Fundamentals of Self-Funded Health Plans

Transcription

1 Fundamentals of Self-Funded Health Plans SIIA National Educational Conference & Expo October 5, 2014 Phoenix, Arizona Presented by Ron Dewsnup President & General Manager Allegiance Benefit Plan Management, Inc. 1

2 Introduction This is a beginner-level session that will describe how self-insured group health plans are structured, how to determine whether self-insurance is an appropriate plan funding option, regulatory requirements and business partner selection. Why self fund Design Financing Excess loss Reserves Reports Management 2

3 Why self fund What is self-funding? The employer pays claims and administrative expenses directly rather than through premiums to an insurance company. 3

4 Why self fund Cost Fully Insured Self Funded with Stop Loss Fully Self Funded Risk 4

5 Why self fund Fully insured premiums Premiums Claims Risk charges Profit Administration Payment Health mgmt Compliance (State v. Federal) Premium taxes Reserves Advisory services $14,000, Self funded expenses Claims Administration Payment Health mgmt Compliance Excess loss premiums Reserves Advisory services $12,000, Possible Risk Probable Savings $10,000, Profit $8,000, Premium Taxes Risk Charges $6,000, Network Access Utilization Management $4,000, Administration $2,000, Change in Reserves Stop Loss Premiums $- Self Funded Fully Insured Claims 5

6 Why Self Fund Health Care Mgmt 1.1% Network Access 0.8% Admin 3.5% Advisory 0.6% Claims 88.3% SL Premiums 4.4% Change in Reserve 1.3% Claims Expense 94% 6

7 Why self fund In this example, claims costs are lower than expected in years 1, 3, & 4 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1st Year 2nd Year 3rd Year 4th Year Actual Claims 7

8 Advantages Why self fund Benefit design flexibility Cash flow management Reduced premium taxes Lower insurance company Profits Risk charges 8

9 Why self fund Focus on attention on areas of impact Education on utilization and impact Education on and incentives for healthier life styles Health care management interventions Management of high cost claims Management of chronic conditions 9

10 Developing plan design Traditional insurance principles The consumer budgets and plans for predictable costs and seeks insurance coverage for catastrophic expenses. Consumer driven health care attempts to Return to traditional insurance principles, and Re-establish the financial discussion between provider and patient (supply and demand). 10

11 Developing plan design Relying on traditional principles and consumerism The model plan: Ensures a significant financial stake (high deductibles) Automatically incorporates inflation adjustments Is simple in concept and communication Doesn t simply squeeze the balloon Facilitates tax advantaged savings Educates the consumer on costs and options Provides adequate catastrophic coverage. 11

12 Developing plan design Deductibles & out of pocket maximums ponsored Health Benefits, 2013 Source: Kaiser HRET Survey of Employer-Sp 12

13 Developing plan design Deductibles & out of pocket maximums $800 $700 $600 $500 $400 $300 $200 $100 $ =$ =$100 Impact of inflation on deductibles $100 in 1960 = $804 in 2014 (CPI only) $100 in 1970 = $613 in 2014 (CPI only) If medical inflation > CPI by 2.5 points $100 in 1960 = $3,045 in 2013 $100 in 1970 = $1,608 in

14 Developing plan design Deductibles & out of pocket maximums The effect of leveraging Change Trend Medical Expense $ 1,750 $ 1, % Deductible % Plan Pays $ 1,000 $ 1, % Impact 14

15 Developing plan design Network discounts Steerage Deductible Coinsurance Out of pocket maximum Non-network benefits Percentile of R&C Maximum allowable fee Out-of-network discounts Only if already available in-network 15

16 Developing plan design Value of network benefit differential Non-Network Network Benefits 70% 90% OV MSRP $70.00 $70.00 Plan pays $49.00 $49.00 Allowed $54.44 $ not allowed $15.56 Min Discount % 22.2% 16

17 Developing plan design Discounts or net savings? Hospitals Hospital A Hospital B 40% 20% % Discount $ 12,000 $ 7,500 MSRP $ 4,800 $ 1,500 $ Discount $ 7,200 $ 6,000 Allowed plan charges Better benefit for better value Assuming similar quality outcomes 17

