State of Arizona Arizona Department of Administration Benefit Services Division Annual Check-Up Benefit Options October 1, 2008 through September 30, 2009 Janice K. Brewer Governor David Raber Interim Director Arizona Department of Administration FORWARD Benefit Options is the name for the various insurance benefits offered to Arizona State employees by the State of Arizona. This report was prepared to give a broad overview of Benefit Options. The information provided in the report was gathered from contractors participating in the Benefit Options insurance programs. This report was compiled to meet the requirements of A.R.S. §38-652 (G) and A.R.S. §38-658 (B). The data shown is presented for the period October 1, 2008 through September 30, 2009. The active Plan Year runs October 1, 2008 through September 30, 2009. However, all retiree statistics herein are adjusted to reflect that same period, despite the fact that the retiree Plan Year runs January 1 to December 31. Any questions relating to the contents of this report should be addressed to: Benefit Options Department of Administration 100 N. 15th Avenue Suite 103 Phoenix, Arizona 85007 Telephone: 602-542-5008 Fax: 602-542-4048 Contents Report Background 1 Executive Summary 2 Health Insurance Trust Fund Summary 4 Enrollment in Benefit Options Medical Plans 5 Networks for Active Employees and Non-Medicare-Eligible Retirees 6 Networks for Medicare-Eligible Retirees 7 Expenses vs. Premiums for Active and Retired Members 8 Expenses for Benefit Options Self-Funded Plans 9 Medical Expenses Associated with Medical Diagnoses 10 Hospital Care 11 Emergency Room Visits 13 Physician Visits 13 Urgent Care Visits 13 Generic and Name-Brand Prescription Use 15 Prescription Use by Therapeutic Class 15 Prescription Use by Type of Drug 16 Annual Prescription Use 17 Annual Pharmacy Expenses by Age 18 Benefit Options Dental Plans 19 Dental Rates 20 Life, Disability, Vision Insurance and Flexible Spending Accounts Premiums 21 Health Insurance Vendor Performance Standards 22 Glossary of Terms 25 Appendix A - Plan Year Cash Flow Reconciliation 28 Report Background This document has been assembled to report the financial status of the Employee Health Insurance Trust Fund pursuant to A.R.S. §38-652 (G), which reads: G. The department of administration shall annually report the financial status of the trust account to officers and employees who have paid premiums under one of the insurance plans from which monies were received for deposit in the trust account since the inception of the health and accident coverage program or since submission of the last such report, whichever is later. The State’s Benefit Options programs fall into two major categories. The first of these provides medical and pharmaceutical benefits; the second is comprised of various health benefit programs including dental, vision, disability insurance, life insurance and a flexible spending account plan. The medical and pharmaceutical programs fall into one of two types—fully-insured and self-funded. The health benefit programs, except for the flexible spending account plan, are fully insured. The State’s self-funded medical plan began on October 1, 2004. As a part of the design, two distinct options were created: the “integrated” and “non-integrated” options. The integrated option combines the functions of claims review and payment, network administration, utilization review, and disease management, while the non-integrated option contracts multiple services providers for each function. Schedules of premiums received, incurred and paid medical/drug claims, and expenses related to the self-funded plans are included within this document. Also included is information regarding enrollment and the distribution of self-funded medical and pharmacy expenses. Although not related to the Health Insurance Trust Fund, a summary of premiums collected and paid for life insurance, vision insurance and flexible spending accounts has also been included. The Cash Flow Reconciliation charts for the two funds used by Benefit Options (3015 and 3035) can be found in Appendix A. There may be disparities in the values presented in Appendix A and the Health Insurance Trust Fund (HITF) Summary on page 4 as a result of timing differences between when services are rendered and when the services are paid. Appendix A was prepared on a paid basis, where as, the HITF Summary was prepared on accrual or incurred and paid basis. All data provided herein is for the active employee Plan Year 2008-2009 (October 1, 2008 – September 30, 2009). Except where indicated, data related to the fully-insured Blue Cross Blue Shield and Secure Horizons plans is excluded. Notable administrative changes for Plan Year 2008-2009 include; the removal of coverage for political subdivisions, new dental insurance contracts, the inclusion of a +1 tier under dental coverage, and the removal of Schaller Anderson as a medical network. Benefit Options Annual Report October 1, 2008 to September 30, 2009 1 Executive Summary During the Plan Year 2008-2009 the State Health Plan offered a comprehensive insurance package to over 130,000 members. Through the Health Insurance Trust Fund the State provided benefits to active state and university employees, retirees, and their qualified dependents. The benefit options include; medical, pharmaceutical, dental, flexible spending, life, and disability insurances. To ensure the efficiency and effectiveness of the State Health Plan, during 2008-2009 BSD Audit Services developed a multi-directional audit plan which includes; contract compliance auditing, quality management reviews, process improvement, and plan design evaluation. Audits scheduled and completed this plan year consist of; dependent eligibility, chiropractic and osteopathic plan allowance, preventive care plan allowance, pharmaceutical benefit manager compliance audit among others. The audit plan has been strategically developed to identify potential loss and facilitate corrective action, further protecting the State and offering