American Health Policy Institute (AHPI) is a non-partisan 501(c)(3) think tank, established to examine the impact of health policy on large

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1 By Tevi D. Troy

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3 American Health Policy Institute (AHPI) is a non-partisan 501(c)(3) think tank, established to examine the impact of health policy on large employers, and to explore and propose policies that will help bolster the ability of large employers to provide quality, affordable health care to employees and their dependents. The Affordable Care Act has catalyzed a national debate about the future of health care in the United States, and the Institute serves to provide thought leadership grounded in the practical experience of America s largest employers. To learn more, visit ghgvghgghghhg americanhealthpolicy.org. i

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5 Executive Summary... 1 An Introduction to the Health Care Black Box, Milliman Client Report... 4 iii

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7 For consumers of health care, one of the biggest frustrations today is that pricing and spending patterns appear to be kept tightly bound in a black box. Those who are asked to pay the bills as well as those making the spending decisions too often feel as if they lack the critical information necessary to make the right choices, based on metrics like quality indicators, the price for a procedure, and comparative prices within the supply chain. Unlike most markets, there is little correlation between the price and quality of health care services, which leads to a vague understanding of the economic dimensions of health care. This uncertainty, paired with a lack of transparency, makes it challenging for patients, providers, and payers alike to make well-informed health care choices based on cost and quality. The uncertainty surrounding health care pricing is especially a problem for U.S. employers. In 2013, U.S. employers spent $610.9 billion annually in providing health coverage for million employees, retirees, and dependents, and yet they lack crucial data regarding health care spending and value information when making health care spending decisions. For this reason, it is critical for employers to be able to open this black box to help them make informed decisions on health care spending and better equip their employees to be smart health care consumers. There are a number of ways to do this. From a macro perspective, there is the question of how much total spending takes place in each of the various categories of health care spending. If, for example, the largest part of the spend takes place in inpatient spending, then the smart move is to find ways to address inpatient spending. This approach follows the Willie Sutton rule: go where the money is. On the micro side, figuring out how individual companies divvy up their spending can help provide real world examples of efficient and inefficient spending behavior. As opposed to the macro approach, the micro approach goes beyond telling benefit managers where to look; it also tells them what to do. In this paper, Milliman has provided valuable insight on the macro side of things. Milliman compared the distributions between typical plans and well-managed plans, the latter being defined as a plan that has a higher level of medical and claims management, achieved through diligent use of evidence-based best practices, high levels of member engagement, and effectively run integrated care units. In doing so, Milliman discovered some crucial differences. For example, Milliman found that a well-managed plan costs about 13% less than a typical plan. This 13% difference can lead to real savings. Milliman found that, in 2014, the average health plan for a family of four cost $24,700. This stark finding suggests a number of things. First, employers in the $24,700 category could pursue two immediate goals. They could set a global spending objective of reducing the overall cost of a family plan from that range to some lower number, such as $20,000 or less. Second, to the extent possible, they could try to move their own plans into the well-managed category. This is not always feasible, however, as the effort to make a plan well-managed entails significant investments of time, manpower, and overall resources, which many employers do not have. The $3,300 difference between typical and well-managed plans suggests that the investments are worth the effort, especially for larger companies with a large number of employees under coverage. But if a company does not have a large employee population, that expense is harder to justify American Health Policy Institute 1