18 Developing plan design Option A Option B Option C Deductible In-network $1,000/$2,000 $1,500/$3,000 $2,000/$4,000 Out of network $2,000/$4,000 $3,000/$6,000 $4,000/$8,000 Co-insurance In-network 80% 80% 80% Out of network 60% 60% 60% Out of Pocket In-network $6,350/$12,700 $6,350/$12,700 $6,350/$12,700 Out of network $6,350/$12,700 $6,350/$12,700 $6,350/$12/700 18

19 Developing plan design Same catastrophic coverage Easier to accept up-front risk if Back end Is capped Not too high Place risk on controllable expense i.e., first dollars not last dollars 19

20 Co-pays Developing plan design Hold over from managed care Block automatic inflation adjustment Remove consumer s need to understand price Motivate consumer to get more services Coinsurance Simple Inflation adjusted Involves the consumer on all transactions 20

21 Developing plan design Scheduling benefits Fully scheduled benefit RVU conversion No-balance bill contract Maximum Eligible Expense Schedule certain high costs areas Implants J-codes Schedule and move to centers of excellence Transplants Include travel reimbursement to COEs 21

22 Developing plan design Essential Benefits (current definition) Inpatient care, outpatient hospital, & emergency services Office visits DME and other medical equipment, Prescription medications Rehab therapies Mental health & substance abuse services Preventive care The evidence-based items or services that have a rating of A or B in the current recommendations of the U.S. Preventive Services Task Force Maternity Well-child care, including dental & vision 22

23 Developing plan design Value-based plan design Pay 100% for generic Diabetic drugs and supplies Blood pressure medication Treatment of lipid problems 23

24 Wellness Developing plan design Testing and reporting Blood panels Health risk assessments Incentives v. disincentives Participation based Outcomes based No more than 30% (50% for smoking) 24

25 Developing plan design Outcomes based wellness First stage wellness program Biometric screenings Educational programs Health coaching Participation-based incentives Next stage wellness program Drive financial accountability through outcomes based incentives Improve health through On-line / on-site health coaching Personalized, web-based portal Individual and team based goal setting and tracking tools Reduce risk through reporting, monitoring, tracking and reminders Lower costs through risk based plan designs Additional expansion opportunities PCMH for chronic cases and gaps in care Embedded care coordination Compliance incentive for providers Shared savings incentives 25

26 Developing plan design Chronic Condition Management Interventions for Non-compliant individuals with ongoing, chronic conditions High utilization Medical services (e.g., emergency room) Medications 26

27 Developing plan design Minimum Essential Coverage What is it? The type of coverage an individual needs to meet the individual responsibility requirement under the Affordable Care Act. (HealthCare.gov) Not essential health benefits Not minimum value 27

28 Developing plan design Minimum Essential Coverage Why offer it? Satisfies requirement to offer minimum essential coverage to 95% (70% in 2014) of full-time employees, therefore: Employer not subject $2,000 per FTE penalty May be subject $3,000 penalty (exchange subsidy) Why enroll? Satisfies the individual mandate (Therefore no penalty) Affordable Provides some coverage 28

29 Plan financing Normal market Increased demand Increased price Increased profit Increased supply Decreased price Equilibrium Reasons Consumer payer Priority of health care Etc. Health care market Increased demand Increased price Increased profit Increased supply Increased demand Cycle repeats 29

30 Plan financing Illustrative health care cost trend Price Inflation 3.00% 2.50% Utilization 1.50% 0.25% New technology 1.00% 0.25% Leveraging 1.00% 0.25% Cost shifting 1.00% 0.50% Demographic shifts 0.50% 0.50% Defensive medicine 0.50% 0.50% Other 0.50% 0.25% Total 9.00% 5.00% 30

31 Plan financing Causes of cost increases Components of trend Advances in technology Shortage of skilled workers (labor costs) Demographics: aging of the population Access through health insurance Health insurance v. health benefit Increased access with 3rd party payer Government programs (e.g. Medicare) Epidemiological changes Introduction of new diseases Increased incidence of current disease states Regulations (unfunded mandates) Medical liability Excess institutional capacity Excess specialists Suboptimal decision making Lack of knowledge among consumers Dr. Edward F. X. Hughes LuminX User Group Conference 31

32 Calculating costs Components Claims Excess loss premiums Administrative fees Plan financing Health care management fees Network access fees Advisory services Change in reserve requirements 32

