Stanislaus 2015 White Paper

Eric J. Barthel
Sr. Vice President, HUB International
Peter G. Duncan, CEBS, CLU, ChFC
Executive Vice President, HUB International
HUB International
www.hubinternational.com
Controlling Health Care Costs
The County of Stanislaus’ Transition from
Insurance Buyer to Healthcare Purchaser
November 3, 2015

HUB International
INTRODUCTION
The County of Stanislaus (the County) is
in the northern part of California’s Central
Valley, approximately 150 miles south of
Sacramento.
The County is the largest local employer,
employing approximately 3,500 people. As
of 2010, the County’s total population was
approximately 515,000. The County’s seat
is in the city of Modesto.
Similar to most California municipalities, the
County offers health benefits to eligible, full-
time and part-time employees. The majority
of the cost is borne by the County and is negotiated with the County’s labor groups
through a collective bargaining process that covers over 90% of total employees.
Prior to 2012, the County’s employee health benefits were fully insured.
Over the 15 years (prior to 2012), coverage was provided by a large staff/integrated delivery
model HMO (HP1) and another plan; the HP1 alternative, which we’ll call HP2 for the
purposes of this report. The health plans that offered insured employee health benefits to
County employees alongside HP1 during this period were United Healthcare, Health Plan of
San Joaquin and Anthem Blue Cross.
A two benefit plan (HP1 and HP2) design is very common to California public employers.
HP1 offers an integrated healthcare delivery model that includes hospitals that consistently
receive “A” ratings from the Leapfrog Group for hospital safety and care quality. Another
option is usually required to appeal to those that prefer another health plan or do not have
access to HP1 facilities.

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CALIFORNIA HEALTH PLANS
Health plan consolidation in California leaves six licensed commercial health plans with over
75% of all commercial membership*, all regulated by the California Department of Managed
Healthcare.
With little variation among health plans, there is limited competition for care in any given
community. Because of plan design, network configuration and cost sharing that obscures
the real cost of care, there is little motivation for health plan members to seek out the most
cost-effective care. Even less data exists regarding the quality of care.
For example, according to data collected
by the Centers for Medicare and Medicaid
Services (CMS) two different U.S. hospitals
each deliver knee replacements to residents in
their respective communities. One low-volume
hospital in California officially charges $223,373
for such surgeries, while a high-volume hospital
in Akron, Ohio charges just $15,465. Based
on CMS data, there is very little variation in
the quality of care delivered, as measured
by mortality, incidence of hospital acquired
infection, wrong site surgeries, etc.
Health plans in California do not give employers
the necessary tools to understand the data related to their population, significantly limiting
their ability to manage the cost of delivering health benefits to their population.
*Source: California Healthcare Foundation, California Health Insurers: Brink of Change – 2015
THE CHALLENGE FOR EMPLOYERS
Typically, the funding and product models favored by many employers in California
(fully insured Health Maintenance Organizations, or HMOs) have met the needs of the
commercial health plan market well. According to the California Healthcare Foundation,
HMO participation in California for employees of large groups (> 50 employees) in 2013 is
79% (the highest in the U.S). HMO penetration remains high in California for a variety of
reasons:
• High benefit levels are attractive to plan participants
• Premiums are, in most cases, lower than non-HMO plans with comparable
benefits
• Medical groups and Independent Practice Associations (IPAs) are more
sophisticated, and developed robust healthcare and information systems
infrastructures allow them to manage care at a lower cost and with greater
efficiency

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Yet, in spite of the relative success of HMOs, there are
important gaps in their models:
• Transparency
o HMOs in California provide little useful
information on the cost or quality of care in
their plans.
• Provider-specific outcomes data and clinical results
o Comparative analysis of the cost of care
and clinical performance between network
providers
o Little or no information about the health
status of employees and beneficiaries
covered under the plan
• Health plans will not allow employer to competitively
bid for best in market services, such as:
o Pharmacy Benefit Management Services
(PBMs)
o Clinical care management services
o Stop-loss or claim pooling
o Health improvement and wellness services
The one-size-fits-all approach also misses the unique characteristics of communities within
their service areas. Commercial health plans are often reluctant to do anything that cannot
be exported to the majority of their members, leaving employers with very few tools to help
their specific populations.
STANISLAUS COUNTY EMPLOYEE BENEFIT PROGRAM
Program elements created an environment that is common to many California employers:
• With little or no information on the cost or quality of care, employers are not
equipped to steer membership to plans or providers that provide greater value.
• Employers are relying on a “lower premium” as a proxy for cost of care. Employers
typically develop their contributions for health benefits on the basis of the “lowest
premium” plan. Premium is often used as a proxy for claim experience.
• As health insurance premiums increased, the County had limited means to
determine whether or not the premiums offered by their health plans were
appropriate or not. The only way to establish the cost competitiveness of a health
plan was to rebid in the open market on an annual basis.
“HUB International
has been an integral
part of recognizing
our challenges, and
developing and
implementing a program
that fits the County’s
and its employees’
needs. I’m pleased to
be able to say today that
our finances are stable
and the County is in
excellent position moving
forward to truly manage
the performance of our
health-care program.”
Jody Hayes, Assistant
Executive Officer

