2009 Rates 20090129 P Bizan QExA CMS

1301 Fifth Avenue
Suite 3800
Seattle, WA 98101-2605
Tel +1 206 504 5548
Fax +1 206 682 1295
Email: justin.birrell@milliman.com
January 29, 2009
Ms. Patricia M. Bizan

Long-Term Care Assistance Program Manager
Department of Human Services, Med-QUEST Division
601 Kamokila Blvd., Ste. 518
Kakuhihewa Kapolei State Bldg.
Kapolei, HI 96707-2021
Re: Revised QExA Actuarial Soundness Documentation
Dear Patti,
Attached are several documents that describe the rate setting process and the actuarial soundness
of the QExA rates effective February 1, 2009. Also included is the actuarial certification. We
believe this material should remain confidential and that its release could reduce the
effectiveness of future procurements. Enclosures include the following appendices:
1. January 29, 2009 letter that describes the update to rates effective February 1, 2009,
including final rates. Letter has been revised from January 20, 2009 version per direction
from CMS
2. January 30, 2008 letter that describes the development of the original actuarial rate ranges
for the first eight-month contract period
3. Notes on the Rate Setting Checklist
4. Data book documentation
5. Risk corridor documentation
6. Actuarial Certification
Limitations and Caveats
This letter and attachmenst are intended for the use of the State of Hawaii Department of Human
Services (DHS) for use with the QExA managed care program. It is our understanding that the
information contained in this report will be provided to CMS. To the extent that the information
contained in this report is provided to third parties, the document should be distributed in its
entirety. Any user of the data must possess a certain level of expertise in actuarial science and
health care modeling so as not to misinterpret the data presented.
Milliman makes no representations or warranties regarding the contents of this report to third
parties. Similarly, third parties are instructed that they are to place no reliance upon this report
prepared for DHS by Milliman that would result in the creation of any duty or liability under any
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Patricia Bazin
January 29, 2009
Page 2
theory of law by Milliman or its employees to third parties. Other parties receiving this report
must rely upon their own experts in drawing conclusions about the DHS capitation rates,
assumptions and trends. It is the responsibility of an individual MCO to establish required
revenue levels appropriate for their risk, management, and contractual obligations.
Proposed rate ranges and the final capitation rates are estimates of future results. Actual
experience will vary from expectations for many reasons, including differences in the degree of
health care management, the enrollment mix for a given health plan, the negotiated payment
rates to providers, and other non-random and random factors. It is important that actual
experience be monitored and that adjustments are made, as appropriate.
In developing the rate ranges, Milliman has relied on data and representations from the State of
Hawaii. This data has been reviewed for reasonableness, but no independent audit has been
performed. To the extent that any of this information is inaccurate or incomplete, modifications
to the rate ranges may be required.
Please let me know if you have any questions.
Sincerely,
Sincerely,
Justin C. Birrell, ASA, MAAA

Associate Actuary
MILLIMAN, INC.
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Appendix 1
1301 Fifth Avenue
Suite 3800
Tel +1 206 504 5603
Fax +1 206 682 1295
Email: tim.barclay@milliman.com
January 29, 2009
Ms. Patricia M. Bazin

Long-Term Care Assistance Program Officer
Re: Revised QExA Rates Effective February 2009 – September 2009
Dear Patti,
Per direction from CMS, language has been altered in the section describing the State Provider Supplemental Payment
adjustment from the January 20, 2009 version of this letter.
This letter documents the methodology and assumptions associated with the update of rates
effective February 2009. This letter is an extension of the original letter documenting the
actuarially sound rate ranges for this program dated January 30, 2008. Other than the revisions
detailed below, all other assumptions, methods and results described in the January 30, 2008
letter remain applicable to the revised rates.
The items that now necessitate revisions to previously published rates are as follows:
¾ Effective Period of the Rates

¾ SFY 2009 Physician Reimbursement Enhancement
¾ Treatment of Spenddown in the Rate Ranges
¾ Age/Gender Factor Revisions
¾ FQHC Out-of-Network Adjustment
¾ State Provider Supplemental Payment
¾ Insurance Premium Tax Status Change
This letter will document the issues, assumptions and methods associated with each of these
items. In addition, the Exhibits 1 and 2 detail the results of each of these adjustments for both
plans.