33 Plan financing Enrollment Claims Employee Employee + Ee + Non-Sp Ee + Sp + Non- Only Spouse Dep Sp Dep Total Medical Rx Total Jul ,976 $ 872,105 $ 228,894 1,101,000 Aug ,972 $ 585,921 $ 228, ,340 Sep ,979 $ 650,367 $ 229, ,503 Oct ,003 $ 1,004,002 $ 231,793 1,235,795 Nov ,010 $ 661,476 $ 232, ,072 Dec ,002 $ 1,149,692 $ 231,689 1,381,382 Jan ,039 $ 598,265 $ 236, ,386 Feb ,050 $ 665,327 $ 237, ,518 Mar ,060 $ 707,661 $ 238, ,976 Apr ,064 $ 813,152 $ 238,795 1,051,947 May ,058 $ 822,608 $ 238,162 1,060,770 Jun ,057 $ 752,483 $ 237, ,463 Jul ,050 $ 1,636,981 $ 237,211 1,874,192 Aug ,038 $ 1,099,860 $ 235,842 1,335,702 Sep ,027 $ 801,817 $ 234,555 1,036,372 Oct ,049 $ 1,986,859 $ 237,171 2,224,030 Nov ,046 $ 1,425,784 $ 236,786 1,662,569 Dec ,051 $ 2,752,663 $ 237,330 2,989,993 Jan ,071 $ 790,002 $ 239,993 1,029,995 Feb ,093 $ 810,911 $ 242,543 1,053,454 Mar ,103 $ 1,404,155 $ 243,667 1,647,822 Apr ,117 $ 1,448,233 $ 245,219 1,693,452 May ,097 $ 726,801 $ 242, ,778 Jun ,108 $ 855,874 $ 244,286 1,100,160 Total 20,650 7,606 8,248 12,616 49,120 25,022,999 5,686,672 30,709,671 Average ,047 1,042, ,945 1,279,570 33

34 Plan financing Medical Rx Med & Rx Reserve as of the end of the Experience Period 1,991, ,126 2,524,178 Months of reserve required Projected reserve requirement at the end of the Projection Period 2,478, ,663 3,142,230 Change in reserve 487, , ,052 PEPM change in reserve Midpoint of Experience Period 6/30/2009 6/30/2009 6/30/2009 Midpoint of Projection Period 7/2/2011 7/2/2011 7/2/2011 Number of months midpoint to midpoint Paid claims 25,022,999 5,686,672 30,709,671 Less stop loss reimbursements for the Experience Period (3,785,103) - (3,785,103) Adjusted paid claims 21,237,896 5,686,672 26,924,568 Average enrollment for the Experience Period Employee Employee + Spouse Employee + Non-Spousal Dependent(s) Employee + Spouse and Non-Spousal Dependents Total 2,047 2,047 2,047 34

35 Plan financing Medical Rx Med & Rx Average adjusted paid claims PEPM Trend 10.5% 10.5% 10.5% Midpoint to midpoint trended adjusted paid claims PEPM Change in PEPM reserves Projected claims PEPM Average enrollment for the Projection Period Employee Employee + Spouse Employee + Non-Spousal Dependent(s) Employee + Spouse and Non-Spousal Dependents Total 2,108 2,108 2,108 Total claims fund expectations 13,706,539 3,670,071 17,376,610 Risk corridor 0.00% 0.00% Risk adjusted claims fund expections 13,706,539 3,670,071 17,376,610 Expected fixed costs at projected enrollment 535, ,010 Premiums at projected enrollment 1,459,424 1,459,424 Total expected claims, premiums, and costs 15,700,973 3,670,071 19,371,044 Fund expense load 0.00% 0.00% Total fund expectations 15,700,973 3,670,071 19,371,044 35

36 Plan financing Calculating contributions X = (Y 12) / [A + (B R a ) + (C R b ) + (D R c )] Where: X = Single monthly premium equivalent Y = Total projected annual cost of the plan A = Projected number of enrollees in Employee only B = Projected number of enrollees in Employee + Sp C = Projected number of enrollees in Employee + Ch D = Projected number of enrollees in Employee + Sp + Ch R a = Relative risk factor for Employee + Sp coverage R b = Relative risk factor for Employee + Ch coverage R c = Relative risk factor for Employee + SP + Ch coverage 36

37 Plan financing Calculating contributions X = (Y 12) / [A + (B R a ) + (C R b ) + (D R c )] X = ($19,371,044 12) / [871 + ( ) + ( ) + ( )] X = $1,614,254 / ( ,856) X = $1,614,254 / 4,000 X = $ Employee + Sp = $ Employee + Ch = $ Employee + Sp + Ch = $1,

