1. Actuarial Overview of Premium Rate Development Presented by Susan E. Pantely, FSA, MAAA Milliman, Inc. San Francisco, CA susan.pantely@milliman.com 415-394-3756

2. 2 Step 1: Project Experience to Future January 2010 – December 2010 July 2011 – June 2012 Typically, estimating costs 18 months or more in future July 2010 January 2012

3. 3 Step 2: Summarize Current Experience Savvy plans will engage ACO-providers in marketing/sales efforts PMPM Claim Cost = Utilization x Cost / 12,000 Example: 56 x $4,815 = $22.51

4. 4 Trend Considerations Utilization  Historical Experience  New Practice Patterns  Changes in Benefits  Changes in Demographics  Selection  Introduction of New Technology or Drugs  Underlying Population Health Status (e.g. increasing # of diabetics) Average Cost  Historical Experience  Provider Contracting Info  New Technology  Intensity (e.g. shift to more expensive procedures)

5. 5 Step 3: Final Rates  Final rates = Projected Cost of Claims (Step 2) + Administrative Costs + Future Targeted Profit  Actuaries develop rates, not rate increases  Rate development does NOT include recovering prior losses

6. 6 Individual Market: Impact of Selection $0 $1,000 $30,000 Average Member Cost = $5,548 Average Member Cost = $6,238 (14% increase)

7. 7 Effective January 2011, Male and Female Premium Rates Must be Identical in CA  This will cause significant variation in rate increases. Example based on age 25-29 claim costs. This example does not consider males dropping coverage, which is possible. Female: $410 Male: $152 Unisex: $281