1 You’ll need to edit the top master document to make this change.HCFMA Conference 2017 Healthcare Payer Trends Political rumblings shake the Individual market as payers & providers continue to innovate Time Saver #Name# & #Month# Select #Name# and or #Month# and simply change it. This is a new change to previous versions Copyright Date You’ll need to edit the top master document to make this change. Delighted to be here to talk about the payer perspective – including some of the things that are keeping the health plans up at night, some of the things they do that probably keep you awake at night, and some of the trends and opportunities at work in the healthcare market right now. Author: Paula Wade Published: August 2017 Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

2 Ten national payer trends to considerCommercial Landscape Ten national payer trends to consider 1 Political fallout over ACA continues to roil the individual market 2 Network-based products define the choices for most commercial healthcare purchasers 3 Greater cost-sharing has become more common in the employer market 4 Medicare Advantage continues to gain membership, especially through group accounts 5 Providers are shaking things up through payer-provider collaborations, joint ventures, and direct contracting with employers 6 Vertical expansion takes hold at UnitedHealth with SCA purchases, physician group acquisitions 7 Consolidation continues, but on a smaller scale than that attempted in the halted mega-mergers 8 Site of care is a major focus for payer cost controls 9 Payers step cautiously into non-medical determinants of health (housing, access to fresh food, social services) 10 The market shift to self-insurance has accelerated with ACA This says top trends – and many of these are not new. But the conditions of the market and the new innovations at work are worth talking about because some are relevant here in North Carolina while others are not. Obviously we’ll talk about the uncertainty created by the political fallout around the ACA – Because if that’s not worrying you, it should be. And then we’ll go to the more familiar trends – in Network-based products, high cost-sharing, Consolidation, site of care management. We’ll talk about what innovative providers and payers are doing to shake things up through vertical integration, joint ventures, collaborations. And we’ll talk about self insurance and opportunities for providers to step out with direct contracting. We’ll touch on Medicare Advantage and work done by payers and providers around social determinants of health. But before we get into that, I’d like to start with some context. Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

3 Commercial market snapshot: January 2017Commercial Landscape Commercial market snapshot: January 2017 This slide shows in the column US healthcare membership by type of coverage, with the bottom two blocks being fully insured and self insured commercial coverage. Of the million insured population, 57%, are commercially insured through an employer or in the individual market. 77 million Medicaid, 57,5 million Medicare. The pie shows use the national commercial market by membership and who the big players are. Don’t be fooled by all the slices here, because this pie tells a story of a consolidating industry. The big blue chunk are the independent blue plans, including BCBSNC. Next is Anthem, comprised of 14 for-profit BCBS plans. And then the black slice is Health Care Service Corp – a mutual with 5 Blue plans. Now because each Blue Plan has sovereign territory and they don’t compete directly, they function competitively as a single plan – with 48 percent of the market. Next is UNH with 14%. 171.5 million commercially insured, slightly less than half (83.2 million, 48%) are in Blue plans. It’s a consolidating market nationally, and we’ll talk more about that later. Now let’s look closer to home. Source: HealthLeaders-InterStudy, as of January 2017. Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

4 North Carolina: Lack of Medicaid expansion adds to uninsured burdenCommercial Landscape North Carolina: Lack of Medicaid expansion adds to uninsured burden How does NC compare with the nation in terms of coverage? There are three big takeaways from this chart. First is the significantly large Commercial membership- suggesting a vibrant local economy and employers who feel they need to supply health coverage to keep their employees. The higher level of uninsurance here is directly related to NC’s choice not to expand Medicaid under the ACA. And then we see a slightly older population in the state. Now let’s look at the commercial market shares: Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

