The NC State Health Plan: a case study in managed care, benefit design, and healthcare affordability | Brian Miller (NC State Health Plan)

The North Carolina State Health Plan turnaround offers a compelling case study for what happens when a state leverages the full set of managed care and benefit design tools available to them. Vice Chairman Brian Miller joins to share his perspective on the philosophy behind the plan's member-first approach and what it suggests for healthcare affordability more broadly.

Brian walks through the principles guiding the turnaround: income-adjusted premiums modeled on Medicare, benefit design that avoids penalizing members with chronic conditions, and a preferred provider strategy that uses the plan's purchasing volume to steer members toward better value. He emphasizes that these tools have existed for decades but have not been applied deliberately and with the member's financial interest as the north star.

The conversation also covers drug affordability, where Brian makes the case that FDA biosimilar regulation is a more effective and underappreciated lever than payment policy. Updating the pathway could make biologics cheap the same way generics made small molecules cheap, without undermining incentives for innovation.

The episode closes on the MA versus original Medicare cost debate. Brian's framework: the answer depends on which of three lenses you use, most people pick the one that gives them the answer they want, and the policy conversation would be better served by using all three.

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Martin: Excited to welcome Brian
Miller, who's a practicing Dr.

Hoover Institution visiting fellow
vice chair of the NC State Health Plan.

I've been a fan of his writing on
healthcare policy for quite some time

now, and really excited to chat with him.

Brian, welcome to the show.

Brian: Thank you for having me.

Happy Monday.

And also I, I do wanna point out that
Tenet has a Rotten Tomatoes rating of 70%.

And as someone who has terrible taste
in pop culture, I'm most interested

in movies per my wife that have
Rotten Tomatoes rating of 40% or less.

So I have seen Tenet, but that's
because my wife made me watch it.

Martin: I've seen it about 12 times and
my wife has seen it once begrudgingly.

Um,

Brian: yeah.

Martin: Okay.

So I reached out to you after the
announcement that you, uh, you

were elevated to Vice Chairman
for the NC State Health Plan.

We are big fans of the NC
State Health Plan story.

Kevin is a Duke alum and,
uh, a fan of all things.

Uh, well, yeah.

Brian: I'm wearing Carolina Blue.

Bryan: I kind

Brian: of, and also a little
bit of Duke colors too.

So maybe I have an identity crisis.

Right.

'cause we're supposed to be impartial.

Right.

And we are,

Martin: our team is, our team
is divided between, uh, North

Carolina and, and Duke as well.

Um, so anyways, you have, you've sort
of helped oversee the transformation

for the NC State Health Plan.

Can you give us a little bit of
background on the financial trouble

and the causes of that and what
the, the turnaround has looked like?

Brian: Absolutely.

So the state health plan has 750,000
members just over and just, and about 4.5

billion in annual spend.

So for comparison, that is the
largest purchaser in the entire state.

Outside of Medicare and Medicaid, we
have round numbers, a billion dollars in

purchasing power in the Raleigh area, and
I think about 900 million in Charlotte.

And so the treasurer
took over as board chair.

I joined the board, Tom Friedman,
who you've talked with and know,

joined as executive director,
which is our version of A CEO.

And we took a look at the books
and took a look at premiums and

benefit design and networks.

And like many state health plans, and
frankly a large portion of the employer

sponsored market, there had been sort of
an increase in premiums, but we hadn't

yet implemented a lot of the basic managed
care and insurance benefit design tools.

And so I, I joke that what we are
doing is sort of like Coke Zero.

It's not, you know, the, it's not even
Diet Coke, it's not even the sugar cane.

Uh, Coca-Cola, right?

This is like managed care.

Super light.

So very gentle.

Uh, we have 550,000 members
on our active employee plan.

You know, that's employees
and their spouses and, uh,

children and other dependents.

And so we did a couple things.

One is we implemented and, and
stole shamelessly from the Medicare

program, income adjusted premiums,
because no idea in health policy

is new, it's just recycled from
somebody else or another marketplace.

So we just shamelessly stole.

And the idea of being sort of, if you're
the dermatologist at UNC making $400,000

a year, we salute you and your role, but
that the custodian cleaning up the local

park or the teacher teaching second grade
doesn't have that same income performance.

And so we need to adjust premiums
for income, which is exactly

what the Medicare program does.

It's the fair thing to do.

So we implemented that, recognizing that.

53% of our members make under $65,000
a year, which is not a lot of money.

Other thing we did is we updated our
benefit design and kept the moop or

the maximum out of pocket, relatively
similar to prior years, noting that

if you have a chronic disease, right,
if you have rheumatoid arthritis,

or you have Crohn's, you're gonna
hit that moop every year, right?

You're gonna get procedures, you're
gonna see the specialist, primary

care doc refills, imaging, et cetera.

