Agenda

1. Commonwealth Care FY 2010 MCO Procurement UpdatePatrick Holland, Chief Financial OfficerBoard of Directors MeetingDecember 11, 2008

2. Agenda • Overview of Process with BOD • Procurement Timeline • Discussion of Staff Recommendations - FY 2010 Key Business Decisions

3. Overview of Process - Upcoming Board Meeting Topics

4. FY10 MMCO Bid Process - BOD Schedule

5. FY10 MMCO Bid Process - BOD Schedule

6. Procurement Timeline

7. Procurement Timeline December 2008 – Connector finalizes program design features with Board of Directors (BOD) Late December 2008 – Connector will release RFP January 13, 2009 – Bidder’s Conference February 18, 2009 - Proposals Due March 2009 – Evaluate Bids with BOD. BOD to vote on MCO selection and contracts (July 1, 2009 effective date)

8. Discussion of Staff Recommendations - FY 2010 Key Business Decisions

9. Topics to Cover • Goals of new model • Capitation rate development • Administrative Fee • Geographic Areas • Auto assignment logic • Reinsurance Programs • Enrollee Contribution Differential • Co-Pay Changes • Plan Type I enrollee incentives(not a recommendation; • asking Board of Directors for guidance on which strategies to employ) • Quality Incentive Program • MCO Operational Audit issues identified for RFP

10. Goals of New Model • Fair and reasonable rates (not excessive) • Avoid “programmatic” budget uncertainty • Mitigate risk selection and bidding gamesmanship • Protect members from large premium differentials • Align MCO payment with actual health risk and care management goals • Introduce claims-based risk adjustment • Introduce Cost/Quality Incentives • Increase transparency and simplicity

11. Capitation Rate Development • Connector Authority to establish a “Target Capitation” • Rate will be geographic/benefit/risk adjusted (age/gender and DxCG) • MCOs must accept Target Capitation to participate in program • MCOs invited to bid below Target Capitation • Lowest bidder receives preferential auto-assignment of Plan Type I members • Lowest bidder established as lowest-cost health plan for premium paying members

12. Target Capitation Development (continued) • Total Target Capitation of $404.00 PMPM • Approximately 2% above estimated FY 2009 Actual • Includes Non-medical load of $35.00 PMPM • No increase in admin fee since program inception • Is approximately 8.7% of Target Capitation • Target Capitation developed with external actuaries using cost/utilization trend and other one-time programmatic changes such as Benefit changes (negative trend) and effect of Re-determination (positive trend)

13. Administrative Fee • Incumbent MCOs to receive a fixed $32.00 PMPM for administration/contingency/profit and risk reserve • Represents a $3.00 PMPM reduction from FY 2009 level • MCOs will have opportunity to receive additional $3.00 PMPM through meeting targets in Quality Incentive Program (details discussed later in presentation) • In recognition of start up costs, new entrants to receive $35.00 PMPM for administration/contingency/profit and risk reserve • New entrants will not participate in Quality Incentive Program

14. Geographic Areas • State divided into 5 Major Regional Areas (MRAs) • MRAs further defined into 38 Service Areas • MCOs not required to be State-wide • MCOs not required to cover all Service Areas within an MRA • Bid discount at MRA level

15. Auto Assignment • Background data • Plan Type I monthly gross adds remaining steady at approximately 7,500 members • Approximately 1,800 or 24% per month (on average) are auto assigned • Conservative auto-assigned estimate for FY 2010 of 1,500 to 2,000 per month

16. Auto Assignment (continued) • Auto Assignment will accrue to the lowest-priced MCOs in each MRA • MCOs must bid a discount of at least 2% below the Target Capitation Rate to be eligible for auto assignment • If no bid at least 2% discount, auto assignment will be divided equally amongst the MCOs participating in each MRA • If only one MCO bids a discount of 2% or greater, 100% of the auto assignment will accrue to that health plan • If there are multiple bidders 2% or greater, the following algorithm will be applied;

17. Reinsurance Programs - Aggregate • Aggregate Risk Sharing(on Medical Capitation Revenue) • MCO full risk corridor of 4% across all Plan Types • State to share 50% above/below full risk corridor • Maintain “closed-end risk sharing” in which MCO returns to full risk (50% above/Below medical capitation revenue) • The MCO that submits the lowest bid in each MRA will have the option to reduce full risk corridor: • If discount is between 3% and 3.9%, full risk corridor lowered to 3% • If discount is 4% or greater, full risk corridor is 2%

18. Reinsurance Programs - Aggregate(continued) • MCOs with low enrollment can opt to receive enhanced risk sharing • Average enrollment < 2,000, full risk corridor is reduced to 1.0% • Average enrollment < 4,000, full risk corridor is reduced to 1.5% • Average enrollment to be determined as actual enrollment as of half way through contract period

19. Reinsurance Programs - Specific Stop Loss • MCOs will self-fund a pool at 1.25% of the MCO capitation rate (same as FY 2009 program) • Attachment point of $150,000 per individual • Coinsurance of 75% State, 25% MCO above attachment point • In the event of a surplus, funds will be distributed back to the MCOs (as occurred in CY2007) • In the event of a deficit, MCOs will pay additional funds into the pool to cover outlier claims

