Slide1: Healthcare Group of Arizona: Strategic Snapshot Anthony Rodgers, Director Arizona Health Care Cost Containment System (AHCCCS) Anita C. Murcko, MD, FACP, Medical Director Healthcare Group of Arizona (HCG) Rutgers Center for State Health Policy & New Jersey Dept Banking & Insurance Strategies to Strengthen Private Health Insurance Markets: An Expert Panel Dialogue on Reinsurance


Slide2: State-sponsored, self-funded healthcare coverage option for Arizona’s small businesses and political subdivisions www.hcgaz.com


Objectives: Objectives Provide environmental context for analyzing exportability of HCG strategies Describe the structure and design of HCG products Discuss the role of reinsurance in the financial viability of HCG


Slide4: 5.4 M Total Pop 2.6 M Commercial 1.0 M AHCCCS 0.7 M Medicare 1.0 M Uninsured Health Coverage in Arizona Excludes CHAMPUS/TRI-CARE


Slide5: AHCCCS Membership as Percent of AZ Population Source: AHCCCS, 2005


Uninsured and Employed: 1 Million Uninsured Arizonans Source: St. Luke’s Health Initiatives, 2004 Uninsured and Employed


AZ Small Businesses: 93% of AZ businesses are small (50 or fewer employees) 155,000 small businesses in AZ 2.7% growth per year 13,000+ start-ups per year add more workers to workforce than large business Less than 30% offer health insurance cost is major obstacle (65%) Source: University of Arizona: Health Care Coverage in Arizona AZ Small Businesses


 HCG Fast Facts-1: HCG Fast Facts-1 Created 1985 by Arizona State Legislature & RWJ Foundation support Mental health and substance abuse not covered Only kidney and cornea transplants covered Care delivered only by contracted AHCCCS Medicaid health plans HCG administered by AHCCCS (Arizona Heath Care Cost Containment System) as separate enterprise fund and program AHCCCS created 1982 (1115 Waiver) Last state to establish Medicaid state agency First statewide managed care system in the nation


Slide9: Title 20: Insurance Statutes related to regulation and control of insurance industry; Authority of Director of the Department of Insurance encompasses Health plan licensure requirements; Rules making for the transactions of insurance business; Regulatory enforcement and rule making for insurance industry in Arizona. Title 36: AHCCCS (HCG) Statutes related to health services, health care institutions, & eligibility and provision of publicly funded health care coverage; Authority for Director of AHCCCS encompasses Provide coverage for eligible populations through contracts with managed care organizations; Pay contractors and participating providers; Establish rules and oversee compliance of MCO contractors. Health coverage or insurance?


Organizational Structure: Organizational Structure HCG PPO Statewide -Cochise -Pinal -La Paz -Pima -Graham -Greenlee -Santa Cruz AHCCCS Arizona Health Care Cost Containment System _________________________________


 HCG Fast Facts-2: HCG Fast Facts-2 Healthcare coverage program for small businesses (including sole proprietors) and government subdivisions Guaranteed-issue Pre-existing conditions do not disqualify, impact eligibility or increase monthly premiums Creditable coverage required for pre-existing coverage Community-rated Premiums based on age, sex County, benefit option and deductible Premium-based (not an entitlement program)


Slide12: Reduce the number of uninsured Arizonans by providing innovative affordable healthcare coverage options to small businesses and political subdivisions ensuring access to quality healthcare so that working Arizonans can maintain healthy lifestyles. Mission


Covered Benefits : Covered Services*: Physician Visits Preventive Care Emergency and Urgent Care Inpatient Hospital Outpatient Services Maternity (Classic only) Prescription Drugs * For a complete list of covered services refer to the Group Service Agreement Covered Benefits


Re-inventing HCG through compromise: 2004 SB 1166 : Re-inventing HCG through compromise: 2004 SB 1166 Broadened HCG responsibility for benefit design Lifted prohibition on mental health coverage Permitted HCG to offer vision and dental coverage Permitted HCG to pay brokers one-time fee Clarified eligibility (to avoid risk pool segmentation) Permitted direct contracting (e.g. TPA, commercial plans) to facilitate state-wide previously only plans contracted with AHCCCS Medicaid eligible to offer HCG Phased out state general fund subsidy end FY 2005 Resumed premium- based, self sufficient structure 2000-2005 received subsidy Removed AHCCCS hospital default rates Introduced 6 month “bare period”