And so we said, we don't want to
adjust the moop up too much because

that's gonna, you know, penalize
folks for having a chronic disease.

And that's, again, not fair.

And you're seeing this idea of fairness
and, and sort of there are, there are two

rules of health policy, I would say, and
they apply in Medicare, Medicaid, employer

sponsored insurance, wherever it is.

One is, don't break the old
folks and the sick folks, right?

So like help them get on a
path to where they feel better

or can be more functional.

And the other is, uh, I call it
don't be a jerk to the poor, right?

So, um, obviously in the employer
sponsored insurance place, those

rules are applied differently, but
the idea is, is that policy needs

to be fair and equitable and we need
to support the entire workforce.

The other thing that we're doing, which
as you can see from the various news

that has rolled out, is that we're
implementing preferred providers.

And the idea being that
we're like Costco, right?

We can purchase, we, we
have lots of members.

And so if I'm gonna be a good fiduciary
to the members, whether it's the third

grade teacher, the custodian, the
physical assistant, or the nurse at,

you know, the state hospital, I gotta
get a good, we gotta get a good deal.

And part of getting that good
deal is being a volume purchaser.

So preferred providers is a
way to gently tier, right?

It's gonna be mild tiering with.

Massive semi truck level
positive steering for the member.

'cause our principle is
the member's gonna win.

The member's not gonna lose.

Members are never going to lose.

Right.

We're here for the members.

Right.

You know, we are, it's
a uncompensated board.

We get a sandwich for lunch.

Right.

And if you travel, you know, they, they
help support your travel, but it's unpaid.

We are here for the, the members.

And so we're essentially going to the
health systems and saying we would

like a two pound jar of mayonnaise.

Not the six fluid, hence little
thing that you're charged, you

know, $15 for at Whole Foods.

We want the two pound jar of mayonnaise.

Same quality, same nutrition facts label.

And we're doing that for ortho.

ENT general surgery and
the, the steering is huge.

And you saw that the treasurer, uh,
unveiled a zero cost surgical bundle.

So if you get that in or hernia repair,
the idea is if you go to the preferred

provider and it's $0 and maybe with
your regular benefit, it's a thousand.

Like that's huge positive sewage.

So we're putting our foot on the
accelerator to making sure that

the members win financially and
with that financial win and that

volume obviously will eventually get
and should get increased quality.

Because a lot of medicine, you
know, there's an art and there's

a science, and then there's the
sort of technical aspect, right?

So.

My orthopedic surgery friends like
to joke that they're carpenters

and they love doing, you know, I
have a knee friend, I have an ankle

friend, and I have a hip friend.

So that way when I'm in my sixties
and I need those, I can just call them

and you know, I'll get high quality.

So it's, I'd say our principles are income
adjusted premiums, making sure that folks

with chronic disease aren't penalized.

And then of course, steering and
purchasing for volume because we gotta

purchase like Costco, high volume,
lower cost, and better quality.

And it sounds corny when I say it,
you know, the sort of triple aim,

it makes me feel like, oh my God,
it's just another talking point, but

it's not right because we actually
want to do it and are doing it.

Kevin: Brian, one of the things that
intrigues me most about North Carolina

healthcare is this pipeline seemingly
between federal and state, all these

federal thinkers coming to the state of
North Carolina to try to implement change.

Going back to, you know, Conway
Blue Cross and North Carolina,

um, five, six years ago now.

One of the observations I'd make
on federal policy right now in

conversations is a lot of emphasis
on value-based care, getting people

into accountable care relationships.

Um, when I look at the North Carolina
State Health plan, when I hear

you talk there, when I look at the
health Affairs article from a few

months back, I don't see an emphasis
on value-based care as part of the

thesis that y'all are building out.

And I, I'd be curious
your reflection on that.

How do you think about the role
value-based care has played in managing

healthcare costs, both for North
Carolina, but then also more broadly?

What's the opportunity in
value-based care ahead?

Brian: I guess I would say define what
value-based care and accountable care are.

And the problem is, is that they
don't really have necessarily

clear definitions to me.

So my, my answer is, if
I'm a plan member, right?

Like if I'm a second grade
teacher, value is a couple things.

Value is having stable and
predictable premiums, right?

So one of the things we're gonna try
and do is have premiums be tied to a

relatively stable share of income so
people don't experience price shocks.

So again, stability.

The other thing is, is what is
my out-of-pocket cost, right?

So that's value to a member.

If something causes $0 versus a thousand
dollars, that's value to the member.

Other value, I would say is a little
more atypical, but is important.

And I would say if I'm a teacher and
I'm pregnant and you offer me an OB

appointment at 11:00 AM on a Tuesday.

That's really not very
member centric, right?

Like that's not helpful because the
teacher is going to have to get, uh, a

substitute for frankly, the entire day.

