State of Arizona Arizona Department of Administration Benefit Services Division Annual Report Benefit Options October 1, 2009 through September 30, 2010 Janice K. Brewer Governor Scott A. Smith Director Arizona Department of Administration FOREWORD Benefit Options is the program name for the various benefits offered to State of Arizona employees and retirees. This report was prepared to give a broad overview of Benefit Options. The information provided in the report was gathered from contracted vendors 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, 2009 through September 30, 2010. The active and retiree plans were concurrent for this period. Any questions relating to the contents of this report should be addressed to: Benefit Options Arizona Department of Administration, Benefit Services Division 100 N. 15th Avenue, Suite 103 Phoenix, Arizona 85007 Telephone: 602-542-5008 Fax: 602-542-4744 Contents Report Background 1 Executive Summary 2 Health Insurance Trust Fund Summary 4 Enrollment in Benefit Options Medical Plans 5 Expenses vs. Premiums for Active and Retired Members 7 Expenses for Benefit Options Self-Funded Plans 8 Medical Expenses Associated with Medical Diagnoses 9 Hospital Care 10 Emergency Room Visits 12 Urgent Care Visits 12 Physician Visits 12 Generic and Name-Brand Prescription Use 14 Prescription Use by Therapeutic Class 14 Prescription Use by Type of Drug 15 Annual Prescription Use 16 Annual Pharmacy Expenses by Age 17 Benefit Options Dental Plans 18 Dental Rates 19 Life, Disability, Vision Insurance and Flexible Spending Accounts Premiums 20 Health Insurance Vendor Performance Standards 21 Audit Services 32 Glossary of Terms 33 Appendix A - Plan Year Cash Flow Reconciliation 36 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 Benefit Options program is accounted for in two different funds. The Special Employee Health Fund, also known as fund 3015 or the Health Insurance Trust Fund (HITF), encompasses the medical and dental programs and the appropriated expenditures for ADOA Benefit Services operations. The ERE/Benefits Administration Fund, fund 3035, is primarily a “pass through” fund for other benefits including vision, disability insurance, life insurance and flexible spending accounts. The benefits offered through the program fall into one of two types — self-funded and fully-insured. The health benefit plan is self-funded; whereas the dental plans, vision plan, disability insurance, and life insurance plans are fully insured. The State’s self-funded medical plan began on October 1, 2004, and consists of a carved out pharmacy plan with two options for the medical plan, integrated or nonintegrated. The integrated option combines the functions of claims review and payment, network access, and utilization review and utilization management (URUM) which includes case management and disease management. The non-integrated option is similar, but the URUM function is carved out to a separate contract. Schedules of premiums received; incurred and paid medical/drug claims; expenses related to the medical and dental plans; and distribution by enrollment are included within this document as accounted for in fund 3015. A summary of premiums collected and paid for life insurance, vision insurance and flexible spending accounts has also been included for fund 3035. The Cash Flow Reconciliation charts for the two funds can be found in Appendix A. The difference in the values presented in Appendix A and the Health Insurance Trust Fund (HITF) Summary on page 4 is a result of timing difference between when premiums and/or services are incurred and when they are paid. Appendix A was prepared on a cash basis, where as, the HITF Summary was prepared on an accrued and paid basis. All data provided herein is for the Plan Year 2009-2010 (October 1, 2009 – September 30, 2010). Notable administrative changes for Plan Year 2009-2010 include; new medical, pharmacy, short term and long term disability, and life insurance contracts; a new Health Savings Account Option (HSAO); the inclusion of a fourth premium tier option under medical coverage; and termination of the UHC Secure Horizons contract effective December 31, 2009. The medical contracts require a nation-wide network giving members greater choice and access to providers in their local area. Benefit Options Annual Report October 1, 2009 to September 30, 2010 1 Executive Summary During Plan Year 2009-2010, the Benefit Services Division (BSD) Health Plan offered a comprehensive insurance package to over 129,900 members consisting of active State employees, University staff, retirees, and their qualified dependents. The benefit options include; medical, pharmaceutical, dental, flexible spending, vision, life, and disability insurance. To ensure the efficiency and effectiveness of the State Health Plan, 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, vendor operating transactions, vendor internal operating standards, and vendor execution of benefit design. The audit plan has been strategically developed to identify potential loss and facilitate corrective action, in continuing efforts to improve plan performance and cost effectiveness. For the 2009-2010 Plan Year, the total premiums expected were $739,472,570 with total expenses for the plan of $681,833,972, resulting in an expected net operational gain of $57,638,598. The 2009-2010 contribution strategy for medical resulted in employees paying 10.61% of the average monthly total premium, while the State paid the remaining 89.39%. However, the contribution strategy for dental resulted in employees paying 84.21% of the average monthly total premium, while the State paid the remaining 15.79%. Retirees are fully responsible for payment of their premiums, but typically receive a subsidy through the respective retirement system to offset a portion of the cost. COBRA is offered to terminated employees at 102% of the total premium. However, if qualified under the American Recovery and Reinvestment Act (ARRA), a COBRA member would pay only 35% of the total COBRA premium with the remaining 65% COBRA Premium Assistance portion to be collected through a reduction of employer paid payroll taxes. The analysis of expenses for Plan Year 2009-2010 indicated the average cost to insure each member was $4,899. However, when analyzed by type of subscriber; the active members average cost was $4,667 compared to the average retiree cost of $7,666. This difference in average cost between active and retired members is a common trend. There is a direct relationship between the age of an insured member and their cost for health