Benefit Design 2001 Maintaining Affordability Presented before the Public Employees Benefit Board

1. Benefit Design 2001 Maintaining Affordability Presented before the Public Employees Benefit Board June 27, 2000

2. Options for Maintaining Affordability: • Increase member premium share and/or cost-share • Offer a high deductible PPO option • Modify pharmacy benefits

3. Challenge: Maintaining affordability • Guiding principles for UMP benefit design: • UMP continuously pursues quality of care improvements and innovations in benefit design and plan administration. • Benefits are designed to prevent illnesses, improve or maintain member health status, and include incentives for members to select the most cost-effective treatments and drugs. • UMP emphasizes freedom of choice paired with member responsibility for care management.

4. UMP TREND • UMP experience • Overall UMP trend around 11-12% for 1999 • Increases in prescription drug costs fuel growth • UMP pharmacy trend 25-30% for 1999

5. TREND Continued……... • Increases in Rx costs driven primarily by higher utilization: • New drugs / new indications for existing drugs • Direct-to-consumer advertising • Patient knowledge of drug treatments • Aging population

6. UNIFORM MEDICAL PLAN HISTORY OF MEMBER COST-SHARING

7. UMP member cost-share • Cost-share items based on fixed dollar amounts • $200 deductible • $100/day inpatient hospital copayment • $1,125 out-of-pocket maximum • Mail order Rx co-payments (increased for 2000) • Since 1998, member cost-share as percent of total costs has decreased approximately 2%

10. Alternative: Increase cost-sharing to maintain zero premium • High cost-share option to achieve zero premium plan for 2001 • Increase subscriber deductible from $200 to $300 • Increase coinsurance from 10% to 20% for in-network services • Increase out-of-pocket maximum from $1,125 to $2000

11. Alternative: Moderate adjustments to specific fixed-dollar cost-share items Address 2% erosion in cost-sharing • Increase inpatient hospital co-pay to $150 per day (up to $450 per year) • Increase from $20/$30/$40 mail order co-pay to $20/$40/$60 • Maintain deductible at $200 (no change) • Increase out-of-pocket maximum to $1,750

12. Alternative: De-linking pharmacy cost-sharing • Current benefit design applies the $200 deductible and $1,125 out-of-pocket maximum to the total of medical and retail pharmacy claims (mail order pharmacy claims are excluded) • This requires complex coordination of medical/pharmacy claims payments for correct administration of the deductible and out-of-pocket limit • The administrative issues force members to pay the full cost of retail prescriptions up-front, and receive reimbursement after-the-fact for the UMP share.

13. De-linking pharmacy cost-sharing: • Simplifies claims adjudication — would enable pharmacies to collect the member share only • Reduces up-front costs that members must pay at retail— increases affordability from the customer’s perspective • Members continue to participate in the costs of their prescription throughout the year—helps address specific pharmacy utilization issues that are driving costs

14. Delinking pharmacy cost-sharing: • $200 deductible applied to medical only; separate $100 deductible for Rx (retail and mail) • $1,125 out-of-pocket maximum applies to medical costs only (see pharmacy out-of-pocket options below)

15. Incentives for generic substitutions • UMP uses several approaches to encourage appropriate use of generics • 3-tier co-pay design for both retail and mail order Rx • Voluntary formulary and provider education • Less than 4% of all prescriptions dispensed are multi-source brands (brand drugs for which a generic is available)

16. Options for Maintaining Affordability: Increase member premium share and/or cost-share Offer a high deductible PPO option Modify pharmacy benefits