'cause that's in the
middle of the class day.

It's not like you can skip out and
go to the doctor's office for 30 odd

minutes and you know, shuttle on back.

We all know that going to the
doctor's office is a half day event.

So I would say value to the member
is also access that works for them,

which could be late afternoon or
evening hours or weekend hours.

Again, we are a volume purchaser.

I would say quality is part of that and
quality in areas where you can measure it.

A lot of quality measurement frankly,
can be manipulated and doesn't really

hold up and, and doesn't perform.

But there is are some areas where we
know that quality matters and quality.

Matters in a way when you
purchase it with volume, right?

So like every procedural part
of medicine is starting to have

a, a volume requirement put into
even like board certification and

credentialing and privileging, right?

The interventional cardiology
boards, you have to do a

minimum number of cardiac cath.

So yes, we have, you know, quality
metrics and we have a, a vendor in

addition to our executive team negotiating
our preferred provider network.

And we have quality metrics
associated with that.

But I would say it's price, price driving
volume, volume, driving quality, and then

sort of access as part of that, right?

Because if I price purely based
on quality and I don't look at

the other components, right?

It is a triangle.

So if I get you an appointment at
the best O-B-G-Y-N in the world.

They're located in Brussels,
that doesn't help you.

Right?

So I, I would say it's the
trade-offs within the geography

that we have to make sure that
the member gets really good value.

So I'd put value and value-based care
as sort of built around the member, not

an abstract concept of a policy paper.

And I would say, I've been part of the
North Carolina community for a long time.

I went, as you probably looked
up, went to UNC for graduate

school, and it was the one place
where I felt I was truly accepted.

So I've always been very grateful to
the state and if there's something that

I can do to help the state and help the
state employees who made my education

possible, that's what I view my role
as, being vice chairman of the board.

Right.

They served me.

By creating a wonderful state
and educational environment and

business opportunities made my
future possible, and so maybe I have

a small chance to help them make a
healthier future possible for them.

Martin: You recently testified in front
of Congress on medication affordability

and we just earlier were talking Yes.

We were just earlier talking.

Yes.

And I'm excited to hear them.

We were just chatting with Brian
from, uh, Venrock on Colonial.

Mm-hmm.

The acquisition by Eli Lilly,
CAR T Therapy Cell and Gene

Therapies more broadly.

I'm curious to get your view on
what we should be doing on the

medication affordability from.

Brian: I, I have so many thoughts,
especially after looking at the specialty

of biologic drug spend at the North
Carolina State Health Plan and also

the Medicare program and part D and uh,
B as in boy and D as in drugs, right?

It took us four tries to get the NA naming
right for the parts of Medicare, right.

Finally got right on Part D for drugs.

So I, I would say that the challenge
is that old drugs are expensive and

I, I'm fine if you have new cool
drugs and new cool drugs with high

value, I'm fine with that being
expensive, and that's a separate

discussion about how we pay for that.

But the, the fundamental problem
that we have, and I, I don't think

we've done a good job parsing
this, is that all drugs should be

cheap and have lots of competition.

And frankly, we have a lot
of FDA barriers to that.

If you look at generics, super
successful, you show Bioequivalents

do some manufacturing oversight, and
granted, I'm oversimplifying that,

but you have a low barrier to entry.

In terms of dollars and and time
and we have lots of cheap generic

drugs, which work really well.

And then we have lots of new,
cool branded small molecule drugs.

We don't ever have that
for the biologics market.

The biosimilars market we now
have 15 years of experience with.

And so we really need to update that 3 51
K pathway and make it a true abbreviated

BLA pathway or alaw as we like to call
it, because, you know, anything in health

policy has gotta have a cool acronym.

And abla sounds like fun, right?

You, you think about Dilbert or
the office with Michael Scott.

Uh, and, and so you could imagine a world
where the FDA says, and Congress tells

the FDA as part of the next user piece.

They, they, they could say
pharmacokinetics is the sort of

minimum evidentiary requirement
to approve biosimilarity.

And that comes with interchangeability.

And then you could imagine that the FDA,
if they have some resolved un unresolved

uncertainty about biosimilarity,
they could require more evidence like

pharmacodynamics or immunogenicity.

You could also imagine a world
where the FDA says, actually, you

don't need to do a PK study or
PHARMACOS to show biosimilarity,

Hey, just show some structural
characterization in manufacturing.

And you are on the market as
an interchangeable biosimilar.

We do that.

A lot of biologic drugs for ra, Crohn's
insulin, which everyone's always talking

about, those drugs would be cheap.

And again, the idea of being,
if you have a chronic disease,

you shouldn't be penalized.

Like you should be able to get
sort of basic level access to

medical care, whether it's doctors,
hospitals, technology, or drugs like

you should be able to get access to
relatively affordable healthcare.