8 For those companies in the well-managed category, the Milliman findings suggest a number of other concerns: Is $21,400 the floor in the current the current health care system for a family plan? If it is, what does that number mean for long term economic growth? From the employee perspective, although the vast majority of employees currently find employer coverage affordable, a growing number will find that the average employee share of the premium for employer-provided health insurance exceeds 9.5 percent of their total income. Over 13 million private-sector employees with employer based coverage 3.0 million with individual coverage, and 10.4 million with family plans are now facing the prospect of unaffordable health care. Is that sustainable over the long term? Should employers continue trying to tweak the existing system to seek improvements as they have been doing for the past three decades, or should they begin thinking about health care delivery in fundamentally different terms? Milliman broke down the $3,300 overall difference between typical plans and well-managed plans and found substantial variations within the six different categories of healthcare spending: inpatient, outpatient, professional, pharmacy, other medical services, and non-medical expenses. Somewhat unsurprisingly, Milliman demonstrated that inpatient spending and professional services are the largest of the six categories. A well-managed plan spends $1,200 less on inpatients services, and $900 less on professional services. Outpatient services also saw a $900 difference, which means that these three categories accounted for over 90% of the advantage derived from well-managed plans. The Milliman analysis demonstrates the value of developing a better overall sense of where companies are spending health care dollars. But the macro perspective is only one part of a larger question. From the micro side of things, individual companies can provide insights into their own health care spending at the company level that the macro perspective cannot provide. Individual companies can provide a sense of their overall strategies, the resistance they face in terms of trying to get transparent pricing information, and whether there are counterintuitive multiplier effects, suggesting that additional spending in a certain area can drive down costs in other areas. For this reason, the American Health Policy Institute (AHPI) is working with large employers to elicit information that the macro approach, while essential, may not reveal. To get this additional information on the micro level, AHPI is working directly with senior benefits managers from some of America's largest employers to gain additional insight and anecdotes that will show the real implications of these cost drivers for employers. These benefit managers are the key on the ground actors both monitoring and, to the extent possible, determining the company's health care spend. Getting their insight into both health care costs and the actions companies are taking to address them will help fill out the outlines that the macro data sketches. Some of the questions that the benefit managers will address include: Which components of health care spending are they most interested in? Which components would you like more information on? What are the largest health care cost drivers for your company? How would your company ideally divide its health care spending by category of spending? Which health care cost driver is growing the fastest for your company? Are any growing more slowly? What actions, if any, did you take to reduce these costs? 2015 American Health Policy Institute 2

9 Assuming you had more control over your company's health care spending, what would your company do differently? What changes would you like to see in order to gain more control over your health care spending? Answering these and other questions will help identify the key drivers of employers' health care spending, as well as the problems tied to quality and access in today's health care delivery system. These answers will also investigate the solutions and innovations large U.S. employers are considering both now and in the future in order to control these costs and minimize waste. But even if all these questions were answered, they still do not address the elephant in the room: how much can society afford to pay for health care without fundamentally altering the social fabric? America s health care spending takes up about 18% of GDP, despite significant policy and business efforts to curtail it. The bulk of U.S. health care spending, including Medicare and Medicaid spending, as well as the U.S. Department of Veteran Affairs (VA), is both resistant to change and out of the bailiwick of companies that provide health care for their employees. But the $610 billion that companies are spending is in their purview, and may be the area where the most leverage exists to address health care costs. Benefit managers at U.S. employers are on the front lines in dealing with and potentially shaping this spending. Getting their insights into the determinants of this spending, along with the macro information about the parameters of this spending, will help employers take the key steps needed to spend health dollars more efficiently, and potentially provide useful intelligence for government policy makers addressing the problem of public health care spending as well American Health Policy Institute 3

10 Milliman Client Report An Introduction to the Health Care Black Box William J. Thompson, FSA, MAAA Andrea Sheldon, FSA, MAAA A thorough understanding of key health care drivers is critical to the success of employer health care plans operating in an increasingly complex health care system. Employers must navigate our nation s vast health care system to provide competitive benefits to employees. A successful health care program increases workforce productivity through improved employee health outcomes and positions employers to attract and retain talent through competitive benefit packages. As the first in a series on the Health Care Black Box, this report provides an overview of the key drivers of employer health care costs and introduces topics that will be covered in subsequent papers. This introduction covers the (1) components of health care costs for active employees and dependents, (2) key drivers of health care costs, and (3) strategies that employers can implement to manage health care costs. Increasing health care costs and emerging market trends from the Affordable Care Act are changing the health care landscape for large employers. The Milliman Medical Index estimates that over $23,000 was spent in 2014 on health care services for a typical American family of four covered by an average employer-sponsored health plan. 1 A thorough understanding of these significant costs, and the drivers of those costs, is vital as employers manage new challenges and opportunities created by a dynamic health care environment. COMPONENTS OF HEALTH CARE COSTS Health care spending can generally be split into six major categories: inpatient facility, outpatient facility, physician and professional services, pharmacy, other medical services and non-medical expenses. The following graphic shows the estimated distribution of 2014 health care costs across the six categories for active employees and their dependents. Please note that the distribution may differ for retiree groups 2. Table 1 Components of 2014 Average Annual Health Care Claims for a Family of Four 1 The Milliman Medical Index is an actuarial analysis of the projected total cost of health care for a hypothetical family of four covered by an employersponsored preferred provider organization. This estimate includes member cost sharing and member premium contributions. This amount does not include the cost of administration of a benefit plan or the taxes and fees that the plan incurs. The full report is available here: 2 The estimated distribution of health care spending by the five medical spending categories is based on the Milliman Medical Index. In addition, we illustrate the component of health care spending attributable to non-medical expenses as well as the estimated distribution of spending within the medical claims categories is based on Milliman s Health Cost Guidelines TM with an assumed degree of health care management of a typical large employer. For more information, please visit: Commissioned by the American Health Policy Institute January 21,

