Key trends in catastrophic claims

Key trends in catastrophic claims Paul Gatanti Director, TPA Relations and Stop-Loss Claims Sun Life Financial 1 Overview Key trends in catastrophic claims Current medical trends Top Stop-Loss diagnoses at Sun Life Cost containment 2 1

Key trends: medical Bone marrow transplant on rise 1 Coronary heart disease down by 31% 2 Targeted cancer drug therapies expand 3 Off-label drug use more common 4 Clinical-trial coverage in medical plans 1 Source: http://www.ahrq.gov, Hospital Costs for Bone Marrow Transplants, Other Common Procedures Up Sharply release Date December 2, 2009, referring to about 75 percent of the rise was due to increases in the number of patients who underwent these procedures accessed on March 4, 2009. 2 Source: www.upi.com, Coronary Heart Disease Drops by 31% (citing information from U.S. Department of Health and Human Services) published September 21, 2009, accessed March 4, 2009. 3 Source: www.physiciansnews.com, The Top 10 Medical Advances of the Decade December 18, 2009, accessed March 4, 2010. 4 Source: http://www.nytimes.com/2009/01/27/health/27cancer.html, Medicare Widens Drugs It Accepts for Cancer, accessed March 17, 2009; http://www.sciencedaily.com/releases/2008/04/080402181245.htm, FDA Plans To Reduce Oversight Of Off-Label Drug Use Criticized By Medical Researchers, April 6, 2009, referring statement, Off-label prescribing for medical conditions not scrutinized during the FDA approval process is common. accessed March 17, 2009. 3 Key trends: Top Stop-Loss diagnoses at Sun Life Policy year 2006 2007 2008 2009 1/1 Effective Dates Only Claims Total First-Dollar Claims Total First-Dollar Claims Total First-Dollar Claims Total First-Dollar Cancers 798 $153,201,978 880 $182,373,625 951 $198,539,081 365 $85,006,107 End-stage renal failure 153 $41,664,622 166 $46,816,247 154 $43,542,915 70 $20,752,522 High-risk pregnancy & premature births 84 $25,750,527 79 $22,132,357 85 $26,791,069 53 $23,499,422 Organ transplants (including bone marrow transplants) 70 $25,551,652 66 $25,372,262 52 $18,242,931 11 $5,289,022 Source: Stop-Loss claim data based on Sun Life internal information. 4 2

Key trends: Top Stop-Loss diagnoses at Sun Life Organ transplants (including bone marrow transplants) Year 2006 2007 2008 2009 1/1 Effective Dates Only Number of Claims 70 66 52 11 Average $ Claims Paid $365K $384K $351K $481K Geographic prevalence CA, OH, WI, IN, TX Source: Stop-Loss claim data based on Sun Life internal information. 5 Key trends: Top Stop-Loss diagnoses at Sun Life Cancer Year 2006 2007 2008 2009 1/1 Effective Dates Only Number of Claims 798 880 951 365 Average $ Claims Paid $192K $207K $951K $233K Geographic prevalence CA, WI, TX, OH, IN Source: Stop-Loss claim data based on Sun Life internal information. 6 3

Key trends: Top Stop-Loss diagnoses at Sun Life End-Stage Renal Failure Year 2006 2007 2008 2009 1/1 Effective Dates Only Number of Claims 153 166 154 70 Average $ Claims Paid $272K $282K $283K $296K Geographic prevalence TX, IN, NC, WI, CA Source: Stop-Loss claim data based on Sun Life internal information. 7 Key trends: Top Stop-Loss diagnoses at Sun Life High-Risk Pregnancy and Premature Birth Year 2006 2007 2008 2009 1/1 Effective Dates Only Number of Claims 84 79 85 53 Average $ Claims Paid $305K $280K $315K $443K Geographic prevalence TX, CA, WI, GA, OH Source: Stop-Loss claim data based on Sun Life internal information. 8 4

Cost containment Sun Life approaches: Transplant networks Centers of excellence TPA collaboration Specialty networks and programs 9 Group insurance policies are underwritten by Sun Life Assurance Company of Canada (Wellesley Hills, MA) under Policy Form Series 93P-LH, 98P-ADD, TDBPOLICY-2006, 02-SL and 07-SL in all states except New York. In New York, group insurance policies are underwritten by Sun Life Insurance and Annuity Company of New York (New York, NY) under Policy Form Series 93P-LH-NY, 06P-NYDBL, 02P-NYSTD, 98P-ADD-NY, 02-NYSL and 07-NYSL. Product offerings may not be available in all states and may vary depending on state laws and regulations. 2010 Sun Life Assurance Company of Canada, Wellesley Hills, MA 02481. All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada. Visit us at www.sunlife.com/us. SLPC 21646 3/10 (exp. 3/12) 10 5

