Liquidation of Health Republic Insurance of New York, Corp. Review of Administrative Expenses May 8, 2017

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1 Liquidation of Health Republic Insurance of New York, Corp. Review of Administrative Expenses May 8, 2017

2 5/1/16 6/1/16 7/1/16 8/1/16 9/1/16 10/1/16 11/1/16 12/1/16 1/1/17 2/1/17 3/1/17 4/1/17 5/1/17 6/1/17 7/1/17 8/1/17 9/1/17 10/1/17 11/1/17 12/1/17 1/1/18 2/1/18 3/1/18 4/1/18 5/1/18 6/1/18 7/1/18 8/1/18 9/1/18 10/1/18 11/1/18 12/1/18 1/1/19 2/1/19 3/1/19 4/1/19 5/1/19 6/1/19 7/1/19 8/1/19 9/1/19 10/1/19 11/1/19 12/1/19 Overview of Health Republic Liquidation Phase I Policyholder Protection/Transition Phase II Claims Determination Phase III Federal and Affirmative Claims Resolution Phase IV Distribution/Closing 2

3 Health Republic Overview On date of Liquidation Order (May 11, 2016): 200,000 policyholders 690,000 claims 14,000 pending appeals 30 Plan Designs 69 Terabytes of electronic data Total statutory liabilities of $457 million as of December 31, 2016 Required reporting for Federal Risk Adjustment, Reinsurance, Risk Corridors programs As an operating company, Health Republic s monthly administrative expenses were approximately $10 million (excluding marketing, broker fees, etc.) 3

4 PHASE I Protect Members Members require ongoing transition services Provide multilingual live call center (84,000+ inquiries received) Eligibility (newborns, divorce, etc.) Co-pay, Deductible, Maximums Historical claim lookup and information Tax Forms 1095s Premium refund information Overpayments Balance billing protection Transfer of Medical Necessity Determinations Result: Continuing protection, assistance and positive financial impact for thousands of members 4

5 PHASE I Continuity of Core functions Protection of Members requires Liquidator to preserve claims systems in operation during temporary (6-to-9 month) transition period Permit members and providers to continue to submit claims through on-line portal Maintenance of eligibility, medical, pricing and other systems to ensure seamless processing of claims Maintain integrity of claims files 70,000 claims submitted post-liquidation 84,144 inquiries submitted to call center Plan: Transition core functions to in-house or less expensive options 5

6 PHASE II Transition Substantially Complete By April 15, 2017, monthly expenses had been reduced substantially Universal claims file transferred to Truven Health Analytics for review and issuance of EOBs Alvarez & Marsal, POMCO and Weil Gotshal have transitioned Claims Adjudication Procedures are in place Potential issue concerning non-assignment clauses has been resolved New Yorkers received information and support services resulting in ongoing health care coverage and minimizing complaints 6

7 Expense Review 7

8 Total Incurred Expenses Top Five Vendors * $1,600,000 $1,400,000 $1,414,087 $1,200,000 $1,000,000 $1,066,573 $926,179 $800,000 $801,782 $622,081 $600,000 $647,613 $494,239 $414,582 $400,000 $200,000 $343,486 $195,596 $196,606 $- May June July August September October November December January February March *Top Five Vendors Alvarez & Marsal Garden City Group New York Liquidation Bureau POMCO Weil, Gotshal & Manges 8 Total Incurred Expenses Top Five vendors

9 Top Five Vendors: Total Incurred Expenses v. Total Paid Expenses $1,600,000 $1,400,000 $1,414,087 $1,200,000 $1,115,950 $1,143,145 $1,000,000 $1,066,573 $926,179 $800,000 $600,000 $400,000 $566,201 $744,117 $530,879 $801,782 $842,959 $654,460 $647,613 $622,081 $494,239 $470,193 $343,486 $632,332 $414,582 $359,456 $345,715 Total Expenses Paid Top Five Vendors Total Incurred Expenses Top Five Vendors $200,000 $196,606 $195,596 $- May June July August September October November December January February March

10 Top Five Vendors Incurred as a Percentage of Total Incurred Expenses % 90.00% 95.85% 87.66% 84.35% 91.49% 89.89% 88.03% 83.05% $2,000,000 $1,800, % $1,613, % 75.92% 71.66% 71.63% $1,600, % $1,400, % $1,112,707 $1,098,074 $1,200, % $876,325 $1,000, % 30.00% $720,459 $706,677 $595,107 $546,046 $800,000 $600,000 Total Incurred Expenses $447, % 10.00% $272,968 $274,480 $400,000 $200,000 Top Five Vendors Incurred Expenses as % of Total Incurred Expenses 0.00% 10 May 2016 June July August September October November December January 2017 February March $-