11 Milliman Client Report These charts compare health care spending by major category between a typical plan and a well managed plan. The typical plan represents the level of medical and claims management experienced by the majority of large employer groups. A well managed plan represents a higher level of medical and claims management, achieved through diligent use of evidence-based best practices, high levels of member engagement, and effectively run integrated care networks. While the distribution of costs may not vary significantly between a typical plan and a well managed plan, Table 2 demonstrates the reduction in claims that may be experienced with these enhanced utilization management techniques. Table 2 Components of 2014 Average Annual Health Care Claims for a Family of Four Typical Plan Well Managed Plan Inpatient $7,200 (29%) $6,000 (28%) Outpatient $4,300 (17%) $3,400 (16%) Professional $7,200 (29%) $6,300 (29%) Pharmacy $3,400 (1) $3,200 (15%) Other Medical Services $900 () $800 () Non-Medical Expenses $1,700 (7%) $1,700 (8%) Total $24,700 (100%) $21,400 (100%) Table 2 summarizes our estimated 2014 annual spending for both a typical plan and a well managed plan, with the well managed plan cost approximately 13% lower than the typical plan cost. The Milliman Medical Index estimates that $23,000 was spent in 2014 for the average family of four, excluding the cost of non-medical expenses (e.g., administrative expenses, operational costs, etc.). We estimate that non-medical expenses are typically 7% of total plan cost for the average large employer plan, bringing the average total health care cost for a family of four from $23,000 to $24,700. These non-medical expenses translate to an estimated 8% of total cost for a well managed plan, as the increased management may yield a reduction in total claims while keeping non-medical expenses constant. Hospital Inpatient Hospital inpatient service costs include facility costs for services performed at a hospital requiring an overnight stay and represent approximately 29% of average annual health care costs. Table 3 summarizes the key components of hospital inpatient facility costs. Table 3 Components of 2014 Average Annual Hospital Inpatient Facility Costs for a Family of Four Typical Plan Well Managed Plan Surgical Stays $3,800 (53%) $3,200 (53%) Medical Stays $1,900 (26%) $1,500 (25%) Maternity and Newborn Care $1,200 (17%) $1,100 (18%) Behavioral Health and Substance Abuse $300 () $200 (3%) Total $7,200 (100%) $6,000 (100%) Hospital inpatient facility costs include the cost of room and board, lab and radiology associated with inpatient treatment, operating room and supply costs, nursing services and salaried physician staff. Increasing the Commissioned by the American Health Policy Institute Page 2 January 2,

12 Milliman Client Report efficiency of the inpatient benefit and moving toward health care delivery best practices may reduce hospital inpatient facility costs by up to 17%, as shown by the difference in total hospital inpatient facility costs in Table 3. Hospital inpatient facility costs are typically incurred by less than 5% of a plan s membership, and yet this small percentage of the population incurs over half of the total claims for the entire group. Diligent care management of members with large claims is extremely critical to keeping the overall plan costs from trending too rapidly. Directing unnecessary hospital utilization to other venues (e.g., walk-in clinics, urgent care centers), promoting healthy lifestyles, monitoring hospital discharges to prevent readmissions, and encouraging rigorous management of chronic conditions are all elements of effective care management programs that may help to reduce costs while still maintaining a high quality benefit. Proper inpatient care management may produce successful outcomes through reductions in both the number of admissions and the length of stay. While less than 1% of members in a typical active employee plan have claims over $100,000 a year, these claims represent over 20% of total plan cost. The significance of these costs demonstrates the necessity of health care management to overall plan management. Hospital Outpatient Hospital outpatient service costs are facility costs for services performed in a hospital that do not require an overnight stay and represent approximately 17% of annual health care spending. Table 4 summarizes the key components of hospital outpatient facility costs. Table 4 Components of 2014 Average Annual Hospital Outpatient Facility Costs for a Family of Four Typical Plan Well Managed Plan Surgical Procedures $1,400 (33%) $1,050 (31%) Emergency Room and Urgent Care Visits $825 (19%) $750 (22%) Radiology $600 (1) $425 (13%) Pharmacy $450 (10%) $300 (9%) Preventive (including mammography, colonoscopy) $175 () $175 (5%) Pathology/Lab $225 (5%) $175 (5%) Cardiovascular $75 (2%) $75 (2%) PT/OT/ST $75 (2%) $75 (2%) Other (including behavioral health and substance abuse) $475 (11%) $375 (11%) Total $4,300 (100%) $3,400 (100%) Hospital outpatient facility costs include the cost of lab and radiology, operating room and supply costs, nursing services as well as salaried physician staff. Increasing the efficiency of the outpatient benefit and moving toward health care delivery best practices may reduce hospital outpatient facility costs by up to 21%, as shown by the difference in total outpatient facility costs in Table 4. An increase in the share of hospital outpatient facility costs associated with preventive testing (e.g., mammography, colonoscopy and lipid panels) is common in a more efficient health care delivery system. Health care management may also encourage members to receive their care in more appropriate and efficient care settings. Cost sharing incentives and network steerage may result in reduced use of the emergency room for non-emergency medical needs. Effective health care management may additionally result in a reduction in Commissioned by the American Health Policy Institute Page 3 January 2,

