Karen Bender Milwaukee Florida Health Insurance Plan High Risk Pool October 2006 Mercer Oliver Wyman Actuarial Consulting, Inc.

Mercer Oliver Wyman Actuarial Consulting, Inc. 2 Florida Health Insurance Plan (FHIP) 2003 Legislation – start a new high risk program Engaged Mercer Oliver Wyman U.S. Actuarial Consulting (MOW) to perform feasibility study One aspect of the feasibility study was to analyze the impact the high risk pool will have on the market (if any)

Mercer Oliver Wyman Actuarial Consulting, Inc. 3 Background Florida Comprehensive Health Association (FCHA) Formerly known as State Comprehensive Health Association High Risk Pool Closed to new enrollment in October Data – Premium $15 million – Claims $47 million – Assessment $34 million

Mercer Oliver Wyman Actuarial Consulting, Inc. 4 Background Unique Circumstances in Florida that Facilitated Impact Analysis HIPAA Requirements Florida DOI issued data request Florida requires rates be filed and approved before using Florida has certain routine reporting requirements

Mercer Oliver Wyman Actuarial Consulting, Inc. 5 Florida HIPAA Compliance 3 Prong Approach Individual Carriers Small Group Carriers Group Carriers

Mercer Oliver Wyman Actuarial Consulting, Inc. 6 Florida HIPAA Compliance Carriers in Individual (Nongroup) Market – Applicable only to HIPAA-qualified Individuals leaving Self-funded Plans – Must guarantee issue their two most popular currently marketed plans

Mercer Oliver Wyman Actuarial Consulting, Inc. 7 Florida HIPAA Compliance Small Group Carriers – Required to guarantee issue to self-employed each August – Premiums cannot exceed 150% of Standard Risk Rates – DOI determines Standard Risk Rates  Based upon average rate charged by nongroup carriers representing 80% of the nongroup market

Mercer Oliver Wyman Actuarial Consulting, Inc. 8 Florida HIPAA Compliance Group Carriers – Must issue conversion contracts – Benefits determined by Florida regulators – Premiums cannot exceed 200% of Standard Risk Rates – Same Standard Risk Rates (adj. for benefits) as used for G.I. for one-life groups by small group carriers

Mercer Oliver Wyman Actuarial Consulting, Inc. 9 Florida HIPAA Compliance Individual Carriers Small Group Carriers Group Carriers High Risk Pool Would Eliminate These HIPAA Compliance Requirements What will impact be on rates (if any)?

Mercer Oliver Wyman Actuarial Consulting, Inc. 10 Florida DOI Data Request Issued to Individual (Nongroup) and Small Group Carriers – Experience for one-life and HIPAA-qualified individuals vs. small group and medically underwritten groups – Impact of removing several requirements – 19 carriers (including HMOs) participated

Mercer Oliver Wyman Actuarial Consulting, Inc. 11 Results Segregated by HIPAA Compliance – Individual Carriers – Small Group Carriers – Group Carriers Impact Segregated between Claim Cost and Administrative Costs

Mercer Oliver Wyman Actuarial Consulting, Inc. 12 Results HIPAA Experience for Individual Carriers YearHIPAA-MembersLoss Ratio Underwritten Nongroup MembersLoss Ratio 20014, %448, % 20025, %507, % 20037, %676, %

Mercer Oliver Wyman Actuarial Consulting, Inc. 13 Results HIPAA Experience for Individual Carriers Nongroup Carrier Losses Attributable to HIPAA Year $ Losses (Rounded to nearest $100,000) Losses per HIPAA Member per Year (Rounded to nearest $100) 2001 $7,800,000 $1, $9,700,000 $1, $14,400,000 $2,000 Cumulative$31,900,000 $1,800

Mercer Oliver Wyman Actuarial Consulting, Inc. 14 HIPAA Experience for Individual Carriers Losses as a % of 2003 Premium – Range 1.2% to 2.2% – Carriers will still incur losses on existing HIPAA individuals unless they would be allowed to immediately transfer them to the high risk pool – Over long run, premiums decrease 1.2% to 2.2%

Mercer Oliver Wyman Actuarial Consulting, Inc. 15 Results Responses from Carriers # of Carriers% of Nongroup Lives Did know5 54% No Impact3 4% 0.5%3 7% Up to 3%4 24% 5.0% to 7.5%2 9% If we ignore the carriers that did not provide an estimate, the weighted average (based upon lives) is about a 3% reduction in nongroup premiums.

