1. PEBB Meeting - August 6, 20021 Public Employees Benefits Board Meeting August 6, 2002 Procurement Overview & Medical Benefit Decisions for 2003

2. PEBB Meeting - August 6, 20022 PEBB Value Based Purchasing Jeff Thompson, M.D., M.P.A. Health Care Authority

3. PEBB Meeting - August 6, 20023 Value Based Purchasing Communicated our Value Expectations in the Request For Proposal Improved Data Driven Metrics to Assure Quality and Access are Commensurate with Cost Increased Emphasis on Access and Quality Improved Affordability using the Value Based Equation Value = Quality, Access & Cost Employed Measurable Performance Expectations in Contracts that Can Be Used to Evaluate Performance

4. PEBB Meeting - August 6, 20024 Value Based Purchasing 2003 Snap Shot Evaluation Weights Access 30% Quality 20% Price 50%

5. PEBB Meeting - August 6, 20025 Procurement Overview & Results MaryAnne Lindeblad Assistant Administrator, Public Employees Benefits Plan

6. PEBB Meeting - August 6, 20026 Summary of 2003 Renewals Key Facts from PEBB Renewals Surveys of other commercial renewals and trends Other Purchasers’ Experience

7. PEBB Meeting - August 6, 20027 Key Facts– PEBB Renewals Plans’ Financial Position –6 of 8 insured plans report 2001 loss ratios in excess of 100% (up from 2 of 9 in 2000) Experience Trends and Rating Trends –Experience trends have exceeded the rating trends used in developing 2002 premiums, as a result...

8. PEBB Meeting - August 6, 20028 Key Facts– PEBB Renewals Rating Trends Have Increased –Medical trends range from 7% to 25% (compare to 7.5% - 17% last year) –Prescription drug trends range from 16.1% to 30% (compare to 15% - 22% last year)

9. PEBB Meeting - August 6, 20029 Other Renewals and Trends Mercer survey of commercial renewals –as of 7/15: 312 renewals, avg. increase of 22.1% Milliman survey of HMO’s serving the commercial market: –Average expected increase of 17% for 2003 Hewitt survey of initial 2003 premium increases: –Average increase of 22%

10. PEBB Meeting - August 6, 200210 Other Purchaser’s Experiences CalPERS 2003 Renewals –Average 25% increase (range of 15% to 40%) –Two plans dropped from program (350,000 members must switch plans) –Large self-insured increases (22% for PERSCare and 19% for PERSChoice) Other states’ initial bid increases range from 14% to 19%, some with significant benefit reductions

11. PEBB Meeting - August 6, 200211 Procurement Results Budget CY 2003 Non Medicare Non Medicare Premium Increase Non Medicare Premium Increase With Alternatives With Alternatives Managed Care Organizations (MCOs)9%22% UMP 13%15% MCOs and UMP11%20% Budget CY 2003 Medicare Medicare Premium Increase Medicare Premium Increase With Alternatives With Alternatives Managed Care Organizations (MCOs)20%28% UMP 11%-3% MCOs and UMP16%11%

12. PEBB Meeting - August 6, 200212 Procurement Results Six managed care choices At least one managed care plan and UMP in every county One plan expanding into six additional counties Five counties with one managed care plan - five in 2002 One plan with frozen enrollment Eliminating one plan - fewer than 5% of members will have to change providers

13. PEBB Meeting - August 6, 200213 2003 Proposed Benefit Design Changes & Employee Contributions.

14. PEBB Meeting - August 6, 200214 Proposed PEBB Medical Benefit Design Changes for 2003 10% Reduction in Prescription Drug Expenditures* Three tier pharmacy benefit Retail = 30 day supplyCo-Pay GHC/OptionsKaiser Formulary generic, all insulin and diabetic supplies $ 10 $ 10$ 10 Formulary brand name $ 25 $ 30$ 25 Non Formulary brand $ 40 Mail Order = 90 day supplyCo-Pay GHC/OptionsKaiser Formulary generic, all insulin and diabetic supplies $ 20 $ 20$ 20 Formulary brand name $ 50 $ 40$ 50 Non Formulary brand $ 80 *Group Health/Options & Kaiser proposed optional benefit designs to achieve a 10% expenditure reduction

15. PEBB Meeting - August 6, 200215 Employee Contributions CY03 State Index Rate$262 Subscriber & Subscriber & Plan Name Subscriber Spouse Child(ren) Full Family Kaiser Foundation$12$33$21$42 Group Health Coop.$30$69$52$91 PacifiCare$40$91$71$121 Options Health Care$44$98$77$131 Regence Care$54$118$94$158 Premera Foundation$67$144$117$194 Uniform Medical Plan$36$82$63$109 Average Employee Contribution: $74

16. PEBB Meeting - August 6, 200216 Medicare Retiree Subsidy CY03 Medicare retiree explicit subsidy $92.74 per member per month –Established in Legislative Budget –CY02 subsidy $85.84 per member per month –RCW 41.05.085 established subsidy, limits subsidy to no more than 50% of the premium; Board authority to establish amount of any subsidy for spouses and dependents.