5 Commercial market in North Carolina: Highly concentratedCommercial Landscape Commercial market in North Carolina: Highly concentrated Blue Cross Blue Shield of North Carolina so dominates the commercial healthcare market in North Carolina that only one competitor has managed a double-digit market share: UnitedHealth Group. United’s presence in the state is boosted by its dominant share of the state’s MA membership: Aetna’s presence in the state has declined in recent years as the carrier has found itself outpriced by its rivals. Cigna’s seven collaborative care arrangements with NC health systems are part of its effort to offer higher value to self-insured groups. Cigna believes they contribute to its lowest-in-the- industry cost trend. No surprise here – BCBSNC controls 60 percent of the commercial market through its own insureds and those it manages through the Blue Card system – in other words, those insured through other blue plans, but living in NC. The fact that only one other carrier – UnitedHealth – has managed to gain double-digit market share reveals a level of market concentration that many economists would consider less than healthy. But the one thing all these people have in common is that they’re all worried about our next topic. Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

6 Political fallout of the ACA fight threatens entire individual marketCommercial Landscape Political fallout of the ACA fight threatens entire individual market ACA repeal impasse creates uncertainty for insurers Uncertainty prompted exchange withdrawals by Aetna, Humana, UnitedHealth and Anthem Humana, Aetna are exiting individual segment; Anthem exiting in California Non-Anthem Blue plans, Kaiser Permanente and Medicaid MCOs Centene and Molina are staying in Insurers don’t know if cost sharing reimbursements will be there ~ 7 million low-income people CSRs offset large deductibles and other cost-sharing Without CSRs, exchange enrollees might have coverage, but less access to actual care Adds 19% to premium cost “Let it collapse” strategy via administrative acts Discontinued promotion of exchange enrollment period De-funded ACA exchange navigators and educators May re-define “full time employment” to 40 hrs Administration has hinted it may not enforce the coverage mandate The uncertainty created by the political fallout over the ACA In North Carolina, BCBSNC reported an MLR of 86 percent on its individual plans, indicating its costs stabilized last year. ACA requires coverage for firms with more than 50 FTE. KFF, S&P analyses show individual market had begun to stabilize in 2016. Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

7 North Carolina: Individual market outlook for 2018Commercial Landscape North Carolina: Individual market outlook for 2018 BCBSNC (502,000 exchange lives) filed for an average exchange premium increase of 22.9% in 2018 In its blog, the Blue plan said its rate hike would have averaged 8.8% if CSRs were certain. Cigna has filed for exchange premium hikes averaging 32% It has 21,400 exchange lives Most exchange members receive premium subsidies that mitigate the effect of the premium increase to members The carrier has eliminated its open-access plans for individuals in 2018. The uncertainty surrounding the attempted repeal of the ACA, the threatened elimination of CSRs and other likely administrative actions to weaken the law are taking their toll in North Carolina. The carriers appear to expect that these changes will likely reduce exchange signups among those with lower health risk. For those who are ineligible for premium subsidies, the changes may price them out of coverage, or to lesser coverage. To the extent that currently enrolled North Carolinians are priced out of the market or simply don’t sign up, hospitals may see their charity/uncompensated care burden increase in 2018.

8 Major insurers’ plans increasingly defined by their networksCommercial Landscape Major insurers’ plans increasingly defined by their networks More than 90% of MCOs offer narrow or restrictive network plans On average, MCOs’ narrow networks are 33% smaller than insurers’ broad networks (2016) Blue plans generally have been slower to move to restrictive networks More than half of health plans use tiered networks in their plan designs Providers chosen based on cost, referral patterns, prescribing and brand Depends on the existence of a large provider base in the area Originally used to exclude cost outliers, now used to deliver value and reduce prescribing cost 39% of MCOs estimate cost reduction of >15% through narrow networks (2016) Powerful regional health systems are pushing back on tiers - New York Presbyterian does not allow any insurer to place it on a tier in which a member is incentivized to use another system over its hospitals. (Frenkel Benefits) Co-branded products team MCOs with IDNs/ACOs Out-of-pocket costs for out-of-network utilization have grown sharply, through higher OON copays, separate OON deductibles BCBSNC’s Blue Local plans with Carolinas Healthcare, Duke Medicine and WakeMed are examples of these Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