care. Senior members usually require an increased amount of medical care, including additional pharmaceuticals, to maintain their quality of life. Medical claims expenses accounted for $442,328,375 of the total cost the health plan during 2009-2010. When analyzed by cost, the five leading diagnosis categories are: musculoskeletal system (muscles and joints), injury and poisoning (accident), neoplasm (cancers), circulatory system (heart), and genitourinary system (kidneys and reproductive organs). Musculoskeletal system was the leading category with $57,502,689 or 13.00% of total claims paid. Examination of hospital care reveals that inpatient care represents a significant portion of the total medical expenses: 34% and 35% for active and retired members Benefit Options Annual Report October 1, 2009 to September 30, 2010 2 respectively. Analysis by the type of medical care visit reveals there were 180 emergency room, 150 urgent care, and 4,270 physician visits per 1,000 members covered under the self-insured plan; which indicates members are seeking the care of a physician or specialist for the majority of their medical needs. The annual cost of prescription drug claims for 2009-2010 totaled $104,245,795 and a reported 1.4 million prescriptions were filled. The top five most expensive drugs classes are described as maintenance drugs used to control and prevent chronic diseases. Cholesterol-lowering drugs lead the list with 10 million dollars or 10.76% of total pharmacy costs. In fact, the most prescribed drug according to total expense is Lipitor, typically prescribed for treating and preventing high cholesterol. Other leading categories were diabetes, asthma, behavioral health (anti-depressants), and inflammatory disease. Retirees on the State health plan filled an average of 30 prescriptions per year, while active members averaged 10 per year. Similar to medical cost per member, the pharmaceutical expense per member increases as the members age increases. Analysis indicates that the 40-64 age group annual prescription drug cost is $1,439 per member compared to the 65+ age group cost of $2,270 per member. As a result the smaller population of insured retirees attributes the majority of prescription expenses. In addition to managing the volume statistics and expenses of the Program, the State manages 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 performance penalties. During the 2009-2010 Plan Year, ADOA collected penalties totaling $110,901.88 for the prior plan year. An assessment of vendor performance for the 2009-2010 Plan Year is provided in the Health Insurance Vendor Performance Standards section of this report. In review, the 2009-2010 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 planning and auditing, and effective contract management. Detailed evidence of the State’s Health Plan accomplishment can be reviewed herein. The passing of the new Health Care Reform by the Federal Government initiated a review of the plan year cycle. It was determined that the plan year should be moved to a calendar year for tax reporting purposes effective January 1, 2011 and a mini-plan year was offered from October 1, 2010 through December 31, 2010. An amendment covering the period of October 1, 2010 through December 31, 2010, will be provided in April 2011. Benefit Options Annual Report October 1, 2009 to September 30, 2010 3 Health Insurance Trust Fund Summary Table 1 provides a summary of receipts, expenses, and enrollment incurred during the 2009-2010 Plan Year and paid through December 2010. ADOA Benefit Options refers to the self-funded medical program and includes Aetna, Blue Cross Blue Shield of Arizona administered by AmeriBen, CIGNA, and United Healthcare networks. UHC Secure Horizons, BCBS (NAU), and all dental plans are fully-insured. Table 1: Health Insurance Trust Fund Summary* 2009-2010 Receipts (accrual basis) ADOA Benefit Options UHC Secure Horizons BCBS (NAU) 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 Difference Enrollment Subscribers Members 2008-2009 664,852,967 1,839,423 30,718,640 42,061,540 739,472,570 627,294,082 8,434,781 34,272,496 47,330,983 717,332,341 442,328,375 104,245,795 (1,249,718) (12,994,654) 36,270,927 2,260,434 30,714,058 29,092,948 6,470,888 3,846,185 40,848,736 681,833,972 57,638,598 500,098,992 114,299,093 (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 (40,015,394) State and University employees and retirees choose coverage from one of the self-funded networks. However, Blue Cross Blue Shield is a fullyinsured option available only to 63,814 65,557 NAU employees and 129,959 134,918 NAU retirees. UHC *The data is for the incurred period October 2009 through September 2010 and Secure Horizons is a paid through December 2010. fully-insured option that was available to Medicare-eligible retirees until the contract terminated December 31, 2009. The Medicare Part D Subsidy is available to employers who provide a qualified pharmacy plan to Medicare-eligible retirees. Rebates & Recoveries consist of rebates paid by drug manufacturers, performance penalties assessed to contractors for not achieving performance guarantees, overpayment recoveries and stop-loss reinsurance payments. Reserve (IBNR) is the amount of money that must be held in reserve for the purpose of paying claims that have been incurred but have not been reported. Stoploss 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, 2009 to September 30, 2010 4 Enrollment in Benefit Options Medical Plans The Benefit Options group medical plan is available to all: • eligible State employees and University staff, officers, and elected officials • State retirees receiving pension benefits through any of the State retirement systems • State employees or University staff accepted for long-term disability benefits • employees of participating political subdivisions • State employees or University staff 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 Network AETNA Active Retiree University COBRA Active Retiree University COBRA Active Retiree University COBRA AmeriBen/BCBC of AZ Active Retiree University COBRA Active Retiree University COBRA AZ Foundation* Active Retiree University Beech Street* Active Retiree University Plan Type 2009-2010 2008-2009 Subscribers Members ** Subscribers Members ** EPO EPO EPO EPO PPO PPO PPO PPO HSAO HSAO HSAO HSAO 1037 278 981 21 75 72 116 2 109 136 3 2338 354 1767 32 123 90 191 3 194 256 5 - - - - - - EPO EPO EPO EPO PPO PPO PPO PPO 5528 1104 1524 60 205 220 250 7 13516 1459 3161 88 360 267 460 11 - - - - PPO PPO PPO - - 494 453 444 945 599 849 PPO PPO PPO - - Benefit Options Annual