11 Top Five Vendor Expense Analysis 11

12 Alvarez & Marsal Total Incurred Expenses By Function ($2,241,841) Total Incurred Expenses By Month 700,000 $35,263 $54,130 $600, Annual Audit 600,000 $175,579 $516,013 IT Support 500,000 $435,578 Claims related Issues, claims handling and service Claims Audit 400,000 $408,485 $388,401 $349,666 Project Management 300,000 $286,886 $254,993 $420,619 Reinsurance Recovery Vendor Coordination Legal Support 200, ,000 $138,511 $132,724 $93,186 $61,713 Incurred Expenses Privilege protection has been requested by the Liquidator and granted by the Court with regard to services and workproduct prepared at the direction of counsel or in anticipation of litigation $60,069 $16,111 $55,467 May June July Aug Sept Oct Nov Dec Jan Feb March

13 Garden City Group Total Incurred Expenses By Function ($731,777) Total Incurred Expenses By Month 300,000 $253,638 $49,835 $63,164 Printing 250,000 Postage 200,000 $296,024 $209,737 Legal Notices & Publications 150,000 $167,410 Data Management Incurred Expenses $29,497 $56,411 $27,109 Website Development & Submission Portals Member/Provider Inquiries 100,000 50,000 $62,529 $92,500 Project Management $46,031 $40,432 $24,600 $13,447 $8,271 $10, $12,518 May June July Aug Sept Oct Nov Dec Jan Feb March

14 POMCO New York Liquidation Bureau Actual Incurred Expenses ($1,636,362)* By Month and Estimated Incurred Expenses $250,000 $200,000 $181,818 $181,818 $181,818 $181,818 $181,818 $181,818 $181,818 $181,818 $181,818 $150,000 $100,000 $50,000 $0 8,000 May June July August September October November December January February March 7,000 Actual Incurred Expenses Projected Incurred Expenses 14

15 POMCO Total Incurred Expense ($1,636,362) (Flat rate: $181,818 per month) = 70,000 Claims processed 690,000 Claims preserved 5,000 Members assisted Approximately 18,000 EOBs to be Processed 70,000 Claims processed = 13,705 Re-Priced Claims 14,000 Pending Appeals Processed 28,881 New Claims 13,414 Reprocessed claims for Refunded / Canceled Checks 15

16 Weil, Gotshal & Manges, LLP Total Expenses Billed ($1,298,503) Total Expenses By Month $300,000 Total Expense Incurred ($1,664,770) By Function $137,624 $47,004 $254,264 Case Admistration $250,000 $262,044 $201,004 Federal claims and investigations $200,000 $186,622 $224,492 Claim Adjudication/Hearings/OTSC $150,000 $163,299 $160,437 $208,775 $426,344 Third party claims and investigations Litigation $100,000 $138,572 $80,229 Expenses Incurred Contracts/Vendors/Consultants $50,000 $41,344 $42,405 $22,545 Privilege protection has been requested by the Liquidator and granted by the Court with regard to all communications to and from Weil Gotshal. 16 $- May June July Aug Sept Oct Nov Dec Jan Feb

17 New New York Liquidation Bureau Total Incurred Expenses $1,214,346 Total Incurred Expenses By Month $250,000 $5,629 $13,413 $88,974 Executive $200,000 $202,527 $170,094 $219,910 Legal $150,000 $484,598 Estate Operations $126,610 $114,407 $115,200 Finance $100,000 $106,809 $101,999 $109,313 $401,822 Admin IT $50,000 $59,333 $60,317 $47,737 Privilege protection has been requested by the Liquidator and granted by the Court with regard to all communications to and from NYLB counsel. 17 $0 May June July August September October November December January February March

18 New New York Liquidation Bureau Accomplishments Finance - Transitioned financial records to the Liquidator s modified cash basis of accounting, worked with independent auditors to complete the 2015 annual audit and the A-133 audit, filed the 2015 income tax return. Estate Operations - Transitioned operations and claims adjudication processes from incumbent vendors. Prepared format for claims determinations and issuance of EOBs. Established and managed website and live call center receiving 84,000+ inquiries. Legal Coordinated receivership proceedings and investigations on affirmative claims. (Privilege protection requested by the Liquidator and granted by the Court with regard to all communications to and from NYLB counsel). Administration Moved and secured Health Republic files, office space and equipment. Information Technology Worked with vendors to manage 69 terabytes of data and manage transition of investigatory files and s to Liquidator s systems. Retrieved and relocated computer equipment, and assumed responsibility of system and network administration. 18