This letter and attachments are intended for the use of the State of Hawaii Department of Human
information contained in this report may be utilized in a public document. To the extent that the
information contained in this report is provided to third parties, the document should be
Offices in Principal Cities Worldwide

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January 29, 2009
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distributed in its entirety. Any user of the data must possess a certain level of expertise in
actuarial science and health care modeling so as not to misinterpret the data presented.
Effective Period of Rates
Due to delays in the implementation of this program, the rates previously proposed by the plans
are inconsistent with the actual effective period. Original bids were intended to be effective from
11/1/08 through 6/30/09. The revised initial rate period has shifted three months to 2/1/09
through 9/30/09. In an effort to preserve the integrity of the original bids, we have used the
methods and assumptions documented by each of the health plans to account for the three-month
shift in the rating period.
Trends provided by individual health plans were used, as well as starting assumptions for
utilization and average cost by major service line as presented by the plans in their respective bid
proposals.
In addition, the rate ranges calculated by Milliman were also trended forward three months using
the same base trend assumptions as in the original analysis.
Physician Reimbursement Enhancement
After the completion of the procurement process, a one-year enhancement to the physician fee
schedule was implemented for state fiscal year 2009 (July 2008 – June 2009). This enhancement
expires in June 2009; therefore, the impact of the increase is not applied to the entire rating
period, which is extended through September 2009. Using fiscal year 2007 utilization as weights
and fee schedule data provided by the State, Milliman calculated the enhancement to be an
11.3% increase in physician reimbursement over prior levels. As this increase is only in effect
for 5/8ths of the period, 5/8ths of the increase, or 7.0625%, was applied to the physician
component of the rates as provided by the health plans.
This adjustment was similarly applied to the Milliman rate ranges.
Milliman
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January 29, 2009
Page 3
Spenddown in Milliman Rate Ranges
The previous rate ranges produced by Milliman did not account for spenddown (or member share
of cost). It has been clarified for us that the expectation of the plans was to bid a rate including
expected spenddown dollars. We have added the member share of cost applicable to the base
time period and modified the rate ranges accordingly.
As a result of the revised rate ranges, some of the modified bid rates (modified as described
above) were below the bottom of the rate range as calculated by Milliman. In these cases we
have increased these rates to the low end of the rate range. Similarly, some rates were previously
adjusted downward as they were beyond the upper bound of the Milliman rate range. Several of
these are now in the acceptable range and no such adjustment is required, while others continue
to be beyond the upper bound and are reduced to the revised midpoint of the rate range.
Age/Gender Factors
Due to the multiple adjustments described above, we revisited the age/gender factors previously
calculated. We applied the same methods of grouping for credibility purposes as was done for
the original age/gender factors, but allowed the data with the revised assumptions to flow
through the analysis. There were minor changes to the factors due to these adjustments.
The other adjustment made to the factors is the merging of the 40-54 and 55-64 year-old rate
bands. This was done to be consistent with the QUEST rate cells and to accommodate
constraints within the State’s administrative systems. Revised Age/Gender factors are included
as Exhibit 3.
Health plans were required to bid each island within each rating category. At the same time,
each rating category has a single set of age/gender factors which are applied to the bid rates.
Therefore, to avoid double counting the impact of average age/gender differences between
islands, we have backed out the original composite factor by island and applied the current
factor.
FQHC Out-of-Network Adjustment
It is our understanding that the plans will be expected to pay in-network FQHCs using the PPS
rates. This is consistent with the fee-for-service data provided in the data book, so no adjustment
is required for these clinics. The out-of-network clinics will be paid at standard fee-for-service
levels and the State will make a settlement payment for the difference in the amount collected
from plans and the PPS rate. Therefore, a capitation rate reduction is required to reflect the
expectation of reduced health plan reimbursement to out-of-network clinics.
Milliman
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January 29, 2009
Page 4
We were provided a list of the FQHCs that each plan has contracted with for the February 1,
2009 effective date. Due to the data limitations that prohibit the direct repricing of the FQHC
claims at standard fee-for-service levels, we have instead used the settlement percentages from
the QUEST program and applied them on a claim-by-claim basis to the base data and calculated
the total reduced capitation for each plan. The percentages of the compensation paid as part of
the settlement by FQHC are as follows (includes any FQHC that has not contracted with both
plans):
Percentage
of PPS
Paid as
Settlement
Waianae Coast Comprehensive Health Center 49.3%
Community Clinic of Maui 19.1%
Waikiki Health Center 60.0%
Hamakua Health Center 42.6%
Waimanalo Health Center 38.2%
State Provider Supplemental Payment
The State has agreed to maintain supplemental payments to support the public provider system in
the QExA program. The level of supplemental payments will be based on the level of
supplemental payments to public providers set forth in state plan provisions (including pending
state plan amendments that will, when approved, be effective as of March 2008. The total
supplemental amount for the first capitation period (February-September 2009) will be
$9,390,311, to be divided between the two health plans based on enrollment. Current
enrollment figures indicate that 39,602 members will be enrolled in the two health plans.
