1. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 1 Board Meeting: 01/18/05 PEBB Mental Health Reconciliation Management Information Reporting Department October 2004 PEBB Mental Health Reconciliation BD attach. 6

2. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 2 Board Meeting: 01/18/05 Presentation Outline: 1. Background and Contracts Overview 2. How the Settlements were Calculated 3. Final Results PEBB Mental Health Reconciliation BD attach. 6

3. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 3 Board Meeting: 01/18/05 Part 1: Background and Contracts Overview. PEBB Mental Health Reconciliation BD attach. 6

4. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 4 Board Meeting: 01/18/05 During 2002, PEBB’s benefits for mental illness had the following limitations (each 24-month benefit “clock” period): Outpatient Care Residential Care 19/20 Day Limit (adult/child) Inpatient Care Background: Old Benefit 52 Visit Limit 15/16 Day Limit (adult/child) PEBB Mental Health Reconciliation BD attach. 6

5. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 5 Board Meeting: 01/18/05 During 2002, mental health benefits for PEBB members were limited as follows: The benefit “clock” was reset as of January 1, 2000. The 24-month benefit “clock” started with the first claim on or after January 1, 2000. The benefit clock “resets” with the first claim after the first 24-month benefit period. Background PEBB Mental Health Reconciliation BD attach. 6

6. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 6 Board Meeting: 01/18/05 Sample “Old” Outpatient Benefit Calculation: Mar 5 2000 Member incurs a MH/CD inpatient claim (Clock Starts) Benefit “Band” 1 Benefit (Clock Reset) Jan 1 2000 Member incurs more MH claims Jan 11 2002 Member incurs 53 rd outpatient claim – its denied Mar 5 2002 24 months End Benefit Band 1 (Clock Stops) Apr 14 2002 Member incurs MH/CD claim: (New Clock Starts) Apr 14 2004 End Benefit Band 2 Benefit “Band” 2 - -Time- PEBB Mental Health Reconciliation BD attach. 6

7. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 7 Board Meeting: 01/18/05 No Limit on Days Residential Care 45 Day Limit In 2003, PEBB changed its mental health benefits to be in full “parity” with other benefits as follows: Outpatient CareInpatient Care Background PEBB Mental Health Reconciliation No Limit on Visits BD attach. 6

8. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 8 Board Meeting: 01/18/05 The precise cost of the additional mental health benefits was in question. PEBB agreed to pre-pay an additional 1% in premium to cover the costs of the additional mental health benefits. The 1% additional premium is an estimate. Regence - PEBB Contract Overview PEBB Mental Health Reconciliation BD attach. 6

9. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 9 Board Meeting: 01/18/05 Regence is required to determine the actual costs of the additional benefit. 1% of Premium……...$Y,000,000 Actual Claims Expense - $X,000,000 Settlement Amount…….$Z,000,000 The final settlement will be the difference between the 1% additional premium and the actual claims costs. Regence - PEBB Contract Overview PEBB Mental Health Reconciliation BD attach. 6

10. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 10 Board Meeting: 01/18/05 The key to the settlement is to appropriately identify “new benefit claims” New Benefit Claims Old Benefit Claims Regence-PEBB settlement: only the new benefit claims are included. Settlement Overview PEBB Mental Health Reconciliation BD attach. 6

11. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 11 Board Meeting: 01/18/05 Part 2: How the Settlement is Calculated. PEBB Mental Health Reconciliation BD attach. 6

12. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 12 Board Meeting: 01/18/05 InpatientResidentialOutpatient Claims Database PEBB MH Claims Database Identify PEBB MH Claims Clean Data and Flag New Benefit Days Overall Project Flowchart Clean Data and Flag New Benefit Visits Step 1 Steps 2-6 Steps 7-8 Determine Regence-PEBB Settlement PEBB Mental Health Reconciliation BD attach. 6

13. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 13 Board Meeting: 01/18/05 Extract all PEBB Mental Health Claims since January 1, 2000. Data extraction parameters include diagnostic codes, procedure codes, and cause codes. Some claims are excluded. Step 1: Extract All PEBB Mental Health Claims Claims Database All PEBB MH Claims Database Identify PEBB MH Claims PEBB Mental Health Reconciliation BD attach. 6

14. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 14 Board Meeting: 01/18/05 Claims are separated into services. Separation criteria include diagnostic codes, procedure codes, place of treatment codes, and cause codes. Step 2: Separation of Claims According to Type of Service PEBB MH Claims Database Inpatient Residential Outpatient PEBB Mental Health Reconciliation BD attach. 6

15. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 15 Board Meeting: 01/18/05 Step 3: Data Corrections Adjustments: Match all claim lines with their “adjustment” lines. The resulting “net” amount is used in calculations. Double Blue: Some PEBB members have coverage under more than one member number which required two corrections: Single claims using different member numbers were re-combined into single claims. All other claims were reassigned to a single member number. PEBB Mental Health Reconciliation BD attach. 6

16. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 16 Board Meeting: 01/18/05 Step 4: Determine Benefit Periods Claims are sorted to determine the date of members’ 1 st mental health claim. A unique benefit “Reset Date” is determined for each member. All claims for a member are grouped into benefit band 1 or 2. Benefit “Band” 1Benefit “Band” 2 -Time- “Reset” Date PEBB Mental Health Reconciliation BD attach. 6

17. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 17 Board Meeting: 01/18/05 Step 5: Determine and Cumulate Days and Visits Data issues: Misinterpretation of reported days or visits in the data warehouse can occur: A single claim might represent a single visit on a single day, multiple visits on a single day, or multiple visits over multiple days. In some cases, the “number of services” reported was mis-coded as minutes instead of “visits”. PEBB Mental Health Reconciliation BD attach. 6

18. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 18 Board Meeting: 01/18/05 Step 5: Determine and Cumulate Days and Visits Corrective measures: Visits and days were derived from reported values in the database created in step 1. Visit days were validated using an algorithm that checked the reported number of visits against an “expected” number of visits. Total visits and days were cumulated. PEBB Mental Health Reconciliation BD attach. 6

19. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 19 Board Meeting: 01/18/05 Step 6: “Flag” New Benefit Days and Visits Determine whether the days or visits associated with each 2003 claim are above the limits that existed in 2002. “Flag” those 2003 claims with days or visits above the limits (“new benefit” claims). Claims can span the 2002 limit. For these claims costs were allocated based on the proportion of days above and below the 2002 limit. PEBB Mental Health Reconciliation BD attach. 6

20. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 20 Board Meeting: 01/18/05 Step 7: Regence-PEBB Settlement: Determine “Actual” Costs of New Benefit Regence-PEBB Settlement Sum the total paid amounts in 2003 for all the “flagged” claims above the 2002 benefit limits. PEBB Mental Health Reconciliation BD attach. 6

21. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 21 Board Meeting: 01/18/05 Step 8: Regence-PEBB Settlement: Sum of Flagged Claims Compared to One Percent of Premium Dollar total represents the “actual” costs of the new benefit claims. This total will be compared to the 1% of premium in estimated costs that PEBB has paid to determine the settlement amount. “Actual” cost of new benefit PEBB Mental Health Reconciliation BD attach. 6

22. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 22 Board Meeting: 01/18/05 Inpatient ResidentialOutpatient Claims Database PEBB MH Claims Database Identify PEBB MH Claims Data Corrections Determine Benefit Periods Determine Benefit Periods Determine Benefit Periods Methodology Recap Data Corrections Step 1 Step 2 Step 3 Step 4 PEBB Mental Health Reconciliation BD attach. 6

23. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 23 Board Meeting: 01/18/05 Determine and Cumulate Days Determine and Cumulate Days Determine and Cumulate Visits Flag New Benefit Days Regence-PEBB Settlement: Determine “Actual” Costs of New Benefit (i.e. Flagged Claims Only) Flag New Benefit Visits Regence-Reliant Settlement: Determine 2002 & 2003 Utilization Excluding New Benefit Claims (i.e. excluded flagged claims) Step 5 Step 6 Step 7 Flag New Benefit Days PEBB Mental Health Reconciliation BD attach. 6

24. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 24 Board Meeting: 01/18/05 Step 8 Regence-PEBB Settlement: Sum of Flagged Claims Compared to 1% Premium PEBB Mental Health Reconciliation BD attach. 6

25. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 25 Board Meeting: 01/18/05 Part 3: Final Results. PEBB Mental Health Reconciliation BD attach. 6

26. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 26 Board Meeting: 01/18/05 Regence - PEBB Contract Additional MH Benefits Paid: $1,035,331. PEBB Mental Health Reconciliation BD attach. 6

27. Confidential to RBCBSO Entire contents © 2004 Regence Management Information Reporting Dept All rights reserved Page 27 Board Meeting: 01/18/05 PEBB Mental Health Parity 2003 Settlement (Revised 10-08-04) PEBB Mental Health Reconciliation Mental Health Parity Premium (1-1-03 through 12-31-03)*$2,469,388.31 Less: Additional Mental Health Claims Incurred 1-1-03 to 12-31-03 and Paid 1-1-03 to 6-30-04 due to mental health parity benefit**($1,035,331.13) Difference***$1,434,057.18 *Please refer to Attachment A. **Please refer to attached report “Regence-PEBB Mental Health Parity Settlement”. ***If the difference is a positive number, Regence’s liability is limited to the amount of the difference or the total amount of the 2003 mental health premium; whichever is lower. If the difference is a negative number, PEBB will owe Regence the entire amount of the deficit. BD attach. 6