HCG Strategic Objectives: Reduce the number of working uninsured, as well as those requiring AHCCCS coverage Offer customer-driven, reasonably-priced benefit options that are actuarially sound Work with brokers to maximize member benefits and minimize marketing expenses Offer employers and employees greater choice Collaborate with commercial health plans to develop innovative solutions HCG Strategic Objectives


Who is eligible for HCG?Business that is…: Who is eligible for HCG? Business that is… Uninsured Sole Proprietor* Uninsured Small Business* with 50 or fewer full-time employees *New business OR established business that has been “bare” i.e. uninsured, for at least 6 months. Business defined by tax ID number This “bare period” encourages exploration of other marketplace options. Political subdivision (government) E.g. safety, teachers, sanitation workers


Participation requirements: Participation requirements Fulltime (FT) defined as 20 hours per week or more


Slide18: Administrative Ease HCG Business Model


HCG Healthstyles: CLASSIC SECURE ACTIVE Intended for employees with limited health needs beyond routine and preventive care. Little or no co-pays for most physician office visits, diagnostic services and prescriptions. Maternity excluded. Richest benefit package, intended for: employees with existing disease or chronic condition employees wanting the added security of a wide range of benefits A variation of the Secure plan, with lower premium and higher co-pays and coinsurance. Maternity excluded. HCG Healthstyles HCG Healthstyles Designed for varying health needs, income, and lifestyles.


HMO Provider Networks: HMO Provider Networks Geographic differentiation: HMO benefit plans are not available statewide


Slide21: December 2004 Results from Employers and Employee Satisfaction Survey (n=285) HCG Product Evolution


Slide22: HCG Product Evolution 1998-2003 April 2004 June-July 2004 Employer Focus Groups SB1166 Solidify relationships with HCG groups Evaluate employer satisfaction Validate original product assumptions Assess unmet need (benefits & services) Validate future product ideas


Medallion™ PPO Benefit Grid: Medallion™ PPO Benefit Grid * Member pays 10% for first 10 days after deductible, thereafter 50% coinsurance. ** After deductible has been met.


Benefit Comparison: Benefit Comparison


Benefit Comparison: Benefit Comparison * Health plan assumes first dollar liability for services excluded from deductible.


PPO Provider Network: PPO Provider Network Geographic differentiation: PPO availability varies by county


Slide27: HCG Product Evolution DESIRED BENEFITS Deductible options Mental Health benefits Vision benefits Dental benefits Expanded provider network PPO plans HSA/HDHP option Wellness 1998-2003 April 2004 June-July 2004 Employer Focus Groups February 2006 SB1166


HCG Milestones 2005/06: Launched Medallion PPO series with HSA (Sept 05) PPO behavioral health drugs & services HMOs behavioral health drugs and 3 tier formulary Dental and Vision option available to all members Data warehouse and enhanced information capabilities in Grants and academic collaborations active Membership doubles May 2004 11,167 May 2006 20,798 HCG Milestones 2005/06


Enrollment Trend (2004-2006): Enrollment Trend (2004-2006) HCG Enrollment


Milestones in Process : Wellness and Chronic Illness Management Wellness Rewards Program Executive Wellness for Business Owners Integrative Medicine Chronic Illness programs Customized plans Political Subdivision models EPO (exclusive provider organizations) Limited benefit plans? Catastrophic Benefit Basis Benefit Package Business Plan and Business Model Validation Milestones in Process


Slide31: Administrative Ease HCG Business Model


Funding and Reserves: Funding and Reserves HCG is self-funded from premium revenue Premium rates determined using actuarial models Managed care contractors paid by monthly capitation (admin and medical costs) Account for administrative costs; claims liability; reinsurance; network expansion; broker fees; and financial stability Financial stabilization reserve is used to cover large medical cost liabilities


Financial Stability: Financial Stability Financial Risk Management Financial protection of our plans is top priority Forecasts are used to monitor financial performance and determine the need to adjust premiums and reserves Membership Projections Mix changes significantly impact medical costs and premium rates Medical Cost Management Cost trends forecasted using claims data Actuarial modeling Milliman Health Cost Guidelines Pricing Models Reserving Models Ad-Hoc Studies National Studies (CMS, Kaiser Family Foundation, etc.)


