Live and Be Well

Who Cares About Health Care?

Annual Business ConferenceUniversity of Michigan Business School

October 12, 2001

Isadore J. KingPresident and CEOThe Wellness Plan

Live and Be Well

Dr. Entrepreneur

Gall Bladder Surgery $2,000 or Two For $3,000

Bring a Friend

SALE ENDS AT AGE 60

Live and Be Well

Current Drivers of Health Care Costs

Law of Supply and Demand Inoperative Health Care Inflation Cost vs. Quality Dynamic Changes in the Practice of Medicine Consumers’ Quality of Life Demands

Live and Be Well

Law of Supply & Demand Inoperative

Uneducated Consumer Minimal Consumer Financial Participation Supplier (Provider) Induced Demand Value Purchasing Not Effective

Live and Be Well

Health Care Inflation

3.2%

3.4%

5.8%

3.5%

4.1%

4.2%

3.2%

4.6%

5.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1999 2000 2001CPI Health Care Prescription Drugs

Sources: www.twv.com/researchlegal/resrchstats.html & HealthINFLATION News, www.healthinflation.com

Live and Be Well

Michigan Average Revenue Per Member Per Month

Source: Baumgarten, Allen. “Michigan Managed Care Review” Part One, 2001

Yearly Percentage Increase

8.4%

-7.4%

4.2%

6.6%5.6%

-0.5%

-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%

1998 1999 2000

$128

.48

$130

.73

$136

.10

$136

.34 $148

.57

$145

.83

$115.00

$120.00

$125.00

$130.00

$135.00

$140.00

$145.00

$150.00

1998 1999 2000

Commercial Medicaid

Live and Be Well

Major Drug Company After Tax Profit

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1998 1999 2000

Abbott

Astra Zeneca

Bristol-Myers

Eli Lilly

Glaxosmithkein

Johnson &Johnson Merck & Co.

Novartis

Pfizer

Schering-PloughSource: Individual Company Annual Reports

20% 21% 21.5%

Average Profit Margin

Live and Be Well

Michigan HMO Before Tax Profit

Source: Kennedy, Sheryl. “Urgency Prods HMOs To Become Lean” Detroit Free Press. Friday June 2 2000. Fin. Ed. Pg.2E.

40,500,000

-48,300,000

-87,400,000

-41,200,000

-$100,000,000

-$80,000,000

-$60,000,000

-$40,000,000

-$20,000,000

$0

$20,000,000

$40,000,000

$60,000,000

1996 1997 1998 1999

$

$$

$

Live and Be Well

Michigan HMO After Tax Profit

Source: Baumgarten, Allen. “Michigan Managed Care Review” Part One, 2001

-45,300,000

-93,800,000

-42,600,000

-$100,000,000-$90,000,000-$80,000,000-$70,000,000-$60,000,000-$50,000,000-$40,000,000-$30,000,000-$20,000,000-$10,000,000

$0

1997 1998 1999

$

$

$

Live and Be Well

Cost vs. Quality Dynamic

CurrentQuality

Cost

Optimum

Live and Be Well

Quality

Cost

Optimum

Desired

Cost vs. Quality Dynamic

Live and Be Well

Cost vs. Quality Dynamic

Quality

Cost

Optimum

Projected

Live and Be Well

Changes In The Practice of Medicine

Biotechnology Research Findings Therapeutic Drug Advances Stem Cell Research Findings Genetic Research Findings

Live and Be Well

Life Sciences InstituteUniversity of Michigan

“We are going to transform the practice of medicine, and this place will be one of the leaders.”

Ann Arbor NewsMarch 2001

Dr. Gil OmennExecutive Vice President

Medical AffairsUniversity of Michigan

Live and Be Well

Consumers’ Quality of Life Demands

Living Longer is Not Enough Living Longer and Feeling Good is

Demanded Consumers Willing to Assume Greater

Responsibility for Health Status

Live and Be Well

Strategies To Deal With Uncertainties

Growth on the Margin Continuous and Vigilant Cost Control Evidence Based Medicine Outcome Based Incentives Managed Health