Health Care
Costs?
Town of Canaan

19. State governments should
● strengthen health savings accounts, and repeal laws that obstruct them;
● tax impact of health expenditures – premiums paid by an employer would be a
taxable benefit;
● allow consumers to purchase health insurance regulated by any state;
● avoid the medical tort system through voluntary contracts; and
● liberalize Medicaid.
The federal government should
● preserve and strengthen health savings accounts,
● tax impact of health expenditures no differently than non-health expenditures,
● deregulate health insurance by allowing consumers to purchase health
insurance regulated by the state of their choice,
● liberalize Medicare and Medicaid, and
● liberalize the regulation of pharmaceuticals and medical devices.
Town of Canaan
Cato Handbook for Policy Makers, Chapter 7,
Health Care
Costs - Private Business View

20. Costs - Insurance Companies View
Repeal regulations
Regulators impose conditions on deniability increasing risks;
Regulators prohibit insurance companies from rating consumers and
require a rating of a community;
Regulations prohibit negotiations with consumers;
Regulations limit the right to buy lower levels of coverage at a lower
cost;
Elective services may be required for all consumers by regulations;
Some regulations prohibit negotiation of different rates with providers;
Required coverage of extraordinary catastrophic expenses of pre-
existing illnesses
The regulations above increase risks to insurance companies
and reduce competitiveness
Cato Handbook for Policy Makers, Chapter 16,
Health Insurance Regulation
Town of Canaan

21. Costs - Government Provider View
In December 2011, the outgoing Administrator of the
Centers for Medicare & Medicaid Services, Dr. Donald
Berwick, asserted that 20% to 30% of health care
spending is waste. He listed five causes for the
waste: (1) overtreatment of patients, (2) the
failure to coordinate care, (3) the administrative
complexity of the health care system, (4)
burdensome rules and (5) fraud.
“Health Official Takes Parting Shot at
Waste”, New York Times.. Retrieved Dec.
20, 2011.
Town of Canaan

22. Contain costs by rewarding health and economic effectiveness and efficiency –
pay only on effectiveness and efficiency;
Create a system with choice of primary providers and insurance companies –
Interstate insurance exchanges, non-profit insurance coverage;
Cover everyone through employer or individual policy or federal coverage – tax
incentives to private employers to provide insurance;
Increase revenue to cover new enrollees through income tax, penalties and new
additional premiums (mandated enrollment);
Coverage requirements – no caps, adult children, deductibles, co-pays, denials,
pre-existing conditions and appeal rights
President Obama Finalizes Health Care Reform, IceMiller, LLP
Town of Canaan
Costs - Federal Executive View

23. US Consumers financing most of drug R&D
Use of technology as a marketing device
Lack of interstate competition in the insurance industry (exchanges)
Inability of consumer to negotiate effectively with sophisticated providers
Coverage of uninsured and extraordinary costs
Financing uninsured/under insured care
Cost of obesity
Lack of consumer “skin” or monetary risk in the purchase of care
Use of un-necessary service by consumers who do not contribute
Insufficient income to cover average per capita costs of $8,000
Fraud by providers
Burdensome rules and regulations – insurers, providers, consumers
Extra expense due to incompatible and duplicative record keeping (31%)
Rewarding effective/economic treatments rather than specific services
Universal coverage of elective and non-life threatening procedures
Under utilization of personnel, buildings and technology
Doctor and support staff shortage – high demand / low supply
Cost of malpractice insurance 7% contrasted with claims .5%
Address caps, high co-pays, pre-existing conditions, employer
contributions, cancellations and service denials
Wikipedia
Summary of Cost Elements
Town of Canaan

24. We self insure through pools
Play insurance pools off against each other
Limit who is eligible - (new
hires, spouses, families, discontinue)
Hire part time employees to avoid benefits
Require sharing of premium cost with employees
Higher deductibles
Higher co-pays
How do we currently control costs as
employers? Which costs?
Town of Canaan

25. • We look for competition between insurance pools –
making the insurance companies provide a leaner
service
• We restrict the people we cover and reduce the pool
whenever our costs get excessive – shifting the costs of
care to our employees
• We make the employees pay a larger part of the
premium cost – again shifting the cost to the employee
• We increase deductibles and co-pays – again
shifting the cost
• We DO NOT manage actual health care costs
We Don’t Manage Health Care Costs -
Employers Shift Costs to Others
Town of Canaan

26. Actuarial tables are created on the pool
membership to project costs for a single or
multi year schedule.
Quotes are requested of insurance providers
for the anticipated level of service and for
managing customer service and cost
containment.
Pools maintain a reserve fund to cover excess
claims during the scheduled term
How do Pools Function?
Town of Canaan