9 Employers are careful limiting care delivery options/restrictionsCommercial Landscape Employers are careful limiting care delivery options/restrictions Employers’ care delivery plan features, 2016 While most health plans are touting their tiered and narrow-network plan designs, employers are being very select about their uptake of these elements. Most employers are wary of limiting their employees’ choice of providers, but are more willing to incentivize use of a network deemed to be “high performing.” Telemedicine coverage may be more attractive to large groups with geographically dispersed employees. In the case of large employers who cover telemedicine, the HRET survey found that 33% offer a financial incentive to use telemedicine rather than an in-person visit. Kaiser/HRET Survey of Employer-sponsored Health Benefits, 2016 Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

10 High-deductible plans cover >40% of adults in commercial marketCommercial Landscape High-deductible plans cover >40% of adults in commercial market More than 40% of commercially insured adults face high deductibles, creating a disincentive to seek care and fill needed prescriptions. Numerous studies have shown that those with high deductibles are more likely to skip care due to cost. The National Health Interview Survey found that HDHP members were almost twice as likely to forgo or delay care than those with traditional plans. NHIS defines HDHPs as having annual deductibles of at least $1,300 for an individual and $2,600 for a family. Source: National Health Interview Survey, : Financial Barriers to Care: Early Release of Estimates from the NHIS 2016

11 Commercial Landscape Now nearly universal, deductibles can inhibit utilization burden providers Among employer-covered workers in 2006, 55 percent of workers paid a general deductible for single coverage. By 2010, deductibles applied to 70% of workers. In 2016, 83% of workers had general deductibles. For the 17.5 million with individual insurance coverage, deductibles are the norm, and are far higher. Employers and health plans have cushioned this trend with plan designs that exempt prescription drugs or some physician visits. Kaiser/HRET Survey of Employer Sponsored Health Benefits

12 Provider-led insurers continue to gain strength in their marketsNational Medicaid Analyzer Provider-led insurers continue to gain strength in their markets CareConnect, the health plan subsidiary of NorthShore-LIJ Health, is broadening its reach to small-group commercial clients in New York Cleveland Clinic has formed a new jointly owned health plan with the healthcare startup Oscar Health Johns Hopkins Healthcare has branched into Medicare Advantage plans and plans to offer commercial coverage Sutter Health Plus, Sutter Health System’s HMO, saw a 50% rise in health plan membership. Sutter has invested in outpatient clinics and surgical sites that help lower site-of-care cost DC UPMC Health Plan teamed with a regional competitor, Reading Health System, to offer a joint venture health plan that includes commercial and MA lines Memorial Hermann Health plans exited the individual market altogether for 2018 due to losses, but still offers MA and group plans

13 Large self-insured employers contract directly for bargain-priced careCommercial Landscape Large self-insured employers contract directly for bargain-priced care Employers Centers of Excellence Network is a buying coalition made up of JetBlue, McKesson, Walmart, and Lowe’s. It has contracted directly for hip and knee procedures with centers of excellence in major markets. UnitedAirlines: Based in Chicago, it has contracted with Rush University Medical Center for hip and knee replacement and spinal fusion. It offers employees full coverage for the episode of care, plus free travel and lodging. Toyota and Home Depot use direct provider network contracts in their markets with high membership volume. Boeing and Intel contract with ACOs in their major markets. Expect more employers to join this movement of choosing low-cost providers and bargaining for episode- of-care rates for specific services. Self-insured employers with thousands of employees in a given market can offer a steady stream of business and prompt payment to providers, with providers bearing the financial risk of any complication.