38 Plan financing Option A Option B Option C Deductible In-network $1,000/$2,000 $1,500/$3,000 $2,000/$4,000 Out of network $2,000/$4,000 $3,000/$6,000 $4,000/$8,000 Co-insurance In-network 80% 80% 80% Out of network 60% 60% 60% Out of Pocket In-network $6,350/$12,700 $6,350/$12,700 $6,350/$12,700 Out of network $6,350/$12,700 $6,350/$12,700 $6,350/$12/700 Potential Value 105% 100% 95% 38

39 Plan financing Option A Option B Option C Enrollee $ $ $ Enrollee + Spouse $ $ $ Enrollee + Non-Spousal Dependents $ $ $ Enrolee + Spouse + Dependents $1, $1, $1, % 100% 95% 39

40 Plan financing Calculating contributions Budgeting Outlays Reserves Employee contributions COBRA rates 40

41 Plan financing 41

42 Plan financing 42

43 Plan financing Employee contribution strategies National average employee contribution Employee 82% Employee + Dependents 71% Percentage of cost Defined $ amount Same across options! In trust vs. general assets 43

44 Plan financing Employee contributions Option A Option B Option C $ $ $ Enrollee $ $ $ $ $ $ $ $ $ Enrollee + Spouse $ $ $ $ $ $ $ $ $ Enrollee + Non- $ $ $ Spousal Dependents $ $ $ $1, $1, $1, Enrolee + Spouse + $ $ $ Dependents $ $ $ Assumed Value 105% 100% 95% 44

45 Excess loss coverage Excess loss coverage Claims basis 12/12 Run out 12/15 12/24 Incurred Paid Incurred Paid Run in 15/12 24/ Paid Incurred 45

46 Excess loss coverage Excess loss coverage Aggregating specific an additional corridor Acceptance of an additional layer of risk In return for lower fixed costs Specific Deductible Aggregating Specific Corridor* Excess Loss Insurer Pays Employer Pays John Tom Sally George Jane *For the aggregate of all specific claims 46

47 Excess loss coverage Excess loss coverage Aggregate ( zzz insurance) Excess Loss Pays Aggregate Attachment Point 25% Risk Corridor Expected Claims Maximum Claims Liability 47

48 Excess loss coverage Fully insured 105% to 110% of expected Probability of Exceeding 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 100% 110% 115% 120% 125% Aggregate Attachment Point 48

49 Excess loss coverage Excess loss coverage No holes Eligibility Covered benefits Exclusions Follow the fortunes of the plan Plan interpretations Administrator v. carrier 49

50 Excess loss coverage Excess loss coverage Disclosure (at underwriting and on-going) Trigger diagnoses UR Claims Case management notes Claims >= 50% of specific deductible 1 st report Updates Experimental and investigational If in doubt, disclose it!!! 50

51 Excess loss coverage Alternative risk financing vehicles Captives Single employer Dedicated cell Formulation of a captive insurance company Potential risk flow Carrier takes the risk (usually retains a portion) Reinsures some or all Reinsurer retrocedes to captive Captive purchases specific and pool cover 51

52 Plan reserves Why do we need them Termination liability Cash flow protection Prudent accrual accounting Ability to smooth cost changes from year to year 52

53 Plan reserves Amount Factor Extension Calculation of Asset Risk 1Off Balance Sheet-Security Deposit with DOI $ 775, $ 8,000 2Class 1 Bonds $ 6,000, $ 18,000 3Class 2 Bonds $ 4,000, $ 40,000 4Cash $ 4,500, $ 14,000 5US Treasury Obligations $ 3,000,000 - $ - 6Preferred Stocks $ $ - 7Common Stocks & Mutual Funds $ $ - 8Property and equipment assets $ $ - 9 Asset Risk RBC $ 18,275,000 a $ 80,000 Calculation of Underwriting Risk Med Dental Other 1Premium, net of reinsurance e $ 79,469,000 $ 1 $ 1 2Net Incurred Claims f $ 69,504,000 $ 1 $ 1 3UW Risk Claims Ratio f/e UW Risk Factor UW Risk RBC $ 8,679,562 $ 0 $ 0 b $ 8,679,562 Calcualtion of Credit Risk 1Reinsurance Recoverable $ 100, $ 1,000 2Investment Income Receivable $ 125, $ 1,000 3Due from affiliates $ $ - 4 Credit Risk c $ 2,000 Calculation of Business Risk 1Admin Expenses X Factor $ 9,941, $ 567,000 2Non-underwritten and Limited Business Risk $ - - $ - 3Premiums Subject to Guaranty Fund Assess $ $ - 4Excessive Growth > safe harbor level $ $ - 5 Business Risk d $ 567,000 Company Action Level (CAL) SQRT(a^2+b^2+c^2+d^2) $ 8,698,430 Regulatory Action Level ACL*1.5 $ 6,523,823 Authorized Control Level (ACL) CAL/2 $ 4,349,215 Mandatory Control Level ACL*.70 $ 3,044,451 E(Loss) $ 499,000 Total Adjusted RBC 1.5 $ 12,624,126 Excess (Deficiency) versus CAL $ 3,925,696 53

