A Study on Health

Care Plans
Ponno Jonatan, MM,ASAI
May 2007
 Contents
 Definition
 Background & Issues
 Expenditures on Health
 Changes
 GDP growth
 Population growth
 Life Expectancy
 Increasing Costs of Health Care
 Factor by components
 Breakdown of Premiums
 Share by components
 Employer Responses
 Managed Care
 Cost Control
 Other component
 Prepaid plans
 PPO

POS
 EPO
 Health Insc. Benefits Plans
 Health Care System in USA
 Graph
 Indonesia-Current Situations
 Age Pyramid – 2050
 Old-age dependency Ratio
 Insurance Market-Share
 References
 Definition
 Healthcare is the prevention, treatment, and
management of illness and the preservation of
mental and physical well-being through the
services offered by the medical, nursing, and
allied health professions. (www.wikipedia.org)
 health care embraces all the goods and services
designed to promote health, including
“preventive, curative and palliative interventions,
whether directed to individuals or to populations”
(World Health Organization).
 Background and Issues
 Increases on cost
 As the cost of health care has continued to escalate, health care
benefits have become an increasingly valuable employee benefits
 Increases on demand

International experiences show the longevity increases of about 3
months per year1)
 The longer you live, the more medical services will be consumed
 It’s projected that the population aged 75 and older will increase four
times faster than that under age 65
 The continuing rise in health care costs is causing more and more
employers to move to self-insurance

Post-retirement Welfare Costs (FAS106): force employers to recognize
that retiree medical coverage is an expensive benefit

Guerard, Yves, Secretary General of IAA, The New Indonesian

1)

National Social Security Law, 14th EEAC, 2005

 Expenditures on Health
Total Health Expenditures (total, private, public) as a
Percent of GDP (OECD Countries, 2004)
 Total expenditure on health is
defined as the sum of expenditure
United States 15.3%
on activities that:

Promoting health and preventing United Kingdom 8.1%
disease;
 Curing illness and reducing Netherlands 9.2%
premature mortality;

Caring for persons affected by Korea 5.6%
chronic illness who require
nursing care; persons with Greece 10.0%
health-related impairments,
disability, and handicaps who
Germany 10.6%
require nursing care,

Assisting patients to die with
France 10.5%
dignity,
 Providing and administering Canada 9.9%
public health, health programs,
health insurance and other
funding arrangements. Australia 9.6%

 GDP = consumption + investment 0.0% 5.0% 10.0% 15.0%

+ (government spending) +
(exports − imports)
Sources: OECD Health, 2006
Expenditures on Health (2)
Change in health expenditures (total, private, public) as a share of GDP, OECD
countries, 1990 and 2004
1990 2004

15.3
15.0

11.6
12.0
10.5 10.6
10.1 9.9 10.0 10.2 10.1
9.6 9.6 9.7
9.2 9.1
8.7
9.0 8.0
8.4
8.1 8.1
7.5 7.7
7.1
6.5 6.5
6.0 5.6

3.0

0.0
Australia

Austria
Belgium*
Canada

Finland

France
Germany
Greece
Iceland

Ireland
Italy
Japan*

Korea
Mexico
Netherlands
New Zealand
Norway
Poland

Portugal
Spain
Sweden

Switzerland

Turkey
United Kingdom

United States
Sources: OECD Health, 2006
Expenditures on Health (3)
GDP per capita Growth (in Billion US$), OECD countries, 1990 and 2004
1990 2004

60,000
56,344
55,000
49,601
50,000
45,372
44,495
45,000
39,841
40,000 38,827
37,419
35,866 36,229 36,076 36,019
34,382
35,000 31,741 33,263
33,048
31,111
30,098
30,000
23,832 24,036 24,467
25,000

20,000 17,070
14,181
15,000

10,000 6,698 6,617

4,289
5,000

0
Australia

Austria
Belgium*

Canada

Finland

France
Germany

Greece

Iceland

Ireland
Italy

Japan*

Korea

Mexico

Netherlands
New Zealand

Norway

Poland

Portugal
Spain

Sweden

Switzerland

Turkey
United Kingdom

United States
IMF Data, 2007
Expenditures on Health (4)
Population Growth (in millions people), OECD countries, 1990 and 2004
1990 2004
294.0
300

