Commonwealth Care FY 2011 MCO Procurement

Board of Director’s MeetingFebruary 11, 2010

2

Agenda

• FY 2011 Budget Summary

• Overview of Historical MCO Financial Performance

• Overview of Preliminary FY 2010 MCO Financial Performance

• Review of FY2011 Budget Assumptions:– Enrollment– Capitation Rate– Programmatic Changes– Aggregate Risk Corridor

• Outline of Procurement Timeline & Next Steps

3

FY 2011 Budget Summary

• Since Fiscal 2009, the state has experienced an unprecedented tax revenue decline of over $4 billion.

• While revenues are projected to resume moderate growth again in Fiscal 2011 (projected 3.2% growth), significant pressures remain: – Growth in caseload accounts due to economic downturn (including in state-subsidized health insurance)

– Fiscal 2010 budget (understandably) had to rely on nearly $2.5 billion in one-time revenues to mitigate even deeper cuts. Federal “use or lose” revenues from ARRA are scheduled to phase out, and fund balances in the state’s own Stabilization Fund have significantly decreased.

• Given these pressures, projected budget gap for Fiscal 2011 is $2.7 billion.

4

FY 2011 Budget Summary (continued)

• Governor Patrick’s Fiscal 2011 budget proposal closes $2.7 billion gap through spending discipline (including further difficult choices), reforms, one-time resources (extended FMAP), revenues (end select exemptions) and prudent debt refinancing strategies.

• Tight overall budget still dedicates significantly increased resources for Commonwealth Care (funded at $839 million): third largest percentage increase in the state budget.– Maintains eligibility– Funds additional enrollment– Minimizes additional cost-sharing, and maintains existing benefits to maximum extent possible

– Assumes rate increase with appropriate discipline

5

FY07 – FY09 Cumulative MCO Financial Performance

• Through FY 2009, positive margin program-wide of approximately 3%– Results mixed at MCO level prior to FY09

– Positive margins for all MCOs in FY09

6

FY07 – FY09 MCO Financial Performance (continued)

4.1%

0.9%

0.0%

3.41%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

BMCHP Fallon NHP Network Health

MCO Medical Margin After Risk Sharing, CY07 – FY09

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FY07 – FY09 Cumulative MCO Financial Performance (continued)

$25.0

$18.1

$0.0$0.7$0

$5

$10

$15

$20

$25

$30

BMCHP Fallon NHP Network Health

(Mil

lio

ns)

MCO Total Medical Margin After Risk Sharing, CY07 – FY09

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Overview - FY10 Preliminary MCO Financial Performance

• Despite solid historical three-year cumulative performance, early signs of lower MCO margins in FY10

• Due to high claims trend in last half of FY09, claims cost starting higher than expected in FY10

• Appears first quarter FY10 claims trend is moderating

• Need to continue to carefully assess impact of new enrollment growth (in FY09 & FY10) and programmatic changes on underlying claims cost

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Overview - FY10 Preliminary MCO Financial Performance (continued)

• FY10 programmatic changes:– Suspension of auto-assignment beginning in August 2009

– Termination of eligibility for legal immigrants beginning in September 2009

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Overview - FY10 Preliminary MCO Financial Performance (continued)

• Recently received FY10 encounter data for first quarter– Allows us to begin to evaluate program trends without AWSS

• Also received and reviewing MCO quarterly settlement reports

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FY10 Q1 Performance (MCO Reported Data)

BMCHP

Fallon NHP Network Health

CeltiCare

Total

CCA Adjusted IBNR

Profit/(Loss) (Millions)

3.81

(0.93)

(2.95)

(3.65) (0.01)

(3.73)

Total Profit/(Loss) After Risk Share 5.0% -8.5% -7.3% -6.5% -3.4% -2.0%

MCO Reported

Profit/(Loss) (Millions)

3.81

(1.46)

(2.95)

(4.51) (0.01)

(5.12)

Total Profit/(Loss) After Risk Share 5.0% -13.4% -7.3% -8.1% -3.4% -2.8%

Notes:

(1) Reports include claims incurred through Sept, paid thru Oct 2009 and incorporate a estimate for IBNR

(2) IBNR estimates for Network Health and Fallon were adjusted down to reduce excessive conservatism

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CommCare Enrollment Trend

130,000

140,000

150,000

160,000

170,000

180,000

190,000

Jul-08

Aug Sep Oct Nov Dec Jan-09

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-10

Total Non-AWSS

+2.6% growth first half of FY10

7% increase Mar’09 – June’09

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PMPM Cost Trend

10%

0.90%

0%

2%

4%

6%

8%

10%

12%

FY09 (Annual vs. FY08) FY10 (Qtr Over Qtr)

Financial results in FY09 were positive overall, but costs increased significantly late in the year.

Low increase in Q1 of FY10 may indicate moderation in cost trend, likely due to substantial new growth late in FY09.

14

Non-AWSS Rx Trend

Prescription Drug PMPM Cost Trend (Non AWSS)

$29.53

$37.43

$47.71 $48.39 $48.82 $48.65$52.34 $53.17

$57.71$61.14

$64.59$62.14

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

FY07Q2 FY07Q3 FY07Q4 FY08Q1 FY08Q2 FY08Q3 FY08Q4 FY09Q1 FY09Q2 FY09Q3 FY09Q4 FY10Q1

* May be leading indicator of moderating medical cost trend

* Rx costs completes quicker than Medical

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Non-AWSS Demographic Acuity Trend

Age/Sex Index Score Trend (Non AWSS)

0.90610.8966

0.9378

0.96410.9706 0.9734

0.98120.9898

0.99901.0057 1.0037 1.0036

0.7900

0.8400

0.8900

0.9400

0.9900

1.0400

FY07Q2 FY07Q3 FY07Q4 FY08Q1 FY08Q2 FY08Q3 FY08Q4 FY09Q1 FY09Q2 FY09Q3 FY09Q4 FY10Q1

Quarterly change in age/gender score appears to be reasonable indicator of PMPM cost.