54 Plan reserves Setting reserves Types Claims Adjudicated but not paid Received but not adjudicated Incurred but not received Administrative Claims payment Network access Legal / consultative Risk factor Offset for confidence level on projections Rate stabilization Smoothing mechanism for gains and losses 54

55 Setting reserves Necessary information Plan reserves Historical data on monthly claims run out Changes in submission characteristics Changes in payment characteristics Known large claims yet to be received Building reserves Annual change in reserves 55

56 Plan reserves Setting reserves Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 13 Feb 13 Mar13 Apr 13 May13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Total 56

57 Plan reserves Setting reserves 57

58 Reports Data information Decision making assistance What are the issues How are they developing What are the causes How can we intervene What s the anticipated impact of the intervention Correlation causality Correlation Shows the level of probability that Two or more events accompany one another Causality Shows that one event is caused by the other 58

59 Reports Decision making assistance Comparisons to Normative data Prior periods Standard information requests Charges / payments / discounts / exclusions Payments per enrollee and member Large cases Distribution of payments Admissions / days / ALOS Resources to research Specific diagnoses Treatments Costs Options Information on healthy lifestyle and impact on Quality of life Plan costs 59

60 Reports National claims trend 16.0% 14.0% 14.7% 13.0% 12.0% 10.0% 9.7% 8.0% 8.0% 6.0% 9.0% 10.6% 10.3% 8.5% 7.5% 8.0% 8.0% 8.0% 6.8% 8.0% 6.9% 7.0% 4.1% 4.4% % 6.0% 6.0% 6.0% 4.0% 5.4% 5.2% 2.0% 0.0% % Helath care trend after plan and contribution changes Health care trend before plan and contribution changes CPI-U 60

61 <95% of norm Reports Metrics ER Visits* / 1000 ER Claimants (M/1000) ER Visits per ER Claimant ER Visits resulting in an Admission Inpatient Days / 1000 Inpatient Claimants (M/1000) Average Length of Stay Total Admissions* / 1000 Re-admissions / 1000 Total Inpat Re-admission Rate CT Scan / 1000 MRI Scan / 1000 <105% of norm, >=95% of norm >=105% of norm Actual Jul 2012 thru Jun 2014 Norm ER Visit Utilization Inpatient Utilization Imaging Utilization Comparison with Adjusted Norm Adjusted Jul 2012 thru Jun Norm % 159.6% 95.9% % % 164.3% 95.5% 87.7% % % 97.5% 61

62 <95% of norm Reports <105% of norm, >=95% of norm >=105% of norm Actual Adjusted Metric Full Cycle Norm Norm PEPM Summary Medical Plan Paid PEPM $ $ $ Pharmacy Plan Paid PEPM $ $ $ PMPM Summary Medical Plan Paid PMPM $ $ $ Pharmacy Plan Paid PMPM $ $ $ Place of Service Summary (PEPM) Inpatient Hospital Plan Paid $ $ $ Outpatient Hospital Plan Paid $ $ $ Office Plan Paid $ $ $ Emergency Room Plan Paid $ $ $ Cycle Period: Paid Claims Jul 2012 thru Jun 2014; Normative Data: Age-Gender-Geography Place of Service Summary (PMPM) Inpatient Hospital Plan Paid $ $ $ Outpatient Hospital Plan Paid $ $ $ Office Plan Paid $ $ $ Emergency Room Plan Paid $ $ $ Comparison to Adjusted Norm Full Cycle 95.3% 81.9% 106.8% 86.2% 80.9% 100.1% 95.1% 111.6% 97.1% 106.6% 104.6% 120.0% 62

