1. 1 Status of CY 04 MCO Rates Medicaid Advisory Committee September 25, 2003

2. 2 Goals of Rate Setting Process Develop rates that accurately reflect the relative “risk” of the population Provide adequate funding for MCOs to deliver contracted services Get the best value for the State Medicaid Program Use a data driven approach to resolve issues Collaborative process involving MCOs

3. 3 Key Background Statistics HealthChoice enrollment: 470,000 Six plans ranging in size from 7,000 to 127,000 (7 th plan began 9/1/2003) Four plans now statewide Capitation payments in CY 03 will exceed $1.4 billion (total funds)

4. 4 CY 04 Rate Setting: Steps Steps similar to prior years Create base year data Create trends from base year to rate year Apply and update risk adjustment

5. 5 Base Year: Use of CY 2001 MCO Cost Experience Most significant change for CY 04 rate setting –Fixed percentages implemented for profit (1.5%) and risk margin (.5%) which equal 2% versus 3.7% in CY 03 as a percentage of medical expenses –Actual dental costs trended up to over 40% utilization in the base –Geo/Dem case mix adjustment implemented with updates to the factors every six months –RAC relative values adjusted to make budget neutral

6. 6 Trending Base Year to Rate Year Mercer followed similar methodology used in previous year Trend rates vary by service type and eligibility group Mercer’s overall average weighted trend is 7.1% per year

7. 7 Other Insurance Plans Trends Health insurance premiums in the US will increase 15% this year Average US HMO premiums will increase 16% this year, and could rise by as much as 24% in 2004 The Kaiser Family Foundation estimates that, on average, states expect Medicaid spending to increase 9% in FY 2003.

8. 8 Anticipated Rate Increase Overall the expected rate increase from CY 03 to CY 04 is 6.3%. Due to budgetary constraints, the rates were reduced by 1% for FY 2004 Amount is consistent with Federal and state Medicaid increases and is significantly lower than commercial rate renewals Includes continuation of the statewide bonus Individual plan increase will vary based on their unique mix

9. 9 Anticipated Budget Impact Total rate impact on budget is an increase for CY 04 of $41 million (general funds) Requested FY 04 deficiency for second half of year is $21 million (general funds)

10. 10 Plan Participation One on one meetings have been conducted with most plans. All meetings will be completed by the end of the month. Plans who we met with expressed their intent to continue to participate in the program.

11. 11 Regulations Regulations have been submitted for an effective date of January 1, 2004.