Report October 1, 2009 to September 30, 2010 5 127 386 235 280 114 222 Continues on next page Continuation Table 2: Average Monthly Enrollment 2009-2010 2008-2009 Network Plan Type Subscribers Members ** Subscribers Members ** CIGNA Active EPO 2688 6398 Retiree EPO 688 900 1127 2209 University EPO 25 37 COBRA EPO RAN+AMN Active EPO 8888 21755 Retiree EPO 1386 1808 University EPO 2927 5775 UnitedHealthcare Active EPO 25726 58660 23337 53633 Retiree EPO 4531 5982 4838 6318 12340 26505 University EPO 13051 27894 COBRA EPO 402 588 Active PPO 920 1699 645 1145 Retiree PPO 193 253 178 233 University PPO 984 1909 761 1429 COBRA PPO 26 39 Blue Cross Blue Shield NAU only PPO 2859 3016 2809 2961 SecureHorizons * Medicare only HMO 2225 2886 2223 2890 Political Subdivisions EPO/ PPO Total 63814 129959 65557 134918 *AZ Foundation, Beech Street, and RAN+AMN medical networks were not offered during the 2009-2010 Plan Year. Benefit Options Annual Report October 1, 2009 to September 30, 2010 6 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 e Ex pe ns Re t ir ee Pr em iu m Re t ir ee Ex pe iv e Ac t iv e Ac t ns e Pr em iu m e Ex pe ns Re t ir ee Pr em iu m ns e Re t ir ee Ex pe iv e Ac t Ac t iv e Pr em iu m $Subscriber Paid State Paid Drugs Medical Administrative 2009-2010 2008-2009 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 adult, employee plus child, and family coverage at the cost of $39, $97, $79 and $178. PPO monthly premiums were determined from actual experience and the true cost of the coverage. The 2009-2010 contribution strategy for medical resulted in employees paying 10.61% of the average monthly total premium, while the State paid the remaining 89.39%. The contribution strategy for dental resulted in employees paying 84.21% of the average monthly total premium, while the State paid the remaining 15.79%. 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, 2009 to September 30, 2010 7 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) 442,328,375 400,260,956 42,067,419 419,204,308 Drug Claims (accrual basis) 104,245,795 79,116,099 25,129,696 96,923,304 Medicare Part D Subsidy (1,249,718) (1,249,718) (1,170,108) Rebates & Recoveries (12,971,260) (11,376,543) (1,594,717) (12,248,704) Reserve (IBNR) 36,270,927 31,811,694 4,459,233 34,250,478 Administration Fees 29,092,948 25,441,420 3,651,528 27,704,694 Stop-Loss Premiums 6,470,888 5,658,711 812,177 6,162,111 Appropriated Expenses 3,846,185 3,363,441 482,744 3,662,653 Total $ 608,034,139 534,275,777 Enrollment in self-funded plans Subscribers 58,783 51,405 Members 124,109 114,488 Annual cost Per subscriber $ 10,344 10,393 Per member $ 4,899 4,667 PPO 22,608,425 7,264,520 (79,611) (708,943) 1,982,383 1,265,513 281,477 167,305 HSAO 515,642 57,970 73,758,362 574,488,737 32,781,070 764,332 (13,613) 38,065 122,740 27,300 16,227 7,378 9,621 55,978 119,303 2,557 4,351 248 455 9,997 7,666 10,263 4,815 12,820 7,534 3,082 1,680 *The data is for the incurred period October 2009 through September 2010 and paid through December 2010. 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 Active/HSAO Retiree/ EPO Retiree/ PPO 442,328,375 379,577,409 20,167,905 515,642 39,626,900 2,440,519 Medical Claims (accrual basis) Drug Claims (accrual basis) 104,245,795 73,814,606 5,243,522 57,970 23,108,698 2,020,998 Medicare Part D Subsidy (1,249,718) (1,170,108) (79,610.68) Rebates & Recoveries (12,971,260) (10,759,867) (603,062) (13,613) (1,488,837) (105,880) Reserve (IBNR) 36,270,927 30,087,314 1,686,315 38,065 4,163,165 296,068 Administration Fees 27,352,957 22,833,296 971,125 115,400 3,214,437 218,701 Stop-Loss Premiums 6,470,888 5,401,672 229,739 27,300 760,439 51,738 Appropriated Expenses 3,846,185 3,210,661 136,553 16,227 451,992 30,752 Total $ Enrollment in self-funded plans Subscribers Members Annual cost Per subscriber $ Per member $ 606,294,148 504,165,090 58,783 124,109 49,070 110,272 10,314 4,885 10,274 4,572 Benefit Options Annual Report October 1, 2009 to September 30, 2010 8 27,832,096 2,087 3,761 13,336 7,400 756,991 248 455 3,052 1,664 68,666,685 6,908 9,031 9,940 7,603 4,873,286 470 590 10,369 8,260 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 2009-2010 2008-2009 Actives Retirees All members Actives Retirees All members Diagnosis % of Total % of Total % of Total % of Total % of Total % of Total Musculoskeletal System 12.75% 15.41% 13.00% 12.90% 12.70% 12.89% Health Status (lab tests, etc.) 9.99% 8.03% 9.80% 0.01% 0.00% 0.01% Ill-defined1 9.77% 8.26% 9.63% 10.29% 8.63% 10.15% Injury/Poisoning 9.32% 5.85% 8.99% 7.86% 12.17% 8.23% Neoplasm (tumors) 8.45% 12.76% 8.86% 8.58% 14.35% 9.08% Circulatory System 8.07% 12.93% 8.52% 8.58% 6.20% 8.38% Genitourinary System 7.47% 9.73% 7.68% 7.86% 8.80% 7.94% Digestive System 7.32% 5.51% 7.15% 7.60% 7.40% 7.59% Nervous System 5.67% 8.00% 5.89% 5.16% 6.16% 5.24% Respiratory System 4.94% 4.41% 4.89% 5.16% 5.14% 5.16% Pregnancy/Childbirth Complications 4.43% 0.03% 4.02% 4.27% 0.02% 3.91% Endocrine 3.55% 3.38% 3.53% 3.58% 3.94% 3.61% Mental Health 2.42% 1.64% 2.35% 2.50% 1.36% 2.40% Infectious/Parasitic 1.94% 1.18% 1.87% 1.89% 1.44% 1.85% Skin and Subcutaneous Tissue 1.56% 1.71% 1.57% 1.53% 2.20% 1.59% Congenital Anomalies 1.04% 0.22% 0.96% 1.23% 0.65% 1.18% Blood and Blood Forming Organs 0.95% 0.95% 0.95% 0.70% 0.00% 0.64% Conditions in the Perinatal Period 0.37% 0.00% 0.33% 0.85% 1.45% 0.91% External Causes of Injury/Poisoning 0.00% 0.00% 0.00% 9.45% 7.39% 9.27% 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, and laboratory analysis of blood with findings not related to cellular abnormality. Benefit Options Annual Report October 1, 2009 to September 30, 2010 9 Hospital Care Inpatient hospital care represents a significant portion of total medical expenses: 34% and 35% for active and retired members, respectively. The figures below show how active/retired members and EPO/PPO/HSAO members’ hospital admissions compared based on the number of admissions and the average length of stay. Figure 2: Admissions per 1,000 Members Retiree 189.2 200.0 Retiree 149.9 180.0 160.0 Admissions 140.0 120.0 100.0 80.0 60.0 40.0 EPO 77.3 Active 67.5 PPO 85.2 HSAO 27.0 PPO 94.0 EPO 75.2 Active 72.9 20.0 2009-2010 2008-2009 Figure 3: Average Length of Stay Retiree 6.4 7.0 Retiree 5.7 6.0 Days 5.0 4.0 PPO 6.1 PPO 5.7 Active 4.1 EPO 4.6 Active 4.5 EPO 5.1 HSAO 2.0 3.0 2.0 1.0 2009-2010 2008-2009 Note: Mental health, substance abuse, and maternity admissions are included. Benefit Options Annual Report October 1, 2009 to September 30, 2010 10 Hospital Care (continued) The figures below show how active/retired members and EPO/PPO/HSAO