Slide34: HMO Premium Composition Premium Composition for Classic Healthstyles as of June, 2006* * Classic Healthstyles $0 deductible, Pima county, UPH


Slide35: PPO Premium Composition Premium Composition for Medallion Platinum as of June, 2006* * Medallion Platinum $500 deductible, Maricopa county, Group size >1


Slide36: Reserving and Reconciliation FY 2006 FY 2007 Dates of Service before July 2005 July 2005 July 2006 Claim Submissions December 2006 Reconciliation based on PAID CLAIMS Reserving Cycle I Reserving Cycle II July 2007


Financial Strategy: Financial Strategy Hybrid reserving model 1.5 HMO (or 3.5 PPO) X total average month capitation Plans also reserve based on average monthly claims liability plus) Reconciliation Annual 86% MLR Cross-subsidization of HCG plans Premium Rate-Setting Community Rated Premiums Member “Out of Pocket” Costs Co-pay and co-insurance Bifid Reinsurance


HCG Reinsurance History: HCG Reinsurance History 1994 Commercial stop loss coverage purchased by HCG 3 deductible levels depending on the longevity of plan with HCG ($25K, $50K , $75K) 1996 Current commercial carrier and model Experience FY 2006 Two-Tier Reinsurance Model


2 Tier Reinsurance Strategy: 2 Tier Reinsurance Strategy Self-Insurance “cash flow confidence” Paid claims $50,001-$100,000 Reimbursed 60% by HCG Episode of Illness or injury (not accumulated) Capped at $37,500 per case per episode of care Commercial Reinsurance


Reinsurance Policy : Reinsurance Policy Commercial Reinsurance Policy Stop-loss Specific deductible $100,000 Max Benefit per covered person $2,000,000 Paid at 90% fee schedule timely Reimbursement reduced to 50% if late $1.59 PMPM Accumulated claims per contract year (8/1-7/31) Monthly premiums Renewable yearly


Reinsurance Eligible Services: Reinsurance Eligible Services Policy covers Hospital inpatient and outpatient services All physician services Skilled /sub-acute nursing facility/ home health/rehabilitation facility DME Hospice Excludes Transplants (except kidney and cornea) Retail prescription drugs Custodial care, long-term care, including long-term ventilator management


Reinsurance Requirements: Reinsurance Requirements Monthly catastrophic diagnosis notification DRG and ICD-9 Trigger List Yearly Serious Losses Disclosure at renewal time Under treatment-- cost exceeds (or likely to exceed) 75% of $100,000 deductible during the next twelve (12) months Current inpatients Transplant waiting list Receiving or will receive blood products within the next twelve months Premium Reporting based on enrollment Claim Reimbursement Requests


Medical Loss Ratio Trends: Medical Loss Ratio Trends


Slide44: Mercy UPH Care1st HMO Premium Increases March 2004 to July 2006


Slide45: Administrative Ease HCG Business Model


Enrollment Trend (2004-2006): Enrollment Trend (2004-2006) HCG Enrollment


Slide48: Who is Healthcare Group of Arizona?


Slide49: HCG Enrollment by Employer/Business Type Distribution of Employer Groups by Industry 7,349 groups


Slide50: HCG Enrollment by Group Size Total Membership as of May 9, 2006: 20,798 By Group Size 7,349 Groups By Membership 20,798 members


Slide51: HCG Enrollment by Employee Age Total Membership as of May 9, 2006: 20,798 Eligible Employees 11,811 Subscribers 65 years old Average Members per Eligible Employee = 1.75


Slide52: HCG Enrollment by Employee Annual Income Total Membership as of May 9, 2006: 20,798 Eligible Employees 11,811 Subscribers $75,000 Only 92% of Eligible Employees report Income (n=10,899).


