Healthcare Group of Arizonas Health Care and Policy

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Healthcare Group of Arizona’s Health Care and Policy Laboratory for Small Business Coverage Options

Healthcare Group of Arizona’s Health Care and Policy Laboratory for Small Business Coverage Options 1

The Evolution of AHCCCS Health Care Coverage • Arizona Revised Statute gives AHCCCS broad

The Evolution of AHCCCS Health Care Coverage • Arizona Revised Statute gives AHCCCS broad authority to provide health care coverage to federally funded beneficiaries, small businesses, and public employees for acute and long term care. • Started in October 1982, 3 year demonstration waiver approved by CMS for AHCCCS Acute program. • In 1987, the Waiver request includes a proposal to include long Term Care and the Arizona Long Term Care System (ALTCS) is approved. • In 1988, small employers in 4 counties are allowed to purchase medical coverage for their employees from AHCCCS Health Plans through Healthcare Group. 2

The Evolution of AHCCCS Health Care Coverage • In 1990 there is Phase-in of

The Evolution of AHCCCS Health Care Coverage • In 1990 there is Phase-in of behavioral health services for certain Title XIX members. • In 1993 Healthcare Group services for small employers is expanded statewide. • In 1997, AHCCCS submits an amendment to cover single adults and children up to 100% of the FPL. • 1998 there was a 3 year pilot to provide coverage based on a sliding scale monthly premium to uninsured people who do not qualify for Medicaid – Premium Sharing. • 1998 Arizona implemented it’s version of State Children’s Health Insurance Program (SCHIP) – Kids. Care- Covers children under 150% of the FPL. 3

Voter Approved Proposition 204 • In 2001 Arizona voter approved proposition 204 which funded

Voter Approved Proposition 204 • In 2001 Arizona voter approved proposition 204 which funded the expansion of AHCCCS and created the opportunity for the state to replace state and local funding for the medically needy population with federal funds. • Prop 204 replaced a state-only program for the Medically Needy and Medically Indigent (MNMI), which cost $200 M per year from the General Fund and over $30 M in county funds. 4

FY 2006/2007 Legislative Changes HB-2698 Small Businesses Exemptions • Exempts small business health care

FY 2006/2007 Legislative Changes HB-2698 Small Businesses Exemptions • Exempts small business health care coverage from specified insurance coverage requirements, including certain mandates for businesses that employ 2 to 25 persons and that have been uninsured for at least 6 months. • Exemptions for small businesses health insurance plans include: any surgical services, maternity benefits, coverage of medical foods to treat metabolic disorders, and drug or devices for contraception or outpatient contraception services. HB- 2177 Tax Credit for Small Businesses and Employees • A tax credit for individual or a small business that is certified by Dept. of Revenue as meeting the requirements for tax credit. 5

FY 2006/2007 Legislative Changes SB 1442 Temporary Medical Coverage • Appropriates $6. 5 million

FY 2006/2007 Legislative Changes SB 1442 Temporary Medical Coverage • Appropriates $6. 5 million to AHCCCS to establish the Temporary Medical Coverage Program to provide health care coverage to persons who are citizens and residents and who have been enrolled in AHCCCS at any time within the last 24 months and became ineligible for coverage due to federal disability insurance benefit payment. 6

While the rate of uninsured in Arizona has declined significantly since 1997, 17. 0%

While the rate of uninsured in Arizona has declined significantly since 1997, 17. 0% of Arizona residents remained uninsured in 2004. Source: U. S. Census Bureau, Housing & Household Economic Statistics Division. 7

Assumptions About the Small Business Market • The small business market is growing. •

Assumptions About the Small Business Market • The small business market is growing. • Extremely price sensitive. • Small business owners to do not see health benefits as a necessary part of competitive employee compensation. • Significant employee turn over. • What the small business owner wants in a health benefit their employees cannot afford. • Small business employers prefer a defined contribution for any employer participation in health benefit coverage. 8