Assuming a flat enrollment trend, 316,816 member months will be included in the February-
September period, yield a PMPM amount of $29.64 for the supplemental payment. This
payment is being made to cover the additional costs to the plans of making these payments. To
the extent that this amount over- or under-funds the actual payment, an adjustment will be made
to the future capitation payments to account for the over-or under funding. We understand that
this change would require additional documentation, certification, and approval by CMS.
Insurance Premium Tax
The tax status of O’hana has changed since the initial bid. O’hana now has the same tax status as
Evercare. Rates have been modified to reflect that both plans pay 4.265% in insurance premium
tax.
Caveats
Milliman
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Page 5
The above analysis is based on Milliman’s experience in working with the projections of health
care claim costs for the Medicaid population. Actual experience will vary from our estimated
rates for many reasons, including trends in health status, changes in provider contracting, and
other non-random and random factors. It is important that actual experience be monitored and
that adjustments are made, as appropriate.
Hawaii. To the extent that any of this information is inaccurate or incomplete, modifications to
the rate ranges may be required.
Please let us know if you have any questions.
Sincerely,
Timothy S. Barclay, FSA, MAAA

Principal & Consulting Actuary
/kcp
Attachments
Milliman
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Exhibit 1
Hawaii QExA Rate Development
Ohana Rate Update Summary
Pre-Insurance Premium Tax Bid Rates
Rate Category
Aged - Medicare Eligible Aged - Medicaid Only Blind/Disabled - Medicare Eligible Blind/Disabled - Medicaid Only
Nursing Home & Nursing Home & Nursing Home & Nursing Home &
Island Facility Community Medical Facility Community Medical Facility Community Medical Facility Community Medical
Oahu $5,850.92 $2,833.91 $167.34 $5,817.60 $3,722.67 $422.59 $6,916.33 $3,106.88 $253.60 $9,669.30 $5,821.95 $837.10
Kauai $6,303.38 $4,027.90 $202.89 $6,128.56 $3,967.82 $427.40 $6,998.87 $3,292.08 $201.17 $9,797.40 $5,754.22 $736.27
Hawaii $5,682.65 $3,776.04 $199.86 $5,872.34 $3,756.63 $445.62 $6,819.18 $3,092.92 $221.56 $9,347.37 $5,828.38 $674.52
Maui $5,940.83 $4,019.68 $119.98 $5,784.40 $3,928.90 $457.31 $6,603.45 $3,282.80 $219.01 $9,431.61 $5,668.49 $701.63
Molokai $6,303.38 $4,027.90 $202.89 $6,128.56 $3,967.82 $427.40 $6,998.87 $3,292.08 $201.17 $9,797.40 $5,754.22 $736.27
Lanai $6,303.38 $4,027.90 $202.89 $6,128.56 $3,967.82 $427.40 $6,998.87 $3,292.08 $201.17 $9,797.40 $5,754.22 $736.27
Revised Effective Period - Trend Adjustment
Rate Category
Oahu $5,873.32 $2,854.22 $168.74 $5,841.45 $3,744.79 $426.14 $6,943.68 $3,133.03 $255.80 $9,713.84 $5,870.94 $845.22
Kauai $6,327.39 $4,052.46 $204.48 $6,153.99 $3,990.58 $430.30 $7,026.39 $3,319.43 $202.91 $9,842.36 $5,802.53 $743.76
