1. ALTCI Actuarial Study — Final Results September 14, 2005

2. Mercer Government Human Services Consulting 2 Actuarial Study Objectives Determine key cost drivers Identify financing options that promote the goals of ALTCI Recommend a Medi-Cal rate structure that will best match payment to the risk of the enrolled population Assess adequacy of Medicare reimbursement for ALTCI population

3. Mercer Government Human Services Consulting 3 Key Considerations Individual health plan risk is driven by a number of factors, including – Program design  Who will be eligible (population subgroups)?  What services will be covered?  Integration with Medicare? – Contracting approach  Mandatory vs. optional enrollment  Number of health plans competing – Operational Issues  Enrollment and screening/assessment process  Case management and care coordination requirements  Administrative responsibilities

4. Mercer Government Human Services Consulting 4 Assumptions For our analysis, we assumed – Mandatory enrollment (for completeness purposes only - i.e., so that the entire population would be subject to analysis, allowing creation of a reimbursement model that would work for a voluntary program) – All adult SPD eligibles (21 and older) – All services, except specialty mental health, dental, and DD waiver services – ALTCI participating health plans would also have to participate in Medicare

5. Mercer Government Human Services Consulting 5 What’s New from the Previous Presentation? Change in population definitions – Medicare Part B only population included in Medi-Cal only population group – Blended IHSS, MSSP, and Home Care together to create a rating category of Community At Risk Chronic condition analysis for Medi-Cal community population Medicare sufficiency analysis

6. Mercer Government Human Services Consulting 6 Methodology Review historical Medi-Cal and Medicare CY1998 – 2000 FFS data Adjust data to include only populations and services expected to be covered under ALTCI Project data forward to CY2007 by category of service Adjust data for significant program changes including Medicare Part D

7. Mercer Government Human Services Consulting 7 CY2000 Medi-Cal Data San Diego County Nursing Home Residents, DD, and At Risk account for 28 percent of the total ALTCI membership in San Diego, but 74 percent of the total San Diego Medi-Cal expenditures

8. Mercer Government Human Services Consulting 8 San Diego County CY2000 Dually Eligible vs. Medi-Cal Only* ABD Membership * Includes recipients with Part B only coverage.

9. Mercer Government Human Services Consulting 9 San Diego County CY2000 Dually Eligible vs. Medi-Cal Only* ABD Medi-Cal Expenditures * Includes recipients with Part B only coverage.

10. Mercer Government Human Services Consulting 10 San Diego County CY2000 Elderly vs. Disabled Membership

11. Mercer Government Human Services Consulting 11 San Diego County CY2000 Elderly vs. Disabled Medi-Cal Expenditures

12. Mercer Government Human Services Consulting 12 Chronic Condition Analysis Reviewed 23 chronic disease categories Analyzed 3 years of data from CY1998 – CY2000 for 3 counties (Alameda, Contra Costa, and San Diego) to enhance credibility Separate analysis for Community At Risk and Not At Risk Reviewed cases with annual Medi-Cal costs in excess of $100,000 Findings show highest cost condition overall for Medi-Cal is ventilator dependents Of the cases in excess of $100,000 annually, 20% were ventilator dependent Recommendation is to consider a separate risk adjustor for ventilator dependents in the community

13. Mercer Government Human Services Consulting 13 San Diego County CY2000 Medi-Cal ALTCI PMPM Costs Total $443 Total NH $2,487 Community $261 Setting NHC $2,487 Frailty DD $367 At Risk $731 Not At Risk $157 Medi-Cal Only* $4,230 Dual $2,099 Medicare Status Medi-Cal Only* $438 Dual $238 Dual $542 Medi-Cal Only* $1,003 Dual $26 Medi-Cal Only* $253 Aged $2,240 Disabled $1,789 Aged $3,188 Disabled $4,589 Category of Aid Aged $513 Disabled $564 Aged $694 Disabled $1,135 Aged $23 Disabled $28 Aged $119 Disabled $304 Aged $215 Disabled $238 Aged $1,998 Disabled $438 *Includes Part B only recipients.

14. Mercer Government Human Services Consulting 14 San Diego County Dually Eligible vs. Medi-Cal Only CY2000 PMPM ALTCI Medi-Cal and Medicare Costs Other Inpatient Outpatient Inst LTC Comm LTC Physician Pharmacy Medi-Cal OnlyDual Medicare Dual Medi-Cal

15. Mercer Government Human Services Consulting 15 Medicare Sufficiency Analysis Used base data (1999 and 2000) to calculate estimated Medicare reimbursement for 2000 Utilized 2005 Medicare Reimbursement Rules Compared estimated Medicare reimbursement to actual Medicare FFS costs for 2000 Reviewed by population subgroup

16. Mercer Government Human Services Consulting 16 Medicare Sufficiency Findings In 2000, Medicare reimbursement would have been sufficient for the ALTCI population in total (across all population subgroups) Sufficiency of Medicare reimbursement is highly variable by population subgroup See details on the next slide

17. Mercer Government Human Services Consulting 17 San Diego County CY2000 ALTCI Medicare Sufficiency All ALTCI Dual Eligibles 2000 Costs $725 Rate $730 Sufficiency 0.67% Total *Includes only recipients with both Part A and B coverage. NH $1,366 $986 -28% Setting Community $634 $694 9% NHC $1,366 $986 -28% Frailty At Risk $1,115 $914 -18% Not At Risk $513 $641 25% DD $282 $495 76% Dual* $1,366 $986 -28% Medicare Status Dual* $1,115 $914 -18% Dual* $513 $641 25% Dual* $282 $495 76% Aged $1,304 $1,082 -17% Disabled $1,463 $834 -43% Category of Aid Aged $1,100 $980 -11% Disabled $1,128 $857 -24% Aged $438 $679 55% Disabled $580 $606 5% Aged $1,120 $780 -30% Disabled $280 $494 77%

18. Mercer Government Human Services Consulting 18 Medicare Sufficiency Other Points Need to update the analysis Because Medicare beneficiaries would not be forced to select an ALTCI Plan, the mix of the population that chooses is important Medicare still working on a frailty adjuster for non-PACE plans. This will not be implemented before 2007

19. Mercer Government Human Services Consulting 19 Results Key Medi-Cal Cost Drivers Identified 10 key rating categories Setting — Nursing Home vs. Community Frailty — Nursing Home Certifiable/At Risk vs. Not At Risk and DD Medicare Status — Dually Eligible vs. Medi-Cal Only Category of Assistance — Aged vs. Disabled Chronic High Risk Conditions — Ventilator Dependents

20. Mercer Government Human Services Consulting 20 Recommendations Reimbursement needs to be sufficiently sophisticated to promote program goals – Utilize multiple capitation risk groupings – Include some risk adjustment mechanism Incentives should be included to promote increased community based services Savings achievable through more appropriate use of hospital, emergency room and nursing home services

21. Mercer Government Human Services Consulting 21 Recommendations (continued) Administrative costs should be reflected in rates with sufficient consideration of start up costs Increased care management should be supported and funded Implement early reinsurance or risk sharing Capitated model should allow for flexibility of both Medi-Cal and Medicare funding sources Reimbursement mechanisms should continue to be refined as the program matures