Policy Question: Can the Market Work? Will the small business market respond to differentiated

Policy Question: Can the Market Work? Will the small business market respond to differentiated benefits and health coverage products? • Designing benefit plans that the small business Market will buy • Product and Pricing Strategy • Product Differentiation • Product Evaluation 9

Healthcare Group Business Model Administrative Ease Budgetability Choice 10

Healthcare Group Business Model Administrative Ease Budgetability Choice 10

The ABCs of Healthcare Coverage for Small Businesses • A = Administrative Ease •

The ABCs of Healthcare Coverage for Small Businesses • A = Administrative Ease • Easy to enroll • Easy to deal with • B = Budget-ability • A health plan that fits into every employees budget • C = Choice • Choice of health plan benefits • Choice of provider networks • Choice of providers Our success equation is …… A + B + C = Success 11

Product Development Strategy Design benefit plans that: • Address varying health needs • Address

Product Development Strategy Design benefit plans that: • Address varying health needs • Address varying incomes • Address varying consumer needs • Can be reasonably-priced • Are meaningful, provide utility and value • Can be self-sufficient 12

HCG Healthstyles Designed for varying health needs, income, and lifestyles. CLASSIC Richest benefit package,

HCG Healthstyles Designed for varying health needs, income, and lifestyles. CLASSIC Richest benefit package, intended for: • employees with existing disease or chronic condition • employees wanting the added security of a wide range of benefits SECURE 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. ACTIVE A variation of the Secure plan, with lower premium and higher co-pays and coinsurance. Maternity excluded. 13

Healthstyles™ Benefit Grid Benefit Type Classic Secure Active Physician Services (PCP) $20 copay $10

Healthstyles™ Benefit Grid Benefit Type Classic Secure Active Physician Services (PCP) $20 copay $10 copay Specialist Services $ 20 copay $30 copay Preventive Care $20 copay $10 copay Included None/Rider $40 copay $20 copay $100/$150 copay $50 copay 20% coinsurance $100 admission 50% coinsurance* 20% coinsurance Diagnostic Services $0 copay 20% coinsurance Rehabilitation Services $15 copay 20% coinsurance $15/$30 copay $0/$20 copay (partial list) Maternity Services Urgent Care Emergency Care Inpatient Hospitalization Prescription Medicine * 100% coverage for first 10 days, thereafter 50% coinsurance. 14

Product Evolution HCG Enrollment Product Evaluation Begins Subsidy Starts • Broker fees ends •

Product Evolution HCG Enrollment Product Evaluation Begins Subsidy Starts • Broker fees ends • To single plan • Rate increase New HCG Administration Healthstyles Benefit Plans Introduced L he oss alt h p of lan 15

Historic Enrollment Trends (1999 -2006) 16

Historic Enrollment Trends (1999 -2006) 16

HMO Enrollment by Benefit Plan and Deductible Total Membership as of July 11, 2006:

HMO Enrollment by Benefit Plan and Deductible Total Membership as of July 11, 2006: 22, 027 HMO 20, 473 members Classic $0 deductible Classic $500 deductible Classic $1, 000 deductible Classic $2, 000 deductible Secure $500 deductible Secure $1, 000 deductible Active $500 deductible Members electing a deductible option: 28% 17

PPO Enrollment by Benefit Plan Total Membership as of July 11, 2006: 22, 027

PPO Enrollment by Benefit Plan Total Membership as of July 11, 2006: 22, 027 PPO 1, 554 members Medallion PPO Plus Medallion Classic PPO Plus Medallion Platinum PPO Medallion Platinum Plus PPO Medallion Gold PPO Medallion Silver PPO Medallion Plus, Classic Plus and Platinum Plus meets federal requirements for pairing with an optional HSA. 18

Product Evolution Original Healthstyles design based on: • Historical experience with previous HCG benefit