members compared statistically in collective number of hospital days and average cost per admission. As a group, retirees spent 4 times as many days in the hospital as active members. Also, PPO members spent 1.7 times as many days in the hospital as EPO members. On average, PPO members cost per admission was $4,937 higher than EPO members. Figure 4: Days per 1,000 Members Retiree 1,209.9 1,400.0 1,200.0 Retiree 859.9 Days 1,000.0 800.0 600.0 200.0 PPO 524.6 PPO EPO 486.0 352.3 400.0 Active 279.8 HSAO 53.0 EPO 340.8 Active 327.5 2009-2010 2008-2009 Figure 5: Average Cost per Admission $20,000 $18,000 $2,000 EPO $15,007 Active $15,120 $0 2009-2010 2008-2009 Note: Mental health, substance abuse, and maternity admissions are included. Benefit Options Annual Report October 1, 2009 to September 30, 2010 11 PPO $19,253 $4,000 HSAO $7,334 $6,000 PPO $18,920 $8,000 EPO $13,983 $10,000 Retiree $12,311 $12,000 Active $14,546 $14,000 Retiree $17,141 $16,000 Emergency Room Visits During Plan Year 2009-2010, there were approximately 180 emergency room visits per 1,000 members of the self-funded plan. The average plan cost per emergency room visit was $932.04. These figures include facility claims and professional fees. Urgent Care Visits During Plan Year 2009-2010, there were approximately 150 urgent care visits per 1,000 members of the self-funded plan. The average plan cost per urgent care visit was $101.00. Physician Visits During Plan Year 2009-2010, there were approximately 4,270 physician visits per 1,000 members (or each member of the self-funded plan visited a physician approximately 4.3 times). The average plan cost per office visit cost was $94.86. Figures 6 and 7 show how total active and retiree medical expenses were distributed by type of care. 7.80% of medical expenses for active employees were spent for emergency room care while 6.33% of medical expenses for retired members were spent for home care. Figure 6: Active Employee Medical Expense by Place of Service Ambulance, 2.32% Independent Urgent Care Laboratory, 2.68% Facility, 0.46% Home Health, Other, 0.11% 2.64% Emergency Room, 7.80% Inpatient Hospital, 33.57% Ambulatory Surgical Center, 10.77% Outpatient Hospital, 16.48% Benefit Options Annual Report October 1, 2009 to September 30, 2010 Office, 23.18% 12 Figure 7: Retiree Medical Expenses by Place of Service Ambulance, 2.75% Urgent Care Facility 0.12% Other 1.21% Independent Laboratory 2.04% Inpatient Hospital 35.36% Home Health 6.33% Emergency Room 3.79% Ambulatory Surgical Center 7.22% Outpatient Hospital 16.25% Benefit Options Annual Report October 1, 2009 to September 30, 2010 24.94% 13 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 2009-2010 2008-2009 Total Prescriptions Percent Total Prescriptions Percent Tier 1 Generic ($10 copay) 980,591 68.0% 974,094 63.5% Tier 2-Preferred ($20 copay) 361,208 25.0% 476,648 31.1% Tier 3-Non-Preferred ($40 copay) 101,173 7.0% 83,455 5.4% Total 1,442,972 100.0% 1,534,197 100.0% 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 "Cardiovascular Disease – Lipid", than on any other therapeutic class. Table 7: Top therapeutic classes by total expense Therapeutic class Cardiovascular Disease - Lipid Diabetes Asthma Behavioral Health - Antidepressants Behavioral Health - Other Inflammatory Disease Pain Management - Analgesics Upper Gastrointestinal Disorders - Ulcer Cardiovascular Disease - Hypertension Infectious Disease - Viral Anticonvulsants Total 2009-2010 Total Cost Percent $10,065,596 $9,602,335 $7,705,106 $7,431,696 $7,078,441 $6,527,936 $5,965,851 $5,549,570 $5,450,331 $5,214,141 $70,591,003 Benefit Options Annual Report October 1, 2009 to September 30, 2010 9.10% 8.70% 7.00% 6.70% 6.40% 5.90% 5.40% 5.00% 4.90% 4.70% 63.80% 14 2008-2009 Total Cost Percent 12,303,047 8,709,123 7,053,179 9,158,047 5,605,012 6,081,523 9,023,718 8,063,741 4,882,905 5,074,361 $75,954,656 10.76% 7.62% 6.17% 8.01% 4.90% 5.32% 7.89% 7.05% 4.27% 4.44% 66.45% Prescription Use by Type of Drug The table below shows the ten most utilized drugs according to total expense. Lipitor, a cholesterol controlling medication, is the leading prescription for the plan year. Table 8: Top ten drugs by total expense 2009-2010 Drug Name Total Gross Cost Percent Lipitor Enbrel Advair diskus Humira Crestor Singulair Plavix Cymbalta Actos Oxycontin Total 3,440,283 2,289,241 2,063,084 2,062,801 2,000,769 1,921,456 1,769,859 1,663,635 1,566,236 1,461,868 $20,239,230 Benefit Options Annual Report October 1, 2009 to September 30, 2010 Drug Name 3.30% Prevacid 2.20% Lipitor 1.98% Enbrel 1.98% Oxycontin 1.92% Crestor 1.84% Effexor XR 1.70% Advair diskus 1.60% Singulair 1.50% Humira 1.40% Plavix 19.41% Total 15 2008-2009 Total Gross Cost Percent 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 3.99% 3.74% 2.23% 2.07% 2.02% 1.94% 1.89% 1.84% 1.78% 1.60% 23.10% 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 30.4 Retiree 30.1 20.0 15.0 10.0 5.0 Active 10.1 Active 10.5 2009-2010 Benefit Options Annual Report October 1, 2009 to September 30, 2010 2008-2009 16 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 2500 0-18 yrs 2,270 2000 1,840 1500 1,439 407 614 40-64 yrs 65+ yrs 1000 500 19-39 yrs 767 421 0 2009-2010 2008-2009 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, 2009 to September 30, 2010 17 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 31% Delta Dental 69% Benefit Options Annual Report October 1, 2009 to September 30, 2010 18 Figure 11: Retiree Dental Enrollment Total Dental 18% Delta Dental 82% Dental Rates The table below summarizes monthly dental rates for active and retired members. Table 9: Summary of Monthly Dental Rates Single Coverage Employee State Total Delta Dental $29.86 $4.96 $34.82 Total Dental Admin. $5.00 $4.96 $9.96 Active Employees Retirees Delta Dental Total Dental Admin. Single Coverage $34.82 $9.96 Benefit Options Annual Report October 1, 2009 to September 30, 2010 Employee +One Coverage Employee State Total $67.93 $9.92 $77.85 $9.00 $9.92 $18.92 Employee +One Coverage $77.85 $18.92 19 Family Coverage Employee State Total $118.12 $13.70 $131.82 $14.00 $13.70 $27.70 Family Coverage $131.82 $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 2009-2010 Vendor Collected Paid Standard*^ Basic Life Supp Life Dep Life STD LTD Total $1,538 $2,438 $463 $2,927 $4,961 $12,328 $2,246,000 Hartford* Basic Life Supp Life Dep Life STD LTD Total $2,353,728 $11,569,012 $2,635,373 $7,538,133 $2,744,220 $26,840,466 $23,930,135 2008-2009 Collected Paid $2,533,453 $10,796,632 $1,652,664 $10,073,067 $4,472,699 $29,528,516 $29,533,536 Avesis* - Vision $4,728,106 $5,676,977 ASI - FSA $5,861,366 $5,687,416 $36,765,607 $40,897,929 Total * Per contract, vendors paid 55 days in arrears. ^ Collected amounts for Standard are residual collections due to timing of receipts from universities and members in leave without pay status. Benefit Options Annual Report October 1, 2009 to September 30, 2010 20 Health Insurance Vendor Performance Standard 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 performance penalties. This percentage is allocated among the more critical measures of the contract. The following is a report of the performance penalties incurred by health plan vendors for their non-performance during the Plan Year ending September 30, 2010. 