And yes, we still want innovation
and this doesn't exclude innovation.

All drugs should be cheap.

And, you know, I, uh, surprises people.

I agreed wholeheartedly
with Bernie Sanders, right?

He shook my hand before the hearing.

I was, uh, had a nice discussion with
him during the hearing and I said, you

know, improving FDA product regulation
is a better way to lower drug prices.

It's a more effective
tool to lower drug prices.

And that's what we should be doing
because that way you make old drugs,

cheap, have lots of price, competition,
new drugs, still, you have that incentive

for innovation and you don't break that.

And, uh, if you have diabetes,
insulin should be cheap.

And if you look at it, you have
the twice a day, NPH regular

insulin, which is the old stuff.

You can buy it, it's super cheap.

It's a Walmart.

Then you have the basal bolus, right?

The long acting, the short
acting with the fancy flex pens,

that's a little more expensive.

And a lot of manufacturers are
now working on a, uh, once a week

formulation of basal insulin.

They've been a couple studies in
the New England Journal, right?

That should be more expensive.

I'm okay with that being more expensive,
but the basal bolus stuff should be cheap.

Just like the NPH regular mix
is cheap, and that's a biologic

drug regulation problem.

It's actually not as much a payment
problem, but FDA stuff's hard, right?

Like it's a technocrats palace
turns your hair white, gives your

ankles, takes away sleep, right?

My hair is turning white.

You just can't see it on the camera.

Thank God.

Kevin: It's a good angle.

Brian.

Speaking of cost of things, one of
the topics Martin and I find ourselves

trying to wade through a lot is Medicare
Advantage versus original Medicare.

Brian: Oh,

Kevin: what actually costs
federal government more?

Brian: Oh, well, you know, I don't think
we've answered that question very well.

I think a lot of other people think
we have answered that question.

I really look at it as, you have to look
at three sort of lenses that I testified

on Waynes and means about this a year ago.

Three things you gotta do.

One is take a look at statutory
program spending, right?

Fee for service, AB spending, uh, versus
Medicare Advantage Program spending.

Recognize that MA
includes a, B, D, Medigap.

So you might not get an answer.

You, you know, that you, you'll probably
get an answer that the insurance

industry doesn't like and that's okay.

Right?

Then you need to look at per
component benefit spending.

Like what is the cost of buying a B, uh, D
and Medigap in ma versus fee for service?

And you know, someone's gonna
raise their hand and say, well, the

Part D computation is really hard.

And I'll be like, yes it is.

And you know, we can get good analysts
and economists to do that, and then

someone else is gonna raise their hand
and throw a tomato at me and say, well,

Medigap is paid for by the private market.

I'll be like, well, not exactly right.

12 million Americans on traditional
Medicare have Medigap and those

are traditionally wealthier.

And you know, a less diverse
group, shall we say, of Americans.

And you know, they matter.

But there's a lot of other Americans
who have, you know, employer

sponsored Medigap retiree plans.

There are also others who have
TRICARE for life, which is a Medigap

plan, which taxpayers pay for.

There's also others who have
Medicaid, right, the dual eligibles.

So again, that per component benefits
cost is the second thing you need to do.

And then I'd say the third comparison
that you should do is say, what does it

cost to construct the holistic health
benefits package when you retire?

'cause you need A, B, and B, you
need a drug benefit unless you're

magically healthy and dying.

Your sleep at a hundred, which is
not many people, but I've met them.

There are a few.

And then Meab, right?

So if you do that three stage three
sort of lens comparison, statutory

program spending per component
benefit spending, and then the cost to

construct a holistic health benefits
package, you get a range of answers.

And I think then we would have
probably a better policy making.

I know that's might not be a satisfying
answer, but it's the correct, I think

the correct, the correct answer is it
sort of depends upon which lens you

look at and you should use all three of
those lenses to get a complete picture.

And you know, if you're the insurance
industry or you're an academic

who doesn't like managed care,
like you can pick a side of that.

You know, you can pick one of
those lanes to swim in and get

the answer you're looking for.

And I'd say the answer you're looking
for is probably a lot more gray.

Martin: This has been a lot of fun.

Thank you so much for stopping by.

If folks wanna read some of your
writing, where's the best place

for them to, to access that?

Brian: Probably my
website, which is Brian J.

Miller md.com.

Uh, it's, I try and put
everything up there.

It's a little bit like the Berkshire
ha website website's a little dated,

but you know, I am very bullish
on technology, but, and not always

the best at executing it myself.

So I would say there,

Martin: we appreciate the overview.

You covered a ton of ground.

We'd love to have you back some time.

Um, of course.

Really appreciate it.

Brian: Thank you.

Kevin: Enjoy the

Martin: afternoon.

Kevin: Thanks, Brian.

See you, Brian.

Brian: Have a good afternoon.