HUB International
This approach yielded average annual rate increases of 11% over a 10-year period during
which:
• Benefits were reduced through increased member co-payments and deductibles
• The County changed health plans three times
• No continuity of member-specific clinical data existed as members migrated to
different health systems
Based on the County’s history and the challenges common to most employers, the County
engaged Sidles Duncan & Associates (now wholly owned by HUB International) to evaluate
their insured programs and to determine if there is an alternative to their health benefit
structure.
THE EVALUATION
Evaluating an insured employer health plan can be a challenge for all the reason’s
described previously.
The data provided by health plans to employers, even large employers, has proven of
limited value. There are, however, elements that are universal to insured plans that were
valuable in the consideration for the County.
• The County’s historical practice of bidding for fully insured contracts among
multiple insurers) required underwriters to price for uncertain risk, which manifests
itself in higher margin and/or risk charges and premium rates (i.e., the population
underwritten is not necessarily the population to be insured in the following year).
• The inherent lack of transparency in a fully insured arrangement significantly limited
the County’s ability to compare the effectiveness of its health plan vendors and
insurers and to measure the cost/value relationship between what the County
pays and what it receives in return.
• The insured funding mechanism includes additional rate margin through the use
of “market” trend rates that typically are not specific to any one employer and can
be in excess of actual trend, resulting in higher premium rates.
HP1 HP2
Retention 9.00% 15.00%
Capitation 17.00% 18.14%
Pharmacy 9.00% 16.48%
Pooling N/A 15.00%
Medical 9.00% 11.36%

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• Furthermore, the claims “lag” inherent in projecting future claims in the insured
rating process further inflates the premium rates under an insured program.
HP1 HP2
Number of Months 24.0 19.0
Medical Trend Rate 9.00% 11.36%
Premium Trend Rate 1 18.75% 18.48%
1
Before Loss Ratio or Experience Calculation
The County’s historical contribution strategy was designed to incent employees to the
lowest premium cost plan. The “low premium plan”, however, reflects the projected future
cost of the population insured under that plan in the prior year and does not therefore
take into account the variances in demographics or health status between the populations
insured under different plans.
As a result, participants in the “higher premium plan” were charged a differential, which was
reflective of their demographic composition and health status (older and sicker) and may
or may not reflect any differences in the relative efficiencies of the County’s two plans in
delivering care.
This phenomenon manifests itself in the County’s demographics. HP1 had a lower premium
cost than HP2, which had the older, sicker population.
2011 Demographics HP1 HP2
Average Age 31.4 41.85
% of Population with 1
Major Condition
14.00% 26.51%
% of Population with 2 or
More Major Conditions
1.9% 14.26%
The reports from HP1 and HP2 (while not comprehensive) were useful to understand
important differences in cost of care in each plan.
It is important to note that, based on reporting from HP1 and HP2, even though HP1 had
lower premiums than HP2, the actual unit cost of healthcare services was higher in HP1.

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Stanislaus County
Pharmacy Spend Analysis, Per Member
HP1 and HP2 Populations, 2009-2010
HP1 HP2
# of Scripts, PMPY 6.6 16.9
Generic Fill 87.9% 72.1%
Brand Fill 12.1% 26.0%
Other Fill 0.0% 1.9%
Total 100.0% 100.0%
Cost Per Prescription $63.70 $64.94
Expected Cost Per Script $44.49 $64.94
Estimated Cost Premium 43.2% 0.00%
HP1’s cost per prescription was 1.95% lower than HP2’s; however, HP1 had a 15.8%
higher generic utilization rate (due to a mandatory generic plan design). When normalizing
these costs to reflect the differences in generic utilization, HP1’s cost per prescription was
43.2% higher than HP2’s.
Through other health plan reports, we were able to determine that other categories of care
were also more costly under HP1.
2011 Experience HP1 HP2 Difference
Inpatient Cost per Day $8,235 $6,901 19.3%
Average Length of Stay 3.9 3.8 n/a
Physician Services Per
Unit Cost Index
$100.00 $70.58 41.7%
Diagnostic Imaging Per
Unit Cost Index
$100.00 $60.82 64.4%
In every category, the unit cost of care was greater under HP1, which had the lower
premium costs and the much younger population.
In other words, HP1 had the much higher unit cost of care, but a much younger and
healthier population, so their premiums were lower than HP2. HP2, with a much lower cost
of care, had older and sicker members, resulting in higher premiums and in an underwriting
“death spiral” that drove participants to HP1 at a greater, long-term cost to the County.
WHAT WAS LEARNED
If all healthcare for enrollees covered by the County were delivered by either HP1, or
HP2, which health plan would cost the most? The reports received from each health plan
indicate, and later validated by data from the self-insured claim data; the costs would be
26.77% greater under HP1 than under HP2.

