D E L T A Health Systems MCOL Health Web Summit New Directions in Managing Health Care Costs December 2002 Self Funding: Emphasis on Benefits & Costs Delivering As Promised Since Copyright Delta Health Systems 2002

Delivering As Promised Since Self Funding: Benefits & Costs Presentation Outline  The Benefits of Self Funding  California Case Study: Large Employer switches to Self Funding  Third Party Administrator (TPA) Services and Features

Delivering As Promised Since Self Funding: Benefits & Costs Instructions on viewing this presentation: Click your mouse with the pointer over these slides to advance the presentation. Otherwise, the bullet points for each slide will not appear.

Delivering As Promised Since Benefits of Self Funding Employer Perspective: Re-establish Health Plan as Benefits to Employees Self Funded Benefit Plans as Recruiting and Retention Tool Re-Take Control of Benefits & Design No State Mandates Customized to employee needs Employer Plans are Distinctive Unique Plan Identity (cards, EOBs) Service vendors focus on client

Delivering As Promised Since Benefits of Self Funding Employer Perspective: Reduced Administrative Costs Eliminate Health Plan high overhead and profit margins No State Taxes Improved Cash Flow & Investment Returns Integrated Administration FSA and Consumer Directed Plans UM, Specialty & Disease Management TPA Strategic Business Partner Fiduciary Responsibility to the Plan Business partner for HR Outsourcing

Delivering As Promised Since Benefits of Self Funding Employer Perspective: Customized Services for Human Resources, Plan Participants On-line access to plan information Vendor Billing and Disbursements Customized Cost Reporting Enables Strategic Planning Focused Care Management Customized Network Options Draw from best in class networks Swap out networks as needed

Delivering As Promised Since Benefits of Self Funding Employee Perspective: Better Network Access & Benefit Options Integrated FSA and Consumer Driven Plans Plan Administration Customized for Employer & Employee Employees have on-line access to eligibility, benefits, claims information Customer Service Centers dedicated to a few clients

Delivering As Promised Since California Case Study The following slides are based on the recent experience of a California employer that switched from an HMO product offering in 2002 to a Self- Funded Program for Large Employer (1,600 EEs) Historically Relied upon HMO benefits for its employees Made Strategic Decision to move from HMO in 2002 to Self Funded in 2003

Delivering As Promised Since California Case Study Market Background California HMO rates have skyrocketed since late 1990s PPO premiums (and underlying costs) increased at a lower rate Relative parity now exists between HMO costs and PPO network rates

Delivering As Promised Since California Premium Trends per member per month

Delivering As Promised Since California Case Study Continued aggravation with HMO benefit restrictions Employees Demanding More Options, Less Restrictive Benefits Self Funding provides unlimited benefit options from single platform: PPO and EPO network choices Low, Medium High Benefit Levels

Delivering As Promised Since California Case Study Employer Financially Stable Strong Cash Flow Able to absorb monthly fluctuations Reinsurance available Strategic Decision to Turn Health Plan into Benefits

Delivering As Promised Since California Case Study Notes to Cost Comparison: Based on actual HMO Cost Structure claims costs projected using 15% trend factor Plan Administration & Profit 23.5% Additional Administrative Layers –Medical Group Administration estimated at 15% of total MD expenses –PBM Administration cost as reported at 15% of Rx costs

Delivering As Promised Since HMO Product Projected Costs 2003

Delivering As Promised Since California Case Study Notes to Cost Comparison: Self Insured / PPO Cost Structure 2003 claims costs projected using 15% trend factor plus estimated 15% rate differential for PPO vs. HMO rates TPA administration at 3% of total costs PPO Network fee at 3% (higher cost than most PPO networks; offset by deeper provider discounts) Actual quotes for stop loss reinsurance

Delivering As Promised Since Self Funded Projected Costs 2003

Delivering As Promised Since California Case Study End Result: No increased costs vs. HMO product Employer promotes new Health Plans as Benefits to Employees Broad Access, plus EPO network option Multi-tier benefit options New Business Strategy to Analyze Costs and Adjust Networks or Benefits as needed

Delivering As Promised Since Third Party Administrator Services and Features TPAs have maximum flexibility to design and modify benefits for each Employer Plan In-house UM program customized for client needs, reports, etc. TPA Model Promotes “Best in Class” Approach Select among multiple PPO networks Negotiate and Select best PBM program Market Stop Loss annually

Delivering As Promised Since Client Specific Claims/Customer Service Teams TPAs are focused on a smaller number of medium to large size employers with customized service teams Internet Access / Member services Human Resource Professionals, Customers can review on-line: Eligibility status, Claims, Benefit Summaries UM & Prior Authorization rules Third Party Administrator Services and Features

Delivering As Promised Since Integrated Accounts FSA claims administration (Medical, Dependent and Transportation) Automatic rollover for medical claims Consolidated Vendor Billing and Premium Disbursements – Outsource service for Employers Real time Eligibility and Benefit Updates for both Medical and PBM COBRA and HIPAA Administration Automated services for notification and Premium Collection Third Party Administrator Services and Features

Delivering As Promised Since Third Party Administrator Services and Features Electronic interfaces with service partners PPO Networks Providers via Claims Clearinghouse PBMs, Benefit Vendors Banks (Positive Pay) Electronic claims scanning & OCR HIPAA Privacy, Security & EDI Transaction Sets

Delivering As Promised Since Anytime, Anywhere Access Intranet + Internet + Scanned Images PPOs and PBMs Remote Access Employer & Plan Sponsor Provider Office Participants Brokers & Consultants Clinical Management

D E L T A Health Systems Delivering As Promised Since Copyright Delta Health Systems 2002 Thank you for attending this presentation for MCOL’s Web Summit For further inquiries, please contact