additional stability to insured members. For the 2008-2009 Plan Year, the annual total expense calculated under for the plan was $757,347,735, and the total amount collected in premiums equaled $717,332,341, resulting in an expected net operational loss of $40,015,394. The net loss coupled with the 2008 Contribution Strategy placed 10% of the total premium on employees, while the State agencies absorbed the remaining 90%. This cost sharing method successfully made for a full, affordable bundle of insurance services for members. The analysis of expenses for Plan Year 2008-2009 showed that the average cost to insure each member this year was $5,178. However, when divided by the type of subscriber; the active members average cost was $5,096 compared to the average retiree cost of $8,150. This difference in average cost between active and retiree members is a common trend. There is a direct relationship between the age of an insured member and their cost for health care. As the age of the State’s insured members’ increases it is expected there will be a resultant increase in costs. Medical claims expenses alone accounted for $500,098,992 of the total cost the health plan during 2008-2009. When broken down by cost per diagnosis the notable leading diagnoses include; musculoskeletal system (muscles and joints), Neoplasms (cancers), and the circulatory system. More dollars were spent on musculoskeletal system medical expenses than on any other diagnosis with $64,462,760 or 12.89% of claims paid. The examination of the hospital care reveals that inpatient care represents a significant portion of the total medical expenses: 30% and 35% for active and retired members respectively. Other considerable statistics show the type of medical care visits members are utilizing. Per 1,000 members covered under the self-insured plan there were 251.4 emergency room, 4,270 physician, and 224.7 urgent care visits, which indicates members are seeking the care of a physician or specialist for the majority of their medical needs. Benefit Options Annual Report October 1, 2008 to September 30, 2009 2 Executive Summary (continued) The annual cost of prescription drug claims for 2008-2009 totaled $114,299,093 and a reported 1.5 million prescriptions were filled. The top five most expensive drugs classes could be described as maintenance drugs used to control and prevent chronic diseases. Cholesterol-lowering drugs were the leading drug topping the list with 12 million dollars or 10.76%. Others were anitdepressants, ulcer medications, antidiabetics, and blood pressure controlling prescriptions. In fact, the most prescribed drug according to total expense is Prevacid. Prevacid is typically prescribed for treating and preventing stomach and intestinal ulcers, and remains as the leading prescription since the 20072008 plan year. Retirees on the State health plan filled an average of 30.4 prescriptions per year, while actives fill only 10.6 per year. Similar to the medical cost per member, the pharmaceutical expense per utilizer increases as the population of members age increases. The analysis of data shows that the 40-64 year old members cost $1,840 compared to the cost of the 65+ members who cost $3,060 a year. As a result the smaller population of covered retirees attributes the majority of prescription health insurance expenses. In addition to managing the volume statistics and expenses on the Health Plan, the State negotiates performance measures with specific financial guarantees. These financial guarantees are tied to the contracted performance of the vendors providing services. If a vendor fails to meet any of the measures, a percentage of the annual administrative fee is withheld by ADOA as liquidated damages. Over the 2008-2009 Plan Year the total collected penalties was $94,068.48 compared to the prior year’s $123,602.28, which indicated the vendors’ performance improved during the 2008-2009 Plan Year. In review, the 2008-2009 Plan Year demonstrated a balance of expenses and premiums that allowed the State to offer members comprehensive and affordable insurance coverage. The State effectively controlled the rise in health care costs through quality benefit design, administrative oversight, strategic audit planning and efficient contracts management. Detailed evidence of the State’s Health Plan accomplishment can be reviewed herein. Benefit Options Annual Report October 1, 2008 to September 30, 2009 3 Health Insurance Trust Fund Summary Table 1 provides a summary of receipts, expenses, and enrollment. UMR, formerly FISERV Health or Harrington, is the claims payer for the non-integrated network of services. These include the Arizona Foundation, Beech Street, and RAN+AMN networks. UHC refers to the UnitedHealthcare network. Both the UMR and UHC programs are self-funded. Secure Horizons, Blue Cross Blue Shield (BCBS), and all dental programs are fully-insured. Table 1: Health Insurance Trust Fund Summary 2008-2009 Receipts (accrual basis) UMR, UHC Secure Horizons BCBS Dental Total Expenses Medical Claims (accrual basis) Drug Claims (accrual basis) Medicare Part D Subsidy Rebates & Recoveries Reserves for future benefits Secure Horizons expense BCBS Payments Administration Fees Stop-Loss Premiums Appropriated Expenses Dental Costs Total 2007-2008 627,294,082 8,434,781 34,272,496 47,330,983 717,332,341 622,865,513 8,536,011 33,707,464 49,186,542 714,295,530 500,098,992 114,299,093 (2,518,939) (16,688,279) 41,255,326 7,687,528 34,342,197 23,750,954 3,509,198 4,342,510 47,269,155 757,347,735 467,414,597 104,369,240 (2,483,125) (14,851,232) 38,559,679 7,719,357 33,713,166 24,455,648 3,578,650 4,830,477 48,878,502 716,184,958 In general, state and university employees and retirees choose from one of the selfDifference (40,015,394) (1,889,429) funded networks. However, Secure Enrollment Subscribers 65,557 66,993 Horizons is the only Members 134,918 133,099 fully-insured option available to Medicare-eligible retirees and Blue Cross Blue Shield is the only fullyinsured option available to NAU employees