Hawaii $5,704.55 $3,798.61 $201.45 $5,896.52 $3,778.48 $448.77 $6,846.08 $3,118.82 $223.55 $9,390.65 $5,877.17 $681.43
Maui $5,963.63 $4,043.46 $120.96 $5,808.07 $3,950.33 $460.50 $6,629.41 $3,309.73 $220.87 $9,476.01 $5,716.34 $708.59
Molokai $6,327.39 $4,052.46 $204.48 $6,153.99 $3,990.58 $430.30 $7,026.39 $3,319.43 $202.91 $9,842.36 $5,802.53 $743.76
Lanai $6,327.39 $4,052.46 $204.48 $6,153.99 $3,990.58 $430.30 $7,026.39 $3,319.43 $202.91 $9,842.36 $5,802.53 $743.76
Physician Fiscal Year 2009 Enhancement
Rate Category
Oahu $5,874.98 $2,859.55 $171.87 $5,844.92 $3,751.73 $431.90 $6,946.31 $3,139.98 $259.99 $9,726.70 $5,935.31 $854.64
Kauai $6,328.95 $4,055.61 $206.78 $6,157.46 $3,996.29 $434.47 $7,029.67 $3,326.00 $207.01 $9,853.79 $5,861.58 $753.17
Hawaii $5,705.76 $3,801.63 $203.98 $5,899.81 $3,784.30 $453.25 $6,848.52 $3,125.17 $226.87 $9,401.96 $5,944.96 $691.16
Maui $5,964.75 $4,046.30 $123.56 $5,810.85 $3,955.45 $464.80 $6,631.94 $3,316.06 $225.18 $9,488.49 $5,775.47 $717.27
Molokai $6,328.95 $4,055.61 $206.78 $6,157.46 $3,996.29 $434.47 $7,029.67 $3,326.00 $207.01 $9,853.79 $5,861.58 $753.17
Lanai $6,328.95 $4,055.61 $206.78 $6,157.46 $3,996.29 $434.47 $7,029.67 $3,326.00 $207.01 $9,853.79 $5,861.58 $753.17
Age/Gender Renormalization
Rate Category
Oahu $5,876.93 $2,858.79 $171.81 $5,859.30 $3,752.85 $432.03 $6,973.58 $3,139.41 $259.98 $9,727.13 $5,933.23 $853.90
Kauai $6,327.51 $4,055.57 $206.83 $6,192.60 $4,002.01 $433.00 $6,970.37 $3,348.70 $207.16 $9,715.67 $5,934.72 $755.42
Hawaii $5,708.10 $3,801.38 $203.92 $5,872.48 $3,780.39 $452.91 $6,745.54 $3,116.49 $226.59 $9,414.87 $5,945.84 $692.01
Maui $5,962.96 $4,046.12 $123.55 $5,750.72 $3,941.49 $462.83 $6,666.55 $3,331.45 $225.05 $9,551.61 $5,769.97 $716.53
Molokai $6,375.73 $4,072.79 $206.70 $6,144.66 $4,031.98 $434.28 $7,099.97 $3,302.02 $207.47 $9,853.79 $5,877.05 $752.40
Lanai $6,311.70 $4,046.76 $206.85 $6,002.40 $3,945.55 $431.23 $7,029.67 $3,544.42 $207.31 $9,853.79 $5,832.55 $749.62
Milliman
Exhibit 1
Ohana Rate Update Summary
Rate Range Adjustment
Rate Category
Oahu $6,194.31 $2,986.87 $171.81 $6,048.27 $4,045.67 $432.03 $7,098.82 $3,139.41 $259.98 $9,727.13 $5,933.23 $853.90
Kauai $6,601.12 $4,055.57 $179.89 $6,192.60 $4,090.37 $433.00 $7,043.11 $3,348.70 $207.16 $9,715.67 $5,934.72 $755.42
Hawaii $6,439.69 $3,801.38 $203.92 $6,155.96 $4,080.01 $452.91 $6,745.54 $3,116.49 $226.59 $9,414.87 $5,945.84 $692.01
Maui $6,377.71 $4,046.12 $123.55 $6,115.98 $4,106.69 $462.83 $6,666.55 $3,331.45 $225.05 $9,551.61 $5,769.97 $716.53
Molokai $6,375.73 $4,072.79 $206.70 $6,144.66 $4,031.98 $434.28 $7,099.97 $3,302.02 $207.47 $9,853.79 $5,877.05 $752.40
Lanai $6,311.70 $4,046.76 $206.85 $6,007.37 $3,945.55 $431.23 $7,029.67 $3,544.42 $207.31 $9,853.79 $5,832.55 $749.62
Rate Category
Oahu 1.0000 0.9999 0.9948 1.0000 0.9997 0.9979 1.0000 0.9998 0.9879 0.9999 0.9991 0.9892