19 Actual vs. Projected Incurred Expenses Projected expenses are provided for informational purposes and reflect estimates of future incurred expenses that are subject to change and may be modified without notice. $1,800,000 $1,600,000 $1,613,181 $1,400,000 $1,200,000 $1,000,000 $800,000 $1,112,707 $876,325 $1,098,074 $720,459 Actual Incurred Expenses $600,000 $400,000 $200,000 $706,677 $595,107 $447,635 $546,046 $272,968 $274,480 $325,462 $333,462 $464,220 $494,220 $482,220 $407,220 $375,220 $400,220 $374,220 Projected Incurred Expenses $

20 Health Republic Insurance Of New York, Corp. Pre-Liquidation Administrative Expenses Paid (as an ongoing concern) Year Ended December 31, 2015 Expense Category Amount Claims adjustment expenses $ 71,715,347 Professional Consulting Fees 23,227,254 Enrollment / Billing Processing Fee 8,247,811 Salaries & Wages 16,381,618 Office Equipment & Software 2,617,684 Employee Benefits 2,474,549 Office expense 2,208,847 Miscellaneous Expense 2,050,587 Interest Expense and Bank Charges 1,250,187 Occupancy/Rent 1,338,347 Payroll Taxes 1,094,386 Other 697,757 Network Management Fee 548,074 Liability Insurance 229,766 Change in Accounts payable and accrued expenses (14,965,801) TOTAL $ 119,116,413 Average Monthly Administrative Expenses $ 9,926,368 Other Non-Administrative Expense Broker Commissions $ 15,979,166 Enrollment / Billing Processing Fee 12,371,717 Fees and Taxes 8,697,014 Marketing and Advertising Expense 1,759,879 Reinsurance Premium Federal Admin 1,730,683 Depreciation/Amort/EquipUsage 1,681,929 Member ID Cards 874,026 TOTAL $ 43,094,415 Source: Financial records of Health Republic as posted in the 2015 Audited Financial Statement

21 Alvarez & Marsal Healthcare Industry Group, LLC Incurred Expenses Analysis May 11, 2016 to March 31, 2017 Total 2015 Annual Audit in Support of 3R Recovery 516,013 Claims processing /adjudication /Inquries 438,435 IT Support 349,666 Claims Audit 254,921 NYLB Weekly Meeting 177,027 Reinsurance Recovery 142,826 Administrative Fees 93,762 Correspondence/ s/Review Materials/Phone Calls 74,832 Review Case Material and Status 60,700 Data Preservation 56,778 Prepare Legal Notices 23,982 MagnaCare Coordination 14,651 Litigation Strategy 22,493 Costs & Incidentals 13,254 Altegra Health 2,500 Total Expenses 2,241,841 Privilege protection has been requested by the Liquidator and granted by the Court with regard to services and workproduct prepared at the direction of counsel or in anticipation of litigation.

22 Garden City Group Incurred Expense Analysis May 11, 2016 to March 31, 2017 Total Printing 63,164 Postage 209,737 Notice of Entry to Show Cause 20,109 Legal Publications 7,000 Data Management/Uploads/Reporting 56,412 Manage inquiries, disposition letters, drafted, reviewed and executed affadavit of service and coordinated publication of Order to show casue Development Inquiry/Submission Portals 29,497 Maintenance of members, providers, broker and vendor data; prepared mailing print files service campaign Interactive Voice Response 34,570 Creditor Communications 261,454 Monitor call center, handle on-line inquiries, respond to inquiries. Project Management 43,234 Coordination and oversight of updates to website, interactive inquiry portals, call center FAQs, Project Expenses 6,600 Working meals and transportation 731,777

