1. Public Employees Benefits Board February 18, 2003 DIS Forum Building Board Room 605 E. 11th Olympia, Washington

2. Open Enrollment Update Reduced number of benefits fairs Minimal disruption for Aetna members –92% had access to their PCP through another managed care plan –94% had access to their specialty providers through another managed care plan Increase in on-line enrollment!

3. Open Enrollment Transactions All PEBB Members 20022003 WebTransactions36.1%52.5% Paper Transactions63.9%47.5%

4. Open Enrollment Plan Changes

5. WASHINGTON STATE PRESCRIPTION DRUG PROJECT

6. Prescription Drug Project Vision – All state agencies shall deliver the best value in prescription drugs Mission – The purpose of the Prescription Drug Project (Phase II) is to develop and implement a program (using existing statutory authority) to optimize state resources related to prescription drug purchasing and pharmacy benefits management while optimizing the delivery of high-quality health care to our customers.

7. Prescription Drug Project Objectives Establish prescription drug project structure and execute interagency agreement for project governance and shared resources Establish an evidence-based preferred drug list to be used initially by MAA and to serve as a guide for wider adoption by other agencies and joint procurement Establish a statewide Pharmacy & Therapeutics Committee which may also serve as a statewide Drug Utilization Review Board Consolidate prescription drug purchasing for multiple agencies by using the same vendor(s) (RFP released February 14, 2003)

8. To improve the cost effectiveness of the state’s prescription drug purchases 2003-05 savings from state funds – MAA $23.7 million – Labor & Industries $8.6 million – HCA $1 million Cost to implement($1.6 million) Net state savings $31.7 million Prescription Drug Project Objectives

9. Alternative Benefit Designs: High Cost-sharing Options

10. Some legislators have expressed interest in alternative plan designs that reduce premiums. The alternative plan designs include higher deductibles and cost-sharing but do not decrease covered benefits The alternative could be offered in addition to (rather than in place of) plans with lower cost-sharing The high cost-sharing design could be administered either as a self-insured plan through UMP, or by a contract with a commercial carrier (PPO) The PEBB risk adjustment process would be used to mitigate adverse impacts of the potential shift of healthier enrollees Background and Assumptions:

11. Examples of Alternative Benefit Designs

12. The Alternative Benefit Designs... Reduce total premium costs by around $70 per month (employee only, CY2003 $$$) Offer plan design alternatives that are becoming popular in other markets Significantly increase enrollees’ financial risk in case of serious illness Would require additional communications effort to help enrollees understand plan choices May increase uncertainty for managed care plans

13. Karin Swenson-Moore, FSA, MAAA Seattle Mercer National Survey of Employer-Sponsored Health Plans - 2002 Presentation to PEBB February 18, 2003 Mercer Human Resource Consulting

14. National Results Mercer Human Resource Consulting

15. -2.9% + 6.2% + 7.3% + 8.1% Total health benefit cost jumps 14.7% – biggest increase since 1990 *Average increase projected for 2003 + 11.2% + 14.7% + 14.0%* Mercer Human Resource Consulting

16. Total health benefit cost jumps 14.7% in 2002 Health benefit cost rising 7 times the rate of general inflation Competitor surveys:  Hewitt:2002: 13.7% 2003: 15.4%  Towers:2003: 15%  Kaiser:2001/2002: 12.7% Mercer Human Resource Consulting

17. Marked drop in HMO enrollment; PPOs gain Percent of all covered employees PPO HMO POS plan Traditional Indemnity Mercer Human Resource Consulting

18. 2002 HMO cost increase impacted by large employer actions (>500 ees) Mercer Human Resource Consulting Percent increase in cost, 2001 to 2002

19. Overall, HMO cost trend keeping pace with PPO cost trend +12.7% + 12.2%+7.7% +9.6% +15.0% + 15.3% Mercer Human Resource Consulting

20. Prescription drug cost trend continues to stabilize Drug trend in largest medical plan at last renewal *Projected for next renewal Mercer Human Resource Consulting Based on employers with 500 or more employees

21. West Region Results Mercer Human Resource Consulting

22. -2.2%+ 2.3% + 8.5% + 8.9% West region health benefit cost jumps 20.6% in 2002 + 5.9% + 20.6% Mercer Human Resource Consulting

23. 2002 West region results by plan Percent increase in cost, 2001 to 2002 Mercer Human Resource Consulting

24. HMO trends similar to PPO in West region +7.6% + 7.4% +6.3% +12.5% +18.1% + 17.9% Mercer Human Resource Consulting

25. What are employers doing? Mercer Human Resource Consulting

26. Reduced the number of HMOs per location and total number offered Added hospital deductibles Increased office visit, ER co-pays Large employer HMO trend held to 8.1%, while small employers averaged 25.9% increase Large employers take action to lower HMO costs Mercer Human Resource Consulting

27. 27% of all employers have experienced network disruption due to dropped contracts, M&A, or plan failures within past 2 years Those employers report that over half (54%) of their employees were affected Network disruptions erode employee loyalty to plans Mercer Human Resource Consulting

28. For 2002For 2003 Large employers more likely to raise contributions and cost sharing in 2003 Will increase employee contribution percentage next year Small employers 18%24% Large employers 40%49% Will increase cost-sharing* next year Small employers 15%19% Large employers 34%44% *by raising deductibles, copays/coinsurance, or out-of-pocket maximums Mercer Human Resource Consulting

29. What employers can do to manage cost Cost shifting to employees – manage short-term increases – increase premium contributions – increase benefit cost sharing Consumer-directed health plans – manage long-term trend – consumerism spectrum goes from education about health care and costs to giving employees health care accounts Health improvement programs Mercer Human Resource Consulting

30. Miscellaneous State Employee Program Purchasing Update -- 2004