1. Commonwealth Connector Minimum Pharmacy Standards October 11, 2007

2. 1 Agenda and Next Steps  Today Board discussion of carrier feedback and carrier interest in offering alternative plan design for Rx coverage  November 11 meeting Board review and approval of administrative bulletin regarding alternative plan design for Rx coverage  End of November Connector issues Commonwealth Choice renewal document to carriers, including request for alternative plan design for Rx coverage  Mid-January 2008 Carriers submit responses to plan renewal request for Commonwealth Choice

3. 2 Overview  Minimum Creditable Coverage (MCC) regulations require coverage of prescription drugs as of January 1, 2009  The Connector is faced with the challenge of establishing standards that will allow insurers to develop and offer a meaningful prescription drug benefit at an affordable price (premium)  The cost of a typical prescription drug program in the Commonwealth is about $50-$55 PMPM for a 37-year-old  As discussed at the July 12 Board meeting, the primary tools for reducing premium costs are: –Formulary design –Pharmacy management programs –Cost sharing

4. 3 Overview  Following the discussion at the July Board meeting the major health plans in the Commonwealth were asked to provide: –Comments on pharmacy management and design –Premiums for plans with various co-pays and deductibles  Feedback was relatively consistent across plans although the pharmacy management tools currently in place vary

5. 4 Prescription Drug Benefits  Comprehensive coverage of generic drugs can provide the greatest therapeutic value for the lowest cost  With many major drugs having lost patent protection over the past few years, highly effective generic drugs are now available to treat most conditions, and more major brands will lose protection over the next 12 - 24 months  Despite this, a significant portion of current drug utilization is for brand drugs that provide little or no added therapeutic value over lower-cost alternatives  Generic utilization now averages over 60% in the Commonwealth  However, generic utilization could be increased to 75-80% without affecting therapeutic effectiveness

6. 5 Formulary Management  Generic utilization can be maximized through formulary design, pharmacy benefit management and cost sharing –Closed/limited therapeutically based formulary –Proactive pharmacy management  Step therapy  Prior authorization  Quantity limits  Mandatory mail order for maintenance meds  Specialty meds purchased through preferred vendor  The Massachusetts market demonstrates the value of this approach: –BCBS-MA, Health New England, Neighborhood Health Plan and Tufts Health Plan currently offer this type of pharmacy benefit –PMPM cost is about 20% lower than the PMPM cost of a standard pharmacy benefit

7. 6 Design Considerations  Generic drugs provide a very high ratio of therapeutic value to cost  While an upfront deductible of $250 is permitted under current MCC regulations, generic coverage can be provided on an affordable basis without an upfront deductible –Applying a $250 deductible to both brand and generic drugs rather than brand only reduces costs by less than $1 PMPM  Carriers responded favorably to our proposal to exclude Tier 1 drugs from a deductible

8. 7 Design Considerations  Even if generic fill rate is increased to 75%, the cost of brand drugs will represent over 60% of total drug spend  Co-pays and an upfront deductible on brand drugs are needed to keep premiums affordable  July 12 Board meeting included discussion of covering certain brand drugs without an upfront deductible: -- Antiasthmatic inhalers-- Antineoplastic agents -- Antiretroviral agents-- Immosuppressants  In reviewing this plan design with the health plans and PBMs, there was uniform reluctance to offer a product that treated select therapeutic classes differently based on: –Difficulty in administering due to therapeutic overlap –Formulary dynamics/shifts based on new drugs to market and patent expirations –Member perception concerns –Expectation of intense “lobbying”

9. 8 Premiums  Achieving a premium of $20 PMPM (or less) for a 37-year-old will require a combination of: –A therapeutically based formulary and active pharmacy management –A material upfront deductible and significant co-pays on brand drugs  Median estimated premiums are summarized on the following page for a plan with copays of $15 (Tier 1), $50 (Tier 2) and $75 (Tier 3), using a therapeutically-based formulary and active pharmacy benefit management tools

10. 9 Premiums (cont.) Therapeutic Formulary and Active Rx Benefit Management PMPM cost as % of $250 across- the-board deductible Percentage of scripts subject to deductible Deductible Age 203760 $250 on all Rx$19.63$21.41$39.26100% $250 – Tiers 2 & 3$20.47$22.33$40.95104%20 - 25% $500 – Tiers 2 & 3$17.61$19.21$35.2390%20 - 25% $750 – Tiers 2 & 3$15.96$16.84$31.9281%20 - 25% $1,000 – Tiers 2 & 3$15.04$15.18$30.0877%20 - 25%

11. 10 Next Steps  Today Board discussion of carrier feedback and carrier interest in offering alternative plan design for Rx coverage  November 11 meeting Board review and approval of administrative bulletin regarding alternative plan design for Rx coverage  End of November Connector issues Commonwealth Choice renewal document to carriers, including request for alternative plan design for Rx coverage  Mid-January 2008 Carriers submit responses to plan renewal request for Commonwealth Choice