Mercer Oliver Wyman Actuarial Consulting, Inc. 16 Individual Carrier Responses Administrative Savings – Carriers indicated would be minimal, 0.0% to 0.5% of premium – Appeared conservative – MOW estimated 1.0% savings

Mercer Oliver Wyman Actuarial Consulting, Inc. 17 Small Group Carriers GI One-Life Groups Experience vs. Groups 2-50 EEs MembersLoss Ratio 1-Life Groups2-50 Groups1-Life Groups 2-50 Groups ,210147, %78.3% ,591152, %78.2% ,657154, %74.6%

Mercer Oliver Wyman Actuarial Consulting, Inc. 18 Small Group Carriers Incurred Losses Attributable to One-Life Groups Year $ Losses (Rounded to nearest $100,000) Losses per One-Life Member per Year (Rounded to nearest $100) Losses as % of Total 2003 Small Group Market Premium 2001 $76,400,000$2,2002.5% 2002 $77,000,000$2,6002.5% 2003 $45,700,000$1,8001.5% Cumulative$199,100,000$2, %* Reason losses decreased in 2003, companies allowed to increase rates from 115% to 150% of Standard Risk Rates

Mercer Oliver Wyman Actuarial Consulting, Inc. 19 Small Group Carriers One-Life Groups – Losses on previous slide understated  Expressed as a % of 2003 Premium Levels for technical reasons  Removing GI for one-life group could reduce small group premiums by 2.0% to 3.0% in the long run

Mercer Oliver Wyman Actuarial Consulting, Inc. 20 Small Group Carriers Responses from Carriers – Mixed – 9 carriers indicated no change in premiums if G.I. of one-life groups removed – Several indicated they could not determine impact – Some carriers indicated they had insufficient membership to generate credible results – Missed opportunity

Mercer Oliver Wyman Actuarial Consulting, Inc. 21 Small Group Carriers Administrative Savings – Elimination of open enrollment – Reduced marketing costs resulting from elimination of open enrollment forms, etc. – More streamlined regulatory reporting requirements – Higher administrative costs associated with billing, accounting, customer service of one-life groups

Mercer Oliver Wyman Actuarial Consulting, Inc. 22 Small Group Carriers Administrative Savings – Carrier’s responses mixed; no numerical estimates – MOW estimated 1% premium savings in the long run

Mercer Oliver Wyman Actuarial Consulting, Inc. 23 Group Carriers Current HIPAA Compliance Requirement – Conversion Plans – State defined benefits – 200% Standard Risk Rate Florida DOI has 2002 Group Conversions Statistics: – Actual loss ratio for 8 largest insurance companies – 211% – $58.4 million losses (Assumes 85% breakdown loss ratio) – Losses represent 0.5% of group premium

Mercer Oliver Wyman Actuarial Consulting, Inc. 24 Group Carriers SegmentSource of Savings Elimination of: Improved ClaimsAdministrativeTotal $ Amount (Millions) Market Impacted GI One-Life 2% to 3%1% 3% to 4%$92 to $123Small Group G.I. HIPAA-Eligibles 2% to 3%1% 3% to 4%$35 to $46Nongroup Conversion 0.5%- $55*All Groups Potential Premium Savings *The reason that Elimination of Group Conversion (0.5% of premium) has what appears to be a greater dollar amount of impact proportionally than the elimination of one-life groups is that elimination of group conversion impacts the premium for all fully insured group sizes, whereas the elimination of one-life groups impacts the premium for only small groups.

Mercer Oliver Wyman Actuarial Consulting, Inc. 25 Conclusions Impact on Previous Slide – Does not consider impact of assessments – Critical to create broadest base possible for assessments  Self-funded  Provider – Small base for assessments could negate savings

Mercer Oliver Wyman Actuarial Consulting, Inc. 26 FHIP Analysis Most comprehensive impact analysis MOW has observed Sources of data critical Legislation failed – Critical issue was funding