27. Encourage healthy living
Stress Preventive Care
Look for most favorable modeling
Urge insurance companies to question un-
necessary services or use companies that
already manage service to cut costs
Re-insure
What Do Pools do to
Control Health Care Cost?
Town of Canaan

28. Part III
What Can Employers Do To Control
Health Costs?
Town of Canaan

29. Cost of Drugs (14%)
Cost of Primary Care (30%)
Cost of administration (10%)
Fraud
% is percentage of total employer health insurance
cost
What Health Care Cost
Factors Can We Control?
Town of Canaan

30. How do we control pharmaceutical cost?
Town of Canaan

31. Assure accountability for:
Physician cost;
Support staff cost;
Quality of service;
Equipment and building utilization;
Seamless record transmission; and communication
Reduce co-pay for primary care that is accountable and increase co-pay for
primary care that has no controls
Reduce litigation and cost of liability coverage using voluntary scheduled
maximums for injuries for all but intentional or grossly negligent
Fight politically for coverage of uninsured from
sources other than ratepayers
Create competition on primary care for efficiency
and effectiveness
Manage costs effectively for all patients
How can we control
primary care cost?
Town of Canaan

32. What Follows is an example of a rural Federally
Qualified Health Clinic in Vermont. We could
try to structure our health care in a similar way.
Primary Care docs would have privileges in all
local hospitals.
This would not affect hospitals and specialists
and out of region coverage.
There would still be choice.
Town of Canaan

33. The Health Center
Plainfield, Vermont
Town of Canaan

34. 6 Rural Vermont Towns - Community Board
Comprehensive Community Health
Includes all income levels
Quality Service
Created in 1975
Initially, primary care,
lab, x-ray, counseling,
pharmacy and education
What Is The Health Center?
Town of Canaan

35. Why have a FQHC Community Health Center?
Town of Canaan
“Rural communities, suburbs, and city neighborhoods, if
they are to have accessible care would do very well to
have an Federally Qualified Health Center (FQHC) in
their area, providing an organizational structure,
economies of scale, economies of scope, efficient use of
providers organized in teams of physicians and mid level
practitioners, integration of behavioral health services,
well equipped dental units, community outreach and
social services, and access to less costly prescription
medications .
With a community board of directors in charge, the
program of each FQHC can be tailored to the needs of its
particular community. These services are not only for
the poor, the uninsured, or the medicaid population.
FQHCs provide care to all persons regardless of their
inability – or ability – to pay.”
John D. Matthew, MD Director

36. “At the start we established The Health Center as a non profit
corporation, which employs the staff and owns the practice. We have always
had a board of directors made up of community members and it has always
been our mission to provide care for everyone from our area who wants to
come to the center, whatever their insurance status. We functioned for years
as a freestanding Rural Health Clinic (RHC). The RHC caps for cost based
reimbursement were always too low. We lost money on every Medicare and
Medicaid office visit and it was a struggle to keep the organization
afloat, though we always did. We had to know where every nickel was and to
scrimp and save all we could to pay our staff and operating costs and still
break even at each year’s end. Our sliding scale was self funded, in the sense
that we had no outside monies to support the un-reimbursed care we
provided for the less fortunate. We had to know where every nickel was and
to scrimp and save all we could to pay our staff and operating costs and still
break even at each year’s end.”
J.D.M.
The Early Years of The Health Center
Town of Canaan

37. “When we became an FQHC … higher reimbursement caps provided
more income than we had received as an RHC for the very same work.
We reduced our losses on Medicare visits, though the caps still cause us
to receive less than our costs, and were able to recoup our costs for
Medicaid visits. Our grant has allowed us to have community resources
persons on staff, to expand the hours of our operations manager to
coordinate fund raising for and construction of an expanded facility, to
have the luxury of time free for program development, and to expand
the number of uninsured persons we serve on sliding scale. We are
enabled to provide not just one-on-one care in a series of office calls and
hospital visits, but also to innovate, to collaborate, and
to reach out to our community and to other agencies and
local systems that compliment the provision of these services.”
J.D.M.
Going from a Rural Health Center to a
FQHC
Town of Canaan

38. Primary medical care 60 hours per week using MD’s and PA’s
9 dental chairs with full time dentists and mobile dental service
Low cost Pharmacy that incorporates automatic dispensing
Psychiatric counseling, PTSD treatment, behavioral neurology, and
rehabilitation, and social work. Teamed with other FQHCs to set up a
tele-psychiatry link for consultations with the University of Vermont child
and adolescent psychiatrists
Physical therapy
Laboratory services
Community transportation system for care
47 Full Time Employees and 36 Part Time Employees
2009 J.D.M. Report to Congress
What is currently offered?
9,400 Patients
Town of Canaan

