D E LTA
Health Systems
Delivering As Promised Since 1968 . . .
MCOL Health Web Summit
New Directions in Managing Health Care Costs
December 2002
Self Funding: Emphasis on
Benefits & Costs
Copyright Delta Health Systems 2002
Self Funding:
Benefits & Costs
Presentation Outline

The Benefits of Self Funding

California Case Study: Large Employer
switches to Self Funding

Third Party Administrator (TPA) Services
and Features
Delivering As Promised Since 1968 . . .
Self Funding:
Benefits & Costs
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presentation:
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Delivering As Promised Since 1968 . . .
Benefits of Self Funding
Employer Perspective:
• Re-establish Health Plan as Benefits
to Employees
• Self Funded Benefit Plans as
Recruiting and Retention Tool
• Re-Take Control of Benefits & Design
• No State Mandates
• Customized to employee needs
• Employer Plans are Distinctive
• Unique Plan Identity (cards, EOBs)
• Service vendors focus on client
Delivering As Promised Since 1968 . . .
Benefits of Self Funding
Employer Perspective:
• Reduced Administrative Costs
• Eliminate Health Plan high overhead and profit
margins
• No State Taxes
• Improved Cash Flow & Investment Returns
• Integrated Administration
• FSA and Consumer Directed Plans
• UM, Specialty & Disease Management
• TPA Strategic Business Partner
• Fiduciary Responsibility to the Plan
• Business partner for HR Outsourcing
Delivering As Promised Since 1968 . . .
Benefits of Self Funding
Employer Perspective:
• Customized Services for Human
Resources, Plan Participants
• On-line access to plan information
• Vendor Billing and Disbursements
• Customized Cost Reporting
• Enables Strategic Planning
• Focused Care Management
• Customized Network Options
• Draw from best in class networks
• Swap out networks as needed
Delivering As Promised Since 1968 . . .
Benefits of Self Funding
Employee Perspective:
• Better Network Access & Benefit
Options
• Integrated FSA and Consumer
Driven Plans
• Plan Administration Customized
for Employer & Employee
• Employees have on-line access to
eligibility, benefits, claims information
• Customer Service Centers dedicated
to a few clients
Delivering As Promised Since 1968 . . .
California Case Study
The following slides are based on the recent
experience of a California employer that switched
from an HMO product offering in 2002 to a SelfFunded Program for 2003.
• Large Employer (1,600 EEs)
• Historically Relied upon HMO benefits for
its employees
• Made Strategic Decision to move from
HMO in 2002 to Self Funded in 2003
Delivering As Promised Since 1968 . . .
California Case Study
Market Background
• California HMO rates have
skyrocketed since late 1990s
• PPO premiums (and underlying costs)
increased at a lower rate
• Relative parity now exists between
HMO costs and PPO network rates
Delivering As Promised Since 1968 . . .
California Premium Trends
per member per month
220
180
HMO
PPO
140
100
1997 1998 1999 2000 2001 2002 2003
Delivering As Promised Since 1968 . . .
California Case Study
• Continued aggravation with HMO
benefit restrictions
• Employees Demanding More
Options, Less Restrictive Benefits
• Self Funding provides unlimited
benefit options from single platform:
PPO and EPO network choices
Low, Medium High Benefit Levels
Delivering As Promised Since 1968 . . .
California Case Study
• Employer Financially Stable
• Strong Cash Flow
• Able to absorb monthly fluctuations
• Reinsurance available
• Strategic Decision to Turn Health
Plan into Benefits
Delivering As Promised Since 1968 . . .
California Case Study
Notes to Cost Comparison:
• Based on actual HMO Cost
Structure 2002
• 2003 claims costs projected using
15% trend factor
• Plan Administration & Profit 23.5%
• Additional Administrative Layers
– Medical Group Administration
estimated at 15% of total MD
expenses
– PBM Administration cost as reported
at 15% of Rx costs
Delivering As Promised Since 1968 . . .
HMO Product
Projected Costs 2003
500
400
Health Plan Admin
& Profit
State Tax
PBM Admin
300
Med Group Admin
200
Rx Claims
100
Hospital Claims +
OOA
Physician Claims
Costs
0
Delivering As Promised Since 1968 . . .
California Case Study
Notes to Cost Comparison:
• Self Insured / PPO Cost Structure
• 2003 claims costs projected using 15%
trend factor plus estimated 15% rate
differential for PPO vs. HMO rates
• TPA administration at 3% of total costs
• PPO Network fee at 3% (higher cost
than most PPO networks; offset by
deeper provider discounts)
• Actual quotes for stop loss reinsurance
Delivering As Promised Since 1968 . . .
Self Funded
Projected Costs 2003
500
400
300
Health Plan Admin
& PPO Fee
Reinsurance
PBM Admin
200
Rx Claims
100
0
Physician &
Hospital Claims
Delivering As Promised Since 1968 . . .
California Case Study
End Result:
• No increased costs vs. HMO product
• Employer promotes new Health
Plans as Benefits to Employees
• Broad Access, plus EPO network option
• Multi-tier benefit options
• New Business Strategy to Analyze
Costs and Adjust Networks or
Benefits as needed
Delivering As Promised Since 1968 . . .
Third Party Administrator
Services and Features
• TPAs have maximum flexibility to
design and modify benefits for each
Employer Plan
• In-house UM program customized for
client needs, reports, etc.
• TPA Model Promotes “Best in Class”
Approach
• Select among multiple PPO networks
• Negotiate and Select best PBM program
• Market Stop Loss annually
Delivering As Promised Since 1968 . . .
Third Party Administrator
Services and Features
• Client Specific Claims/Customer
Service Teams
• TPAs are focused on a smaller number of
medium to large size employers with
customized service teams
• Internet Access / Member services
• Human Resource Professionals,
Customers can review on-line:
Eligibility status, Claims, Benefit
Summaries
UM & Prior Authorization rules
Delivering As Promised Since 1968 . . .
Third Party Administrator
Services and Features
• Integrated Accounts
• FSA claims administration (Medical, Dependent
and Transportation)
• Automatic rollover for medical claims
• Consolidated Vendor Billing and
Premium Disbursements –
Outsource service for Employers
• Real time Eligibility and Benefit
Updates for both Medical and PBM
• COBRA and HIPAA Administration
Automated services for notification and
Premium Collection
Delivering As Promised Since 1968 . . .
Third Party Administrator
Services and Features
• Electronic interfaces with service partners
• PPO Networks
• Providers via Claims Clearinghouse
• PBMs, Benefit Vendors
• Banks (Positive Pay)
• Electronic claims scanning & OCR
• HIPAA Privacy, Security & EDI Transaction
Sets
Delivering As Promised Since 1968 . . .
PPOs and
PBMs
Remote
Employer &
Access
Plan Sponsor
Provider
Participants
Office
Anytime, Anywhere Access
Clinical
Brokers &
Management
Consultants
Delivering As Promised Since 1968 . . .
D E LTA
Health Systems
Delivering As Promised Since 1968 . . .
Thank you for attending this presentation for
MCOL’s Web Summit
For further inquiries, please contact
Dan.rhodes@delapro.com
Copyright Delta Health Systems 2002