250

200

150
127.7

102.1
100 82.5
70.6
62.3 57.4 59.8
48.0
42.7
50 31.9
38.2
20.1 16.3
8.2 10.4 11.1 10.5 9.0 7.3
5.2 4.0 4.1 4.6
0.3
0
Australia

Austria

Belgium*
Canada

Finland

France

Germany

Greece

Iceland

Ireland

Italy

Japan*

Korea

Mexico

Netherlands

New Zealand

Norway

Poland

Portugal

Spain

Sweden

Switzerland

Turkey

United Kingdom

United States
IMF Data, 2007
Expenditures on Health (5)
LE at Birth Selected Countries 1950 - 1998

Male Female
Country
1950 1998 Gain 1950 1998 Gain
Austria 62.0 74.1 12.1 67.0 80.7 13.7
Belgium 62.1 74.1 12.0 67.4 80.7 13.3
Czech Republic 60.9 70.8 9.9 65.5 77.7 12.2
France 63.7 74.6 10.9 69.4 82.6 13.2
Germany 64.6 73.8 9.2 68.5 80.3 11.8
Greece 63.4 75.8 12.4 66.7 81.0 14.3
Italy 63.7 75.3 11.6 67.2 81.7 14.5
United Kingdom 66.2 74.8 8.6 71.1 80.1 9.0
Australia 66.7 77.0 10.3 71.8 83.0 11.2
United States 66.0 72.9 6.9 71.7 83.3 11.6
Average 63.9 74.3 10.4 68.6 81.1 12.5
LE Gain per Year 2.6 months 3.1months
Sources: presentation prepared by
Jean-Noël Martineau, First Initiative
Increasing Costs of Health Care
 Factor causing Increasing Cost  The reasons for price increases in
of Health Care excess of inflation include
 PwC estimates that the overall movement among purchasers
increase in premiums between toward broader-access health
2004 and 2005 was 8.8% plans, provider consolidation,
increased costs of labor, and
30% higher priced technologies.
Healthcare
Price
 utilization increases primarily to
27% Increases in increased consumer demand, new
General Excess of medical treatments, and more
Inflation Inflation intensive diagnostic testing due
partially to the practice of defensive
medicine. An aging population
Sources:PricewaterhouseCoopers and
(PwC) report,
commissioned by America’s Health Insurance Plans
increasingly unhealthy
(AHIP) entitled “The lifestyles
Factors Fueling Rising Healthcare
43%
Increased were also contributors.
Costs.”

Utilization Methodology: review of government and private surveys,

2005 forecast done by Center for Medicare and Medicaid
Services (CMS) forecast for 2005, interviews with health
insurance plan actuaries and examination of other
unpublished sources
Increasing Costs of Health Care (2)
 Increasing Costs of Health Care (3)
Estimated Breakdown of Insurance Premiums with Medical Liability
and Defensive Medicine Extracted, 2005
The cost of health insurance premiums is primarily a reflection of the overall cost of healthcare services

Gove rnm ent Paym e nts,

Insurance Industry
Com pliance, Claim s
Profit,
Process ing & Other
3%
Adm inistration, Consum er Services,
6% Provider Support &
Marke ting,
5%

Physician Se rvices,
21%
Physician Services, 3%

Hospital Inpatie nt, 1%

Hospital Inpatient, Cos t Liability &

17% Defens ive Medicine,
10%
Oupatient, 4%

Outpatient (Fre e-
standing & Hospital), Prescription Drugs, 1%
18% Pre scription Drugs,
15% Other, 1%