and NAU retirees. The Medicare Part D Subsidy is paid to employers who provide pharmacy insurance to Medicare-eligible retirees. Rebates & Recoveries consist of rebates paid by drug manufacturers and stop-loss payments. Reserve (IBNR) is the amount of money that must be “reserved” for the purpose of paying claims that have been incurred but have not been reported. Stop-loss is a “catastrophic claim” reinsurance program that covers individual medical/drug plan expenses over $500,000 with a lifetime maximum of $2 million. Benefit Options Annual Report October 1, 2008 to September 30, 2009 4 Enrollment in Benefit Options Medical Plans The Benefit Options group medical plan is available to all: • eligible state and university employees, officers, and elected officials • state retirees receiving pension benefits through any of the state retirement systems • state or university employees accepted for long-term disability benefits • employees of participating political subdivisions • state or university employees eligible for COBRA benefits The table below shows how enrollment was distributed between networks and between active, retired, and university members. Table 2: Average Monthly Enrollment 2008-2009 2007-2008 Network Plan Type Subscribers Members Subscribers Members AFMC Active PPO 494 945 522 990 Retiree PPO 453 599 584 788 University PPO 444 849 469 874 Beech Street Active PPO 127 386 130 380 Retiree PPO 235 280 259 310 University PPO 114 222 105 203 RAN+AMN Active EPO 8,888 21,755 7,469 17,943 Retiree EPO 1,386 1,808 876 1,144 University EPO 2,927 5,775 1,968 3,664 Schaller Anderson * Active EPO 8,282 18,328 Retiree EPO 1,350 1,731 University EPO 3,650 7,363 UnitedHealthcare Active EPO 25,726 58,660 20,248 45,739 Retiree EPO 4,531 5,982 3,561 4,830 University EPO 13,051 27,894 10,527 22,465 Active PPO 920 1,699 854 1,590 Retiree PPO 193 253 191 250 University PPO 984 1,909 830 1,530 Blue Cross Blue Shield NAU only PPO 2,859 3,016 2,854 NA SecureHorizons Medicare only HMO 2,225 2,886 2,225 2,892 Political Subdivisions EPO/ PPO 39 85 Total 65,557 134,918 66,993 133,099 * Note: Schaller Anderson was no longer a Medical Network offering during the 2008-2009 Plan Year beginning 10/1/2008. Network availability varies by region. The following pages show the networks available in each county. Benefit Options Annual Report October 1, 2008 to September 30, 2009 5 Networks for Active Employees and Non-Medicare-Eligible Retirees Coconino Apache Mohave Navajo Yavapai La Paz Gila Maricopa Greenlee Pinal Yuma Graham Pima Cochise Santa Cruz RAN+AMN EPO, United EPO/PPO, AZ Foundation PPO RAN+AMN EPO, AZ Foundation PPO Out of State: Beech Street PPO NAU employees/retirees: Blue Cross Blue Shield PPO Benefit Options Annual Report October 1, 2008 to September 30, 2009 6 Networks for Medicare-Eligible Retirees Coconino Apache Mohave Navajo Yavapai La Paz Gila Maricopa Greenlee Pinal Yuma Graham Pima Cochise Santa Cruz RAN+AMN EPO, United EPO/PPO, AZ Foundation PPO, Secure Horizons High/Low option RAN+AMN EPO, AZ Foundation PPO, Secure Horizons High/Low Option AZ Foundation PPO Benefit Options Annual Report October 1, 2008 to September 30, 2009 Out of State: Beech Street PPO NAU retirees: Blue Cross Blue Shield PPO 7 Expenses vs. Premiums for Active and Retired Members The figure below shows how the average monthly premiums compared to the average monthly cost for active and retired members. Figure 1: Average Monthly Premiums and Expenses per Member $700.00 $600.00 $500.00 $400.00 $300.00 $200.00 $100.00 Ex pe ns e R et ire e Pr em iu m se Ex pe n R et ire e Ac tiv e Pr em iu m Ac tiv e Ex pe ns e R et ire e Pr em iu m se R et ire e Ex pe n Ac tiv e Ac tiv e Pr em iu m $- Subscriber Paid State Paid Drugs Medical Administrative 2008-2009 2007-2008 ADOA developed a contribution strategy that provided affordable health insurance to all state and university employees. The EPO plan was offered to employees for single coverage, employee plus one, and family coverage at the cost of $30, $60, and $150. PPO monthly premiums were determined from actual experience and the true cost of the coverage. The 2008-2009 contribution strategy allowed employees to pay only 10% of the total premium, while the State absorbed the remaining 90%. Pursuant to A.R.S. §38.651.01(B.), retiree and active medical expenses shall be grouped together to “obtain health and accident coverage at favorable rates.” This requirement results in retiree premium rates lower than what their experience would otherwise dictate. Benefit Options Annual Report October 1, 2008 to September 30, 2009 8 Expenses for Benefit Options Self-Funded Plans The tables below show the distribution of the self-funded expenses. Table 3 shows the expenses distributed between active/retiree and EPO/PPO members. The average annual cost to insure each type of subscriber/member is also provided. Table 3: Self-funded expenses by active, retiree, EPO, and PPO subscribers and members Expenses Overall Active Retiree EPO Medical Claims (accrual basis) 500,098,992 456,578,108 43,520,884 462,213,646 Drug Claims (accrual basis) 114,299,093 89,537,556 24,761,538 101,958,881 Medicare Part D Subsidy (2,518,939) (2,518,939) (2,091,314) Rebates & Recoveries (16,688,279) (14,812,286) (1,875,993) (15,594,364) Reserve (IBNR) 41,255,326 37,665,100 3,590,226 38,130,000 Administration Fees 23,750,954 21,081,019 2,669,935 22,194,081 Stop-Loss Premiums 3,509,198 3,114,716 394,482 3,279,171 Appropriated Expenses 4,342,510 4,042,207 300,303 4,102,120 Total $ Enrollment in self-funded plans Subscribers Members Annual cost Per Subscriber $ Per Member $ PPO 37,885,345 12,340,213 (427,626) (1,093,915) 3,125,326 1,556,873 230,028 240,390 668,048,856 597,206,420 70,842,436 614,192,221 53,856,634 60,473 129,016 53,675 120,094 6,798 8,922 56,509 121,874 3,964 7,142 11,047 5,178 11,126 4,973 10,421 7,940 10,869 5,040 13,586 7,541 Table 4 below shows the distribution of expenses by benefit plan. Table 4: Self-funded Expenses by Active, Retiree, EPO, and PPO Subscribers and Members