1. Geographic rating for health insurance www.pwc.com February 20, 2013 Sandi Hunt, Principal sandra.s.hunt@us.pwc.com

2. PwC Geographic rating for health insurance 1. What are geographic regions 2. How they are different from a health plan service area 3. Why geographic regions matter 4. The proposed Federal rules regarding geographic regions 5. Current California rules on rating regions 6. Approaches being used in other states Slide 2 February 20, 2013

3. PwC What are geographic regions Geographic regions are used to establish common premium rates for the same product The Affordable Care Act requires that premiums for a common product be the same for everyone in the region (provided the plan is licensed to serve the entire region) -The only other allowable rating differences relate to age, family size and possibly tobacco use -Different provider networks for different products may also result in different premium rates for plans that are otherwise similar ◦A plan with a narrow network will have a lower premium rate than one with a broader network, all else being equal Slide 3 February 20, 2013

4. PwC The difference between geographic regions and health plan service areas Health plans can only offer coverage in the areas in which they are licensed, which may not encompass an entire defined geographic region Health plans may offer coverage in multiple geographic regions, or portions of one or more geographic regions Within each region for which a plan is licensed, the premium rates for a given product must be the same for the entire region Some California plans cover only a portion of certain geographic areas, which could present a competitive disadvantage to other plans that cover the broader region unless these coverage areas are taken into consideration Slide 4 February 20, 2013

5. PwC Why geographic regions matter Since premium rates for a given product must be the same for the entire region (other than allowed rating factors) the -cost of health care delivery system, -the health status of the population and -the utilization patterns of the population will determine the premium rates There are existing patterns of health plan premiums based on historical cost and utilization patterns, including variation in health status Slide 5 February 20, 2013

6. PwC Why geographic regions matter Changes to how these costs are aggregated can have an effect on premium rates, with the chance that lower cost areas may be required to subsidize the costs of others -When a geographic area includes low and high cost areas, the average is by definition higher for the low cost area and lower for the high cost area -Patterns can change over time depending on provider supply and demand, contracting arrangements and other factors Slide 6 February 20, 2013

7. PwC Proposed federal rules regarding geographic regions Draft federal regulations call for each state to have 7 regions, but can request a different number based on state circumstances States can define regions based on zip code, county, or FIPS code, and they don’t have to be contiguous Slide 7 February 20, 2013

8. PwC Current rules for geographic regions in California Individual market – health plans define their own regions Small group market – 19 regions, based on legislation passed in 2012 -Before 2012 each health plan could define up to 9 regions for their small group products, which resulted in significant variation across the state in how regions were defined Slide 8 February 20, 2013

9. PwC Approaches being taken in other states Some states are using a single geographic region and pure community rating Few have filed their plans with the federal government Some are considering defining the region at the county level, to provide the greatest level of flexibility It is likely that states participating in the federally facilitated exchange will have approximately 7 regions, but information has not been released Slide 9 February 20, 2013

10. PwC Discussion February 20, 2013