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 2009-2010, may result in additional penalties. A. UHC (Claims Administrator) – penalties to date of $65,948.04, equaling .77% of the vendor’s annual administrative fee. MEASURE Average Speed to Answer <30 seconds Written appeals resolved in 15 calendar days after receipt of participant’s request for review in the case of pre-service claims. Annual Percent of Fees at Risk .50% Total Percent Assessed Vendor (BASED ON MISSED MEASURE) • 0.04%: WHICH EQUALS 1 MONTHS MISSED OUT OF 12 MONTHS MEASURED • Corrective Action: Customer care was in a training ramp up period in October to meet 1/1 staffing needs and this metric was missed for October 2009. Appropriate staffing and training has since taken place to resolve this issue. • 0.06%: WHICH EQUALS 3 MONTHS MISSED OUT OF 12 MONTHS MEASURED • Corrective Action: Each of the missed appeals were unique analyst errors. Appropriate feedback and training was given to the analyst associated with the appeals triage team. Appeals supervisory continue to monitor our triage teams. 0.25% • Benefit Options Annual Report October 1, 2009 to September 30, 2010 21 97% of all fully documented claims received will be completely processed within 10 calendar days after they are received. 0.75% 99.3% of claims dollars submitted for payment will be accurately processed and paid. 2% 97% of al claims will be process accurately. Accurate processing includes payment amount; communication to claimant or provider; data entry errors affecting current or future benefit determinations and management reports. 1% • • • • Benefit Options Annual Report October 1, 2009 to September 30, 2010 • • • 22 0.12%: WHICH EQUALS 2 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: This metric was missed for October and November 2009 since our Transaction team was incorrectly managing this policy to 94% into workday versus 97% percent in 10 calendar days. The change was made with our teams and we have successfully managed to 97% in 10 calendar days the rest of the plan year. 0.33%: WHICH EQUALS 2 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: This metric was missed due to one claim in October 2009 where our Transaction Operations team requested information when it was not needed to process the claim. For the metric that was missed in March, there were two errors that caused the missed metric. On the first error, the processor had the incorrect other insurance allowable on the claim, which caused an overpayment. On the second error, the processor did not split the claim correctly for accurate repricing. The Transaction Operations analysts received appropriate feedback and training to prevent further issues. 0.17%: WHICH EQUALS 2 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: This metric was missed in October 2009 due to one claim where our Transaction Operations team requested information when it was not needed to process the claim. The Transaction Operations analyst received appropriate feedback and training to prevent further issues. The December 2009 metric was missed due to one claims where an incorrect remark code was used. Contractor will deliver its monthly reports to the ADOA within 30 calendar days from the end of the month. Reports to be provided: Total billed claims sorted by type of claim; Total number of claims; Provider discounts; Ineligible charges broken down as follows: over UCR or allowable amount, no plan benefit or plan provision, not eligible for coverage; Total allowable expenses, Deductible dollars, COB payments broken down as follows: other plan payments, total claims paid sorted by type of claim; Total members’ coinsurance payments; IBNR; Demographic report (by age, gender, plan selected, tier of coverage and county); Direct pay member delinquent report; Utilization reports (including inpatient admissions per 1,000 members, inpatient days per 1,000 members, ALOS, emergency .50% Benefit Options Annual Report October 1, 2009 to September 30, 2010 • • 23 The Transaction Operations analyst received appropriate feedback and training to prevent further issues. .04%: WHICH EQUALS 1 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Target was missed by one day no corrective action request as the measure was met for the rest of the year. room visits/1,000, and outpatient surgeries/1,000); and any additional reporting as specified in the implementation plan. Contractor will provide a detailed provider report which identifies providers by TIN number. No fees at Risk • • 0.%: WHICH EQUALS 1 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Target was missed by one day no corrective action request as the measure was met for the rest of the year. B. AmeriBen (Claims Administrator) – penalties to date of $9,298.60, equaling 0.33% of the vendor’s annual administrative fee. MEASURE First Call Resolution >90% Contractor will acknowledge within 2 working days and resolve 95% or more of all correspondence (inquiries and requests) within 30 calendar days of receipt. Processing of a claim will be completed when it has been approved for payment, denied or pended with a request for further information. 97% of all fully documented claims received will be completely Annual Percent of Fees at Risk 0.30% Total Percent Assessed Vendor (BASED ON MISSED MEASURE) • 0. 