Kauai 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 0.9997 1.0000 1.0000 0.9998
Hawaii 1.0000 1.0000 0.9997 1.0000 1.0000 1.0000 1.0000 1.0000 0.9989 1.0000 1.0000 0.9996
Maui 1.0000 0.9999 0.9949 1.0000 1.0000 0.9963 1.0000 0.9999 0.9936 0.9992 0.9969 0.9942
Molokai 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 0.9969
Lanai 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 0.9981
Rate Category
Oahu $6,223.92 $3,016.17 $200.56 $6,077.91 $4,074.00 $460.75 $7,128.46 $3,168.32 $286.47 $9,756.16 $5,957.46 $874.29
Kauai $6,630.76 $4,085.21 $209.53 $6,222.24 $4,120.01 $462.64 $7,072.75 $3,378.34 $236.73 $9,745.31 $5,964.36 $784.88
Hawaii $6,469.33 $3,831.02 $233.50 $6,185.60 $4,109.65 $482.53 $6,775.18 $3,146.13 $255.98 $9,444.32 $5,975.33 $721.37
Maui $6,407.30 $4,075.38 $152.56 $6,145.62 $4,136.33 $490.76 $6,696.19 $3,360.79 $253.24 $9,573.48 $5,781.97 $742.00
Molokai $6,405.37 $4,102.43 $236.34 $6,174.30 $4,061.62 $463.92 $7,129.61 $3,331.66 $237.11 $9,883.43 $5,906.69 $779.71
Lanai $6,341.34 $4,076.40 $236.49 $6,037.01 $3,975.19 $460.87 $7,059.31 $3,574.06 $236.95 $9,883.43 $5,862.19 $777.86
Final Rates Loaded for Insurance Premium Tax (4.265%)
Rate Category
Oahu $6,501.20 $3,150.54 $209.50 $6,348.69 $4,255.50 $481.28 $7,446.03 $3,309.47 $299.23 $10,190.80 $6,222.87 $913.24
Kauai $6,926.16 $4,267.21 $218.86 $6,499.44 $4,303.56 $483.25 $7,387.85 $3,528.85 $247.28 $10,179.46 $6,230.07 $819.84
Hawaii $6,757.54 $4,001.69 $243.90 $6,461.17 $4,292.73 $504.03 $7,077.01 $3,286.29 $267.38 $9,865.06 $6,241.53 $753.50
Maui $6,692.75 $4,256.94 $159.35 $6,419.41 $4,320.60 $512.63 $6,994.51 $3,510.51 $264.52 $9,999.98 $6,039.56 $775.06
Molokai $6,690.73 $4,285.20 $246.87 $6,449.37 $4,242.57 $484.59 $7,447.23 $3,480.09 $247.67 $10,323.73 $6,169.83 $814.45
Lanai $6,623.85 $4,258.01 $247.03 $6,305.96 $4,152.29 $481.41 $7,373.80 $3,733.28 $247.50 $10,323.73 $6,123.35 $812.51
Milliman
Exhibit 2
Evercare Rate Update Summary
Pre-Insurance Premium Tax Bid Rates
Rate Category
Oahu $6,031.76 $3,170.23 $187.42 $5,992.05 $3,649.35 $472.70 $7,222.36 $3,526.51 $275.10 $10,450.64 $6,022.38 $853.52
Kauai $6,892.38 $4,106.89 $212.23 $5,992.05 $4,137.62 $485.74 $7,044.50 $3,743.47 $218.30 $9,706.19 $6,069.10 $771.54
Hawaii $6,248.32 $3,761.04 $228.58 $5,992.05 $4,137.62 $535.82 $7,044.50 $3,743.47 $238.79 $9,706.19 $6,069.10 $716.95
Maui $6,179.41 $3,851.18 $138.16 $5,992.05 $4,137.62 $618.63 $7,044.50 $3,743.47 $248.19 $9,706.19 $6,069.10 $746.52
Revised Effective Period - Trend Adjustment
Rate Category
Oahu $6,091.91 $3,209.24 $189.96 $6,053.24 $3,692.29 $479.69 $7,294.69 $3,572.43 $278.96 $10,560.63 $6,101.25 $867.43
Kauai $6,960.91 $4,153.79 $214.96 $6,053.24 $4,184.82 $492.74 $7,115.05 $3,791.81 $221.25 $9,809.54 $6,148.29 $784.94
Hawaii $6,310.60 $3,805.08 $231.55 $6,053.24 $4,184.82 $543.04 $7,115.05 $3,791.81 $242.21 $9,809.54 $6,148.29 $729.22
Maui $6,240.99 $3,895.81 $139.97 $6,053.24 $4,184.82 $626.01 $7,115.05 $3,791.81 $251.59 $9,809.54 $6,148.29 $758.67