39. Income & Expense Summary

40. Detailed Expense

41. Board & Professional Compensation

42. Total Patients 9,400
Total Cost $5,951,569
(including education & outreach)
Annual per Patient Cost $633
Net Revenue per Patient (after grants) $91
Summary
2009
Town of Canaan

43. Bargain and pay for care of people not specific functions to
reduce redundant service and repetitive itemized billing
Increase coordination of record keeping between
Payer, Primary Care, Pharmacy, Hospitalization, Specialists
and Patient to reduce staff & systems and prevent mistakes
Reduce number of providers requiring duplication of effort
and inconsistent information
How can we control
administrative costs?
Town of Canaan

44. Spread risk over a longer period – 3-5 years
Arbitrage earnings on payments based on a five year cycle
Local management of fraud
Voluntary limitations on non-intentional negligence
Offer our efforts to reduce costs through consumer
participation/responsibility, active consumer based
management of costs and better utilization
How can we control
insurance cost?
Town of Canaan

45. Flow of Funds Diagram
Trust Certificates
Flow of Funds Diagram-
Trust Certificates Cash Out
Trust Agreement
“Trust”
•All cash invested in accordance with
established investment policy
•No cash disbursed for claim payments
or administrative fees unless coverage
ratio adequate
Debt Service
Claim Payments
Administrative
Fees
Cash Proceeds
From Loan
Employer
Monthly
Remittance
Payments
Cash In
1
Interest Income
This is an example of insuring for multiple years and arbitraging the
payments to “make” a .5% spread on the full cost over the multiple
years

46. 4646
Advanced Funding Model Self Insured
Employer’s Obligation
Remittance =$56 Million
Fixed for 36 Months
36-Month Spend
$2.016 Billion
Fully Collateralized
‘Aaa’ Rated Grantor Trust
Issues Debt
Trust Pays
Principal
& Interest
Variable
Costs
Fixed
Costs
Variable Costs = 85 to 95%
Fixed Cost = 5 to 15%
Surplus = 0 to 25%
FIXED Financing Rate FIXED
Investment Rate
1.85% 2.35%
Investment
Surplus = $184 Million
$184 Million
Years 4-6
Tax-Free
Rolling Surplus
Able to budget expense / Predictability
Investment Opportunity – Build Surplus
Non-Balance Sheet – Footnoted on P & L
Current IBNR removed from Balance Sheet
$2.108 Billion

47. 4747
Adjusted Remittance with Investment
Return Compatibility Model
$156,059,368
$149,732,637
$162,386,099
$158,168,278
$164,495,009
$172,930,651
$185,584,113
$189,801,934
$198,237,575
$194,019,755
$198,237,575
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
$200,000,000
$220,000,000
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Q212
Q312
Q412
Q113
Q213
With a Lending Rate of 1.85% and the Investment
Return to the Trust at 2.35%
$184 Million Returned to the Trust --- Total Spending Projection $1.832 Billion
Pay As You Go
One Global
“Remittance Payments”
Surplus Effect On Trust

48. Long term cost stability
Competitive customer service
Increases at rates no more than Inflation or 2x Inflation
Multiple plan levels for co-pay & deductibles
Consumer responsibility
Consumer choice and obligation for higher cost primary care
alternatives
Cost containment & full utilization and coordination role
with providers
Reduced defensive medicine costs
Lower malpractice insurance costs through
voluntary contracts with scheduled liability
maximums
What are our Long Term
Goals?
Town of Canaan

49. Broad based local participation from public and private customers
– 75% coverage of employer plans.
Competitive Drug Pricing using consumers doing bidding or bulk
purchasing – Reduce drug costs by 60%.
Lowest cost insurance customer service and rate setting
Shared control and funding of regional primary care – 1 center or
non-central program for 10,000 patients – costs average $1000 per
person per year for savings of 50%.
Customer incentives to assure full utilization of staff, equipment
and buildings – higher co-pays to use primary care locally that is
not a participating cost contained local clinic.
Service negotiations with hospitals and specialists -
reward healthy patients rather than procedures.
Reduced redundancy.
Cost Containment Objectives
Town of Canaan

50. System Relationships
Town of Canaan
Pink is paid &
managed through
the traditional
insurance company
and green is paid
through a
traditional
insurance company
and has consumer
management and
revenue arbitrage