63 RISK INDEX Low <= 8 Medium 9-20 High >=20 CARE GAP INDEX Low <= 2 Medium 3-4 High >=5 <95% of norm Reports <105% of norm, >=95% of norm >=105% of norm Comparison to Adjusted Norm Actual Metric Adjusted Norm Norm Full Cycle Demographics Average Age % Male 49.5 Quality and Risk Average Risk Index 4.23 Average Care Gap Index 0.99 Utilization Metrics Inpatient Days Per Cycle Period: Paid Claims Jul 2012 thru Jun 2014; Normative Data: Age-Gender-Geography Total Admissions Per ER Visits Per Total Office Visits Per ,903.8 Urgent Care Visits Per % Generic Drugs 86.3 Full Cycle % 107.5% % 86.5% , , % 87.7% 87.3% 97.7% % 63

64 <95% of norm Reports Metrics Pharmacy Scripts Mail Order % Generic Drugs Total Office Visits* Regular Office Visits Preventive Office Visits Behavioral Health Office Visits Consultations Other Office Visits Urgent Care Visits Chiropractic Visits Physical Therapy SNF Days Deliveries Dialysis (M/1000) Transplant (M/1000) <105% of norm, >=95% of norm >=105% of norm Actual Adjusted Jul 2012 thru Jun 2014 Norm Norm Pharmacy Utilization Office Visit Utilization 3, , , , , , Other Utilization Comparison with Adjusted Norm Jul 2012 thru Jun % 108.1% 97.7% 91.3% 99.6% 141.2% 89.3% 140.2% 145.3% 115.4% 103.8% 119.1% 111.8% 64

65 Reports Comments: Total Plan Cost/Enrollee is down 7.7% from prior year Claims cost net reinsurance reimbursements is down 8.5% in the most recent 12 months. Reinsurance Reimbursements are up 109.7% over the prior 12 month period. Average claims cost per member is 7.9% below the prior year The average claims cost per dependent is up 11.1% over prior year. Row Type label Total Charges Claims Payment Reductions Plan Benefit Design Other PPO Discounts Total Claims Paid Payments as % of Charges Reinsurance Reimbursements Claims Cost - Total Enrollee Spouse Dependent Census Count - Member Enrollee Spouse Dependent Average Claims Cost - Member Enrollee Spouse Dependent Other Expenses Fixed Network Access Fees Administration Fees Total Plan Cost Total Plan Cost/Enrollee Large Claims Total (>$25000) Number of Members Average Total/Member No of Claims Average Claims Cost Number of Admissions Number of In-Patient Days Average Length of Stay Actual % Change June 11 - May June 12 - May June 13 - May June May 14 $21,710,229 $70,142,269 $64,532, % $14,317,598 $43,802,138 $39,833, % $1,379,606 $3,622,365 $3,184, % $7,427,655 $21,349,190 $18,833, % $5,510,338 $18,830,583 $17,815, % $7,392,630 $26,340,131 $24,698, % 34% 38% 38% 0.7% $132,450 $509,617 $1,068, % $7,260,180 $25,830,513 $23,630, % $4,131,025 $14,608,423 $12,199, % $2,311,779 $7,999,005 $7,841, % $817,375 $3,223,085 $3,589, % % % % % $144 $519 $ % $185 $668 $ % $205 $719 $ % $48 $192 $ % $195,520 $459,858 $460, % $51,161 $120,291 $119, % $144,359 $339,568 $341, % $7,455,701 $26,290,372 $24,090, % $335 $1,202 $1, % $1,092,012 $4,255,493 $4,288, % % $14,584 $46,601 $48, % % $74 $188 $ % % % % 65

66 Reports Sources of normative and plan information Third party administrator Preferred provider organization Pharmacy benefit manager Advisor Research institutions Kaiser family foundation Employee benefits research institute U.S. government departments 66

67 Reports 5.62% $ $ $ $ % $ % $ $ $ $ $ $50.00 $- July 1, 2011 through June 30, 2012 July 1, 2012 through June 30, 2013 July 1, 2013 through June 30, 2014 $200,000 - $9,999,999 $29.80 $36.17 $37.04 $100,000 - $199,999 $31.35 $34.11 $37.16 $50, $99,999 $41.09 $46.88 $46.39 $25, $49,999 $45.67 $49.09 $50.77 $0 -- $24,999 $ $ $ Total $ $ $