Slide53: HCG Enrollment by Health Conditions at Enrollment 89% of members report 1 or more health conditions upon enrollment. Percent Members Reporting Health Conditions 20,798 members


Slide54: HCG Enrollment by Product and Provider Network Total Membership as of May 9, 2006: 20,798 HCG Products 20,798 members HCG Networks 20,798 members


Slide55: HMO Enrollment by Benefit Plan and Deductible Total Membership as of May 9, 2006: 20,798 HMO 19,716 members Classic $0 deductible Classic $500 deductible Classic $1,000 deductible Classic $2,000 deductible Secure $0 deductible Secure $500 deductible Secure $1,000 deductible Active $0 deductible Active $500 deductible Members electing a deductible option: 25%


Slide56: PPO Enrollment by Benefit Plan Total Membership as of May 9, 2006: 20,798 PPO 1,082 members Medallion Plus, Classic Plus and Platinum Plus meets federal requirements for pairing with an optional HSA. Medallion PPO Medallion PPO Plus Medallion Classic PPO Medallion Classic PPO Plus Medallion Platinum PPO Medallion Platinum Plus PPO Medallion Gold PPO Medallion Silver PPO


Slide57: HMO Product Migration December 2004 to April 2006* Deductible options were first introduced in October 2004. By April 2006, 25% of HMO members had switched to a deductible option. *This period represents the migration behavior of 100% of membership following a complete contract renewal cycle.


Slide58: HMO Product Migration August 2005 to May 2006* Medallion PPO was first introduced in September 2005. By May 2006, <1% of HMO members had switched to a PPO benefit plan. *This period represents the migration behavior of 75% of membership following a complete contract renewal cycle.


Slide59: Healthcare Group of Arizona Enrollment and Product Graphs May 2006


Enrollment Trend (2004-2006): Enrollment Trend (2004-2006) HCG Enrollment


Enrollment Growth (2004-2006): Enrollment Growth (2004-2006) HCG Enrollment – Percent Change


Enrollment Trend (2004-2006)Projected versus Actual: Enrollment Trend (2004-2006) Projected versus Actual HCG Enrollment 2004 2005 2006


New Enrollment (2004-2006): New Enrollment (2004-2006) New Membership – Percent Change New Membership (new members from new and existing groups)


Member Retention (2004-2006): Retention Rate as Percent of Membership (Goal = 98%) Terminating Membership Member Retention (2004-2006)


Slide65: New Enrollment by Source Percent New Membership by Source


New Enrollment by Source: New Enrollment by Source New Membership from UPH Sales New Membership from HCG Sales


New Enrollment by Source: New Enrollment by Source New Membership from Brokers New Membership from Existing Groups (Add On’s)


Slide68: Enrollment Trend (2005-2006) Southern Counties HMO+PPO


Slide69: Enrollment Trend (2005-2006) Central Counties HMO+PPO


Slide70: Enrollment Trend (2005-2006) Northern Counties HMO+PPO


Slide71: Historic Enrollment Trends (1999-2006)


Product Enrollment (2004-2006): Product Enrollment (2004-2006) HCG Enrollment by Product PPO Plans: 903 PPO Plus Plans: 179


Product Growth (2005-2006) : Product Growth (2005-2006) Healthcare Group Growth by Product April 2006 PPO Growth: 27% PPO Plus Growth: 21%


Slide74: HMO Membership by Product HMO Membership as of May 9, 2006: 20,798 Mercy 10,118 members 51.32% Care 1st 1,708 members 8.66% UPH 7,890 members 40.02% +1% from April +6% from April +3% from April


Mercy Healthcare GroupEnrollment (2004-2006): Mercy Healthcare Group Enrollment (2004-2006) Mercy Healthcare Group Enrollment by Product


Mercy Healthcare GroupEnrollment Growth (2005-2006): Mercy Healthcare Group Enrollment Growth (2005-2006) Mercy Healthcare Group Growth by Product


University Physicians Enrollment (2004-2006): University Physicians Enrollment (2004-2006) University Physicians Healthcare Group Enrollment by Product


University PhysiciansEnrollment Growth (2005-2006): University Physicians Enrollment Growth (2005-2006) University Physicians Growth by Product


Care 1st Enrollment (2004-2006): Care 1st Enrollment (2004-2006) Care 1st Enrollment by Product


Care 1st Enrollment Growth (2005-2006): Care 1st Enrollment Growth (2005-2006) Care 1st Growth by Product