08%: WHICH EQUALS 4 MONTHS MISSED OUT OF 12 MONTHS MEASURED • Corrective Action: AmeriBen implemented quality controls subsequently met the measure for the rest of the year. • 0.008% WHICH EQUALS 1 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: AmeriBen implemented quality controls subsequently; met the measure for the rest of the year. 0.10% .75% Benefit Options Annual Report October 1, 2009 to September 30, 2010 • • 24 0.25% WHICH EQUALS 4 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: AmeriBen implemented five action items: Insure claims are properly segregated into unique files for priority electronic registration. Daily inventory of ADOA file receipts into the adjudication system. processed within 10 calendar days after they are received. Allocate additional resource to pre-adjudication queues where claims are routed for manual intervention. Review use of internal routing specifically: Precertification confirmations Provider credentialing confirmations C. Cigna (Claims Administrator) – penalties to date of $5,806.05, equaling .49% of the vendor’s annual administrative fee and .37% of the nurse line administrative fee. MEASURE Average Speed to Answer <30 seconds Written appeals resolved in 45 calendar days after receipt of participant’s request for review in the case of post-service claims. 97% of all fully documented claims received will be completely processed within 14 calendar days after they are received. Will be calculated by counting the number of days from the day the claim is received. Annual Percent of Fees at Risk .50% Total Percent Assessed Vendor (BASED ON MISSED MEASURE) • .08%: WHICH EQUALS 2 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: New "OneView" tracking system introduced to AZ market, learning curve issues slowed ASA during transition. CIGNA introduced 24/7 customer service access and staffing level needs were underestimated at during roll out. All Reps now acclimated to OneView and staffing issue shortfalls corrected. • .028%: WHICH EQUALS 1 MONTH MISSED OUT OF 12 MONTHS MEASURED Corrective Action: This target was missed due to additional information not being submitted to consider the appeal by the provider. .33% .75% Benefit Options Annual Report October 1, 2009 to September 30, 2010 • • 25 .18%: WHICH EQUALS 3 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Based on audit results Cigna will be implementing several system enhancements in 2011. In addition a specialized team has been created to process specific claim types. 97% of al claims will be process accurately. Accurate processing includes payment amount; communication to claimant or provider; data entry errors affecting current or future benefit determinations and management reports. Nurse line- Average Speed to Answer 45 seconds or less .50% • • 2% • • Nurse lineAbandonment Rate <5% 2.5% • • .208%: WHICH EQUALS 5 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Based on audit results Cigna will be implementing several system enhancements in 2011. In addition a specialized team has been created to process specific claim types. .16%: WHICH EQUALS 1 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Higher than expected call volume across country. HIL monitors for increased call volume and adjusts staffing appropriately .20%: WHICH EQUALS 1 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Abandonment rate is a component of total calls received. 1 - 2 abandoned calls is normal for this account, but because call volume is low (37 for Sept) the abandonment rate shows higher. ASA for that month was 26 seconds indicating no issues with hold times. D. Aetna (Claims Administrator) – penalties to date of $7,307.31, equaling.50% of the vendor’s annual administrative fee. MEASURE Contractor will resolve 95% or more of all "normal" correspondence within 15 calendar days of receipt. Normal correspondence is Annual Percent of Fees at Risk 1% Benefit Options Annual Report October 1, 2009 to September 30, 2010 Total Percent Assessed Vendor (BASED ON MISSED MEASURE) • .08%: WHICH EQUALS 1 MONTHS MISSED OUT OF 12 MONTHS MEASURED • Corrective Action: The correspondence TAT was missed due to one of the five items received was not resolved until the 17th day. The delay was a result of 26 defined as: plan descriptive materials requests; and premium and/or coverage verification. 98% of all fully documented claims received will be processed within 30 calendar days needing additional time to confirm that a member was eligible for a review under the plan. This was an isolated issue that did not require additional corrective action. .50% • • 92% of all fully documented claims received will be completely processed within 12 calendar days after they are received. .50% 98.2% of claims dollars submitted for payment will be accurately processed and paid. 1% • • Benefit Options Annual Report October 1, 2009 to September 30, 2010 • • 27 .04%: WHICH EQUALS 1 MONTHS MISSED OUT OF 12 MONTHS MEASURED July 2010 TAT was missed due to a claim rework project based upon a plan clarification. This was an isolated issue that did not require additional corrective action. .04%: WHICH EQUALS 4 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: As result of missing the November/December TAT Aetna set up a custom process, including a designated team of claims processors, to process all ADOA claims. Aetna also incorporated additional reporting metrics to better monitor performance results. March and July 2010 TAT were missed due to large claim rework projects based upon a plan clarification and updated provider rates. These were isolated issues that did not require additional corrective action. .25%: WHICH EQUALS 3 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: The Target was missed due to the mis-interpretation of pricing instructions. There were a total of four individual processors involved. Analysis of all errors are performed by the Quality Analyst. One-on-one educational sessions occur with each individual processor involved. A follow up discussion with the Claim Supervisor also occurs to assure the processor understands their error. All errors identified in 96% of al claims will be process accurately. Accurate processing includes payment amount; communication to claimant or provider; data entry errors affecting current or future benefit determinations and management reports. 1% Nurse line- Average Speed to Answer 45 seconds or less No fees at Risk • • • • Nurse lineAbandonment Rate <5% No fees at Risk • • Benefit Options Annual Report October 1, 2009 to September 30, 2010 28 the auditing process are educational opportunities that are discussed and addressed during our monthly meetings with the designated ADOA Claim Processing Team. .17% WHICH EQUALS 2 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Total claim accuracy was missed due coding and procedural errors. There were a total of two individual processors involved. Analysis of all errors are performed by the Quality Analyst. One-on-one educational sessions occur with each individual processor involved. A follow up discussion with the Claim Supervisor also occurs to assure the processor understands their error. All errors identified in the auditing process are educational opportunities that are discussed and addressed during our monthly meetings with the designated ADOA Claim Processing Team. 0% WHICH EQUALS 2 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Aetna constantly evaluates performance results and adjusts staffing, resources and workflows to ensure a high quality service experience this includes additional employee training, auditing and investment in technology. 