Health Risk Gaps Providing Smarter Answers Faster Stop Filling Health Loss Risk Claims Gaps Providing Smarter Health Risk Gaps Providing Smarter Answers Faster Filling Experience Health Risk Gaps Providing Smarter Providing Smarter Answers Faster Filling Health Risk Gaps Providing Presented Smarter by: Answers Faster Filling Answers Faster Filling Health Risk Gaps Providing Smarter Answers Matthew Faster Piroch Filling Health Risk Gaps Providing Smarter Answers Faster Filling Health Risk Gaps Senior Vice Providing President Smarter of Operations/Service Answers Faster Filling matt.piroch@hminsurancegroup.com Health IT S Risk OUR Gaps POLICY Providing TO PROTECT. Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Providing Providing Smarter Smarter Answers Answers Faster Faster Filling Filling Health Health Risk Gaps Risk Gaps Providing Providing Smarter Smarter Answers Answers Faster Faster Filling HM Insurance Group s Market Segment Block size and composition Inforce premium $325 million 68% Blues 27% Commercial TPAs 5% Carrier Based 2.3 million member lives Average group size 1,100 employees Average Specific Deductible $177K Providing Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Answers Faster 12 6

Claim Level from Ground-Up Claims Paid $250K $500K $750K $1M $2M $3M Hits 2004 336 58 18 5 0 0 2005 390 74 22 5 0 0 2006 553 105 26 6 0 0 2007 581 122 41 14 1 1 2008 707 161 50 22 2 0 2009 440 90 28 9 1 0 Notes: Claims are based on Underwriting Year. 2009 Underwriting Year is incomplete. Data is through 2/28/10 (paids). In 2008, HM started writing $5M Lifetime Maximums. If deductible or laser is above claim cost, claims are not included. Providing Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Answers Faster 13 Claim Level from Ground-Up Claims Paid $250K $500K $750K $1M $2M $3M Hits/100K Covered EEs 2004 40.03 6.91 2.14.60.00.00 2005 47.64 9.04 2.69.61.00.00 2006 58.75 11.16 2.76.64.00.00 2007 62.39 13.10 4.40 1.50.11.11 2008 67.91 15.46 4.80 2.11.19.00 2009 45.76 9.36 2.91.94.10.00 Notes: Claims are based on Underwriting Year 2009 Underwriting Year is incomplete. Data is through 2/28/10 (paids). In 2008, HM started writing $5M Lifetime Maximums. If deductible or laser is above claim cost, claims are not included. Providing Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Answers Faster 14 7

Top Diagnosis Categories for Underwriting Years 2006-2008 #1 Cancer 30% #2 Heart Disorders 17% #3 Neonatal 17% 2006 2007 2008 2009 Cancer 30% Heart Disorders 14% Neonatal 10% Note: Percentages represent total dollars paid for that category. Cancer 25% Neonatal 15% Heart Disorders 13% Cancer 23% Heart Disorders 14% Neonatal 10% Continued Providing Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Answers Faster 15 Top Diagnosis Categories (cont.) for Underwriting Years 2006-2008 #4 #5 #6 #7 2006 2007 2008 2009 Trauma 6.9% Renal 6.5% Digestive 5.8% Respiratory 5.2% Digestive 7.2% Trauma 7.2% Renal 5.3% Respiratory 5.2% Note: Percentages represent total dollars paid for that category. Trauma 8.7% Renal 7.1% Digestive 6.9% Musculoskeletal 3.9% Digestive 8.4% Trauma 7.3% Respiratory 5.3% Renal 5.2% Providing Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Answers Faster 16 8

Catastrophic Claim Drivers Complications of Transplants Bone Marrow Transplant Graft vs. Host Disease Organ Rejection Infections (non-hospital acquired) Septicemia/Sepsis Demographics Co-Morbid Conditions Increased Drug Costs Chemotherapeutic Agents Factor VIII (drug therapy for hemophilia) Providing Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Answers Faster 17 Cost Containment Centers of Excellence for Transplants Facility and Professional Repricing/Negotiation Neonatal and Oncology Management Services Specialty Services (out of network dialysis, specialty pharmacy) Hospital Bill Review Providing Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Answers Faster 18 9

