1. Commonwealth Care FY 2011 MCO Procurement Board of Director’s Meeting February 11, 2010

2. 1 Agenda FY 2011 Budget Summary Overview of Historical MCO Financial Performance Overview of Preliminary FY 2010 MCO Financial Performance Review of FY2011 Budget Assumptions: –Enrollment –Capitation Rate –Programmatic Changes –Aggregate Risk Corridor Outline of Procurement Timeline & Next Steps

3. 2 FY 2011 Budget Summary Since Fiscal 2009, the state has experienced an unprecedented tax revenue decline of over $4 billion. While revenues are projected to resume moderate growth again in Fiscal 2011 (projected 3.2% growth), significant pressures remain: –Growth in caseload accounts due to economic downturn (including in state-subsidized health insurance) –Fiscal 2010 budget (understandably) had to rely on nearly $2.5 billion in one-time revenues to mitigate even deeper cuts. Federal “use or lose” revenues from ARRA are scheduled to phase out, and fund balances in the state’s own Stabilization Fund have significantly decreased. Given these pressures, projected budget gap for Fiscal 2011 is $2.7 billion.

4. 3 FY 2011 Budget Summary (continued) Governor Patrick’s Fiscal 2011 budget proposal closes $2.7 billion gap through spending discipline (including further difficult choices), reforms, one-time resources (extended FMAP), revenues (end select exemptions) and prudent debt refinancing strategies. Tight overall budget still dedicates significantly increased resources for Commonwealth Care (funded at $839 million): third largest percentage increase in the state budget. –Maintains eligibility –Funds additional enrollment –Minimizes additional cost-sharing, and maintains existing benefits to maximum extent possible –Assumes rate increase with appropriate discipline

5. 4 FY07 – FY09 Cumulative MCO Financial Performance Through FY 2009, positive margin program-wide of approximately 3% –Results mixed at MCO level prior to FY09 –Positive margins for all MCOs in FY09

6. 5 FY07 – FY09 MCO Financial Performance (continued) MCO Medical Margin After Risk Sharing, CY07 – FY09

7. 6 FY07 – FY09 Cumulative MCO Financial Performance (continued) MCO Total Medical Margin After Risk Sharing, CY07 – FY09

8. 7 Overview - FY10 Preliminary MCO Financial Performance Despite solid historical three-year cumulative performance, early signs of lower MCO margins in FY10 Due to high claims trend in last half of FY09, claims cost starting higher than expected in FY10 Appears first quarter FY10 claims trend is moderating Need to continue to carefully assess impact of new enrollment growth (in FY09 & FY10) and programmatic changes on underlying claims cost

9. 8 Overview - FY10 Preliminary MCO Financial Performance (continued) FY10 programmatic changes: –Suspension of auto-assignment beginning in August 2009 –Termination of eligibility for legal immigrants beginning in September 2009

10. 9 Overview - FY10 Preliminary MCO Financial Performance (continued) Recently received FY10 encounter data for first quarter –Allows us to begin to evaluate program trends without AWSS Also received and reviewing MCO quarterly settlement reports

11. 10 FY10 Q1 Performance (MCO Reported Data) BMCHP Fallon NHP Network Health Celti Care Total CCA Adjusted IBNR Profit/(Loss) (Millions) 3.81 (0.93) (2.95) (3.65) (0.01) (3.73) Total Profit/(Loss) After Risk Share5.0%-8.5%-7.3%-6.5%-3.4%-2.0% MCO Reported Profit/(Loss) (Millions) 3.81 (1.46) (2.95) (4.51) (0.01) (5.12) Total Profit/(Loss) After Risk Share5.0%-13.4%-7.3%-8.1%-3.4%-2.8% Notes: (1) Reports include claims incurred through Sept, paid thru Oct 2009 and incorporate a estimate for IBNR (2) IBNR estimates for Network Health and Fallon were adjusted down to reduce excessive conservatism

12. 11 CommCare Enrollment Trend +2.6% growth first half of FY10 7% increase Mar’09 – June’09

13. 12 PMPM Cost Trend Financial results in FY09 were positive overall, but costs increased significantly late in the year. Low increase in Q1 of FY10 may indicate moderation in cost trend, likely due to substantial new growth late in FY09.

14. 13 Non-AWSS Rx Trend * May be leading indicator of moderating medical cost trend * Rx costs completes quicker than Medical

15. 14 Non-AWSS Demographic Acuity Trend Quarterly change in age/gender score appears to be reasonable indicator of PMPM cost.