0% WHICH EQUALS 2 MONTHS MISSED OUT OF 12 MONTHS MEASURED Corrective Action: Aetna constantly evaluates performance results and adjusts staffing, resources and workflows to ensure a high quality service experience this includes additional employee training, auditing and investment in technology. E. MedImpact (Pharmacy Management) - penalties to date of $6,250.00, equaling of the .30% vendor’s annual fee at risk. MEASURE Total mail service prescriptions with available generics shall be dispensed with a generic product. 97% of potential Annual Fees at Risk (Max $2,090,000.00) Total Percent Assessed Vendor (BASED ON MISSED MEASURE) • $25,000 • $6,250.00: WHICH EQUALS 1 QUARTERS MISSED OUT OF 4 QUARTERS MEASURED Corrective Action: The first quarter PG was missed regarding Generic Substitution/Utilization but moving forward has not been missed. The plan design for ADOA is set up so as to best promote generic utilization which is why overall, for the year in aggregate, we have met this PG. F. Avesis (Vision) - penalties to date of $14,500.00, equaling 1% of the vendor’s annual fee at risk. MEASURE 95% of claims will be processed within two working days 90% of all calls requesting a member services representative will be answered in 30 seconds or less. Annual Percent of Fees at Risk $12,000 Total Percent Assessed Vendor (BASED ON MISSED MEASURE) • $2,000: WHICH EQUALS 2 MONTHS MISSED OUT OF 12 MONTHS MEASURED • Corrective Action: The target was missed due to eligibility loading issues. The eligibility issues where resolved by Avesis subsequently; met the measure for the rest of the year. • $12,500: WHICH EQUALS 5 MONTHS MISSED OUT OF 12 MONTHS MEASURED • Corrective Action: Avesis hired additional staff to support the call volume. $30,000 Benefit Options Annual Report October 1, 2009 to September 30, 2010 29 G. ASI (Flexible Spending) - penalties to date of $324.95, equaling .25% of the vendor’s annual fee at risk. MEASURE Timeliness of claims processing (turnaround time) as 90% of clean claims processed (pay or deny) within 10 calendar days of receipt of claim. Clean claims are defined as requiring no intervention to process. For enrollment greater than 10,000 this measure Annual Percent of Fees at Risk 1% Total Percent Assessed Vendor (BASED ON MISSED MEASURE) • 0.25%: WHICH EQUALS 1 QUARTER MISSED OUT OF 4 QUARTERS MEASURED • Corrective Action: The 3rd Quarter target was missed due to high claim volume in April 2010. In April, 72,846 claims were processed. We have added additional personnel to accommodate for the claims fluctuation so hopefully we can avoid the same situation next plan year. H. Successfully Met Performance Guarantees Table 11: Successful Performance Guarantees Vendor UHC At risk 18.55% Total Administration Fee 25% Medical Management Fee AmeriBen 15% Total Administration Fee Cigna 26% Total Administration Fee 27% Medical Management Fee Benefit Options Annual Report October 1, 2009 to September 30, 2010 Guarantees Met Customer Service (met 71 out of 72 targets), Appeals (met 44 out of 48 targets), Open Enrollment, Implementation, Claims Adjudication (met 53 out of 60 targets), Administration, Account Management Meeting, Reports (met 28 out of 29 targets, Network Management (met 22 out of 24 targets), Medical Management, Case Management, Disease Management, Nurse Line Customer Service (met 80 out of 84 targets), Appeals, Open Enrollment, Implementation, Claims Adjudication (met 55 out of 60 targets), Administration, Account Management Meeting, Reports, Finance Accounting, & Network Management Customer Service (met 82 out of 84 targets), Appeals (met 47 out of 48 targets), Open Enrollment, Implementation, Claims Adjudication (met 66 out of 72 targets), Account Management Meeting, Administration, Reports, Finance Accounting, Network Management (met 22 out of 24 targets), 30 Medical Management, Case Management, Disease Management, & Nurse Line (met 22 out of 24 targets). Aetna 23% Total Administration Fee 20% Medical Management Fee American Health Holding Total Administration Fee 7.8% Case Management Fee 7.5% Disease Management Fee 5% Nurse line Fee 5% MedImpact Delta Dental 5% Total Administration Fee TDA 3% Total Administration Fee Hartford 10% Total Administration Fee Avesis $309,000.00 Total Fees at Risk ASI Flex 5% Total Administration Fee Benefit Options Annual Report October 1, 2009 to September 30, 2010 Customer Service, Appeals, Open Enrollment, Implementation, Claims Adjudication (met 67 out of 72 targets), Administration, Account Management Meeting, Reports, & Network Management, Medical Management HIPPA Compliance, Case Management, & Nurse Line (met 32 out of 36 targets) Implementation, 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 targets). Implementation, Reporting, Network Management, Claims Administration, Appeals, Quality of Service and Responsiveness to Members Implementation, Reporting, Network Management, Appeals, Quality of Service and Responsiveness to Members Conversion/Implementation/Annual Open Enrollment, Report Timeliness, Quality of Service and Responsiveness to Members, Appeals/Grievance, Claims Administration Implementation, Reporting, Networking, Claims (met 34 of 36 targets), Appeals, & Call Center (met 31 of 36 targets). Claims Turnaround (met 7 out of 8 targets), Claims Adjudication Financial Accuracy, Web Availability, & Phone Response Time 31 Audit Services The Benefit Services Division (BSD) Audit Services Unit provides assurances that add value and improve the operations of the BSD. Audit Services performs systematic evaluations of contract compliance, operational controls, risk management, and the implementation of best practices to support BSD objectives. During the 2009-2010 plan year, BSD Audit Services completed various types of audits to ensure that the health plan’s vendors appropriately provided contracted services. The audit schedule for the plan year was developed using a combination of contract elements and risk analysis. Individual audit objectives were developed with the consideration of dollar value, complexity of operations, changes in personnel or operations, loss exposure, and previous audit results. Audits were completed, but were not limited to the following four