14 Growth in self-insured plans accelerates post-ACACommercial Landscape Growth in self-insured plans accelerates post-ACA Several reasons that we’ve seen a noticeable increase in self-insured versus fully insured: Smaller group employers are purchasing self-insured plans backed with stop-loss coverage or are purchasing the ‘level funded’ plan offerings from Cigna, Aetna and United Health. The reason – ability to use PBM management of drug costs, ability to get out from under some ACA regulations. The consequence to the hospital industry is that such employers are on the hook for the health cost of employees – may consider health-system sponsored ACO or clinic arrangement. Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

15 UnitedHealth continues to build vertically through acquisitionCommercial Landscape UnitedHealth continues to build vertically through acquisition Nation’s largest insurer with 33M medical lives, 26M pharmacy lives ~700K commercial lives in North Carolina 250K Medicare Advantage lives in North Carolina Its growth strategy focuses on acquiring provider assets in 75 top healthcare markets nationwide to maximize its access to aligned low-cost providers OptumCare unit now includes 21,000 physicians and 250 Med Express urgent-care centers OptumCare recently purchased Surgical Care Affiliates, with more than 200 ambulatory surgery centers in 33 states Charlotte is believed to be one of the 75 markets targeted . Source: Decision Resources Group, as of July 2016.

16 Health plan consolidation hasn’t stopped – it’s just cooledCommercial Landscape Health plan consolidation hasn’t stopped – it’s just cooled The proposed mega-mergers of insurer giants Anthem & Cigna and Aetna & Humana may have been stopped by federal regulators, but that hasn’t stopped the continuing trend toward concentration in the health insurance industry. Centene’s successful merger with California-based Health Net has strengthened Centene as it has moved into the commercial individual business through the ACA exchanges. Kaiser Permanente’s purchase of Group Health Cooperative has stretched its footprint across the entire West Coast. Meanwhile, most of these players have plenty of ready cash and are looking to buy small regional or provider-based plans.

17 Site-of-care a major focus for health plans, employersCommercial Landscape Site-of-care a major focus for health plans, employers The drives toward cost-reduction, consumerism and convenience are pushing health plans’ site-of-care considerations into new directions. Carriers such as Humana and UnitedHealth are investing heavily in home- based care visits for seniors – for reasons of cost, convenience and the insights gained in that setting. Reference-based pricing is being used by large employer groups as an answer to the site-of-care dilemma. Specialty drug infusion: A growing number of plans require that certain specialty drugs be administered via home infusion or network infusion locations rather than hospitals Ambulatory surgery centers: As ASCs push into more complex procedures such as total joint replacement, commercial plans are evaluating coverage Reference-based pricing: CalPERS (1.4 million lives) uses RBP for colonoscopy, cataract surgery and arthroscopy to strike a balance between cost and member choice Cigna collaboration with CVS and Minute Clinics hopes to use these as potential points of service for some chronic care. Page source: Multiple sclerosis. Decision Resources Group. Cognos, Pharmacor.

18 Payers, health systems face social determinants of healthCommercial Landscape Payers, health systems face social determinants of health Large payers are addressing social needs that affect health Harvard Pilgrim and Kaiser Permanente have programs to provide healthy food in “food desert” communities Health Net has used mapping tools to target members in need of post- partum care and developed a clinical home visitation program Coordination of social services is a major focus UPMC Health Plan worked with the US Dept. of Housing to provide supportive housing for homeless individuals New York, Washington, Colorado, California and Connecticut have CMS grants to develop demonstrations addressing social determinants such as housing, employment and food security Value-based and population health models shape the economic case Molina Healthcare is piloting a program in New Mexico to screen patients for nonmedical social needs In Southern California, an effort targeting predicted high utilizers of health care found that 78% of those screened had a social need contributing to ill health AHIP Issue Brief: Beyond the Boundaries of Health Care: Addressing Social Issues, July 2017

19 Medicare Advantage: High-growth, good margins attract plansCommercial Landscape Medicare Advantage: High-growth, good margins attract plans As in the U.S. as a whole, 32% of North Carolinians on Medicare are enrolled in MA plans. But as the aging population swells the numbers of Medicare-eligible individuals, the segment now brings in more premium revenue to giants United and Aetna than its commercial lines do. Aetna, thwarted in its bid to buy Humana, has embarked on a major territory expansion plan for its MA business. Cigna also has set its sights on selling MA to its employer group customers. Most Blue plans have not extended their commercial dominance to this segment, creating growth opportunities for the national plans.

20 Commercial Landscape Questions?