Thursday, October 11, 2007 Contributory Plan Product Development Overview

2 Contributory Plan Development Objectives –Meet core needs of small businesses ( 50 employees) Competitive price Simple administration More engagement by employees in cost & benefit features –Provide more options to lower end of market (e.g., 2 – 25 employees) –Complement existing small group offerings

3 Contributory Plan Development Small group market (<50 employees) –75,000 (+/-) employers –850,000 (+/-) employees –Percentage offering employer-sponsored insurance 1 2 – 9 employees43% of employers 10 – 24 employees77% of employers 25 – 99 employees95% of employers data from Medical Expenditure Panel Survey (US Dept. of Health and Human Services, Agency for Healthcare Research and Quality)

4 Plan Design Options Existing market plan design –Employer designs benefits & shops carriers –Employer makes fixed contribution (e.g., 70%) toward carriers group (composite) rate –No plan options for employees –High employer engagement / low employee engagement

5 Existing Market Plan Design Example Worcester-based small employer with eight employees, ages Employer chooses Harvard Pilgrim Core Coverage Plan w/Rx (Bronze) Composite single rate = $272 Employer pays 70% = $190 Employees pay 30% = $82

6 Group Rating v. Individual Rating Group rating –One rate based on employee census demographics at time of purchase/renewal –Requires minimum participation level (e.g., 75%) of eligible employees –Provides rates by employee status Single Rate – applies to all single employees Family Rate – applies to all employees with families Individual rating –Employee rates vary based on individual demographics –No minimum participation level requirement

7 New Plan Design Options Percentage of Premium Plan Design – Option #1 –Individually rated, because multiple carriers offered –Employer selects coverage tier (Gold, Silver or Bronze) –Employer does not design benefits or shop carriers –Employer selects contribution % (e.g., 70%) –Multiple plan and carrier options for employees –Lower employer engagement / higher employee engagement

8 Percentage of Premium Plan Design Example Worcester-based small employer selects Bronze w/Rx coverage tier Employer contributes 70% of monthly premium for any plan in tier Employees free to choose any carrier within the Bronze w/Rx tier Employer and employee $ contribution varies by carrier chosen by employee

9 Percentage of Premium Plan Design (cont.) Carrier 61-year-old 37-year-old Ee Share (30%) Er Share (70%)Total Ee Share (30%) Er Share (70%)Total NHP $99$231$330$60$140$200 Fallon $100$234$334$55$127$182 HPHC$115$268$383$73$170$243 Tufts$136$317$453$75$176$251 BCBS-MA$149$347$496 $81$189$270

10 New Plan Design Options Benchmark Plan Design – Option #2 –Individually rated, because multiple carriers offered –Employer selects coverage tier and carrier (i.e., benchmark plan) –Employer does not design benefits or shop carriers –Employer makes fixed dollar contribution, based on a percent of premium toward composite rate (e.g., 70%) and corresponding employee contribution (e.g., $82) –Multiple plan and carrier options for employees –Lower employer engagement / higher employee engagement

11 Benchmark Plan Design Example Worcester-based small employer selects Bronze w/Rx coverage tier and Harvard Pilgrim Health Cares Core Coverage Plan as benchmark plan Employer contributes 70% of monthly modified composite premium, based on HPHCs Core Coverage Plan rates Employers $ contribution is fixed in aggregate, but varies by individual employee Employees free to choose any carrier within the Bronze w/Rx tier Employees each contribute same $ toward benchmark plan, but varying amounts based on carrier selected

12 Benchmark Plan Design (cont.) Carrier 61-year-old 37-year-old Ee ShareEr ShareTotalEe ShareEr ShareTotal HPHC$ 82$301$383$ 82$162$244 NHP$29$301$330$38$162$200 Fallon$33$301$334$20$162$182 Tufts$151$301$452$89$162$251 BCBS-MA$194$301$495 $109$162$271

13 Contributory Plan – Initial Employer Research Two small-employer focus groups held in September 20 employers Tested three plan design options (A) - Employer pays fixed percentage of specific coverage tier (e.g., Gold, Silver, Bronze) (B) - Employer pays fixed percentage of any coverage tier (C) - Employer pays fixed amounts, based on benchmark plan, toward coverage tier modified composite rating

14 Contributory Plan – Initial Employer Research 89% of employers strongly supported concept of greater employee engagement and choice 11% of employers preferred Option A (fixed percentage of a specific coverage tier) 0% of employers preferred Option B (fixed percentage of any coverage tier) 89% of employers preferred Option C (fixed amounts, based on a benchmark plan) 85% of employers liked Option C Next research to focus on Options A & C

15 Contributory Plan Development Market Research – October Four groups of small employers with geographic and industry segment distribution 50 Employers Brokers Chambers of Commerce Business Associations

16 Contributory Plan Development Next Steps – October – Research / focus groups – November - Define plan design attributes - Make recommendation - Board approval