September 24, 2002

I. INTRODUCTION

A. William M. Todd

• Partner - Squire, Sanders & Dempsey L.L.P.
• Moderator for Ohio Chamber of Commerce Employer-based Health Care Initiative (“OCC Initiative”)

B. OCC Initiative

• Arose out of discussions at OCC in later part of 2001
• Effort to create a forum for discussion of serious problems facing employer-based health care benefits
• Includes: large and small employers; hospitals and physicians; insurers and health plans
• Regular meetings since January 2002
• Private sector attempt to reach consensus on the issues and potential solutions

C. Other Speakers from the “OCC Initiative”

1. Charles Knapp-Ambulatory Care Affiliates (hospital-physician joint venture)
2. Sharron DiMario-Employer Health Care Alliance (employer benefits coalition)
3. Timothy Teynor-Aultman Health Foundation (integrated hospital organization)
4. David Packo, M.D.-American College of Emergency Physicians – Ohio Chapter (emergency room physician and small business owner)
5. Kelly McGivern-Ohio Association of Health Plans (association of health plans)

II. THE SCOPE OF THE PROBLEM*

A. Employer-Based Health Insurance

1. Covers nearly two-thirds of all Americans (including active workers, retires, and their dependents).
2. Is the bulwark of the private health insurance system.

B. The Cost is Increasing

1. In one year, the average cost of employer sponsored health benefits rose 12.7% (11% in prior year).
2. Average annual premiums costs rose to $3,060 for single coverage (up from $2,650 in 2001) and $7,954 for a family of four (up from $7,053 in 2001).
3. High rate of growth primarily due to rapid rise in cost of health care services.
4. Employee contributions to cost of benefits are rising as are copayments and deductibles.

C. The Availability of Coverage is Decreasing

1. As a result of the weakened economy and rapidly increasing premium costs, coverage for employees of small employers (3-199 workers) is eroding.
2. Many employers are considering new types of health arrangements such as defined contribution plans.
3. Other employers, particularly the very small businesses (3-9 workers) are simply dropping employee health care benefits.
4. In addition, many companies are terminating or limiting health care benefits for retirees (particularly prescription benefits).

D. Outlook for the Future

1. Without change, more employees will lose health care benefits.
2. A majority of employers report that the cost of health benefits is their greatest cost concern and are worried that the cost of health insurance will increase faster than they can afford.
3. Additionally, employees will be paying more for health care benefits, as well as higher copays and deductibles.
4. There is no “magic bullet” on the horizon. Thus far no one is suggesting a potential solution to this problem.

III. CONCLUSIONS OF THE OCC INITIATIVE

A. Increased Patient Accountability
In the absence of any other framework for controlling health care costs, the only potential solution is requiring individuals to become more accountable.

1. Patients need more education to become informed health care consumers.
2. Patients must be incentivized to make prudent health care choices.
• Different copays for different health care settings
• Multi-tier copays for drugs and other benefits
• Different copays for use of network vs. non-network providers.

B. Decrease State Regulatory Burden

1. Ohio’s health insurance and health plan laws need to be further modernized, streamlined and harmonized.
2. Ohio law should provide maximum flexibility for health insurers and health plans to provide innovative products that employers and their employees can afford.
3. Ohio can lead the way in implementing insurance products that take advantage of the health reimbursement arrangements approved by the IRS in June.

C. Reinvigorate Health Care Purchasing Alliances

1. Alliances currently allow small business to purchase insurance as a group, but they do not participate in a single risk pool.
2. Consider innovations in Ohio law that would reduce costs for small employers:
• Risk pooling
•“Mandate-free” policies
• Long term contracts
• Encourage innovation
3. Ensure that new concepts are safe concepts by requiring the “reinvigorated” health care purchasing alliances to be insured or have equivalent protections.

D. Medical Liability as a Cost Factor

1. There is little question that a substantial and rising component of the cost of health care is the cost of medical liability insurance. These costs will continue to rise in the absence of meaningful reform.
2. There are only two realistic solutions to this problem: (i) reform the tort system to reduce the size and number of medical claim awards; (ii) subsidize the medical liability insurance market to reduce the cost of coverage.

E. Saving the Employer-based Health Care Benefit System
All of the participants agreed that the current employer-based system should be saved. However, the current cost increases are rapidly closing the window of opportunity. Action must be taken quickly or the solution may be national health insurance.