13 Milliman Client Report the inappropriate or non-medically necessary use of high-tech testing (e.g., MRI and CT and PET scans) and lab and radiology services. Professional Services Professional services include the cost of all services performed by a physician, both in the hospital and in an office setting. These costs do not include the costs of physicians employed by a hospital. Professional services represent 29% of annual health care spending. Table 5 summarizes the key components of professional services costs. Table 5 Components of 2014 Average Annual Professional Services Costs for a Family of Four Typical Plan Well Managed Plan Surgery and Anesthesia $2,150 (30%) $1,775 (28%) Specialist Visits $1,300 (18%) $1,125 (18%) Preventive Care (mainly Primary Care) $725 (10%) $950 (15%) Primary Care Physician Sick Visits $650 (9%) $625 (10%) Pathology/Lab $725 (10%) $625 (10%) Radiology $650 (9%) $500 (8%) Other $1,000 (1) $700 (11%) Total $7,200 (100%) $6,300 (100%) The cost of professional services is driven by the costs associated with running a medical practice, including the physicians and staff salaries and benefits, rent and utilities, and the costs of liability coverage purchased to provide protection from medical malpractice lawsuits. Increasing the efficiency of the professional services benefit and moving toward health care delivery best practices may reduce professional services costs by up to 13%, as shown by the difference in total professional services costs in Table 5. An increase in the share of professional services costs associated with preventive care is typical in a more efficient health care delivery system. Increases in preventive care may have a positive long term effect on plan costs through both the avoidance of future, preventable claims as well as a reduction in the severity the claims. Effective health care management may also result in a reduction in lab and radiology costs through identification of non-medically necessary testing. Pharmacy Pharmacy costs include the cost of prescription medications filled at retail and mail order pharmacies. The cost of medications administered in an inpatient or outpatient setting (e.g., chemo therapy) are typically included with facility or professional services costs. Pharmacy costs for an average family of four in 2014 totaled $3,400 (1 of total costs) for typical plans and $3,200 (15% of total costs) for well managed plans. Pharmacy costs are driven by both the number and type of prescriptions members have filled, along with the cost of those prescriptions. Increasing the efficiency of the pharmacy services benefit and moving toward health care delivery best practices may reduce pharmacy costs by 6%. A reduction in pharmacy spending may be achieved through behavioral changes, including increased use of generic drugs and higher maintenance medication adherence rates, and mail order and/or preferred pricing for 90 day supplies of drugs needed for chronic conditions. Commissioned by the American Health Policy Institute Page 4 January 2,