68 Reports Distribution of Claims - Prior Period SECONDARY 9% Distribution of Claims - Current Period OUT OF NETWORK 4% SECONDARY 6% PRIMARY 87% OUT OF NETWORK 4% PRIMARY 90% 68

69 Reports Claimant stratification at $100,000 7/11-6/12 Enrollee Months Member Months Dollars < $100,000 > = $100,000 PEPM < $100,000 > = $100,000 PMPM < $100,000 > = $100,000 Claimants < $100,000 > = $100,000 Claims per 1000 Enrollees <$100,000 >= $100,000 Average Paid in Excess of $100,000 $ $ $ $ $ $ $ $ $ $ 788,544 1,604, ,744, ,604,650 98,140, , , , , ,564 7/12-6/13 $ $ $ $ $ $ $ $ $ $ 903,250 1,800, ,767, ,264, ,503, , , , , ,046 7/13-6/14 $ $ $ $ $ $ $ $ $ $ 1,067,865 1,974, ,023, ,504, ,518, , , , , ,803 2 Year CAGR 16.37% 10.93% 17.16% 15.85% 22.19% 0.68% -0.45% 5.00% 5.62% 4.44% 10.15% 8.34% 8.30% 19.63% -5.94% -5.98% 17.35% 4.45% 69

70 Reports Stratification of Payments 11% 10% 10% 11% 11% 10% 49% 50% 14% 51% 14% 15% 14% 15% 15% Stratification of Claimants 0.77% 0.28% 1.59% 0.12% 0.71% 0.28% 1.56% 0.10% 97.35% 97.24% July 1, 2011 thu June 30, 2012 $0 - $24,999 July 1, 2012 thru June 30, 2013 $25,000 - $49,999 $50,000 - $99,999 $100,000 - $199, % 1.81% 0.34% 0.12% 96.89% July 1, 2013 thru June 30, 2014 $200,000 - $9,999,999 70

71 Reports Claimant 7/1/2011-6/30/2012 Paid Count 7/1/2012-6/30/2013 Paid Count 7/1/2013-6/30/2014 Paid Count Dependent 16.6% 15.3% 19.0% 14.5% 20.9% 14.8% Employee 52.7% 56.8% 50.0% 54.2% 48.2% 53.5% Spouse 30.6% 27.7% 30.8% 30.9% 30.7% 31.3% Other 0.1% 0.2% 0.2% 0.3% 0.3% 0.4% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Grand Total 71

72 Reports Major Diagnostic Category Large Claimants >$100,000 Neoplasms Circulatory System Injury & Poisoning Musculoskeletal Digestive Infectious and Parasitic Diseases Genitourinary Prescription Drugs Congenital Anomalies Nervous System and Sense Organs Conditions Originating in the Perinatal Period Endocrine, Nutritional and Metabolic Respiratory Supplementary Factors Influencing Health Blood and Blood Forming Organs Mental Disorders Complications of Pregnancy, Childbirth, etc. Symptoms, Signs and Ill-Defined Conditions Skin and Subcutaneous Tissue Total 7/1/20116/30/2012 Paid Count 31.2% 31.4% 15.0% 16.3% 7.1% 7.6% 7.6% 9.9% 5.1% 4.3% 2.6% 2.3% 10.7% 7.0% 1.2% 1.7% 5.2% 3.9% 1.4% 1.9% 3.2% 3.9% 4.3% 3.7% 1.9% 1.7% 0.1% 0.2% 0.4% 0.4% 1.4% 1.9% 0.2% 0.2% 1.1% 1.0% 0.5% 0.8% 100.0% 100.0% 7/1/20126/30/2013 Paid Count 31.0% 29.2% 16.0% 18.8% 8.0% 7.7% 8.6% 10.6% 5.0% 5.3% 2.9% 2.3% 5.5% 5.0% 1.6% 1.9% 2.0% 1.9% 2.4% 2.3% 5.9% 3.9% 3.0% 2.8% 3.5% 2.8% 0.5% 0.6% 1.1% 0.9% 1.3% 1.7% 0.5% 0.8% 0.7% 0.9% 0.3% 0.5% 100.0% 100.0% 7/1/20136/30/2014 Paid Count 28.5% 30.0% 13.6% 15.7% 8.9% 8.6% 7.2% 9.2% 6.2% 6.1% 6.2% 3.8% 4.5% 3.8% 3.8% 3.8% 3.8% 2.1% 3.7% 3.9% 3.5% 3.4% 3.3% 3.0% 2.2% 2.4% 1.3% 0.7% 1.1% 1.0% 0.9% 1.1% 0.8% 0.7% 0.3% 0.4% 0.2% 0.3% 100.0% 100.0% 72