Expenses (in dollars) Overall Active/ EPO Active/ PPO Retiree/ EPO Retiree/ PPO Medical Claims (accrual basis) 500,098,992 423,775,128 32,802,980 38,438,518 5,082,366 Drug Claims (accrual basis) 114,299,093 81,400,965 8,136,591 20,557,916 4,203,622 Medicare Part D Subsidy (2,518,939) (2,091,314) (427,626) Rebates & Recoveries (16,688,279) (13,961,494) (850,792) (1,632,870) (243,123) Reserve (IBNR) 41,255,326 34,959,041 2,706,059 3,170,959 419,266 Administration Fees 23,750,954 19,870,161 1,210,858 2,323,920 346,015 Stop-Loss Premiums 3,509,198 2,935,812 178,904 343,359 51,124 Appropriated Expenses 4,342,510 3,839,918 202,289 262,201 38,102 Total $ Enrollment in self-funded plans Subscribers Members Annual cost Per Subscriber $ Per Member $ 668,048,856 552,819,532 44,386,888 61,372,689 9,469,746 60,473 129,016 50,592 114,084 3,083 6,010 5,917 7,790 881 1,132 11,047 5,178 10,927 4,846 14,397 7,386 10,372 7,878 10,749 8,366 Benefit Options Annual Report October 1, 2008 to September 30, 2009 9 Medical Expenses Associated with Medical Diagnoses The table below shows how medical expenses were distributed among different diagnoses. More dollars are spent on treating conditions related to the musculoskeletal system than on any other type of disorder. Table 5: Medical expenses by diagnosis –actives & retirees 2008-2009 2007-2008 All Actives Retirees All Actives Retirees Diagnosis % of Total % of Total % of Total % of Total % of Total % of Total Musculoskeletal System 12.90% 12.70% 12.89% 13.20% 12.89% 13.17% 1 10.29% 8.63% 10.15% 10.69% 8.25% 10.46% Ill-defined Health Status (lab tests, etc.) 9.45% 7.39% 9.27% 9.78% 7.21% 9.53% Neoplasm (tumors) 8.58% 14.35% 9.08% 8.65% 14.39% 9.20% Circulatory System 8.58% 6.20% 8.38% 8.22% 13.76% 8.75% Injury/Poisoning 7.86% 12.17% 8.23% 8.75% 7.87% 8.66% Genitourinary System 7.86% 8.80% 7.94% 7.09% 7.21% 7.11% Digestive System 7.60% 7.40% 7.59% 6.86% 6.66% 6.84% Nervous System 5.16% 6.16% 5.24% 5.20% 6.50% 5.33% Respiratory System 5.16% 5.14% 5.16% 5.18% 4.40% 5.11% Pregnancy/Childbirth 4.27% 0.02% 3.91% 4.33% 0.03% 3.91% Endocrine System 3.58% 3.94% 3.61% 3.36% 2.98% 3.33% Mental Health 2.50% 1.36% 2.40% 2.26% 1.54% 2.19% Infectious/Parasitic 1.89% 1.44% 1.85% 1.65% 3.51% 1.83% Skin and Subcutaneous Tissue 1.53% 2.20% 1.59% 1.68% 1.65% 1.68% Congenital Anomalies 1.23% 0.65% 1.18% 1.31% 0.08% 1.19% Conditions in the Perinatal Period 0.85% 1.45% 0.91% 1.04% 0.00% 0.94% Blood and Blood Forming Organs 0.70% 0.00% 0.64% 0.74% 1.08% 0.77% Injury/Poisoning 0.01% 0.00% 0.01% 0.00% 0.00% 0.00% Grand Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Note: Some statistics may vary slightly from previous annual reports due to the late receipt of program data following the completion of the previous annual report. In no case does the variation represent a substantive change in trend or comparative values. 1 The ill-defined category is a technical term including symptoms, laboratory results and disorders which cannot be categorized elsewhere. Examples of ill-defined diagnoses are: adult convulsions not related to epilepsy, laboratory analysis of blood with findings not related to cellular abnormality, and senility associated with old age. Benefit Options Annual Report October 1, 2008 to September 30, 2009 10 Hospital Care Inpatient hospital care represents a significant portion of total medical expenses: 35% and 30% for active and retired members, respectively. The figures below show how active/retired members and EPO/PPO members’ hospital admissions compared based on the number of admissions and the average length of stay. Figure 2: Admissions per 1,000 Members 160.0 Retiree 155.4 Retiree 149.9 140.0 Admissions 120.0 100.0 PPO 94.0 80.0 60.0 Active 72.9 EPO 75.2 EPO 73.3 Active 69.4 PPO 81.6 40.0 20.0 0.0 2008-2009 2007-2008 Figure 3: Average Length of Stay 7.0 6.0 Days 5.0 4.0 Retiree 5.7 EPO 5.1 Active 4.5 PPO 6.1 PPO 6.2 Retiree 5.8 Active 4.5 EPO 4.5 3.0 2.0 1.0 0.0 2008-2009 2007-2008 Note: Mental health, substance abuse, and maternity admissions are included. Benefit Options Annual Report October 1, 2008 to September 30, 2009 11 Hospital Care (continued) The figures below show how active/retired members and EPO/PPO members compared with regards to their collective number of hospital days and average cost per admission. As a group, retirees spent 3 times as many days in the hospital as active members. Also, PPO members spent 2.6 times as many days in the hospital as EPO members. On average, PPO members cost per admission was $4,246 higher than EPO members. Figure 4: Days per 1,000 Members 1000.0 900.0 Retiree 902.2 Retiree 859.9 800.0 700.0 Days 600.0 PPO 524.6 500.0 400.0 300.0 200.0 PPO 509.5 EPO 340.8 Active 327.5 EPO 328.9 Active 309.6 100.0 0.0 2008-2009 2007-2008 Figure 5: Average Cost per Admission $20,000 $18,000 $2,000 EPO $13,805 PPO $18,428 $4,000 Retiree $15,452 $6,000 Active $13,833 $8,000 PPO $19,253 $10,000 EPO $15,007 $12,000 Active $15,120 $14,000 Retiree $17,141 $16,000 $2008-2009 2007-2008 Note: Mental health, substance abuse, and maternity admissions are included. Benefit Options Annual Report October 1, 2008 to September 30, 2009 12 Emergency Room Visits During Plan Year 2008-2009, there were approximately 251.4 emergency room visits per 1,000 members of the self-funded plan. The average plan cost per emergency room visit was $738.92. These figures include facility claims and professional fees. Physician Visits During Plan Year 2008-2009, each member of the self-funded plan visited a physician approximately 4.3 times or 4,270 visits per 1,000 members. The average plan cost per office visit cost was $83.87. Urgent Care Visits During Plan Year 2008-2009, there were approximately 224.7 urgent care visits per 1,000 members of the self-funded plan. The average plan cost per urgent care visit was $108.47. Figures 6 and 7 below show how total active and retiree medical expenses were distributed by type of care. 3% of medical expenses for active employees were spent for emergency room care while 5% of medical expenses for