14 Milliman Client Report Other Medical Services Other medical services include services such as ambulance, durable medical equipment and prosthetics. For an average family of four in 2014, these coverages totaled $900 ( of total costs) for typical plans and $800 ( of total costs) for well managed plans. Increased management of care reduces these costs by approximately 11%. Non-Medical Expenses Non-medical expenses include administrative costs, as well as other non-claim expenses associated with operating the health plan. These costs represent approximately $1,700 for both typical and well managed plans. Non benefit expenses include the charges from the Third Party Administrator (TPA), outside benefit consultants, and internal company staff, as well as the compliance costs associated with meeting regulatory requirements, such as the Affordable Care Act (ACA). TPA charges include costs associated with network contracting and claim administration. Outside benefit consultant charges include the cost of analyzing claims experience and plan design changes, as well as rate and budget setting. DRIVERS OF HEALTH CARE COSTS Health care costs have doubled in the last ten years and are expected to continue to rise faster than general inflation for at least the next several years. Table 6 illustrates how the components of health care costs (both paid by the member and the plan) have increased over the last ten years, excluding non-medical expenses. $25,000 $20,000 $15,000 $10,000 $5,000 $0 3% 1 37% 15% 3% 15% 1 15% 37% 36% 36% Table 6 Milliman Medical Index 15% 15% 35% 15% 16% 16% 16% 17% 3 33% 31% 30% 30% 30% 30% 30% 31% 31% 31% 31% 31% Health care costs for large employers are based on the type, number, and cost of the services that their employees use. The employer cost is also a function of how the total costs are split between the member and the employer. This split is based on the plan s defined member cost sharing (e.g., deductible, copay, and coinsurance) as well as members contributions to premium. 15% 17% 15% 15% 32% 32% 32% 15% 15% 31% 18% 18% 18% 19% Inpatient Outpatient Physician Pharmacy Other Commissioned by the American Health Policy Institute Page 5 January 2,

15 Milliman Client Report Health care costs increase when members use more services (known as utilization trend) and when services become more expensive (known as cost trend). INFLUENCING HEALTH CARE COSTS Many forces affect the cost and use of health care benefits, including the economy, effectiveness of provider network contracting by the Third Party Administrators (TPAs), member cost sharing, technology and medical research, medical liability insurance costs, medical management, member education and outreach, population demographic changes (e.g., delayed retirement of baby boomers) and changes in obesity and smoking rates. Table 7 illustrates historical trends in total allowed medical claims from the Milliman Medical Index. This figure represents the total claims, and includes both the portion paid by the benefit plan as well as the portion paid by the member at the time of service (e.g. copay, deductible, coinsurance). 10% Table 7 Annual Trend in Health Care Claims 8% 6% While health care costs are increasing, the rate of increase has slowed as a result of economic forces and efforts from employers, insurers and TPAs to influence health care spending. Hospital Inpatient Hospital inpatient costs represent a critical component of health care spending due to their potential severity in size. Plans use preventive treatments, medical management and case management to reduce the risk of high cost claims. Hospital inpatient costs may be managed through activities designed to reduce admissions (e.g., monitoring medication adherence in diabetics), complex case management for long-stay and expensive cases, aggressive network contracting for expensive cases, and efficient delivery of care. Hospital Outpatient Outpatient services also play an important role in managing employer health care costs. Services performed in an outpatient setting are typically less expensive than those performed in an inpatient setting. Costs are typically reduced as employers see a migration from the inpatient setting to the outpatient setting (also referred to as a reduction in intensity). Commissioned by the American Health Policy Institute Page 6 January 2,