Other Medical,
5%
Increasing Costs of Health Care (4)
 Increasing Costs of Health Care (5)
 Employer responses to rising costs:
 Increasing employee contributions and out-of-pocket expenses
(e.g. increase deductibles, raise coinsurance percentages,
greater use of internal limits on certain type of benefits)
 Introducing flexibility benefits plan
 Terminate the plan
 Redesign benefits (to create incentives for more efficient
utilization of health insurance)
 Evaluating the plan administration
 Evaluating the plan financing
 Investigating the use of alternative delivery and delivery and
reimbursement system (e.g. HMOs, PPOs, EPOs)
 Managed Care
 The employer activities in relation to their health benefit plans have
evolved the concept of manage care.
 Definition: Integration between the financing and delivery of
appropriate health care services with 3 major objectives:
 to ensure access to medically needed care in the most appropriate and
cost-effective manner,
 to provide coordination and continuity of medically necessary.
 to assist the patient in achieving his/her full potential for resorted health.
 Managed care provides oversight, supervision, and feedback to
providers in regard to their behavior and the aggregate expenditures
on behalf of an enrolled group.
 Managed care plans may appeal to younger, more mobile, and
healthier population that is likely to have established relationships
with traditional insurance plans.
 Cost Control
 Basic Component
 Deductible
• All Cause deductible
• Per cause deductible
• Corridor deductible
• Integrated deductible
• Common accident provisions

Coinsurance

Internal benefit limits
• Life-time maximum
• Per-cause-maximum

Coordination of benefits
 Subrogation
 Cost Control (2)
 Other Components
 Second Surgical Opinions
 Preadmission Testing and Same-Day Surgery Provisions

Utilization Review
• Preadmission certification
• Concurrent or continued stay review
• Discharge Planning
• Catastrophic Case Management (CCM)
• Retrospective Review
 Prescription Drug Co-payment Plans
 Outpatient Surgery
 Health Education and Screening Program
 Employee Assistance Program (EAP)
 Maternal and Well-Baby Care Program
 Birthing Centers
 Prepaid Plans (HMO, PPO, EPO)
 Prepaid Plans
 Health Maintenance Organization (HMO)
 An entity that provides, offers or arranges for coverage of designated health services
needed by members for a fixed, prepaid premium.

HMOs offer prepaid, comprehensive health coverage for both hospital and physician
services.
 The HMO is paid monthly premiums or capitated rates by the payers, which include
employers, insurance companies, government agencies, and other groups representing
covered lives.
 There are 4 basic models: group model, individual practice association, network model and
staff model.

An HMO contracts with health care providers, e.g., physicians, hospitals, and other health
professionals.
 The members of an HMO are required to use participating or approved providers for all
health services and generally all services will need to meet further approval by the HMO
through its utilization program.

Members are enrolled for a specified period of time. HMOs may turn around and sub-
capitate to other groups. For example, it may carve-out certain benefit categories, such as
mental health, and subcapitate these to a mental health HMO. Or the HMO may subcapitate
to a provider, provider group or provider network.
 Prepaid Plans (2)
 Preferred Provider Organization (PPO)
 A health care delivery system that contracts with providers of medical care to
provide services at discounted fees to members.

Members may seek care form non-participating providers but generally are
financially penalized for doing so by the loss of the discount and subjection to co-
payments and deductibles.

The services may be furnished at discounted rates and the insured population
may incur out-of-pocket expenses for covered services received outside the PPO
if the outside charge exceeds the PPO payment rate.

A PPO can also be a legal entity or it may be a function of an already formed
health plan, HMO or PHO.
 PPOs are a common method of managing care while still paying for services
through an indemnity plan.
 Generally PPOs will offer more choice for the patient and will provide higher
reimbursement to the providers

Most PPO plans are point of service plans, in that they will pay a higher
percentage for care provided by providers in the network.
 Prepaid Plans (3)
 Point of Service (POS) plans
 A health services delivery organization that offers the option to its
members to choose to receive a service from participating or a
nonparticipating provider.
 Generally the level of coverage is reduced for services associated with
the use of non-participating providers.

Managed care plan that specifies that those patients who go outside of
the plan for services may pay more out of pocket expenses.