retired members were spent for home care. Figure 6: Active Employee Medical Expense by Place of Service Other, 3% Home Health, 3% Independent Laboratory, 3% Emergency Room, 3% Ambulatory Surgical Center, 5% Inpatient Hospital, 35% Outpatient Hospital, 24% Office, 25% Benefit Options Annual Report October 1, 2008 to September 30, 2009 13 Figure 7: Retiree Medical Expenses by Place of Service Other 3% Independent Laboratory 2% Home Health 5% Emergency Room 2% Inpatient Hospital 30% Ambulatory Surgical Center 5% Outpatient Hospital 25% Office 28% Benefit Options Annual Report October 1, 2008 to September 30, 2009 14 Generic and Name-Brand Prescription Use The table below shows how total pharmacy expenses were distributed among generic, preferred, and non-preferred types of drugs. Table 6: Claim distribution for 3-tier formulary 2008-2009 2007-2008 Total Prescriptions Percent Total Prescriptions Percent Tier 1 Generic ($10 copay) 974,094 63.5% 996,785 64.0% Tier 2-Preferred ($20 copay) 476,648 31.1% 443,881 28.5% Tier 3-Non-Preferred ($40 copay 83,455 5.4% 116,811 7.5% Total 1,534,197 100.0% 1,557,477 100.0% Prescription Use by Therapeutic Class The table below shows the ten most utilized classes of drugs according to total expense. More dollars were spent on antihyperlipidemics (cholesterol-lowering drugs), than on any other therapeutic class. Table 7: Top therapeutic classes by total expense 2008-2009 Therapeutic class Total Cost Percent Antihyperlipidemics Antidepressants Ulcer medications Antidiabetics Antihypertensives Antiasthmatic/bronchodilator agents Analgesics – opioids Analgesics – anti-inflammatory Anticonvulsants Antivirals Total Benefit Options Annual Report October 1, 2008 to September 30, 2009 12,303,047 9,158,047 9,023,718 8,709,123 8,063,741 7,053,179 6,081,523 5,605,012 5,074,361 4,882,905 $75,954,656 15 10.76% 8.01% 7.89% 7.62% 7.05% 6.17% 5.32% 4.90% 4.44% 4.27% 66.45% 2007-2008 Total Cost Percent 11,419,509 8,907,603 8,624,570 7,821,290 7,807,175 7,627,217 6,406,891 5,458,343 5,223,988 4,429,641 $73,726,227 10.94% 8.53% 8.26% 7.49% 7.48% 7.31% 6.14% 5.23% 5.01% 4.24% 70.64% Prescription Use by Type of Drug The table below shows the ten most utilized drugs according to total expense. Prevacid remains as the leading prescription since last Plan Year 2007-2008. Table 8: Top ten drugs by total expense 2008-2009 Drug Name Total Gross Cost Percent Prevacid Lipitor Enbrel Oxycontin Crestor Effexor XR Advair diskus Singulair Humira Plavix Total 4,561,623 4,272,540 2,547,216 2,363,851 2,311,852 2,212,614 2,160,881 2,102,215 2,036,027 1,832,702 $26,401,521 Benefit Options Annual Report October 1, 2008 to September 30, 2009 3.99% 3.74% 2.23% 2.07% 2.02% 1.94% 1.89% 1.84% 1.78% 1.60% 23.10% Drug Name Prevacid Lipitor Enbrel Advair diskus Effexor XR Singulair Crestor Lexapro Actos Vytorin 16 2007-2008 Total Gross Cost Percent 4,206,817 4,103,694 2,413,952 2,339,819 2,302,871 1,999,700 1,680,772 1,645,187 1,617,819 1,595,744 $23,906,375 4.03% 3.93% 2.31% 2.24% 2.21% 1.92% 1.61% 1.58% 1.55% 1.53% 22.91% Annual Prescription Use The figure below compares the average number of prescriptions filled last plan year by active and retired members. Figure 8: Average Number of Prescriptions per Member per Year 35.0 30.0 25.0 Retiree 30.6 Retiree 30.4 20.0 15.0 10.0 Active 10.5 Active 10.2 5.0 2008-2009 Benefit Options Annual Report October 1, 2008 to September 30, 2009 2007-2008 17 Annual Pharmacy Expenses by Age The figure below shows how pharmacy expenses increase with age among plan members. Figure 9: Pharmacy Expense per Utilizer per Year (in dollars) 3500 3000 3,060 2,921 2500 2000 1,840 1,723 1500 0-18 yrs 19-39 yrs 40-64 yrs 65+ yrs 1000 767 500 421 720 380 0 2008-2009 2007-2008 Note: Some statistics may vary slightly from previous annual reports due to the late receipt of program data following the completion of the previous annual report. In no case does the variation represent a substantive change in trend or comparative values. Benefit Options Annual Report October 1, 2008 to September 30, 2009 18 Benefit Options Dental Plans Prepaid Plan – Total Dental Administrators (TDA) • • • See a Participating Dental Provider (PDP) to provide and coordinate all dental care. No annual deductible or maximums ($200.00 maximum reimbursement for noncontracted emergency services) under Total Dental Administrators. No claim forms (except for emergency services). Indemnity/PPO Plan – Delta Dental • • • • • May see any dentist. Deductible and/or out-of-pocket payments apply. A maximum benefit of $2,000 per person per plan year for dental services. $1,500 per person lifetime for orthodontia. May need to submit a claim form for eligible expenses to be paid. Benefits may be based on reasonable and customary charges. The following figures show how active employee and retiree dental enrollments were distributed among plans. Figure 10: Active Employee Dental Enrollment Total Dental 18% Delta Dental 82% Benefit Options Annual Report October 1, 2008 to September 30, 2009 19 Figure 11: Retiree Dental Enrollment Employers Dental Group 5% Total Dental 14% MetLife Dental 6% Assurant Dental 9% Delta Dental 66% Note: Between 10/1/2008 through 12/31/2009 retirees were enrolled in the Employers Dental Group, MetLife, and Assurant plans. Effective 1/1/2009 retirees were offered Delta Dental and Total Dental Administrators. Employers Dental Group, MelLife, and Assurant were not longer available. Dental Rates The table below summarizes monthly dental rates for active and retired members. Table 9: Summary of Monthly Dental Rates Active Employees Delta Dental Total Dental Admin. Single Coverage Employee +One Coverage Family Coverage Employee State Total Employee State Total Employee State Total $16.00 $17.00 $33.00 $37.00 $37.00 $74.00 $63.00 $62.00 $125.00 $5.00 $5.00 $10.00 $9.00 $10.00 $19.00 $14.00 $14.00 $28.00 1 Retirees Delta Dental Total Dental Admin. 