Product Evolution Original Healthstyles design based on: • Historical experience with previous HCG benefit plans • Meetings with small business employers • Experience of other states • Characteristics of the working uninsured -Demographic from Kaiser -CAN initiative (St. Luke’s) 19

HCG Product Evolution December 2004 Results from Employers and Employee Satisfaction Survey (n=285) 20

HCG Product Evolution December 2004 Results from Employers and Employee Satisfaction Survey (n=285) 20

Product Evolution Validation of Focus Group/Survey findings: • Asked Brokers/Producers what they thought •

Product Evolution Validation of Focus Group/Survey findings: • Asked Brokers/Producers what they thought • Actuarial pricing analysis • Empirical research • Experience of other states 21

Product Evolution 19982003 HMO Single Plan April 2004 SB 1166 June-July 2004 Employer Focus

Product Evolution 19982003 HMO Single Plan April 2004 SB 1166 June-July 2004 Employer Focus Groups Healthstyles HMO Classic HMO Secure HMO Active • Solidify relationships with HCG employer groups • Evaluate employer satisfaction • Validate product design assumptions • Assess unmet need (benefits & services) • Validate future product ideas 22

Product Evolution 19982003 April 2004 HMO SB 1166 June-July 2004 Employer Focus Groups Healthstyles

Product Evolution 19982003 April 2004 HMO SB 1166 June-July 2004 Employer Focus Groups Healthstyles HMO Single Plan Classic DESIRED BENEFITS HMO Secure • Deductible options • Mental Health benefits • Vision benefits • Dental benefits • Expanded provider network • PPO plans • HSA/HDHP option • Wellness HMO Active February 2006 January 2006 Rx Expanded Formulary September 2005 October 2004 Medallion PPO Dental (EDS) Vision (Avesis) Platinum, Platinum + Deductible Option $500 Deductible Option PPO Gold PPO Silver $1, 000 Option $2, 000 23

Product Differentiation as of May 2006 Products are differentiated by covered services, benefit plan

Product Differentiation as of May 2006 Products are differentiated by covered services, benefit plan features, provider networks, and availability HMO “Healthstyle s” PPO “Medallion” Comprehensive Preventive Active Classic Secure Active Gold Silver Platinum Plus (HSA) 24

Benefit Comparison Covered Services (partial list) Healthstyles HMO Medallion PPO Classic Secure Active Plat/+

Benefit Comparison Covered Services (partial list) Healthstyles HMO Medallion PPO Classic Secure Active Plat/+ Gold Silver Physician Services (PCP/Spec) Inpatient - Medical Outpatient - Medical Maternity Acute Ancillary (SNF, HH, Dialysis) $0 Preventive Care Inpatient - MH/SA Outpatient - MH/SA Formulary Tiers 3 3 3 4 3 3 Rx Benefit Limit None $12, 500 $7, 500 25

Benefit Comparison Benefit Plan Healthstyles HMO Medallion PPO Features (Deductible) Classic Secure Active Plat/+

Benefit Comparison Benefit Plan Healthstyles HMO Medallion PPO Features (Deductible) Classic Secure Active Plat/+ Gold Silver Number of Deductible Options Zero Deductible Option 3 2 1 3/2 3 3 Yes Yes No / No No No /- MD Office Visit (E&M) excluded* Preventive Care excluded / Mammography excluded / Prescription Drugs excluded /- Emergency/Urgent Care excluded Prescription Drugs excluded /- No No No Yes Yes None 50% 50% Out-of-Pocket Maximum Out-of-Network Benefit (NPPN) * Health plan assumes first dollar liability for services excluded from deductible. 26

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

HMO Provider Networks Geographic differentiation: HMO benefit plans are not available statewide Coconino Apache Mohave Navajo Yavapai La. Paz Gila Maricopa Greenlee Pinal Yuma Graham Pima Cochise Santa Cruz Apache Gila Maricopa Greenlee Pinal Yuma Graham Pima Cochise Santa Cruz 27