Typically, the costs associated with receiving care from the "in network"
or approved providers are less than when care is rendered by non-
contracting providers. Or the costs are less if provided by approved
providers in either the HMO or PPO rather than "out of network" or "out
of plan" providers.
 This is a method of influencing patients to use certain providers without
restricting their freedom of choice too severely.
 Prepaid Plans (4)
 Exclusive Provider Organizations (EPO)
 A plan that limits coverage of non-emergency care to contracted health care
providers.

Operates similar to an HMO plan but is usually offered as an insured or self-
funded product.
 Sometimes looks like a managed care organization that is organized similarly to
a PPO in that physicians do not receive capitated payments, but the plan only
allows patients to choose medical care from network providers.
 If a patient elects to seek care outside of the network, then he or she will usually
not be reimbursed for the cost of the treatment.
 Uses a small network of providers and has primary care physicians serving as
care coordinators (or gatekeepers).

Typically, an EPO has financial incentives for physicians to practice cost-effective
medicine by using either a prepaid per-capita rate or a discounted fee schedule,
plus a bonus if cost targets are met.

Most EPOs are forms of POS plans because they pay for some out-of-network
care.
 Health Insurance Benefits Plan
 Comprehensive Health Insurance Plans
 Medical Expense Insurance
• Hospital Expense Benefits
• Surgical Expense Benefits
• Extended Care Services

Skilled Nursing Expense Benefits

Home Health Care Expense Benefits

Hospice Care Expense Benefits
• Other Medical Expense Benefits
• Disability Income
 Flexible Benefit Plans
 Cafeteria Plans
 Flexible Spending Accounts (FSA)
 Other Medical Expense Insurance Plans
 Dental Insurance Plan
 Vision Care
 Prescription Drug Expense
 Long-term care (LTC)
 Health Care System in USA
 Health Insurance Providers in USA:

Commercial insurers
• Generally provide payment of benefits directly to the insured, unless
the insured has specifically assigned payment to designated
provider of medical services
 Stock life insurance company
 Mutual life insurance company

Blue Cross and Blue Shield Organizations
• Operate as nonprofit hospital and medical service corporations
• Lower premium as a consequence of a favored tax status

Health Maintenance Organizations (HMOs)
 Self-insured plans
 Federal or state governments
Health Care System in USA

Sources: OECD Health, 2006

Indonesia - Current Situations
Life Expectancy @ Birth
Indonesia
UN Projections 2000 - 2050
80
78
76
74
72
70
68
66
64
62
60
0

0
01

01

02

02

03

03

04

04

05
00

00

-2

-2

-2

-2

-2
-2

-2

-2

-2

-2

-2
05

15

20

25

30

35

40

45
95

00

10
19

20

20

20

20

20

20

20

20

20

20
Male Female
Indonesia - Current Situations (2)
Indonesia Population
Age Pyramid
UN Projections - 2050
80+

70-74

60-64

50-54

40-44

30-34

20-24

10-14

0-4
-15000 -10000 -5000 0 5000 10000 15000
Male Female
Indonesia - Current Situations (3)
IndonesiaOld AgeDependency Ratio @ 65
Observed & Projected
1950 - 2050
30%

25%

20%

15%

10%

5%

0%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Observed UN Projections - Medium Variant

Indonesia - Current Situations (4)

Sources: Country Report-13th East Asian

Actuarial Conference, Bali 2005
 References
 Organization for Economic Co-operation and Development OECD website (
www.oecd.org)
 Glossary of Terms in Managed Health Care (www.pohly.com/terms_i.html)
 Black, Kenneth Jr. Life-Insurance 12th ed. Prentice-Hall, Inc. USA, 1994
 International Monetary Fund (IMF) website (www.imf.org)
 Presentation prepared by Jean-Noël Martineau, First Initiative, “Donors and
Stakeholders Workshop on Law 40 of 2004 -Implementing an Indonesian
National Social Security System Modelling System Costs”, June 6th 2005
 Indonesia - Country Report, 13th East Asian Actuarial Conference, Bali
2005
 PricewaterhouseCoopers (PwC) report, commissioned by America’s Health
Insurance Plans (AHIP) entitled “The Factors Fueling Rising Healthcare
Costs.”