17. PEBB Meeting - August 6, 200217 2003 Medicare Retiree Contributions (after subsidy) Estimated 2003 1st Tier Rate Increase Percent of Plan Name Retiree Pays from 2002Enrollment PacifiCare $84.14 10% 11% Kaiser Foundation $89.25 16% 4% Group Health Coop.$113.53 40% 29% Options Health Care$125.41 20% 1% Regence Care $182.53 16% 2% Premera Foundation$275.38 42% 7% Uniform Medical Plan $132.62 -10% 46%

18. PEBB Meeting - August 6, 200218 Proposed UMP Benefit Design Changes for 2003 Presented to the Public Employees Benefits Board August 6, 2002

19. PEBB Meeting - August 6, 200219 Overview of Proposed Changes for 2003 Out-of-state network Standard Coordination of Benefits (COB) Rx benefits cut 10% from current design

20. PEBB Meeting - August 6, 200220 Out-of-State Care: Current Benefits Providence Preferred network in parts of Oregon (most Oregon claims) Elsewhere: Services are covered at 80% of the UMP allowed charge (based on regionally-adjusted fees) Providers may balance bill patients for charges above the UMP allowed amount Enrollees pay 20% coinsurance for preventive care services

21. PEBB Meeting - August 6, 200221 Out-of-State Care: Proposed for 2003 Beech Street network to be offered outside of Washington and Oregon Large national PPO 3,300 hospitals 345,000 professional providers 50,000 ancillary providers Providers reimbursed based on Beech Street contracted rates; UMP pays 80% benefit May not balance bill UMP patients Preventive services (as listed in the UMP Certificate of Coverage) covered in full

22. PEBB Meeting - August 6, 200222 Out-of-State Care: Proposed for 2003 Services from non-Beech Street providers will be paid at the non-network rate (60% of UMP allowed charge) Exceptions (to be paid at 80%): Emergency care Areas in U. S. where Beech Street network isn’t adequate Foreign providers Medicare retirees’ services are subject to Medicare’s maximum fees, so won’t be enrolled in Beech Street Oregon (whole state) will be served by Prov Preferred network; non-network claims will be paid at 60% except where there are access problems

23. PEBB Meeting - August 6, 200223 Coordination of Benefits Current: Nonduplication of benefits Frequently results in little or no UMP payment on medical claims with Medicare primary Proposed for 2003: Standard Coordination of Benefits (consistent with COB approach used by PEBB MCOs)

24. PEBB Meeting - August 6, 200224 Non-Duplication of Benefits Current UMP COB Medicare Allowed Charge$100.00 Medicare Payment 70.00 Balance $ 30.00 UMP Allowed Charge$100.00 Normal UMP Payment 90.00 UMP Payment$ 20.00 Normal UMP Benefit minus Medicare Payment Enrollee Responsibility$ 10.00 Standard COB – UMP Proposal 2003 Allowed Charge$100.00 Medicare Payment 70.00 Balance$ 30.00 Normal UMP Payment$90.00 UMP COB Payment$30.00 Enrollee Responsibility$ 0

25. PEBB Meeting - August 6, 200225 Overview of Proposed Changes to UMP Prescription Drug Benefit More restrictive pharmacy network Incentive formulary design Higher mail order copays Changes to cost-sharing cap per retail prescription

26. PEBB Meeting - August 6, 200226 More Restrictive Pharmacy Network Non-network pharmacies in Washington State include: Walgreen's Albertson's Some independent pharmacies

27. PEBB Meeting - August 6, 200227 Mail Order and Retail Prescription Benefits Up to a 90-day supply per prescription Subject to annual prescription drug deductible of $100 per individual or $300 per family (no change) Retail coinsurance percentages (no change): Tier 180% Tier 270% Tier 350%

28. PEBB Meeting - August 6, 200228 Incentive Formulary Design (replaces current voluntary formulary)

29. PEBB Meeting - August 6, 200229 Mail Order Copayments

30. PEBB Meeting - August 6, 200230 Cap on Enrollee Cost-share for Retail Prescriptions Current: $75 maximum for up to a 90-day supply Applies to all drug tiers Proposed for 2003: $50 maximum for up to a 30-day supply $100 maximum for up to a 60-day supply $150 maximum for up to a 90-day supply No cap for Tier 3 drugs or prescriptions filled at nonparticipating pharmacies

31. PEBB Meeting - August 6, 200231 Other Proposed Changes in Prescription Drug Coverage Elimination of coverage for over-the- counter drugs Brand name antihistamines (and antihistamine/decongestant compounds) will be covered in Tier 3; generic antihistamines will be covered in Tier 1

32. PEBB Meeting - August 6, 200232 Next Steps 2003 Open Enrollment is October 21st through November 30th 16 benefit fairs - extending hours 11 a.m. to 6 p.m. On-line enrollment Decision support tool updated for 2003 All materials for actives available via web

33. PEBB Meeting - August 6, 200233 August 6, 2003 Voting Decisions Benefit Changes Employee Contributions UMP Changes Retiree Subsidy