Physician Fiscal Year 2009 Enhancement
Rate Category
Oahu $6,093.88 $3,214.72 $193.51 $6,056.26 $3,700.08 $485.68 $7,297.16 $3,579.86 $283.79 $10,574.36 $6,165.95 $877.24
Kauai $6,962.76 $4,157.07 $217.58 $6,056.26 $4,191.17 $498.53 $7,117.66 $3,798.61 $226.34 $9,821.12 $6,212.43 $794.89
Hawaii $6,311.75 $3,808.17 $234.38 $6,056.26 $4,191.17 $548.22 $7,117.66 $3,798.61 $246.00 $9,821.12 $6,212.43 $739.48
Maui $6,241.93 $3,898.45 $142.91 $6,056.26 $4,191.17 $630.59 $7,117.66 $3,798.61 $256.61 $9,821.12 $6,212.43 $767.88
Age/Gender Renormalization
Rate Category
Oahu $6,095.90 $3,213.87 $193.44 $6,071.17 $3,701.19 $485.83 $7,325.81 $3,579.21 $283.79 $10,574.83 $6,163.79 $876.48
Kauai $6,961.17 $4,157.04 $217.64 $6,090.83 $4,197.18 $496.85 $7,057.62 $3,824.54 $226.51 $9,683.46 $6,289.95 $797.26
Hawaii $6,314.33 $3,807.92 $234.31 $6,028.21 $4,186.84 $547.81 $7,010.63 $3,788.05 $245.70 $9,834.61 $6,213.36 $740.38
Maui $6,240.06 $3,898.28 $142.90 $5,993.59 $4,176.38 $627.92 $7,154.81 $3,816.24 $256.47 $9,886.46 $6,206.51 $767.08
Milliman
Exhibit 2
Evercare Rate Update Summary
Rate Range Adjustment
Rate Category
Oahu $6,194.31 $3,213.87 $165.44 $6,071.17 $4,045.67 $485.83 $7,325.81 $3,214.23 $249.77 $10,574.83 $6,163.79 $876.48
Kauai $6,961.17 $4,157.04 $179.89 $6,184.37 $4,197.18 $496.85 $7,057.62 $3,824.54 $226.51 $9,683.46 $6,289.95 $797.26
Hawaii $6,439.69 $3,807.92 $199.33 $6,155.96 $4,186.84 $483.54 $7,010.63 $3,788.05 $208.69 $9,834.61 $6,213.36 $740.38
Maui $6,377.71 $3,898.28 $142.90 $6,115.98 $4,176.38 $525.07 $7,154.81 $3,816.24 $229.93 $9,886.46 $6,206.51 $767.08
Rate Category
Oahu 1.0000 0.9999 0.9950 1.0000 0.9995 0.9972 1.0000 0.9996 0.9869 0.9999 0.9989 0.9888
Kauai 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 0.9991 1.0000 1.0000 0.9997
Hawaii 0.9999 0.9998 0.9967 0.9999 0.9995 0.9987 1.0000 0.9997 0.9961 1.0000 0.9996 0.9978
Maui 1.0000 0.9999 0.9955 1.0000 1.0000 0.9968 1.0000 0.9999 0.9940 0.9993 0.9971 0.9948
Rate Category
Oahu $6,223.93 $3,243.21 $194.25 $6,100.81 $4,073.12 $514.12 $7,355.45 $3,242.72 $276.13 $10,603.70 $6,186.77 $896.32
Kauai $6,990.81 $4,186.68 $209.53 $6,214.01 $4,226.82 $526.49 $7,087.26 $3,854.18 $255.95 $9,713.10 $6,319.59 $826.64
Hawaii $6,468.74 $3,836.80 $228.30 $6,185.08 $4,214.28 $512.56 $7,040.18 $3,816.51 $237.51 $9,863.92 $6,240.22 $768.42
Maui $6,407.32 $3,927.59 $171.89 $6,145.62 $4,206.02 $553.01 $7,184.45 $3,845.57 $258.20 $9,909.22 $6,218.46 $792.75
Final Rates Loaded for Insurance Premium Tax (4.265%)
Rate Category
Oahu $6,501.21 $3,387.70 $202.90 $6,372.60 $4,254.57 $537.02 $7,683.13 $3,387.18 $288.43 $11,076.10 $6,462.39 $936.25
Kauai $7,302.25 $4,373.20 $218.86 $6,490.85 $4,415.12 $549.94 $7,402.99 $4,025.89 $267.35 $10,145.82 $6,601.13 $863.46
Hawaii $6,756.93 $4,007.73 $238.47 $6,460.63 $4,402.03 $535.40 $7,353.82 $3,986.53 $248.09 $10,303.36 $6,518.22 $802.66
Maui $6,692.76 $4,102.57 $179.55 $6,419.41 $4,393.40 $577.65 $7,504.52 $4,016.90 $269.70 $10,350.68 $6,495.49 $828.06