1 Single Coverage $32.98 $9.96 Employee +One Coverage $74.01 $18.92 Effective January 1, 2009 Benefit Options Annual Report October 1, 2008 to September 30, 2009 20 Family Coverage $125.29 $27.70 Life, Disability, Vision Insurance and Flexible Spending Accounts Premiums The table below shows the amount of premiums collected and paid for life insurance, disability insurance, vision insurance and flexible spending accounts (FSA). Table 10: Summary of Earned Premiums 2008-2009 Vendor Collected Standard Basic Life Supp Life Dep Life STD LTD Total $ $ $ $ $ $ 2,533,453.45 10,796,632.49 1,652,663.50 10,073,067.22 4,472,699.29 29,528,515.95 2007-2008 Collected Paid $29,533,536 $ $ $ $ $ $ 2,601,678.82 10,198,943.64 1,614,298.64 10,114,115.83 4,455,294.13 28,984,331.06 Paid $28,787,110 Avesis - Vision $5,676,977 $5,561,668 ASI - FSA $5,687,416 $5,328,689 $40,897,929 $39,677,467 Total Benefit Options Annual Report October 1, 2008 to September 30, 2009 21 Health Insurance Vendor Performance Standards Pursuant to A.R.S. § 38-658(B), the Arizona Department of Administration (ADOA) shall “...report to the Joint Legislative Budget Committee at least semiannually on the performance standards for health plans, including indemnity health insurance, hospital and medical service plans, dental plans and health maintenance organizations.” Among the terms of the self-funded health insurance contracts are a number of ADOAnegotiated performance measures with specific financial guarantees tied to the contracted performance of the vendors providing various services for the health plans. If a vendor fails to meet any of the measures within the specified performance range, a percentage of the annual administrative fee is withheld by ADOA as liquidated damages. This percentage is allocated among the more critical measures of the contract. Over the 2008-2009 Plan Year the total collected penalties was $94,068.48 compared to the prior year’s $123,602.28, which indicated the vendors’ performance improved during the 2008-2009 Plan Year. The following is a report of the penalties incurred by health plan vendors for their nonperformance during the Plan Year ending September 30, 2009. The details of each assessment are set forth in the exhibit specified by the same letter that identifies the vendor below. In each case below, the final member satisfaction survey and the Benefit Services Division Vendor Survey for FY 2008-2009, may result in additional penalties. A. UnitedHealthcare (Claims Administrator) – penalties to date of $85,791.75, equaling 1.45% of the vendor’s annual administrative fee. MEASURE Time to Pay - Percent of claims paid in 10 business days Annual Percent of Fees at Risk • 3% • Admission Counseling: Outreach Contact When notified 5 business days prior to an admission the care counselor will make no fewer than 3 attempts to reach 95% of participants by telephone prior to inpatient admit • .25% Benefit Options Annual Report October 1, 2008 to September 30, 2009 • 22 Total Percent Assessed Vendor (BASED ON MISSED MEASURE) 1.20%*: WHICH EQUALS 1 QUARTERS MISSED OUT OF 4 QUARTERS MEASURED Corrective Action: UHC implemented quality controls subsequently; UHC met the measure for the rest of the year. *Penalty calculated on gradient scale. .25% WHICH EQUALS 2 QUARTERS MISSED OUT OF 4 QUARTERS MEASURED Corrective Action: UHC provided reinforcement training to their processing staff. Health Insurance Vendor Performance Standards (continued) B. UMR (Claims Administrator) – penalties to date of $1715.63, equaling 0.08% of the vendor’s annual administrative fee MEASURE Written appeals resolved within 45 calendar days after receipt of participant's request for review in the case of Post-Service claims. Annual Percent of Fees at Risk • 0.33% • Total Percent Assessed Vendor (BASED ON MISSED MEASURE) 0.08%: WHICH EQUALS 3 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: UMR provided reinforcement training to their processing staff. C. ASI Flex – penalties to date of $661.32, equaling .50% of the vendor’s annual administrative fee MEASURE 100% of claims will be processed within five working days Annual Percent of Fees at Risk • 1% • 98% of dollars will be paid accurately • 1% • Total Percent Assessed Vendor (BASED ON MISSED MEASURE) 0.25%: WHICH EQUALS 1 QUARTERS MISSED OUT OF 4 QUARTERS MEASURED Corrective Action: ASI is implementing a new standard for claim processing and has created a tangible system of repercussions whereby claim processors that make egregious mistakes are subject to corrective action. 0.25%: WHICH EQUALS 1 QUARTERS MISSED OUT OF 4 QUARTERS MEASURED Corrective Action: The Customer Service Manager initiated retraining on claims processing accuracy. D. Walgreens Health Initiative (Pharmacy Management) - penalties to date of $5000.00, equaling 0.83% of the vendor’s total amount at risk $600,000.00. MEASURE Percent of transactions within three (3) seconds Annual Percent of Fees at Risk (Max $600K) Total Percent Assessed Vendor (BASED ON MISSED MEASURE) • 2% • Benefit Options Annual Report October 1, 2008 to September 30, 2009 23 0.83%: WHICH EQUALS 2 QUARTERS MISSED OUT OF 4 QUARTERS MEASURED Corrective Action: The measure was updated effective 02/01/09 to report as client specific as a result the measure was subsequently met for the last two quarters. E. Delta Dental - penalties to date of $899.78, equaling 0.002% of the vendor’s annual administrative fee MEASURE Annual Percent of Fees at Risk 90% of all calls requesting a member services representative will be answered in 30 seconds or less • .31% Total Percent Assessed Vendor (BASED ON MISSED MEASURE) 0.002%: WHICH EQUALS 1 MONTH MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Implemented system updates to stabilize phone system performance. G. Successfully Met Performance Guarantees Table 11: Successful Performance Guarantees Vendor At risk UMR 15.67% UnitedHealthcare Strategic Health Development Corporation $3,587,670.00 Total Admin Fee 7.8% Case Mgmt Fee 7.5% Disease Mgmt Fee 5% Nurseline Fee 5% Walgreens Health Initiatives $600,000.00 ASI Flex 5% Arizona Foundation RAN+AMN Guarantees Met Appeals (met 11 out of 12 measures), Call Center, Eligibility