Michael Bertaut, Senior Sales Intelligence Analyst from Blue Cross Blue Shield of Louisiana, came into our office yesterday and gave the following presentation to a small group of our clients. The information he shared with us is extremely timely, given the release of the new Senate bill and a weekend of President Obama’s scheduled visits to the major network news shows to discuss his health reform agenda. As we begin to see a little clarity in what may come, it is important for us all to be prepared. I think everyone should pay particular attention to the discussion of Community Ratings. This is a concept that I believe the general public largely does not understand. It is also what will probably directly impact them the most – in that it will largely determine the price of the coverage they will be required to purchase. This is generally bad news for the healthy and young. It also eliminates the financial incentive for healthy lifestyle choices. The entire video is about 50 minutes. But, it is well worth the time to gain a better understanding of what is happening and some important upcoming deadlines and their impact to business and individuals.

1. Reform Takes Center Stage Healthcare Reform and the State of the Industry A Product of Marketing Development Presented by: Michael Bertaut Senior Healthcare Intelligence Analyst

2. Sources of Reform Legislation and Influence President Obama Senate Finance Committee--Baucus Senate HELP Committee--Harkin House Ways & Means, Energy & Commerce, Education & Labor. Rangel, Waxman, Miller House Single Pay Progressives(77) CBO Reform Concepts & Bills Current Reform Data House Blue Dogs (122; 52 Core)

4. The Uninsured: Who are They? Current Reform Data “ 46.3M Uninsured @ the end of 2008, Census 9/10/10” 10 September 2009 Census Bureau Conference Call: 2008 Update on Poverty and the Uninsured

5. Who Are the Uninsured? Current Reform Data 10 September 2009 Census Bureau Conference Call: 2008 Update on Poverty and the Uninsured

6. How Your Carrier Spends Premiums. *Includes government administration and net cost of private health insurance Source: Adapted from Centers for Medicare and Medicaid Services (2007)/ BCBSLA “ CEO’s Perspective” 2007 33 ¢ Hospital 30¢ Physician and Clinical Services 10¢ Admin Cost Including Taxes, Commissions 13 ¢ Prescription Drugs 6 ¢ Dental Services 2¢ Other Professional Services 1 ¢ Nursing Home 2¢ Home Health Care $761M; 38.6% $598M; 30.3% $332M; 16.9% In 2008, BCBSLA collected $1.97B in risk premiums, broken out like this: $279M; 14.2% 3¢ Future Claims Reserves/Profits NATIONAL AVERAGES 85.8% of Premiums Went to Medical in 2008 7% Salaries/Admin 4% Commissions 1.5%Taxes 1.2% Reserves .5% MM/DM/CM Current Reform Data

7. Why Hospitals Increase Rates. Note: Payment-to-cost ratios indicate the degree to which payments from each payer covers the costs of treating that provider’s patients. Data are for community hospitals and cover all hospital services. Imputed values were used for missing data (about 35% of observations). Most Medicaid managed care patients are included in the private payers’ category. Source: Adapted from the American Hospital Association and Avalere Health TrendWatch Chartbook 2007: Trends Affecting Hospitals and Health Systems Hospital Payment-to-cost Ratios for Medicare, Medicaid and Private Payers 1995-2007 Break Even (Payment = Cost) “ Medicaid is already under-reimbursed, with Louisiana hospitals only receiving 83 cents for every dollar they use for Medicaid” John Matessino-President, LHA Current Reform Data

8. Key Specialty Shortage Physician Salary offers on average are increasing at multiples of both inflation and wage growth in other sectors. Inflation Average Joe’s Wages Merritt Hawkins & Associates: 2007 REVIEW OF PHYSICIAN AND CRNA RECRUITING INCENTIVES Bidding War Nationwide for 5 Key Specialties Current Reform Data

12. The Proposal Grid: Resolving Differences Current Reform Data * Medicaid to 133% of FPL Provision Detail Finance HELP House Mandate Individual Y Y Y Mandate Employer Y, >50e Y, >25e 8% Pay Subsidies Individual 300% PL 400% PL 400% PL* Subsidies Small Group Y Y Y Public Opt Medicare-like Co-OP Y Y Reforms Community Rating Y; 5 to 1 Y; 2 to 1 Y; 2 to 1 Reforms MLR Rules Report Report Y; 85% Reforms Guarantee Issue Y Y Y

14. Effects of Reform on Rates: Individual Market (About 10 million people today, 200k in La.) Current Reform Data Assumes “weak” mandate. Provision Detail Projected Rate Increase Notes No Medical UW Community Rating 30% or 45% 5:1 or 2:1 Age Open Pool Guarantee Issue +25% Least Healthy will seek insurance first. Actuarial Standards 72-76% Minimum +12% Average Most Individual Insurance <80% AV Latent Demand Newly Insured ? New insured seek lots of care. TOTAL HR3200 67%+ on Average 93% of 10M Individual Insured get increase.

15. Effects of Reform on Rates: Group Market Current Reform Data Provision Detail Projected Rate Increase Notes No Medical UW Community Rating 30% or 45% 5:1 or 2:1 Age Open Pool Guarantee Issue +25% Least Healthy will seek insurance first. Open Pool New Uninsured +20% Uninsured tend to be less healthy. Actuarial Standards 72-76% Minimum +12% Average 50% of Individual does not meet new standard Latent Demand Newly Insured ? New insured seek lots of care. TOTAL HR3200 87% on Average 93% of 10M Individual Insured get increase.

20. Contact Information: [email_address] “Let’s see, I’ve been called a Villain, Immoral, Shark, Untrustworthy, Needs to be Kept Honest, Obstructionist, Evil Profiteer, Political Terrorist, Traitor, wow have I been busy!!!”

21. Appendix: Detail on Health Reform Levers

26. Streamlining Medicare Current Reform Data

33. Sources of Reform Legislation and Influence (To Re-cap) President Obama Senate Finance Committee--Baucus Senate HELP Committee--Kennedy House Ways & Means, Energy & Commerce, Education & Labor. Big Dogs= Rangel/Waxman House Single Pay Progressives(77) CBO Reform Concepts & Bills Current Reform Data House Blue Dogs 122 Support