23 Health Republic Insurance of New York, Corp. Incurred Expenses May 11, 2016 to March 31, Cumulative Since Vendor May June July August September October November December January February March Date of Liquidation Top Five Vendors Garden City Group 253, ,410 62,529 46,031 92,500 40,432 24,600 12,518 13,447 8,271 10, ,777 New York Liquidation Bureau 59, , , , ,999 60, ,407 47, , , ,094 1,214,346 Alvarez & Marsal 408, , , , , ,510 93,185 60,069 61,712 55,467 16,111 2,241,838 Weil Gotshal 163, , , , , ,004 80,229 41,344 42,405 22,545-1,298,501 Pomco 181, , , , , , , , , ,636,362 Top 5 Vendors Incurred Expenses 1,066,573 1,414, , , , , , , , , ,606 7,122,825 All Other Vendors Rackspace US, Inc. 21,774 19,461 19,461 19,461 19,461 19,461 19,461 19,461 19,462 19,461 19, ,462 DAZ 1,379 1,379 1,379 1,379 1, ,895 Oracle 4,667 4,667 4,667 4,667 4,667 4, ,667 4,667 4,667 4,667 51,340 Various Bank Service Charges 1,433 2,595 1,040 4, , ,778 Other Operating Expenses 2, , ,365 8,277 23,405 Various Employees HRI Employees /Consultants - 14, ,700 29,357 38,235 25,612 25,512 26, ,014 BDO Seidman - 6, ,000 Finsbury 5, ,816 Dentons 6, ,849 Transperfect 1, ,879 Eisner/Amper - 150, ,000 44,070 46,524 39,450 46,945 39,450 46, , ,118 Truven Health Analytics , ,000 Total Other Vendors Incurred Expenses 46, , ,895 74,543 72,846 84, , , ,464 77,372 77,874 1,140,835 Grand Total Incurred Expenses 1,112,707 1,613,181 1,098, , , , , , , , ,480 8,263,660 Top 5 Vendors Incurred Expenses as a 95.85% 87.66% 84.35% 91.49% 89.89% 88.03% 83.05% 76.73% 75.92% 71.66% 71.63% 86.19% Percentage of Grand Total Incurred Expenses

24 HEALTH REPUBLIC INSURANCE of NEW YORK, CORP. ("HRI") Modified Cash Basis Expenses Paid (Note 1) Vendor Expenses on a Modified Cash Basis For The Period May 11, 2016 to March 31, 2017 Cumulative Since Expense Category Vendor Description of Expense May June July August September October November December January February March Date of Liquidation Administrative Expenses: Garden City Group Mailings of court orders, phone center, web-site monitoring 156, , , ,029 46,030-80,128 Note 2 12,518-21,718 Note 5 724,412 New York Liquidation Bureau Salaries and Overhead 59, , , , ,999 60, ,407 47, , , ,094 1,214,869 Rackspace US, Inc. Cloud storage - 41,311 19,461 19,461 19,461 19,461 19,461 19,461 19,462 19,462 19, ,539 DAZ Oracle general ledger report writer services - 8,274 2,758 2,758 1, ,169 MegaPath IT vendor that hosts data lines and phones 9, ,240 Oracle HRI General Ledger support , ,010 North Shore-LIJ CareConnect Final health insurance for HRI employees - - 8, ,022 Various Bank Service Charges 10 bank accounts 1,752 1,433 2,595 1,040 4, , ,530 Other Operating Expenses Overnight mail, telephone, archiving, web-site fee 1,779 2, , ,190 Creative Media Agency Legal Notice ,917-4,917 Total Administrative Expenses 229, , , , , , , , , , ,329 2,270,899 Consulting Expenses: Various Employees HRI Employees Salaries including tax and processing fees 145, ,123 Alvarez & Marsal Consulting services rendered in the liquidation , , , , ,235 Note 3 93,185 60,069 61,712 1,725,887 HRI Employees HRI employees retained , ,700 29,357 38,235 25,612 26, ,501 BDO Seidman Collection and delivery of 2014 workpapers - - 6, ,000 Total Consulting Expenses 145, , , , , , ,542 38,235 85,681 87,736 2,032,511 Legal Expenses: Finsbury Legal support 5,329-5, ,145 Dentons Legal support 3,694 6, ,542 Transperfect Translation services for court documents - 1, ,209 Weil Gotshal Legal support , , , , , ,101 Total Legal Expenses 9,023 8,728 5, , , , , , ,997 Professional Fees: Pomco Claims processing 181, , , , , , , ,636 Note ,636,362 Eisner/Amper Fees for 2015 financial audit required by CMS - 150, ,000-44,070-46,524 39,450 46,945-45, ,639 Truven Health Analytics,LLC Claims audit 34, ,000 Total Professional Fees 181, , , , , , ,342 39, ,581-45,650 2,188,001 Grand Total Expenses May 11, 2016 to March 31, 2017 $ 566,201 $ 744,117 $ 530,879 $ 1,115,950 $ 1,143,145 $ 842,959 $ 654,460 $ 470,193 $ 632,332 $ 359,456 $ 345,715 $ 7,405,407 NOTE 1: NYLB financial statements are prepared on a Modified Cash Basis. Expenses are recognized when paid rather than when the obligation is incurred. NOTE 2: The December payment for Garden City Group is for the months of November $27,137 and December $52,991. NOTE 3: The November payment for Alvarez & Marsal is for the months of September $132,724 and October $138,510. NOTE 4: The January payment for POMCO is for the months of November $181,818 and December $181,818. NOTE 5: The payment for Garden City Group is for the months of January $13,447 and February $8,271.