Administration, Claims Statistics Appeals, Telephone Service, Claims Statistics (met 3 out of 4 measures), Eligibility Administration, Network Management, Care Coordination Guarantees (met 8 out of 9 measures) Utilization Management, Case Management, Disease Management, Reporting, Systems, Nurse & Other Call Center Activity Data & Eligibility Requirements, Claims, Customer Services, Account Services, Reports, Network Access, Network Pharmacy Management, Mail Order Service, Retail Paper Claims Processing Time, Network Pharmacy POS Compliance (met 14 out of 16 measures) Claims Turnaround (3/4 of measure), Claims Adjudication Financial Accuracy (3/4 of measure), Web Availability, Phone Response Time 1% Program Management 1% Program Management Telephone Service , Processing Timeline (3/4 of measure), Check Issuance Timeline, Processing Accuracy, Financial Accuracy, Appeals Timeline, Reports Telephone Service (3/4 of measure), Processing Timeline, Processing Accuracy, Financial Accuracy, Reports The Standard Short Term Disability 5% The Standard Life 5% The Standard Long Term Disability 5% Delta Dental 5% TDA 3% Benefit Options Annual Report October 1, 2008 to September 30, 2009 Telephone Service, Processing Timeline, Processing Accuracy, Financial Accuracy, Reports Reporting, Network Management, Appeals, Claims Administration (met 35 out of 36 measures) Quality of Service and Responsiveness to Members Reporting, Network Management, Appeals, Claims Administration, Quality of Services, Claims Administration, Quality of Service and Responsiveness to Members 24 Glossary of Terms Active member – an employee, other than one excluded by the Arizona Administrative Code, who works for the State of Arizona or a State University and is enrolled in one of the health plan options offered by the State. Also referred to as “Actives.” Administrative fees – fees paid to third-party vendors for plan administration, network rental, transplant network access fees, shared savings for negotiated discounted rates with other providers, COBRA administration, direct pay billing, additional reporting billing, state fees (MA and NY), and bank reconciliation fees. Case management – a collaborative process that facilitates recommended treatment plans to ensure that appropriate medical care is provided to disabled, ill or injured individuals. Claim – a provider’s demand upon the payer for payment for medical services or products. Claim appeal – a request for a review of the denial of coverage for a specific medical procedure contemplated or performed. COBRA Consolidated Omnibus Budget Reconciliation Act of 1985 – a federal law that requires an employer to allow eligible employees, retirees, and their dependents to continue their health coverage after they have terminated their employment or are no longer eligible for the health plan - COBRA enrollees must pay the total contribution, in addition to an administrative fee of 2%. Contribution strategy – a premium structure that includes both the employer’s financial contribution and the employee’s financial contribution towards the total plan cost. Copayment – a form of medical cost sharing in the health plan that requires the member to pay a fixed dollar amount for a medical service or prescription. Deductible – a fixed dollar amount during the plan year that a member pays before the health plan starts to make payments for covered medical services. Dependent – an unmarried child of the employee or spouse who meets the conditions established by the relevant plan description. Disease management – a comprehensive, ongoing, and coordinated approach to achieving desired outcomes for a population of patients - These outcomes include improving members’ clinical condition and quality of life as well as reducing unnecessary healthcare costs. These objectives require rigorous, protocol-based, clinical management in conjunction with intensive patient education, coaching, and monitoring. Benefit Options Annual Report October 1, 2008 to September 30, 2009 25 Eligibility appeal – a request for a review of the denial of coverage relating to a claimant’s entitlement to benefits under a plan. Employee – a person, other than one excluded by the Arizona Administrative Code, who works for the State of Arizona or a State University. Exclusive Provider Organization (EPO) – an exclusive provider organization or network - Enrollees are limited to use only those providers on the exclusive list. Any exceptions require prior authorization. Flexible spending account (FSA) – an account that can be set up through the State’s Benefit Options program – An FSA allows an employee to set aside a portion of his/her earnings to pay for qualified medical and dependent care expenses. Money deducted from an employee's pay into an FSA is not subject to payroll taxes. Formulary – a list of preferred medications covered by the health plan - The list contains generic and name brand drugs. The most cost-effective name brand drugs are placed in the “preferred” category and all other name brand drugs are placed in the “non-preferred” category. Fully-Insured – an insurance model wherein Benefit Options collects premiums and transfers the premiums to commercial insurers who take the risk of revenue to expense. Integrated – health plan operations that are provided by one entity - These operations include: claims processing and payment, a network of medical providers, utilization management, case management and disease management services. Medicare – the federal health insurance program provided to those who are age 65 and older or those with disabilities who are eligible for Social Security benefits - Medicare has four parts: Part A, which covers hospitalization; Part B, which covers physicians and medical providers; Part C, which expands the availability of managed care arrangements for Medicare recipients; and, Part D, which provides a prescription drug benefit. Retirees signing up for ADOA insurance should enroll in Parts A and B, but not C or D. Member – a health plan participant - This individual can