51. Employees
Premium Payers
Employee Unions
Local Primary Care Providers
Local Hospitals
Specialists
Local Non-Profits
Insurance Pools
Insurance Companies
State & Federal Governments
Who Do We Need To Work
With?
Town of Canaan

52. Created Customer responsibility in the selection of drugs and primary care
More competition for drugs
Benchmarking primary care through a community clinic with salaried employees that must answer
to consumers regarding quality while still allowing choice
Consumer payments increase by choice of ineffective/non competitive service
Less rationing due to affordability and more focus on efficiency and effectiveness
Increased use of competitive insurance coverage through un-bundling services and national
bidding
Reduced risk through long term (5 year) financing and contracting
Created economies of scale with manpower and equipment
Improved record consistency between local pharmacy, primary
care, insurance, specialists, hospitals
Designed a system that the user community wants
Increased community participation as payers and patients
Effectiveness, quality and efficiency is self decided by community of local consumers
Cost Elements Addressed
Town of Canaan

53. US Consumers financing most of drug R&D
Use of technology as a marketing device
Lack of interstate competition in the insurance industry (exchanges)
Inability of consumer to negotiate effectively with sophisticated providers
Coverage of uninsured and extraordinary costs
Financing uninsured/under insured care – taxable benefits
Cost of obesity
Lack of consumer “skin” or monetary risk in the purchase of care
Use of un-necessary service by consumers who do not contribute
Insufficient income to cover average per capita costs of $8,000
Fraud by providers
Burdensome rules and regulations – insurers, providers, consumers
Extra expense due to incompatible and duplicative record keeping (31%)
Rewarding effective/economic treatments rather than specific services
Universal coverage of elective and non-life threatening procedures
Under utilization of personnel, buildings and technology
Doctor and support staff shortage – high demand / low supply
Cost of malpractice insurance 7% contrasted with claims of .5%
Address caps, high co-pays, pre-existing conditions, employer
contributions, cancellations and service denials
Comparison / Management of Cost Elements
Town of Canaan

54. Cost Elements Addressed
Town of Canaan
30%
14%
45%
10%
Primary Care
Drugs
Hospitals/Spec.
Administrative

55. Primary
Care, 15%
Savings
Primary, 15%
Hospitals, 45%
Drugs, 6%
Savings
Drugs, 9%
Administrative,
10%
Savings
Administration,
2%
Primary Care
Savings Primary
Hospitals
Drugs
Savings Drugs
Administrative
Savings Administration
Cost Elements - Containment Goals
Town of Canaan
Total Goal for Containment 26% and
continuing

56. The strategies can be implemented
in part or completely
Town of Canaan
The Parts We Can Implement:
Pool Competition
Extending years of premium coverage
Arbitraging a .5% spread between borrowing and payment
Bidding Drugs
Participation in cost management of primary care through a
“Accountable Care Organization” or FQHC.
Negotiating with hospitals and specialists
Negotiating terms with insurance companies where we
implement “ACO” management and get benefits

57. Call For Action
Health costs are increasing 3 or 4 times the rate of inflation.
Private employers can’t absorb this cost and be competitive.
Public employers can’t absorb this cost and pass budgets.
As costs increase dramatically, fewer employers will insure and more costs will be
shifted to employees.
Employees can’t absorb a $22,000 annual family cost for care.
Reducing the covered employees, raising the employee share of premiums,
increasing co-pays and deductibles shift costs to employees that they can’t afford.
Federal and state governments are trying to avoid the cost of uninsured workers by
passing it on to doctors and hospitals who can’t afford it.
Hospitals are the largest & most sophisticated area to manage and have little
consumer representation and consumer accountability is harder to implement. Drugs
and primary care services are the most effective way we as ratepayers and
consumers can try to slow costs.
Without a real effort to control medical costs employers will not be insuring people;
they will not be able to pay their medical bills and hospitals; they will be picked by a
federal plan that will be overwhelmed as employer insured employees shift to a
federally subsidized system where a smaller employer penalty is a mere fraction of
the previous level of premium support; and doctors will not have customers.
All of us: ratepayers; patients; docs and hospitals; need to have a collaborative
management system to contain cost. HOW WILL WE COLLABORATE?

58. Proposed Discussions
Meeting with Public Sector Employers in Upper Valley
Meeting with Public Sector Union Representatives in UV
Meeting with Private Sector Employers offering coverage in UV
Determination whether there is interest
Meeting with NHIT, School Care and LGC
Meeting with all unique Primary Care Providers in UV
Meeting with Bid RX and Trendline
Tour and review of The Health Center
Meeting with NH Insurance Department
Meeting with UV Hospitals and Specialists
Future Plans for Implementation
Town of Canaan