AGRIP Pool HEALTH BENEFITS SUMMIT

1. AGRIP Pool HEALTH BENEFITS SUMMIT October 28, 2007 Hyatt Regency, Savannah, GA

2. Why did AGRIP Plan the Summit? • Numerous requests for officials to meet and share knowledge and experience on starting and managing health pools • Intended to be focused discussion among participants with limited presentations

3. Focus for the Summit • Why are we all talking about health pools? • Reasons for considering starting a pool • State of the market and legislative initiatives • Key factors for successful pools

4. Focus for the Summit • Survivability factors facing existing pools • Why and how pools have terminated plans • How do you move forward?

5. Why All the Talk About Pool Health Plans? • $776 billion in expenditures on private health insurance for this year (Center for Budget and Policy Priorities) • 45.8 million Americans have no health insurance; nearly 9 million uninsured children (U.S. Census Bureau)

6. Why All the Talk About Pool Health Plans? • Workers’ health insurance premiums have increased 84 percent since 2000, while wages have increased only 20 percent. (Boston Globe study) • The increased cost is pushing many employers to drop traditional employee coverage or shift more costs to workers.

7. Loss of Competition Is Seen in Health Insurance Industry • The largest insurer had 43 percent of the market for small group coverage in a typical state, up from 33 percent in 2002. • In nine states, the largest carrier — a Blue Cross and Blue Shield company — has more than 50 percent. (Government Accountability Office)

8. Where do you classify yourself? • Considering starting a health plan • Have a plan and it is successful • Have a plan that is struggling • Had one but terminated it • Able to offer technical assistance • Just interested

9. Reasons to Consider Offering a Health Plan • FROM THOSE CONSIDERING STARTING A PLAN • Successful P&C program so will it work for health – NJ 8000 lives • Nevada legislature: retirees 300 active lives – 11 month time frame to get into state plan or forced into local government coverage • CCAP rural counties have no options – one carrier – Blues – regionally divided • Michigan Road pool – P&C plan very successful – members pushing for health

10. Reasons to Consider Offering a Health Plan • FROM THOSE WHO HAVE A PLAN • OMAG - privates wouldn’t cover local governments back in 1977 • Vermont - 1980’s health premiums were going up too fast • Washington Counties Insurance Fund – 1958 started cooperative purchasing program. Stopped working price wise in 1980’s so the self funded pool was started

11. Reasons to Consider Offering a Health Plan • FROM THOSE WHO HAVE A PLAN • Ohio - 6 years in successful P&C plan so members pushed into health. Seeded the start up with Association and P&C money – sold as a start up loan – mostly paid back. Plan was rolled out 1/1/2004 . • Health more labor intensive than P&C – hire professionals with good health care knowledge

12. Key Factors for Success • DELAWARE VALLEY INSURANCE TRUST (Rick Lee) • Focus on cost • Insurance Buyers Council – control the rate of cost increases. All factors are local – small employers/municipalities SE Penn market • Increase for this year less than 5% - rate stabilization fund intact – union employees and good cooperation. Initial savings of 5% for new joiners. Contract with Aetna as our TPA – 3,500 employees 10K covered lives. Increases for last 3 years single digits. • What we do won’t apply to your market – don’t rely on normal distribution channels.

13. Key Factors for Success • Vendors are limited. Getting good data. Every month we know where each member is on cost. • $40 million in premium annually. Member chooses when to take a credit. • Keep first $350K of any claim – was $150K at start and built up the retention. • Pharmacy is self insured as well. Reinsurance cost specific or aggregate – specific for now per individual. Aggregate was 125% of expected claims at start. • Actuary? Yes. Actuary does same work as for other lines of coverage. • MEWA – a trust that is tax exempt

14. Key Factors for Success • Do it on a plan specific basis. 42 municipalities with 90 different plans. Point of service plans. • Other consultants – underwriting, administrative cost overview. • Choice for plans is on the municipal level – most employees are under the union plan. Point of service plan is like a hybrid HMO/PPO. • How much of experience matters – actuary doesn’t look at the individual municipality - they look at the trust as a whole. How much the trust needs is what the actuary looks at. Doesn’t look at shock claims. • Don’t cancel municipalities – but don’t allow some small ones in.

15. Key Factors for Success • ARIZONA POOL • Started in 1994 - 64% increases since inception. • Blues are willing to work with pool. Legislature in state allows public employers to access the Medicare network. • Targeted breast cancer, cardio, diabetic 2,100 employers. Blues will average 55% discount on bills.

16. Key Factors for Success • VERMONT SCHOOL BOARDS INSURANCE TRUST (John Gutman) • Vermont pool started in 1980’s. • 17 years ago state teachers being insured – formed an association with the union and they work cooperatively. • Single best strategy to lower claims is for covereds to be healthier. Best ROI is to prevent health problems and not have chronically ill.

17. Key Factors for Success • TEXAS ASSOCIATION OF COUNTIES (Bill Norwood) • Most important part is the individual member card – folks act in their own self interest. • Credibility important - takes large numbers to make this work - 5K lives are the entry point; 20K lives is much better. Credibility effects financing – with reinsurers and underwriters. Helps identifies pockets of margins. • 5 year average of 3.467% increase in premiums. • Biggest challenge – stay ahead of trends.