Milliman
Exhibit 3
State of Hawaii, Department of Human Services
Hawaii QExA
Age/Gender Factors Effective February 1, 2009
Rate Category
Facility Community Medical Facility Community Medical Facility Community Medical Facility Community Medical
Female Ages < 1 1.031 0.914 0.962 1.182 1.099 0.822 1.012 1.005 2.259 1.787 2.664 5.394
Female Ages 1-5 1.031 0.914 0.962 1.182 1.099 0.822 1.012 1.005 2.259 1.787 1.348 1.018
Female Ages 6-11 1.031 0.914 0.962 1.182 1.099 0.822 1.012 1.005 2.259 1.787 1.348 0.706
Female Ages 12-18 1.031 0.914 0.962 1.182 1.099 0.822 1.012 1.005 2.259 1.787 1.348 0.706
Female Ages 19-20 1.031 0.914 0.962 1.182 1.099 0.822 1.012 1.005 2.259 1.787 1.348 0.706
Female Ages 21-39 1.031 0.914 0.962 1.182 1.099 0.822 1.012 1.005 1.003 1.002 0.855 0.867
Female Ages 40-64 1.031 0.914 0.962 1.182 1.099 0.822 1.012 1.005 1.140 0.903 0.895 1.131
Female Ages 65-74 1.031 0.914 0.962 1.182 1.099 0.822 1.000 1.051 1.123 0.779 0.437 0.525
Female Ages 75-84 0.995 0.968 0.994 0.962 0.916 0.948 0.879 0.792 0.790 0.779 0.437 0.525
Female Ages 85+ 0.996 1.071 1.217 0.953 1.024 1.917 0.879 0.983 1.169 0.779 0.437 0.525
Male Ages < 1 1.031 0.914 0.938 1.182 1.099 1.015 1.012 1.005 2.259 1.787 2.664 5.394
Male Ages 1-5 1.031 0.914 0.938 1.182 1.099 1.015 1.012 1.005 2.259 1.787 1.348 1.018
Male Ages 6-11 1.031 0.914 0.938 1.182 1.099 1.015 1.012 1.005 2.259 1.787 1.348 0.706
Male Ages 12-18 1.031 0.914 0.938 1.182 1.099 1.015 1.012 1.005 2.259 1.787 1.348 0.706
Male Ages 19-20 1.031 0.914 0.938 1.182 1.099 1.015 1.012 1.005 2.259 1.787 1.348 0.706
Male Ages 21-39 1.031 0.914 0.938 1.182 1.099 1.015 1.012 1.005 0.774 1.002 0.855 0.743
Male Ages 40-64 1.031 0.914 0.938 1.182 1.099 1.015 1.012 1.005 0.939 0.927 0.956 1.079
Male Ages 65-74 1.031 0.914 0.938 1.182 1.099 1.015 1.000 1.051 1.039 0.779 0.437 0.525
Male Ages 75-84 0.995 0.968 0.944 0.962 0.916 1.190 0.879 0.792 0.764 0.779 0.437 0.525
Male Ages 85+ 0.996 1.071 1.284 0.953 1.024 1.702 0.879 0.983 1.061 0.779 0.437 0.525
Composite 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
Appendix 2
1301 Fifth Avenue
Suite 3800
Tel +1 206 504 5603
Fax +1 206 682 1295
Email: tim.barclay@milliman.com
January 30, 2008

Long-Term Care Assistance Program Officer
Re: QExA Actuarially Sound Rate Range Development
Dear Patti,
This letter documents the methodology and assumptions associated with the development of the
actuarially sound rate ranges for the QExA program. As part of the bid evaluation process,
Milliman created high and low rates for each of the 72 rate cells (twelve population categories
and six islands). The release of the data book included documentation associated with the
collection and categorization of the source data. The separate letter to you dated today
documents the use of the rate ranges in the scoring process. This letter documents the work done
between those two steps in the procurement process.