be an employee, retiree, spouse or dependent. Network – an organization that contracts with providers (hospitals, physicians, and other health care professionals) to provide health care services - Contract terms include agreed upon fee arrangements for services and performance standards. Non-integrated – health plan operations that are provided by multiple entities - These operations include claims processing and payments, a network of medical providers, and disease management services. Payer – the entity responsible for paying a claim. Benefit Options Annual Report October 1, 2008 to September 30, 2009 26 Pharmacy benefit manager – an organization that provides a pharmacy network, processes and pays for all pharmacy claims, and negotiates discounts on medicines directly from the pharmaceutical manufacturers - These discounts are passed to the employer payer in the form of rebates and reduced costs in the formulary. Plan year – the period October 1 through September 30 for employees; January 1 through December 31 for retirees. Preferred Provider Organization (PPO) – an organization that offers a broad selection of providers and the ability to choose a non-PPO provider as well - This non-PPO provider requires greater copay from the enrollee and a deductible to be paid. Premium – agreed upon fees paid for medical insurance coverage - Premiums are paid by both the employer and the health plan member. Retiree – a former State or State University employee, officer or elected official who is retired under a state-sponsored retirement plan - For analytical purposes, this term encompasses both actual retirees and their dependents. Self-funded – insurance program wherein Benefit Options collects premiums, pays claims, and assumes the risk of revenues to expenses. Self-insured – a plan that is funded by the employer who is financially responsible for all medical claims and administrative expenses. Spouse – one legally married—as defined by the Arizona Revised Statutes—to an employee or a retiree. Stop-loss – a form of insurance for self-insured employers that limits the amount the employer as primary insurer will pay for medical expenses. Subscriber – employee, officer, elected official or retiree who is eligible and enrolls in the health plan. Third party administrator – an organization that handles all administrative functions of a health plan, including: processing and paying medical claims, compiling and producing management reports, and providing customer service. Utilization management – a process whereby an insurer evaluates the quantity (duration) and quality (level) of the delivery of medical services. Utilization review – a process whereby an insurer evaluates the appropriateness, necessity, and cost of services provided. Utilizer – a member who receives a specific service. Benefit Options Annual Report October 1, 2008 to September 30, 2009 27 Appendix A Table A: 3015 FUND PLAN YEAR 10/1/2008 - 9/30/2009 BEGINNING CASH PER AFIS $ 115,737,519.48 REVENUE $ 692,617,307.43 $ 749,812,060.81 $ 58,542,766.10 EXPENDITURES VENDOR AZ FOUNDATION BEECH STREET HMA SCHALLER NETWORK SCHALLER UR/UM STRATEGIC URUM HARRINGTON UHC WHI ATTORNEY GENERAL NET ADMIN FEES ADMIN FEES PERF PENALTIES 71,559.60 17,668.62 389,343.94 $ 16,638.19 60,362.64 $ 56,811.82 1,731,032.45 $ 12,936.11 3,063,935.75 $ 74,943.32 17,652,290.78 962,495.33 $ 40,750.00 4,507.11 23,953,196.22 $ 202,079.44 $ $ $ $ $ $ $ $ $ $ $ MEDICAL CLAIMS 197,514,724.33 $ 333,317,458.32 $ 2,254.52 115,936,887.19 $ $ $ 709,415.40 $ 647,480,739.76 $ HARRINGTON UHC PACIFICARE WHI RDS SUBSIDY OTHER WELLNESS NET MEDICAL CLAIMS $ $ $ $ SYMETRA $ RECOVERIES 2,253,920.82 115,028.93 8,358,506.30 2,518,939.33 13,246,395.38 $ 634,234,344.38 CLAIM REIMB 5,744,072.39 $ (2,234,873.99) $ 655,750,587.17 $ 42,029,724.59 DENTAL PREM PERF PENALTIES $44,036,101.06 $838,702.13 $190,049.89 $ 14,671.07 $182,079.75 $2,036,893.26 47,283,826.09 $ 14,671.07 $ 47,269,155.02 STOP LOSS PREM 3,509,198.40 $ SELF INSURED EXPENDITURES BCBS PACIFICARE TOTAL FS INS PREMS $ $ $ 23,751,116.78 FULL SVC PREM 34,342,196.56 7,687,528.03 42,029,724.59 $ DELTA METLIFE FORTIS EDS TDA NET DENTAL PREM $ HITF APPROP EXP $ 4,762,594.03 TOTAL EXPENDITURES TOTAL RECOVERIES* NET EXPENDITURES $ 769,019,279.09 $ ENDING CASH BALANCE PER AFIS - $ 4,762,594.03 $ 749,812,060.81 19,207,218.28 The HITF Fund-3015 established under A.R.S. 38-654-A is used to pay medical claims, dental premiums, and administrative and operating costs of the Wellness Program and the Benefits Services Division. Benefit Options Annual Report October 1, 2008 to September 30, 2009 28 Appendix A Table B: 3035 FUND PLAN YEAR 10/1/2008 - 9/30/2009 BEGINNING CASH PER AFIS $ 4,028,940.95 REVENUE $ 41,002,530.08 VENDOR INSURANCE STANDARD BASIC LIFE SUPP LIFE DEP LIFE STD LTD TOTAL STANDARD $ $ $ $ $ $ AVESIS $ 5,702,630.22 VISION AMOUNT 2,533,453.45 10,796,632.49 1,652,663.50 10,073,067.22 4,472,699.29 29,528,515.95 ASI AMRA $ 4,309,639.15 DCRA $ 1,461,744.76 TOTAL FLEX SPENDING $ 5,771,383.91 PAYROLL CLEARING $ (0.00) $ 41,002,530.08 TOTAL REVENUE EXPENDITURES $ 40,897,928.92 VENDOR INSURANCE STANDARD BASIC LIFE $ SUPP LIFE $ DEP LIFE $ STD $ LTD $ $ TOTAL STANDARD AVESIS VISION ASI AMRA DCRA ADMIN FEES TOTAL FLEX SPENDING AMOUNT 2,538,716.74 10,772,512.88 1,652,507.23 10,092,134.73 4,477,664.11 29,533,535.69 $ 5,676,977.43 $ 4,137,460.67 $ 1,417,363.23 $ 132,591.90 $ 5,687,415.80 GAO AFIS COST TOTAL EXPENDITURES $ 40,897,928.92 ENDING CASH BALANCE PER AFIS $ 4,133,542.11 Fund 3035 is established under A.R.S. 38-651.05. to pay premiums for other insurance products offered to State employees including Vision, Flexible Spending, Supplemental and Dependent Life, Short Term Disability, Non-ASRS Long Term Disability, and Basic Life insurance. Benefit Options Annual Report October 1, 2008 to September 30, 2009 29 Benefit Options Department of Administration 100 N. 15th Avenue Suite 103 Phoenix, Arizona 85007 Telephone: 602-542-5008 Fax: 602-542-4048 Benefit Options Annual Report October 1, 2008 to September 30, 2009 30