PPO Trends: What Lies Ahead

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PPO Trends What Lies Ahead? AAPPO 2005 Annual
Forum Track 1, Session 3
Presented by Bruce Perkins Senior Vice
President, Humana Inc. President, ChoiceCare
Network
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Discussion Guide

• The Market Opportunity
• Market Dynamics
• Summary of Opportunity
• Industry Trends
• Growth Strategies
• Conclusions
• QA

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The Market Opportunity

• Estimate of Employer-Sponsored Insured Population
  (US) 2003

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Market Dynamics

• Market Shares of Health Plans 2001 - 2004
• PPO Market Share Continues to Grow
• Source Kaiser Employer Health Benefits Survey
  2004

There are 87.5 million PPO members covered via
employer-sponsored plans (159 million x .55)
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Market Dynamics

• 2004 Estimate US Non-Elderly Membership by Plan
  Type and Firm Size
• Source KFF 2004 Employer Health Benefits Survey

Note Relatively low penetration within smaller
firms
The bulk of US PPO Membership (64 56 million)
is related to employers with 100 employees
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Market Dynamics

• Health Care Costs Continue to Rise
• Employer-sponsored premiums rose by 11.2 between
  spring of 2003 and spring of 2004 (lower than the
  13.9 increase in the prior 12 month period).
• Premium increases continue to outpace overall
  inflation (2.3) and wage gains (2.2).
• The Market Opportunity is Shrinking
• The percentage of all workers receiving health
  coverage from their employers fell from 65 in
  2001 to 61 in 2004. The primary drivers were
• Slower economy Increase in unemployment and
  uninsured (from 40.9 million in 2001 to 44.7
  million in 2004).
• Gradual shift from higher paying manufacturing
  base to lower paying service industries.
• Significant decrease in the percentage of small
  firms (3-99) offering health insurance (from 68
  in 2001 to 63 in 2004).
• Source KFF 2004 Employer Health Benefits Survey

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Market Dynamics

• The Market Opportunity is Shrinking
• While the US Population has increased, the net
  number of non-elderly who are insured has
  decreased by 800,000 between 2001 and 2003
• A significant increase in Individual coverage has
  not emerged as of yet, but many payers are
  anticipating potential growth with the possible
  enactment of proposed tax credits.
• Source KFF 2004 Employer Health Benefits Survey

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Market Dynamics

• Percentage of Firms Offering Health Benefits, by
  Firm Size, 1996 2004
• Source KFF 2004 Employer Health Benefits Survey

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Market Dynamics

• Percentage of US Workers in Partially or
  Completely Self-funded Plans, by Firm Size, 1996
  - 2004
• Source KFF 2004 Employer Health Benefits Survey

The overall percentage of firms pursuing partial
or complete self-funding is on the risedriven
primarily by increases in firms with 1,000
employees.
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Summary of the Opportunity

• There are 159 million Americans under the age of
  65 who have employer-sponsored health insurance
  coveragebut future growth will be tied to
  economic/job growth
• Approximately 87.5 million members (55) access
  PPO networks
• PPOs market share within employer-sponsored
  health plans continues to grow (from 42 in 2000
  to 55 in 2004)
• PPOs are more prevalent in groups with 50
  employees
• Small employers have a relatively low penetration
  of PPO plans (39)
• There has been a significant decrease in small
  group employer-sponsored health coverage, which
  is driving an increase in the uninsured
  population
• Self-funding option is growing in popularity with
  large employer groups.
• There is a significant opportunityhow do you
  grow market share?

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Industry Trends

• Basic cost-sharing strategies are being
  considered by more employers
• Source Kaiser Employer Health Benefits Survey
  2004

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Industry Trends

• More sophisticated cost-control strategies are
  growing in popularity (particularly with large
  employer groups)
• Disease Management Programs
• Consumer-Driven Health Plans
• Specific interest High deductible plans with
  personal or health savings account option.
• Tiered Provider Networks (e.g. physician/hospital
  and pharmacy)
• High Performance Networks
• Source Kaiser Employer Health Benefits Survey
  2004

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Industry Trends

• Percentage of Firms Familiar with the Following
  Types of Health Plans
• Source Kaiser Employer Health Benefits Survey
  2004

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Growth Strategies
Self-Funded Groups Unique Selling Propositions
for Self-Funded Groups Payers vs. TPAs

• Payers
• Sell the Network Price Advantage
• Offer proprietary risk networks in dominant
  geographies and leading non-risk networks in
  other geographies.
• Off the rack plan/benefit designs.

• TPAs
• Sell Complete Customization
• Offer access to any non-risk network desired by
  the customer.
• Offer customized plan/benefit designs.

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Growth Strategies

• The Holy Grail
• Provide a full spectrum of services and
  customizationas well as a seamless, single-logo
  nationwide provider network offering superior
  discounts in all major population and adequate
  scope in all geographies.
• Enables nationwide reciprocity for traveling plan
  members.
• Provides nationwide platform for the development
  of tiered networks, high performance networks,
  and customized plan/benefit designs.
• Reduces administrative inefficiencies/customer
  service issues.
• How are TPAs and Payers gradually moving toward
  this solution?

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Growth Strategies

• Marketplace Behaviors
• Payers are selectively leasing their networks
• Aetna is leasing to FiServ (CoreSource)
• The Blues are leasing networks to union groups
  (FL, IL, AZ)
• UNH National PPO is being offered through
  Uniprise.
• Humana is leasing its national PPO network,
  ChoiceCare Network, on a selective basis.

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Growth Strategies

• Marketplace Behaviors
• Interesting Payor Acquisitions
• UnitedHealthcare (MAMSI/Alliance PPO, TouchPoint
  Golden Rule).
• Coventry (FirstHealth?HCVM, CCN, PPO Oklahoma)
• PacifiCare (AMS, Pacific Lifes Group Health)
• WellPoint (HealthLink?NCPPO, AHI Network)
• Anthem (WellPoint)
• Purpose Scale, Diversity, Knowledge, EBITDA

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Growth Strategies

• Marketplace Behaviors
• Non-risk networks are consolidating and adding
  new services
• MultiPlan (UpUp, 4Most Health Network,
  HealthEOS?NEHCA, HCN, WPPN, AHC).
• Interplan Health Group (Accountable Health Plans,
  The Chandler Group of Companies)
• PHCS (ALC, Statewide PPO)
• ppoNEXT (MedicalControl Network Solutions,
  Healthcare Evaluation, Preferred Health Network,
  MasterCare)

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Growth Strategies

• Opportunity Assessment Key Constituents

S Strong M Medium W Weak N/A Not
Applicable
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Conclusions

• PPO market share continues to increase as a
  percentage of the market opportunity (which has a
  slight downward trend)
• Payers are more focused and more adept in the
  traditional PPO market than ever before
• Diversification, when possible, makes sense
• Industry consolidation will continue
• Consumer engagement offerings will rapidly expand
• Low unit cost is important

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