San Mateo County Uninsured Feasibility Analysis April 23, 2007 . Stan Roberts, FSA, MAAA Craig Keizur, FSA, MAAA

Contents Milliman Introduction Data Sources Cost Models Claim Projections Considerations Milliman

About Milliman Premier consulting and actuarial firm serving clients in four specific practice areas since 1947 Healthcare, Life/Financial, Pension/Employee Benefits, and Property/Casualty More than 1,800 employees including actuaries, clinicians, technologists, and operations consultants, and local presence in 41 offices worldwide. Milliman’s healthcare practice currently provides consulting services for over 125 health plans and 300 hospitals across the U.S. Milliman

Milliman Capabilities Actuarial Consulting Data Warehousing Clinical Consulting Actuarial Consulting: Commercial, Medicare, Medicaid, and Other Public and Private Payers i. Pricing and Financial Projections (Feasibility) ii. Reserve Analysis (e.g., IBNR) iii. Capitation Development and Risk Sharing Analysis iv. Rate Filing Support v. Benchmarking and Actual vs. Expected Review vi. Hospital and Provider Contract Analysis and Review Milliman

Pricing Process for Health Plan of San Mateo Uninsured Program Milliman

Low Income / Uninsured Considerations Why Costs May Be Higher Than Commercial Population Low income people are generally less healthy than higher income Uninsurables Pent-up demand Adverse selection from those that elect coverage Milliman

Low Income / Uninsured Considerations Why Costs May Be Lower Than Commercial Population Not “Benefit Aware” May qualify for other source of coverage (Medi-Cal) Better discounts (lower provider reimbursement) than commercial (e.g., Medicare or Medicaid levels) Healthy opt-out Milliman

Low Income / Uninsured Considerations Other drivers of cost Premium Requirements Benefit Design (e.g.,cost sharing) Demographics Discounts Enrollment Approach Coordination with other Coverage Milliman

Data Sources Milliman “Health Cost Guidelines” Internal Research The HCGs are a flexible tool for modeling many different benefit plan design scenarios for multiple populations and payers. Underlying our HCG models are claim probability distributions which are statistical tools that assist in valuing deductible and member out-of-pocket maximum cost sharing. Public and proprietary data sources Utilization per 1000 Community Billed Charges Internal Research Client Data Other State Programs State and other Public/Private Data Claim Probability Distributions Client Assumptions Milliman

Modeling Adjustments Region = San Mateo County, CA Population = Uninsured Demographics = Varies by FPL cohort Discounts / Reimbursement = 100% Medicare Allowable Trends Center Date = July 1, 2007 Other Adverse Selection Administration = n/a at this time Milliman

Plan Offerings HMO-Style Plan Design High Deductible Complex Chronic vs. Healthy Individual “Coverage” vs. “Insurance” High Deductible First dollar preventive covered “Donut Hole” Milliman

Plan Design Plan Complex Chronic / Healthy Individual Basic + High Deductible FPL Eligibility 0%-200% 200% - 400% 100% - 400% First Dollar Basic (Preventive) n/a (assumed) $1,000 Deductible (Individual) $0 $2,000 OOP Max (Individual) $5,000 Office Copay (PCP/Spec) $0/$10 $10/$25 $20/$35 Emergency Copay $25 $50 $100 Rx Copay (Generic/Brand) $3/$10 Milliman

Gross and Net Claim Cost Projections (July 1, 2007 Center Date) Plan CC/HI: 0-200% 200-400% Basic + High Ded Gross Claim Costs (PMPM) Inpatient (non-maternity) $50.33 $56.51 $52.63 Outpatient (non-maternity) 47.19 48.98 46.53 Physician (non-maternity) 113.61 112.95 108.22 Maternity (Hosp, Phys) 9.76 22.61 27.59 Prescription Drug 51.35 53.72 50.83 Dental 17.27 Other 17.96 18.46 18.17 Subtotal $307.47 $330.50 $321.24 - Value of Cost Sharing ($13.90) ($38.91) ($78.32) = Net PMPM Claim Cost $293.57 $291.59 $242.92 Milliman

Net Claim Cost - Age Illustration (July 1, 2007 Center Date) Plan CC/HI: 0-200% 200-400% Basic + High Ded Total Projection $293.57 $291.59 $242.92 Adult: 25 Year Old $209.95 $203.15 $186.15 Adult: 45 Year Old $350.20 $308.55 $262.65 Milliman

Illustrative Monthly Premium Rates* (July 1, 2007 Center Date) Plan CC/HI: 0-200% 200-400% Basic + High Ded Total Projection $345 $343 $286 Adult: 25 Year Old $247 $239 $219 Adult: 45 Year Old $412 $363 $309 * Assumes illustrative administration and profit load of 15% Milliman

Considerations “Coverage” vs. “Insurance” Carve out benefits or members? Benefits (no reductions reflected in pricing) Out of area (1-2%) Rx discounts – Depends on relationship between 340B discounts and those assumed in pricing Members Maternity costs already removed to account for 0-150% FPL pregnant woman coverage. Result was approximately 7% savings in 0-200% FPL CC/HI plan. Projected claim costs reflect “moderate” plan management efforts 30%-50% Degree of Healthcare Management Can estimate additional savings from plan management efforts Impact of mandate Mitigate adverse selection Benefit Options Higher deductible Benefit maximum Milliman

Outstanding Issues Confirm Pricing Assumptions Finalize Plan Options Benefit design Consider Subsidies Consider Premium Rate Structure Age-Bands Multi-Year Cost Projections Milliman