73 Compliance Update 2010 Restrictions on annual limits on EHBs. Appeals process and external review Dependent coverage for children <26 Early retiree reinsurance program (ERRP) No lifetime limits on essential health benefits Nondiscrimination Patient protections (primary care provider designations, ER services, etc.) Pre-X prohibition for those <19 Preventive health services Quality of care reporting Rescission prohibition Small business health care tax credit Tax-free coverage to children <27 Temporary high risk pool: PCIP program Transparency in Coverage Reporting and Cost-Sharing Disclosure Wellness programs (technical assistance) : HSA/Archer MSA penalty tax increase Life/Annual limits prohibited on Medical loss ratio (MLR) requirements essential health benefits (previously OTC drug restrictions restricted 2010) Rate increases (review and disclosure Automatic enrollment (regs to come) rules) Clinical trial coverage Simple cafeteria plans Essential health benefits package) Wellness programs (small business Cost-sharing limitations grants) Excessive waiting periods prohibited Exchanges 2012: Guaranteed availability of coverage CO-OPs Guaranteed renewability of coverage Patient-Centered Outcomes Research Nondiscrimination against health care (PCOR) Fees providers Summary of benefits and coverage Nondiscrimination based on health (SBC) status W-2 reporting (cost of employer Pre-X prohibition (for all, not just sponsored health coverage) under age 19) 2013: Reinsurance payments Code 213 medical deduction Individual mandate threshold increase Exchange notice to current employees 2015: Shared responsibility for employers Health FSA $2,500 cap (play or pay penalty tax) HIPAA electronic transactions and Reporting of health insurance operating rules Staggered from coverage January 2013 to January

74 Cost management Peak of Inflated Expectations Gartner Hype Curve Technology Adoption Curve 100% The Chasm 75% Plateau of Productivity 50% 25% Technology Trigger Trough of Disillusionment 2.5% Innovators 13.5% Early Adopters 34% Early Majority 34% Late Majority 16% Laggards 74

75 Cost management Transparency 75

76 Cost management Transparency 76

77 Cost management Transparency 77

78 Cost management In-country medical tourism Other examples 78

79 Cost management Provider reimbursement methodologies Spectrum of risks Limited provider financial risk; Risk of patient over-treatment Fee for Service Per Diem High provider financial risk; Risk of patient under-treatment Episode of Care (EPC) Multi-provider EPC Population Shared Savings Condition Specific capitation Full Capitation 79

80 Cost management Provider reimbursement methodologies Total Hip Replacements - All Facilities $80,000 $60,000 $40,000 $20,000 $ Total Knee Replacements - All Facilities $80,000 $60,000 $40,000 $20,000 $

81 Cost management Provider reimbursement methodologies Bundled payments Benefits of a Bundled Payment Pricing Strategy: Increased cost transparency Improved care quality and service efficiency Enhanced cost predictability Expansion to other service lines Payer facilitates payment For date of admission through the date of discharge For lengths of stay of four (4) days or less, excluding admission through the emergency department the Maximum Facility Knee Allowable rate, the Total Bundled Payment Allowable rate and the Maximum Facility Hip Allowable rate set forth above, will increase annually at the same rate as the increase in the Consumer Price Index Urban (CPI-U) released by the United States Department of Labor Bureau of Labor Statistics for March of the effective year. This annual increase shall not exceed 3%. 81

82 Cost management Provider reimbursement methodologies Reference-based pricing Purpose Evaluate charges and payments by facility against an accepted reference (Medicare) Methodology Extracted facility-based claim sample proportionately» According to bill type Inpatient Outpatient» According to provider payments represented in the book of business» According to service mix based on primary diagnosis Sent claims to an independent third-party repricer» To group claims by DRG and APC» To reprice claims based on published Medicare methods and conversion factors specific to each facility 82

83 Cost management Provider reimbursement methodologies Reference-based pricing 330% Facility variation 310% 290% 270% 250% 230% 210% 190% 170% 150% Facility Specific Utilization Normalized Utilization 83