16 Milliman Client Report There has been an increase in the availability of stand-alone urgent-care/emergency centers. While these centers may offer reduced costs when compared to the emergency room, use of these centers for general visits may lead to an overall increase in costs. Because of the flexible hours of operation, members are sometimes using these facilities for general visits rather than exclusively for emergencies. Using these centers may lead to increased plan costs as a result of their ability to sometimes bill as an emergency room rather than as an immediate care center. Emergency rooms and urgent care centers cost substantially more than a physician office visit, and as such, a reduction in the inappropriate use of such treatment locations may reduce plan costs. Plans may be able to steer this utilization to a more cost effective channel through member education and outreach, increased physician and nurse availability (through hotlines and immediate care centers), and member cost sharing disincentives. Professional Services Employers manage professional service costs through copayments charged at the time of the service, high deductible plans wherein members become more aware of the true cost of office visits, preferred and narrow networks to steer members to more efficient providers, and participation in an Accountable Care Organization, Patient Centered Medical Home, or other program that strives to improve the efficiency of health care delivery. More provider networks across the country are taking on financial risk for managing the care of patients that are attributed to them. Accountable Care Organizations (ACOs) and Patient Centered Medical Homes (PCMH) are examples of such arrangements. Encouraging employees to use providers in such networks should produce more efficient delivery of appropriate health care services, with the result being a reduction in cost. Pharmacy Employers manage pharmacy costs through the use of tiered member cost sharing and formulary management. A plan s formulary lists the drugs that are covered by the plan. Effective formulary management can help steer members to the safest, most cost effective products. Tiered cost sharing creates an incentive for members to consider lower cost medication alternatives. The use of lower cost generics continues to increase as a result of cost sharing incentives and the availability of generic alternatives. Several blockbuster drugs (i.e., highly utilized drugs) lost their patent over the last few years, including Lipitor, Crestor, and Cymbalta. As a result, lower cost generics have become increasingly available, resulting in a shift toward more generic use. The savings from increased generic use will continue to be offset as manufacturers create new blockbuster drugs and introduce new, high cost, specialty medications to the market. Effective contracting is critical to successful management of pharmacy costs. This includes contracting with pharmacies for discounts off the Average Wholesale Price (AWP) as well as contracting with pharmaceutical manufacturers for rebates. We have observed an increase in AWP trends, reinforcing the importance of effective formularies, plan designs and contracting for effective pharmacy claims management. Non-Benefit Expenses Employers manage administrative and operational costs through requesting proposals (RFP) from TPAs. This creates a competitive environment in which employers can select efficient TPAs with strong network contracting. Employers also consider private exchanges in outsourcing the services and costs of administering health care services. Commissioned by the American Health Policy Institute Page 7 January 2,

17 Milliman Client Report Audits are an effective way for plans to ensure they are not overpaying for health benefits. Claim audits can identify if claims are being properly adjudicated by the TPA and dependent audits can identify if the plan is paying for members that are no longer qualified dependents of employees. There has been a recent increase in non-benefit costs as a result of the fees associated with the Affordable Care Act. These fees include the transitional reinsurance fee, the Patient-Centered Outcomes Research Institute fee, the Health Insurer Tax for insured plans, and the potential impact of the Excise Tax in Aside from the ACA related fee changes, these costs typically increase with general inflation and claim trends. Network Contracting It is important for employers management of health care costs to use a Third Party Administrator (TPA) with strong network contracting. This may include the use of narrow networks wherein member cost sharing steers members to the hospitals that agreed to the most favorable terms. This may also include Patient Centered Medical Homes as well as Accountable Care Organizations. Purchasing coalitions allow employers to band together to increase negotiating scale. Purchasing coalitions are currently reasonably common for pharmacy, and while creating coalitions for physician and hospital service negotiation is certainly available, it is less common. With the acquisition of physician practices by hospitals and health systems, the bargaining clout of hospitals may make them less amenable to price negotiations, leading to an increase in the cost of professional services. In addition, hospital oversight has resulted in some hospital-owned practices charging a facility fee on top of the office visit charge. CONCLUSION Health care is increasingly complex and an advanced understanding of health care is essential to the effective management and delivery of care to your employees. Doing so creates a healthy workforce, and allows employers to be competitively positioned against other employers in the marketplace. This paper introduced several key concepts related to the Health Care Black Box. Subsequent papers will provide a more thorough review of the major components of care and drivers of cost, as well as the actions that employers can take to provide a benefit that is both cost effective and of high quality. IMPORTANT DISCLOSURES This communication has been prepared for the specific purpose of presenting an introduction to large employer health care costs. This information may not be appropriate, and should not be used, for any other purpose. In performing this analysis, we relied on information published by others. If this data or information is inaccurate or incomplete, the results of our analysis may likewise be inaccurate or incomplete. This communication has been prepared solely for the internal business use of, and is only to be relied upon by, the management of the American Health Policy Institute. This communication must be read in its entirety to appreciate the insights presented herein. Differences between our estimates and actual amounts depend on the extent to which future experience conforms to the assumptions made for this analysis. It is certain that actual experience will not conform exactly to the assumptions used in this analysis. Actual amounts will differ from projected amounts to the extent that actual experience deviates from expected experience. Milliman does not provide legal advice, and recommends that American Health Policy Institute and others consult with its legal advisors regarding legal matters. Commissioned by the American Health Policy Institute Page 8 January 2,

18 Milliman Client Report CONTACT If you have any questions or comments on this document, please contact Bill Thompson or Andrea Sheldon, principals and consulting actuaries with Milliman. Bill and Andrea are members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein Commissioned by the American Health Policy Institute Page 9 January 2,