Public Employees Benefits Board Meeting

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

2. PEBB Value Based Purchasing Jeff Thompson, M.D., M.P.A. Health Care Authority PEBB Meeting - August 6, 2002

3. 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 PEBB Meeting - August 6, 2002

4. Value Based Purchasing 2003 Snap Shot Evaluation Weights Access 30% Quality 20% Price 50% PEBB Meeting - August 6, 2002

5. Procurement Overview & Results MaryAnne Lindeblad Assistant Administrator, Public Employees Benefits Plan PEBB Meeting - August 6, 2002

6. Summary of 2003 Renewals • Key Facts from PEBB Renewals • Surveys of other commercial renewals and trends • Other Purchasers’ Experience PEBB Meeting - August 6, 2002

7. 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... PEBB Meeting - August 6, 2002

8. 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) PEBB Meeting - August 6, 2002

9. 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% PEBB Meeting - August 6, 2002

10. 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 PEBB Meeting - August 6, 2002

11. 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 UMP 11% 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 UMP 16% 11% PEBB Meeting - August 6, 2002

12. 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 PEBB Meeting - August 6, 2002

13. 2003 Proposed Benefit Design Changes & Employee Contributions . PEBB Meeting - August 6, 2002

14. Proposed PEBB Medical Benefit Design Changes for 2003 10% Reduction in Prescription Drug Expenditures* Three tier pharmacy benefit Retail = 30 day supply Co-PayGHC/Options Kaiser Formulary generic, all insulin and diabetic supplies $ 10 $ 10 $ 10 Formulary brand name $ 25 $ 30 $ 25 Non Formulary brand $ 40 Mail Order = 90 day supply Co-PayGHC/Options Kaiser 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 PEBB Meeting - August 6, 2002

15. Employee Contributions CY03 State Index Rate $262 Subscriber & Subscriber & Plan NameSubscriber SpouseChild(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 PEBB Meeting - August 6, 2002

16. 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. PEBB Meeting - August 6, 2002

17. 2003 Medicare Retiree Contributions (after subsidy) Estimated 2003 1st Tier Rate Increase Percent of Plan NameRetiree Paysfrom 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% PEBB Meeting - August 6, 2002

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

19. Overview of Proposed Changes for 2003 • Out-of-state network • Standard Coordination of Benefits (COB) • Rx benefits cut 10% from current design PEBB Meeting - August 6, 2002

20. 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 PEBB Meeting - August 6, 2002

21. 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 PEBB Meeting - August 6, 2002

22. 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 PEBB Meeting - August 6, 2002

23. 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) PEBB Meeting - August 6, 2002

24. Non-Duplication ofBenefits 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 PEBB Meeting - August 6, 2002

25. 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 PEBB Meeting - August 6, 2002

26. More Restrictive Pharmacy Network Non-network pharmacies in Washington State include: • Walgreen's • Albertson's • Some independent pharmacies PEBB Meeting - August 6, 2002

27. 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 1 80% Tier 2 70% Tier 3 50% PEBB Meeting - August 6, 2002

28. Incentive Formulary Design(replaces current voluntary formulary) PEBB Meeting - August 6, 2002

29. Mail Order Copayments PEBB Meeting - August 6, 2002

30. 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 nonparticipatingpharmacies Cap on Enrollee Cost-share for Retail Prescriptions PEBB Meeting - August 6, 2002

31. 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 PEBB Meeting - August 6, 2002

32. 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 PEBB Meeting - August 6, 2002

33. August 6, 2003 Voting Decisions • Benefit Changes • Employee Contributions • UMP Changes • Retiree Subsidy PEBB Meeting - August 6, 2002