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FY 10 Preliminary MCO Financial Performance (continued)

• Key Takeaways:– First quarter MCO finance reports indicate degrading margins

– Connector will continue to monitor underlying cost trend and impact of program changes

– Need to continue to work closely with the Administration and MCOs to manage through difficult financial environment

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FY 2011 Procurement

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FY11 Procurement Overview

• The number of issues emerging in late FY09 and FY10 leads us to recommend increases in Capitation & Enrollment in FY11

• Significant dollar commitment made to program

• Capitation rate at bottom of actuarially sound rate range (ASRR)

• Narrower MCO risk share band

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FY11 Procurement Overview (continued)

• FY11 Procurement Process– Issue RFP identifying elements of program

– Update key financial terms– Identify base capitation rate for participation

– No MCO bidding

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FY 2011 Procurement Assumptions

Enrollment• Budget accommodates an increase in enrollment – Increase in Member Months of approximately 5.4%

• Includes limited auto-assignment

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FY 2011 Procurement Assumptions (continued)

• Capitation Rate Build-up– Work with actuary to develop Actuarially Sound Rate Range (ASRR)

– Basic outline of formula:

Base Medical Claims Cost

X

Medical Trend + Other Factors

=Total

Expected Medical

+ Admin Fee =Total

Capitation

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FY 2011 Procurement Assumptions (continued)

• FY11 capitation rate based on FY09 base, adjusted for AWSS, cost/utilization trend, acuity, managed care efficiency, and program changes

• Final rate shown here includes Rx coverage – (Proposed carve-out discussed below)

FY11 FY10

Medical Cap Before Benefit Adj. 399.26$ 366.97$ Benefit Adj. (PT I Dental, Rx) (5.59)$ Final Medical Capitation 393.67$ 366.97$ Admin, Cont, Profit, Risk PMPM 32.00$ 32.00$ Total Capitation 425.67$ 398.97$

• Capitation Rate Build-up (continued)

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FY 2011 Procurement Assumptions (continued)

• Member Cost Sharing:– Minimal increases to Member– Copay Change: For PT 1 (<=100% of FPL) change generic copay from $2.00 to $3.00•Certain drugs remain at $1.00

– Dental benefit For PT 1 (<=100% of FPL):•Maintain Preventive Benefit, but remove restorative benefit

– Changes are necessary to align PT I with MassHealth

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FY 2011 Procurement Assumptions (continued)

Specific Stop Loss Reinsurance:• Maintain MCO funded specific stop loss reinsurance• Currently evaluating attachment point and premium contribution – recommendation at next meeting– Current attachment point of $150,000 per individual– Current coinsurance of 75%/25% Pool/MCO above attachment point

– In the event of a surplus, funds will be distributed back to the Health Plans (as occurred in CY2007 & 2009)

– In the event of a deficit, Health Plans will pay additional funds into the pool to cover outlier claims

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FY 2011 Procurement Assumptions (continued)

• Aggregate Risk Sharing (on Medical Capitation Revenue)

–Narrower risk share corridor for MCOs•Health Plans full risk corridor of 2% across all Plan Types (FY10 at 4%)

•State to share 50% above/below full risk corridor

•Maintain “closed-end risk sharing” in which Health Plans returns to full risk (50% above/below medical capitation revenue)

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FY 2011 Procurement Assumptions (continued)

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

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FY 2011 Procurement Assumptions (continued)

MCO Administrative Fee:• Health Plans to receive a fixed $32.00 PMPM for Administration/contingency/profit and risk reserve–No change from current fiscal year

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FY 2011 Procurement Assumptions (continued)

Bidding and Payment:• Connector will issue RFP outlining capitation rate and program changes outlined above

• MCOs may choose whether or not to participate

• Target rate will continue to be adjusted for geography, acuity, and benefit plan

• Anticipate uniform enrollee contribution resulting from single capitation rate

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FY 2011 Procurement Assumptions (continued)

• Pharmacy Carve-out– Recent discussions with MassHealth and A&F regarding carving out of Rx from MCO capitation

– Purpose of carve out is to take advantage of significant rebate savings

– Discussing implementation and other issues

– Will provide more detail next meeting

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Outline of Procurement Timeline

Date TopicsFebruary 11th Board Meeting:

• Review FY11 Financial Assumptions and programmatic changes • Review FY09 Final & FY10 MCO Estimated Financial Performance

February 25th Board Meeting:• Review RFP document and Form of Contract• Obtain Board Approval

February 26th Issue RFP

March 1st – March 11th MCO Review and Response Time

March 12th RFP Responses Due - 12:00 p.m.

March 15th - April 2nd Connector Review of RFP Responses

April 2nd Connector Memo to Board with Recommendations

April 8th Board Meeting:• Board Vote on Connector Recommendations

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Next Steps

• Incorporate Board feedback• Continue to refine assumptions• Finalize Rx Carve out issue• Develop Request For Proposal (RFP) document & Form of Contract

• Finalize RFP for Board review and approval on 2/25 Board meeting