20. Enrollee Contribution • Enrollee contributions determined by the final capitation rate • For Plan Type II A enrollees(100.1 to 150% of FPL) , each enrollee will pay the full delta in premium for the higher priced plans • Only paid half the differential in FY 2009 • Enrollee contribution differentials will be prorated based on income in 50% brackets • Lower income groups will face a lower differential • Total enrollee differentials will normalize based on actual mix (specific date to determine mix TBD) • If a health plan’s bid is $10 higher, average contribution differential faced by enrollees will be $10

21. Co-Pay Changes • PT I Rx Generic co-pay will increase from $1 to $2 (due to MassHealth change) • No other changes to co-pays or cost sharing is recommended • Also implementing MassHealth model around encouraging management of certain chronic conditions (VBID) • Co-pays for certain generic drugs used for diabetes, high blood pressure and high cholesterol will stay at $1

22. Plan Type I Enrollee Incentives • Three Options to be considered for Board guidance/direction: (a) Shorten auto-reenrollment look back (b) Active open enrollment process in May/June of 2009 (c) Enhanced benefit incentive for enrollees selecting the lowest priced MCO

23. Plan Type I Enrollee Incentives (continued) (a)Shorten auto-reenrollment look back • Current look back is 12 months (if member terms and reenrolls within 12 months and does not select MCO, will be auto-reenrolled to prior MCO relationship) • Average monthly auto re-enrollees are approximately 2,400 per month • Approximately 1,700 or 70% re-enroll within three months • Approximately 2,100 or 90% within six months

24. Plan Type I Enrollee Incentives (continued) (a)Shorten auto-reenrollment look back(continued) • Consider reducing look-back to prior three months • Members who come back in under three months are generally the result of ‘churn’ • Greater than three tend to be due to eligibility changes • Members would still be allowed 60 days to change assignment

25. Plan Type I Enrollee Incentives (continued) (b)Active open enrollment process • Members would select an MCO, or be reassigned to lowest-priced MCO • Member would have 60 days to request a change past July 1 effective date • Would be powerful motivator for MCO to bid discount

26. Plan Type I Enrollee Incentives (continued) (b)Active open enrollment process (continued) • If number of members moving to lowest-priced plan between 30%-50% • Would result in approximately 24,000 to 40,000 enrollees changing MCOs • Estimated savings to State between $3 to $10 Million assuming MCO price differential of 3% to 5%

27. Plan Type I Enrollee Incentives (continued) (c)Enhanced benefit incentive • Percentage of MCO discount given back to member selecting MCO • Card with finite value provided to member • Only allows purchase of health-related products • Requires collaboration with a pharmacy • If Board is interested, will need to continue to determine if feasible with an interested vendor

28. Plan Type I Enrollee Incentives (continued) (c)Enhanced benefit incentive (continued) • If number of members moving to lowest-priced plan between 12%-25% • Would result in approximately 9,600 to 20,000 enrollees changing MCOs • Estimated savings to State between $1.4 to $4.8 Million assuming MCO price differential of 3% to 5%

29. Quality Incentive Programs • PCP Well Visit Incentive Program • MCOs must increase their baseline percent of enrollees that have obtained a well visit from their PCP • Current baseline percent across MCOs is 27% (12/31/07) • Offered to incumbent MCOs only • Opportunity to earn $2.00pmpm • Designed to enhance enrollee experience • Will enable PCPs to provide care based on specific needs of enrollee

30. Quality Incentive Programs • Emergency Room Pay-for-Reporting Program • MCOs report to Connector on quarterly basis; ER utilization, ER management programs and direct ROI as a result of such programs • Offered to incumbent MCOs only • Opportunity to earn $1.00 PMPM • Create focus and transparency on ER utilization • Will provide richer information on ER utilization patterns and allow for a baseline for a FY 2011 incentive program

31. Status of MCO Operational Audit • Navigant Consulting completed MCO operational audit and will provide comprehensive overview of results to the Connector staff • Connector will process results of operational audit with the MCOs • Due to tight timeframe of the RFP process, the Connector worked with Navigant Consulting to identify those areas requiring input to the RFP process and the FY10 Contract

32. Audit Issues Included in RFP/Contract • Co-pay accumulator and payment application • Further review with MCOs • Include a provision in the RFP to require proposers to submit a detailed process describing how this function works within their system and add a provision to the contract which allows for a specific audit on this functionality

33. Audit Issues Included in RFP/Contract • Access to Physicians • Work with MCOs to conduct a survey to determine the actual availability of appointments for enrollees • Require MCOs to provide their policy and procedures related to enrollees seeking services from closed panel providers and ensure it promotes continuity of care • COB (Coordination of Benefits) and TPL (Third Party Liability) • Strengthen COB contractual requirements to ensure MCOs have processes in place to effectively track COB and TPL claims

34. Audit Issues Included in RFP/Contract • Wellness/Health Promotion • Require MCOs to have at least one wellness and/or health promotion activity related to behavioral health or focused on enrollee with co-morbidities (behavioral health and medical) • Behavioral Health Access and Availability • Determine appropriate behavioral health wait time standards for inclusion in the contract and require MCOs to develop policies related to monitoring access and availability of the behavioral health network