PPO Provider Network Geographic differentiation: PPO availability varies by county AFMC Medallion Series Benefit

PPO Provider Network Geographic differentiation: PPO availability varies by county AFMC Medallion Series Benefit Plans Coconino Apache Platinum Mohave Navajo Platinum Plus (HSA) Yavapai La. Paz Gila Maricopa Greenlee Gold Pinal Yuma Graham Pima Cochise Silver Santa Cruz 28

HMO Product Demographics December 2004 to April 2006 Product Classic Secure Active Month Enrollment

HMO Product Demographics December 2004 to April 2006 Product Classic Secure Active Month Enrollment Average Income* Average EE Age Percent Male Tier 1 EE Tier 2 EE+S Tier 3 EE+F Tier 4 EE+C December 2004 11, 224 $53, 743 46. 2 53% 58% 23% 16% 4% April 2006 12, 215 $53, 344 48. 1 55% 57% 23% 16% 4% December 2004 800 $53, 397 49. 9 48% 72% 23% 3% 3% April 2006 5, 052 $45, 458 49. 5 51% 61% 25% 9% 5% December 2004 415 73, 864 42. 1 51% 72% 17% 7% 5% April 2006 1, 990 $42, 835 46. 8 53% 61% 22% 11% 6% *Represents stated income from subscribers on enrollment forms. Not all subscribers supply these data. 29

Product Growth (2005 -2006) Healthcare Group Growth by Product 30

Product Growth (2005 -2006) Healthcare Group Growth by Product 30

HCG Enrollment by Product December 2004 September 2005 May 2006 12, 438 members 16,

HCG Enrollment by Product December 2004 September 2005 May 2006 12, 438 members 16, 451 members 20, 798 members December 2006* 25, 000 members anticipated * Expected 31

HCG Enrollment by Product and Provider Network Total Membership as of July 11, 2006:

HCG Enrollment by Product and Provider Network Total Membership as of July 11, 2006: 22, 027 HCG Products HCG Networks 22, 027 members 32

HMO Product Migration December 2004 to April 2006* Deductible options were first introduced in

HMO Product Migration December 2004 to April 2006* Deductible options were first introduced in October 2004. By April 2006, 25% of members had switched to a deductible option. *This period represents the migration behavior of 100% of membership following a complete contract renewal cycle. 33

Product Evaluation Tools: • Financials • Actuarial Analysis (COG) • Analytic Dashboard (Rates and

Product Evaluation Tools: • Financials • Actuarial Analysis (COG) • Analytic Dashboard (Rates and Measures) • Enrollment Reports • Ad-hoc Analysis • Risk Profiling (Medical Intelligence) • Satisfaction Surveys • Focus Groups 34

Rate Analysis Tools • Actuarial Tool Box » Milliman Health Cost Guidelines (Industry standard)

Rate Analysis Tools • Actuarial Tool Box » Milliman Health Cost Guidelines (Industry standard) » Pricing Models » Reserving Models » Ad-Hoc Studies » National Studies (CMS, Kaiser Family Foundation, etc. ) » Financial and Actuarial Education » External Actuarial Services 35

Pricing Strategies • Small groups are subject to significant fluctuations in premium rates –

Pricing Strategies • Small groups are subject to significant fluctuations in premium rates – Community Rated Premiums • Medical cost risk is spread across a larger group – Member “Out of Pocket” Costs • Co-pay and co-insurance is used to pass on financial responsibility and mitigate premium rate increases 36

HCG Member Satisfaction Member satisfaction with choice of … 37

HCG Member Satisfaction Member satisfaction with choice of … 37

HCG Member Satisfaction Member satisfaction with choice of … 38

HCG Member Satisfaction Member satisfaction with choice of … 38

HCG Member Satisfaction Overall member satisfaction with … 39

HCG Member Satisfaction Overall member satisfaction with … 39

Our first care is your healthcare 40

Our first care is your healthcare 40