16. 15 FY 10 Preliminary MCO Financial Performance (continued) Key Takeaways: –First quarter MCO finance reports indicate degrading margins –Connector will continue to monitor underlying cost trend and impact of program changes –Need to continue to work closely with the Administration and MCOs to manage through difficult financial environment

17. 16 FY 2011 Procurement

18. 17 FY11 Procurement Overview The number of issues emerging in late FY09 and FY10 leads us to recommend increases in Capitation & Enrollment in FY11 Significant dollar commitment made to program Capitation rate at bottom of actuarially sound rate range (ASRR) Narrower MCO risk share band

19. 18 FY11 Procurement Overview (continued) FY11 Procurement Process –Issue RFP identifying elements of program –Update key financial terms –Identify base capitation rate for participation –No MCO bidding

20. 19 FY 2011 Procurement Assumptions Enrollment Budget accommodates an increase in enrollment –Increase in Member Months of approximately 5.4% Includes limited auto-assignment

21. 20 FY 2011 Procurement Assumptions (continued) Capitation Rate Build-up –Work with actuary to develop Actuarially Sound Rate Range (ASRR) –Basic outline of formula: Base Medical Claims Cost X Medical Trend + Other Factors = Total Expected Medical +Admin Fee= Total Capitation

22. 21 FY 2011 Procurement Assumptions (continued) FY11 capitation rate based on FY09 base, adjusted for AWSS, cost/utilization trend, acuity, managed care efficiency, and program changes Final rate shown here includes Rx coverage –(Proposed carve-out discussed below) Capitation Rate Build-up (continued)

23. 22 FY 2011 Procurement Assumptions (continued) Member Cost Sharing: –Minimal increases to Member –Copay Change: For PT 1 (<=100% of FPL) change generic copay from $2.00 to $3.00 Certain drugs remain at $1.00 –Dental benefit For PT 1 (<=100% of FPL): Maintain Preventive Benefit, but remove restorative benefit –Changes are necessary to align PT I with MassHealth

24. 23 FY 2011 Procurement Assumptions (continued) Specific Stop Loss Reinsurance: Maintain MCO funded specific stop loss reinsurance Currently evaluating attachment point and premium contribution – recommendation at next meeting –Current attachment point of $150,000 per individual –Current coinsurance of 75%/25% Pool/MCO above attachment point –In the event of a surplus, funds will be distributed back to the Health Plans (as occurred in CY2007 & 2009) –In the event of a deficit, Health Plans will pay additional funds into the pool to cover outlier claims

25. 24 FY 2011 Procurement Assumptions (continued) Aggregate Risk Sharing (on Medical Capitation Revenue) –Narrower risk share corridor for MCOs Health Plans full risk corridor of 2% across all Plan Types (FY10 at 4%) State to share 50% above/below full risk corridor Maintain “closed-end risk sharing” in which Health Plans returns to full risk (50% above/below medical capitation revenue)

26. 25 FY 2011 Procurement Assumptions (continued) Geographic Areas: State divided into 5 Major Regional Areas (MRAs) –MRAs further defined into 38 Service Areas MCOs not required to be State-wide MCOs not required to cover all Service Areas within an MRA

27. 26 FY 2011 Procurement Assumptions (continued) MCO Administrative Fee: Health Plans to receive a fixed $32.00 PMPM for Administration/contingency/profit and risk reserve –No change from current fiscal year

28. 27 FY 2011 Procurement Assumptions (continued) Bidding and Payment: Connector will issue RFP outlining capitation rate and program changes outlined above MCOs may choose whether or not to participate Target rate will continue to be adjusted for geography, acuity, and benefit plan Anticipate uniform enrollee contribution resulting from single capitation rate

29. 28 FY 2011 Procurement Assumptions (continued) Pharmacy Carve-out –Recent discussions with MassHealth and A&F regarding carving out of Rx from MCO capitation –Purpose of carve out is to take advantage of significant rebate savings –Discussing implementation and other issues –Will provide more detail next meeting

30. 29 Outline of Procurement Timeline DateTopics February 11 th Board Meeting: Review FY11 Financial Assumptions and programmatic changes Review FY09 Final & FY10 MCO Estimated Financial Performance February 25 th Board Meeting: Review RFP document and Form of Contract Obtain Board Approval February 26 th Issue RFP March 1 st – March 11 th MCO Review and Response Time March 12 th RFP Responses Due - 12:00 p.m. March 15 th - April 2 nd Connector Review of RFP Responses April 2 nd Connector Memo to Board with Recommendations April 8 th Board Meeting: Board Vote on Connector Recommendations

31. 30 Next Steps Incorporate Board feedback Continue to refine assumptions Finalize Rx Carve out issue Develop Request For Proposal (RFP) document & Form of Contract Finalize RFP for Board review and approval on 2/25 Board meeting