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Given the significant lack of transparency under the HP1
program, continued migration of employees into HP1
(based upon the employee premium contribution formula),
would actually increase, not decrease the County’s cost
as the older and sicker HP2 participants began using the
significantly more expensive health care services from HP1.
THE RECOMMENDATIONS
Recommendation #1
The County should self-fund its health plans.
• Offer common plan design(s) to all health plans
• Reduce the administrative and risk charges
associated with insured plans
• Establish greater transparency to better understand
and be able to evaluate the
value proposition each plan brings to the County in
both financial and clinical terms
Recommendation #2
The County should combine its health benefit plan offerings
into a single risk pool.
• Reduce insurance charges for large claims
• Improve marketability of stop-loss program
• Establish greater predictability though creation of larger single risk pool
Recommendation #3
The County should “own” and maintain independent control over financial and utilization
data across all plans.
• Maintain independent control over underwriting and rate determination annually
• Independently evaluate plans offered based upon their financial and clinical
performance in meeting the needs of their covered populations, not on the
“premium rates” assigned to the populations they cover at any given point in time
• Maintain control over ability to change plans and strategies over time with benefit
of comprehensive utilization and financial data
Recommendation #4
The County should offer a selection of plans.
• Add an additional plan with duplicate plan designs and a select provider network
to increase competition among health plans and healthcare systems in Modesto,
to reduce healthcare plan costs currently, and to better control health care
trend costs
“We experienced
significant labor unrest
in the process, including
having to impose
some of these strategy
terms and conditions
on our second largest
bargaining unit to get the
program off the ground.
Ultimately, all employee
groups got on board
and we summited that
mountain!”
Executive Officer

HUB International
STRATEGY IMPLEMENTATION
The changes made to the County’s plans were significant:
• Moved to self-funded from fully insured
• Added a third benefit plan with a competitive provider network
• Plan pricing based on underlying cost of healthcare, not member risk selection
• Singular, unified risk, not bifurcated by plan selection
• Plan designs were normalized across all three plans A third party administrator
(TPA), pharmacy benefit manager (PBM), stop-loss carrier, medical management
firm and other ancillary service providers were hired
• Achieved virtually complete transparency
• County owned all plan data
THE TRANSITION EXPERIENCE
The County undertook the transition from purchasing insurance to purchasing healthcare,
which included the following changes:
• The plan became self-funded after many years of being fully insured
o The County self-funded the HP1 and HP2 plans, and
o A new proprietary self-funded plan called Stanislaus County Partners in
Health (SCPH) was created, based on a competitive network of hospital
and physician providers that excluded the market’s most expensive
healthcare delivery systems
• Fully insured equivalent rates (also known as funding factors) and employee
contributions were based un underlying healthcare costs, not on underwriting
characteristics of each plan
o This method of rate-setting forced each plan to compete on underlying
healthcare costs and quality, not on selection-based underwriting
o Each of the three plans (HP2, HP1 and SCPH) offered identical benefit
levels
o Each plan offered an HMO look-alike (an EPO) and a High-Deductible
Health plan (HDHP) that included a contribution to a Healthcare Savings
Account (HSA)
The scope of these changes required effective communication to the County’s 3,400
employees, and the major effort to build what would become Stanislaus County Partners in
Health (SCPH).

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The steps to develop SCPH included:
• Development of a proprietary managed care network
o Identification of the hospitals, physicians and other ancillary providers and
facilities that provide high-quality healthcare and are willing to accept
market-competitive fees
o Credentialing providers who were selected to participate
o Negotiate rates and execute contracts with each network provider
• Review and select (through a Request for Proposal process) vendors to perform
the following functions:
o Claim processing and plan administrative services
o Pharmacy benefit management (PBM) services
o Stop-loss insurance (for individual claims exceeding $225,000 in a
12-month period)
o Medical management and population health services
o Network access to out-of-area providers for SCPH
In addition to SCPH plan-specific services, additional functions were required for total plan
management:
• Development and implementation of a County’s comprehensive data
warehouse for all plan claim, financial and clinical data to facilitate management
decision making
o Corrective action is driven by emerging data and can be made in real-time
o Created a process and identified the appropriate tools that allowed timely
distribution, review and analysis of plan data
THE FINANCIAL RESULTS
The difference between actual self-funded plan costs
(using incurred) and proposed insured costs for 2012 are
based on best-and-final renewal offers from HP1 and HP2.
Using market-based trend increases and adding the costs
associated to PPACA for insured plans and premium taxes
(for the HP2 population only, HP1 is a non-profit entity and
premiums are not subject to premium taxes) for 2013 and
2014 membership the County estimates is saved over $30
million, or approximately 13.1% of what the insured costs
would have been for that 36-month period.
“The change has been
transformational, and
certainly a much bigger
lift than we originally
predicted.”
Executive Officer