18. Key Factors for Success • MONTANA UNIFIED SCHOOL TRUST (Bob Robinson) • 1987 started in a hard market. • 203 school districts and related groups - 18K covered lives. • 5 main plans – 29 options for the districts – can use more than one option depending on the number of employees. • Claim cost year to year increasing 3% to 5% over the past four years. Loss ratios lately 88% to 90% over the past four years. Administrative costs staying under 8% of premium. Excess reserves at $18m. Investment income used to decrease premiums.

19. Key Factors for Success • Average claim cost is increasing 3% to 5% per year. Downward trend last four years. • Wellness program in place for three years. Biometrics, blood chemistry workup and health risk assessment provided to one-third of members each year at not cost to member work Keeping healthy people healthy. Trying to prevent or delay health issues from arising.. . • Plan design – provided benefit summary that showed comprehensive major medical and other plans. People select the plans based on their individual situation. Basic plan now cover about 9% of our members.

20. Key Factors for Success • Plan choice is made at the district level and once the district approves a plan then the employees can choose from the district authorized plan. Must have 20% of the employees in the plan or they won’t offer. • Basic plan pays the first $250 of cost. Assists with immunizations and preventative work. • They use a TPA which has their own networks and 6 or 7 other regionally supplied networks based on geographic areas.

21. Key Factors for Success • ASSOCIATION OF COUNTY COMMISSIONERS OF GEORGIA (David Paulk) • Sponsored program instead of a self-insured pool. • Do have a rate stabilization fund – negotiate with the Blues for rate increases. They use an actuary to review the price increases that Blue brings each year. Rate increases have been similar to the national trends. • 2/3 market penetration. Blues have agreed that there is no current cross marketing against the pool.

22. Key Factors for Success • Ownership of data is an issue – comes into play if you want to leave. (Vermont experience) ACCG gets claims data. • Georgia has a lot of legislative mandates for coverage. • Use a “pool” concept for pricing and loss experience. Their members understand and support the pooling concept. • They have the resources to hire qualified folks to negotiate with the fully insured.

23. Survivability Factors • NORTH CAROLINA ASSOCIATION OF COUNTY COMMISSIONERS (Patrice Roesler) • Pool started in 1995. Rate increases led to a unbundling of services – especially pharmacy cost. • Non-compete issues came into play as well caused a problem with members. • Biggest challenge is the change in the market place with individual employees. Non-renew counties came from pressure from employees. • Market share is a problem 9K covered lives and $55m in premiums. They are trying to charge “true” rates but the larger insurers buy the business.

24. Survivability Factors • OKLAHOMA MUNICIPAL ASSURANCE GROUP (Chuck Smith) • OMAG gone from 64 members at a low to 160 members. • We don’t have a partnership with a TPA that is also a broker. • Been told that every 7 years you have 2 bad years. We are having our 3rd bad year. • Self insured to $250K and have dropped to $150K have had a series of shock claims – but now utilization issues

25. Survivability Factors • Pool going from fully insured to self insured – challenges are funding, competition, legislative changes. • Choice level now employee going maybe to the employer. Wellness identifies sick folk who go to the doctor and raises our cost at least in the short term. • Early retiree costs – not eligible for Medicare yet – seeing large increases in utilization. • Competition is a threat. Legislative changes are possible to combine local governments with state plans. • Fooled by Randomness and Black Swan a financial trader two books by the same author. Need to plan for randomness not the average. • North Dakota has regional and geographic challenges. Blues control market share.

26. Why Pools Terminated Plans • None of these Pools were represented at the summit. Feedback previously shared: • Ability for local governments to participate in state employees program at subsidized premiums • Pools found that they couldn’t impact cost since large carriers drive the market • Carriers can buy business for longer than pools can survive

27. Why Pools Terminated Plans • Members want pools to impact costs they can’t control, like medical inflation • Regulation that pools may not be able to afford to comply with, such as HIPAA • Large members can afford to be on their own and don’t feel that pools offer anything unique • Carriers offer lots of bells and whistles that pools can’t afford and employees are vocal about wanting these

28. Other Considerations? • ANCILLARY COVERAGES (life, dental, vision, EAP) • They work and usually make some money over time but mostly value-added. • Some examples of adverse selection • Offer the ancillary programs without offering health. Build credibility to transition into a health plan. • “One stop shop” - Want to be the place that the member calls.

29. Other Considerations? • GASB 45 • Nevada: sponsored a flat rate to members to do the required study. Most members don’t have to comply until 2009. Sample studies show that liabilities are huge depending on benefits – not size. • NCACC: joint agreement with the League of Municipalities to do the study for members. Perhaps pooling for outstanding liabilities. • TAC: GASB doesn’t apply in Texas according to the legislature

30. Other Considerations? • DEPENDENT AUDITS • Important to make sure this happens but TPAs may do it automatically • Common law verses legally married status - Arizona doesn’t recognize common law but employees still try to cover common law spouses • NH legs – civil unions equates the same status under the law. Dependents – in school can continue coverage. Divorced or legally separated your ex-spouse stays on the plan for up to 6 years – 3 years due to state law and then COBRA – if the ex-spouse remains unmarried.

31. Other Considerations? • WELLNESS • Newsletter – co-partnered with the American Cancer Society to produce wellness publications. • Use county health departments for immunizations, etc.