Market Impacts Closer review of claims More diligent review of hospital bills with additional actions on obvious overcharges for in and out of network claims Employ new ways to manage costs Potentially new vendors emerging Careful vendor evaluation and due diligence Larger Lifetime Maximums being requested Wellness Programs/Health Risk Assessments Changes to PPOs and pricing levels Cost based pricing v discount off charges Providing Smarter Answers Faster Filling Health Risk Gaps Providing Smarter Answers Faster 19 A P R I L 7, 2 0 1 0 T R E N D S I N C A T A S T R O P H I C C L A I M S SIIA TPA/MGU Executive Forum Charleston, SC Presented by: David Wilson, FSA, FCIA, MAAA 20 10

Data Sources and Analysis Data from Verisk Health 83 clients in the Normative Database 5.84 million lives Data are for claims paid in period 2008 runs 3/1/2008 through 2/28/2009 2009 runs 3/1/2009 through 2/28/2010 Follows an earlier study completed in March 2008 Analysis by Windsor Strategy Partners Claimants with over $200,000 in paid claims in the 2 year period 26,165 claimants in this study 21 Billed Claims Data Number Average Claim Frequency Cost Increase Increase Billed Claims 2008 2009 2008 2009 09/08 09/08 > $7,000,000 3 5 $ 8,543,746.41 $ 12,979,060.66 66.7% 51.9% > $5,000,000 9 8 $ 6,599,668.39 $ 10,194,117.68 11.1% 54.5% > $4,000,000 14 22 $ 5,767,817.68 $ 6,702,075.33 57.1% 16.2% > $3,000,000 39 41 $ 4,330,962.43 $ 5,147,104.05 5.1% 18.8% > $2,000,000 101 116 $ 3,198,434.07 $ 3,370,278.18 14.9% 5.4% > $1,500,000 220 227 $ 2,398,599.94 $ 2,562,493.45 3.2% 6.8% > $1,000,000 550 546 $ 1,687,115.84 $ 1,760,562.20 0.7% 4.4% > $750,000 1026 1048 $ 1,299,113.45 $ 1,327,708.00 2.1% 2.2% > $500,000 2172 2403 $ 932,889.85 $ 919,015.86 10.6% 1.5% 22 11

Paid Claims Data Number Average Claim Average Claim* Average Discount Paid Claims 2008 2009 2008 2009 2008 2009 2008 2009 > $3,000,000 1 0 $3,042,716 n/a $5,502,512 n/a 44.70% n/a > $2,000,000 9 3 $2,350,509 $2,207,591 $2,743,262 $3,140,647 14.30% 29.70% > $1,500,000 16 10 $2,092,411 $1,780,541 $2,943,831 $3,290,955 28.90% 45.90% > $1,000,000 57 40 $1,454,367 $1,316,628 $2,376,980 $2,727,028 38.80% 51.70% > $750,000 136 108 $1,106,391 $1,025,568 $1,812,211 $2,146,665 38.90% 52.20% > $500,000 380 345 $781,893 $731,072 $1,419,453 $1,475,903 44.90% 50.50% * Average billed claim for the paid claims matching the size criteria 23 Disease Incidence or Cause 24 12

Disease Incidence or Cause 41 claims over $3,000,000 in billed charges in 2009 time frame HAI (Hospital Acquired Infections) factored into almost half the cases Large Hepatitis cases now showing up 1 in 5 cases has diabetes as a complicating factor 25 Implications for the Stop Loss Industry Stop Loss Friendly contracting is critical Majority of the catastrophic costs are hospital-based HAI was an identifiable contributing factor in almost 50% of the cases As bills increase, networks pay an increasing percentage of the bill But we are doing a better job of negotiating! Define a reasonable annual limit? How good is your auditor and negotiating team? 26 13

Comparisons to Earlier Study Diagnosis Cancer Heart & Circulatory Infections Preemies Transplants Trauma Other CY 2006 4 4 3 2 1 3 0 CY 2007 4 1 8 4 0 2 2 Claims over $2,000,000 billed in the Calendar Year. Some transplants in 2007 resulted in infections which drove the cost. These were classed as infections in the above table. Diabetes Mellitus was a contributing factor in several of these catastrophic claims. Actual discounts to paid varied from 90+% to less than 15%. 27 Comparisons to Earlier Study From a data set prepared by D2Hawkeye Culled from roughly 5,000,000 member lives Criteria was total billed claims in past 24 months >$200,000 Data through 12/31/07 (paid dates) 7798 claimants in the data base We now have 26,165 Not all claimants had claims in both years New clients Deaths Loss of eligibility 28 14

Final Thoughts We will need to manage what we have better in the future We need to tackle obesity head on An estimated 25% of the country s population qualifies as obese Obesity drives a whole host of other diseases (diabetes, hypertension, infections) which in turn creates very complex patients We need to reinvent wellness to tackle our members that need help Health Care Reform has changed our game We had better have some strong strategies to cope We will be selected against 29 15