HUB International
THE CLINICAL RESULTS
With complete financial, clinical and administrative transparency, the County can now
review and make plan decisions based on (including, but not limited to):
• Plan participant health status
• Participant clinical gaps in care
• Population disease burden
• Provider behavior
• Prescription drug utilization
• Provider prescribing patterns
• Preventative care screening
• Emerging community health issues
The County and the Plan have made decisions that have had a measurable impact in
clinical outcomes.
• Significant reduction in complications from bariatric surgeries
• Reduction in hospital confinements
• Reduction in hospital readmissions
• Improved monitoring of prescription drug utilization
SUMMARY
The County wanted to find a way to reduce the average annual premium increases of
11% for its health benefit plans. It was also willing to consider a different approach that
significantly reduced the influence that health plans had on the County annual program
renewals and gave the County more influence and control over the management of its
annual health plan expenditures.
At the beginning of the process, the County established these objectives:
• Financial and clinical transparency of all health plan-related transactions.
• “Ownership” of health plan data to provide a basis for better decision making and
long-term selection and management of plan offerings.
• Creation of a competitive environment between health plans for County enrollment.
• Provision of health plan member choice based on provider choice, demonstrated
quality, member service and member cost.
• Use of health plan data to evaluate health plan financial and clinical performance
and improve participant health.
• Reduction in overall health plan costs to the County.
The County was able to achieve favorable results in all areas.
• The data warehouse gave the County complete financial and clinical transparency.
• The County was able to use this data to make decisions on plan benefits, network
configuration and other plan elements.

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• All plans were given the opportunity to compete on the cost and quality of
healthcare, not on insured premiums.
• Members were given the opportunity to select plans based on healthcare costs,
quality and other plan dimensions (except for benefit levels – all plan had identical
benefits).
• Plan data was used to continuously evaluate individual and overall plan
performance and to improve participant health.
• The County saved a lot of money!
As with any change of this magnitude, there can be challenges. Some of the things that
created challenges for the County, its members and its consultants included:
• Predicting first-year costs when transitioning from a fully insured, “black-box”
environment.
• Service for first six months with the new third party claims administrator was
uneven.
• Employee anxiety over the changes.
These challenges notwithstanding, the County and participants of the plan have enjoyed
significant advantages, in addition to the financial and clinical benefits listed above:
• No erosion of benefits in the form of increased cost-sharing (e.g., higher copays
or deductibles) for a total of seven years. Benefits under the 2011 insured plans were
maintained unchanged for the 2012-2014 collective bargaining cycle and were recently
renewed for the 2015-2017 cycle).
• Total transparency of all health plan related costs.
• Flexibility – The County can reply on the advice and counsel of its consultants and
vendors, but retains ultimate authority on the management of the plan.
• Positive change in engagement with all stakeholders:
o Collective bargaining groups
o County executive leadership
o Plan vendors
o Employees and dependents
o Community healthcare providers

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TRANSPARENCY AND THE COST OF CARE
Transparency
HP1, the County of Stanislaus’ largest insurer in 2011, has the most members of any HMO
in the state (approximately 7,500,000), but also has the least transparent cost structure of
any health plan in California.
When the County converted its insured plan to a self-funded plan in 2012, it soon became
clear that HP1’s cost structure was the highest of any plan that we had encountered. Yet, in
California, many employers believe that HP1 has the lowest costs of any health plan. While
their premium rates are indeed lower in many cases, in the case of Stanislaus County, it
was a function of risk selection as opposed to cost structure.
The Cost of Care
Without transparency, healthcare providers, pharmacy benefit managers and insurers
cannot compete for access to plan members on either cost or quality. The insured
premium (or rate), intending to be a proxy for the cost of care is nothing more than a vehicle
used by insurers to approximate the value of their risk and not the cost or quality of care.
THANK YOU
For More Information, Contact:
Eric Barthel
Senior Vice President, Sidles Duncan & Associates, a HUB International Company
714-308-6013
eric.barthel@hubinternational.com
Peter Duncan
Executive Vice President, Sidles Duncan & Associates, a HUB International Company
714-389-7501
peter.duncan@hubinternational.com

Stanislaus 2015 White Paper

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