functional areas: Functional Area Vendor operating transactions Vendor internal operating standards Vendor execution of benefit design ADOA Accuracy of shared data Audit Methodology Statement on Auditing Standard No. 70 (“SAS 70”) Quality Management Review (“QMR”) Plan Allowance/Exclusion Audit (“A & E”) Dependent eligibility audit All of the health plans contracted vendors that pay claims are required to provide a third-party assessed operational audit (SAS 70) annually. SAS 70 audits evaluate operational process of the vendor’s transactions and determine if identified deficiencies were appropriately addressed. Audit services reviewed the SAS 70 reports provided by each of the vendor’s external auditors. There were no instances of significant operating failure noted and no corrective action was required. QMRs ensure the vendor’s internal audit teams were effectively measuring operating standards, identifying and correcting errors and providing sufficient training for claims processing, customer service, and clinical reviews. QMR results indicated that vendors were either meeting or exceeding internal standards and that claims processors were appropriately trained. A & E Audits ensure that the vendor’s systems were set up correctly to service the health plan’s benefit design. A & E Audit findings for the plan year, indicated that plan limitations and restrictions were processed accurately with few exceptions and members received the benefits allowed to them as defined in the plan description. A dependant eligibility audit was also performed on the health plan’s membership. The results of the eligibility audit indicated that only eligible individuals were enrolled in the plan and receiving benefits. Additionally, dependent eligibility is effectively monitored to minimize the risk of claims paid on behalf of ineligible dependents. In addition to the audits, reviews and evaluations list above, Audit Services performed operational standards testing related to vendor performance guarantees, quality management standards, and reporting structure for each of the newly implemented medical vendors. Benefit Options Annual Report October 1, 2009 to September 30, 2010 32 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. Eligibility appeal – a request for a review of the denial of coverage relating to a claimant’s entitlement to benefits under a plan. Benefit Options Annual Report October 1, 2009 to September 30, 2010 33 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. Health Savings Account Option (HSAO) – An account that allows individuals to pay for current health expenses and save for future health expenses on a tax-free basis. Only certain plans are HSA-eligible. 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, 2009 to September 30, 2010 34 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. 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, 2009 to September 30, 2010 35 Appendix A 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. Table A: 3015 FUND PLAN YEAR 10/1/2009 - 9/30/2010 BEGINNING CASH PER AFIS $ 58,542,766.10 REVENUE $ 753,305,139.91 $ 660,261,467.96 $ 151,586,438.05 EXPENDITURES VENDOR AZ FOUNDATION BEECH STREET HMA HARRINGTON AHH UR/UM AETNA CIGNA UHC AMERIBEN WHI MEDIMPACT OTHER FEES** ATTORNEY GENERAL NET ADMIN FEES^ HARRINGTON AETNA CIGNA UHC AMERIBEN WHI MEDIMPACT RDS SUBSIDY OTHER WELLNESS NET MEDICAL CLAIMS SYMETRA $ $ $ $ $ $ $ $ $ $ $ $ $ $ ADMIN FEES 5,460.00 1,464.66 33,486.22 954,466.28 1,030,152.75 1,235,431.58 2,880,173.64 12,428,020.70 2,760,650.99 96,528.30 1,064,676.97 178,845.62 741.69 22,670,099.40 $ $ $ $ $ $ $ MEDICAL CLAIMS 31,081,661.77 15,003,486.28 27,886,871.41 329,370,391.91 67,923,081.02 1,248,951.62 104,823,774.05 $ $ PERF PENALTIES $ $ $ $ $ $ $ $ $ 1,715.63 85,792.00 - $ 87,507.63 $ $ $ $ $ $ $ $ RECOVERIES* 2,509,356.90 76,013.70 201,125.41 7,049,984.23 3,047,271.86 1,249,718.22 553,948.00 577,892,166.06 $ 14,133,470.32 STOP LOSS PREM $ 3,396,801.60 $ CLAIM REIMB 7,519,971.48 $ 22,582,591.77 $ 563,758,695.74 $ (4,123,169.88) $ 582,218,117.63 SELF INSURED EXPENDITURES FULL SVC PREM 30,664,726.00 2,260,433.67 32,925,159.67 BCBS PACIFICARE TOTAL FS INS PREMS^ $ $ $ DELTA TDA NET DENTAL PREM DENTAL PREM $37,692,017.18 $3,603,382.95 $ 41,295,400.13 HITF APPROP EXP $ 3,846,184.78 TOTAL EXPENDITURES TOTAL RECOVERIES* NET EXPENDITURES $ 682,025,811.64 $ PERF PENALTIES $ 23,394.25 $ $ 23,394.25 $ 32,925,159.67 $ 41,272,005.88 $ $ 3,846,184.78 21,764,343.68 $ 660,261,467.96 ENDING CASH BALANCE PER AFIS Benefit Options Annual Report October 1, 2009 to September 30, 2010 - 36 *Recoveries include Medicare Part D Retiree Drug Subsidy reimbursement, prescription drug rebates, stop loss claim reimbursements, overpayment recoveries (including stop payments and voids), subrogation recoveries, etc. **Other fees include HSA Administration, NYHCR, MA, and legal fees. ^Vendor administrative fees and fully insured premiums are paid 55 days in arrears per contract. Benefit Options Annual Report October 1, 2009 to September 30, 2010 37 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. P LAN YE AR 10/1/2009 - 9/30/2010 BE GINNING C AS H P ER AFIS RE VEN UE V ENDOR INS URANC E S TANDA RD BAS IC LIFE SUPP LIFE DEP LIFE STD LTD TOTAL STAND ARD $ $ $ $ $ $ 2,353,727.67 11,569,011.51 2,635,373.39 7,538,133.36 2,744,220.40 26,840,466.33 A VE SIS $ 4,657,317.95 A SI $ $ $ 4,426,995.32 1,396,727.82 5,823,723.14 P AYR OLL CLE ARING $ AMR A DCRA TOTAL FLE X SP ENDING TOTA L RE VE NUE $ 1,276,155.96 10,710,483.34 2,437,622.10 6,977,592.13 2,528,281.64 23,930,135.17 A VE SIS $ 4,728,106.40 A SI $ $ $ $ 4,372,168.62 1,359,497.29 129,699.91 5,861,365.82 GA O AFIS COST $ 4,200.00 $ 36,769,807.15 TOTA L E XP ENDITURES EN DING CASH BALANCE P ER AFIS Benefit Options Annual Report October 1, 2009 to September 30, 2010 $ 36,769,807.15 $ 4,697,559.87 AM OUNT $ 202,411.77 $ 804,342.26 $ 123,582.34 $ 762,942.85 $ 352,720.54 $ 2,245,999.76 $ $ $ $ $ $ AMR A DCRA ADM IN FEES TOTAL FLE X SP ENDING 37,333,824.91 37,333,824.91 H ARTFORD BAS IC LIFE SUPP LIFE DEP LIFE STD LTD TOTAL HARTFORD VIS ION $ (10.18) EX PE NDITUR ES V ENDOR INS URANC E S TANDA RD BAS IC LIFE SUPP LIFE DEP LIFE STD LTD TOTAL STAND ARD 4,133,542.11 AM OUNT $ 1,538.14 $ 2,438.26 $ 463.03 $ 2,926.98 $ 4,961.26 $ 12,327.67 H ARTFORD BAS IC LIFE SUPP LIFE DEP LIFE STD LTD TOTAL HARTFORD VIS ION $ 38 Benefit Options Arizona Department of Administration, Benefit Services Division 100 N. 15th Avenue, Suite 103 Phoenix, Arizona 85007 Telephone: 602-542-5008 Fax: 602-542-4744 Benefit Options Annual Report October 1, 2009 to September 30, 2010 39