Healthcare Group of Arizona Director Anthony D. Rodgers State Coverage Initiatives - Summer Workshop ‘Pressing Forward:

1. Healthcare Group of Arizona • Director Anthony D. Rodgers • State Coverage Initiatives • - Summer Workshop • ‘Pressing Forward: Cuts, Coverage, and Creativity’ • June 28 – June 29

2. Key Economic Drivers Premiums Coverage Employment What We See Happening “For every one percent increase in premiums200,000 to 400,000 people lose coverage nationwide” Source: The Lewin Group, 1997

3. 93% of business in Arizona are small businesses with less than 50 employees Arizona has over 110,000 small businesses Average annual growth rate of small business in Arizona is 2.7 %. Since 1999, Arizona has averaged 13,500 new small businesses start-ups annually. Small business added more workers in the aggregate than large business in Arizona. Only 28% of small business offer employer sponsored health care coverage. Arizona small business economy University of Arizona: Health Care Coverage in Arizona

4. Arizonans Household Income AHCCCS Catastrophic Care AHCCCS Eligible 15% 20% 28% 19% 18% Most likely AHCCCS Eligible AHCCCS Spin down

5. Projection Percent of Arizonans on Arizona State Medicaid and SCHIP Programs Over 1.5 million Arizonans by 2006

6. The Political and Business Case for the Arizona Healthcare GroupProgram • The commercial health insurance market has become unaffordable in Arizona more and more business are dropping coverage or reducing the number of employees, often sending jobs out of the country. • HCG was created to address this problem. • If HCG does not aggressively address this issue, the state has a huge potential financial exposure because nearly 60% of low income workers will qualify for Arizona’s Medicaid program. • Politically the conservative in the Arizona legislature are “between a rock and hard place” about government financing health care for the poor and low income; but there is a growing recognition that one way or the other the State of Arizona will end up with the fiscal liability for so many uninsured. • HCG is the last chance to use the market to attract and increasing large number of uninsured into a premium based program.

7. Employed 79% Potential Market: 510,000 Unemployed 21% 29% 19% 3% 16% 12% Enrollment and Demographics: Target Population 1 Million Uninsured Arizonans Source: St. Luke’s Health Initiatives, 2004

8. Provide premium based coverage for uninsured small businesses and their employees to reduce State’s potential Medicaid cost exposure from low income employees. • Assure HCG premiums are affordable and offer a cafeteria plan of benefit options that will allow employees of small business employers, sole proprietors, and political subdivisions greater choices. • Become self funded from premium revenue by 2006. • Demonstrate the business case for the State’s HealthCare Group Program as a solution for providing health care coverage to uninsured workers. HCG Strategic Objectives

9. HCG enrolls eligible small businesses and governmental subdivisions and their employees and dependents into the program based on benefit options selected. Sets rates and pays capitation or administrative fees to contracted MCO/TPA and provides reinsurance coverage. Sets benefit option pricing and bills premium to employers Performs marketing and sales and pays broker enrollment fees. Develops new products and benefit offerings. Oversees the quality and MCO operations and network adequacy. MCOs contract with providers and networks and manage medical risks based on operational and quality standards set by HCG How Healthcare Group Works

10. Reinsurance Mechanisms • THE PURPOSE: To protect MCO network contractors from the risk of high medical cases and assure financial stability. • HCG purchases reinsurance from a third party carrier by withholding a PMPM amount all premiums collected. • The reinsurance stop loss coverage reimburses the MCO contractor when the total annual medical services costs for that member, valued based on the third party carrier’s reimbursement schedule, less actual recoveries for service costs from any other third party coverage, exceeds $100,000 in any contract year. • HealthCare Group also maintains a separate financial stability reserve which is set aside for acuity adjustments for adversely selected MCOs.

11. Healthstyles™ Benefit Grid * 100% coverage for first 10 days, thereafter 50% coinsurance.

12. Employer Eligibility Employee Participation:

13. Premium Comparison by Health Plan In One Service Area Commercial Portability HMO Plans* HCG Current HMO Benefit Plans * Cigna and PacifiCare plans are guaranteed Issue individual HMO Plans. BCBS plan is individual underwritten HMO.

14. Hire managed care operations and medical management knowledgeable staff. Develop a marketing strategy conformed to the unique characteristics of the market. Develop more than one healthcare benefit option and constantly verify pricing strategy and benefits based on market response. Make sure you have provider acceptance and good network design with access to community primary care physicians and specialist. Focus on member retention through customer care and follow-up. Include programs that specifically benefit small business like employee wellness, workplace safety and disease management. Key Success Factors