This letter and attachment are intended for the use of the State of Hawaii Department of Human
information contained in this report may be utilized in a public document. To the extent that the
information contained in this report is provided to third parties, the document should be
distributed in its entirety. Any user of the data must possess a certain level of expertise in
actuarial science and health care modeling so as not to misinterpret the data presented.
Offices in Principal Cities Worldwide

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Page 2
Methodology
Converting the experience in the data book from cost models to capitation rates involved the
following adjustments:
• Allocation of services not assigned to specific cost models in the data book
• Adjustments for incurred but not paid claims (IBNP)
• Trend
• Managed care savings
• Normalization for age and gender
• Care coordination cost increases
• Health plan administration costs and risk/profit margin
Allocation of services not assigned to specific cost models in the data book
Historical costs of services provided in aggregate outside the data book included hospital rate
reconciliation costs and hospital capital improvement costs. These are costs incurred by the
hospitals and reimbursed by the State. These reimbursements are paid on an aggregate basis and
therefore cannot be precisely assigned at the member level. We applied completion factors to the
raw data and allocated the result based on total inpatient days for each rating cohort.
Adjustments for IBNP
The experience in the data book contained claims incurred between October 1, 2005 and
September 30, 2006, and paid before June 30, 2007. Pharmacy experience from October 1, 2005
through December 31, 2005 was removed because this was prior to the introduction of Medicare
Part D coverage for the dual eligibles. The computed degree of completion by major category of
service is summarized in the following table:
Category of Service Completion Factor

Long Term Care .9983
Physician .9928
Hospital .9689
Pharmacy .9030
Trend
Claim costs are trended forward in time from the midpoint of the data collection period – April 1,
2006 – to the midpoint of the first contract period – March 1, 2009 – for a total of 2 years and 11
months. Note that due to the different period of incurred pharmacy claims, the pharmacy claims
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Page 3
are trended for 2 years, 9½ months. Annual trend rates varied from low to high estimates by
major category of service as follows:
Annual Trend Rates

Low High
Inpatient Hospital 2.50% 5.00%
Outpatient Hospital 4.00% 7.00%
Nursing Home 3.00% 6.00%
Physician 2.00% 4.00%
Other 2.00% 4.00%
Pharmacy 5.00% 9.00%
Home & Community Based 3.00% 5.00%
Managed Care Savings
Adjustments to the per member per month (PMPM) costs were made for the introduction of
managed care for the QExA population. For the medical portion of the capitation rates,
Milliman quantifies the degree of health care management (DOHM) on a scale of 0% (meaning
unmanaged) to 100% (indicating optimally or well managed). We examined the feasibility of
first year program management as well as the State’s desire to achieve cost savings in our
managed care assumptions. The DOHM varied by Medicare eligibility status as well as varying
between a greater DOHM assumption for the low end of the rate range and a lesser DOHM
assumption for the high end of the rate range. DOHM assumptions are as follows:
DOHM
Greater Lesser
Medicare Eligible 40% 30%
Medicaid Only 60% 50%
Management of long term care services were assumed to reflect a range of savings factors from
0.980 to 0.950, while home and community based services were assumed to range between 0.950
and 0.850 for all rating categories.
Normalization of Age/Gender
Health plans were required to bid each island within each rating category. At the same time,
each rating category has a single set of age/gender factors which are applied to the bid rates.
Therefore, to avoid double counting of the impact of average age/gender differences between
islands, each bid base rate range must be adjusted to reflect the average age/gender mix across all
islands. For each rating category, the ratio of the average age/gender factor for all islands
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January 30, 2008
Page 4
divided by the island specific average age/gender factor was applied to the low and high rates for
each rating cell.
Care Coordination Cost Increase
Section 40.810 of the RFP document prescribes minimum staffing levels for the care
coordination system. Much of this proposed staffing is in excess of that being provided in the
current fee-for-service system. Cost increases vary between Nursing Home, Home &
Community Based Service (HCBS) and Medical Only clients. Additional PMPM amounts
added to each rate cell are as follows:
Care Coordination Service Cost

Nursing Home $34.72
HCBS $83.33
Medical Only $5.56
Health Plan Administration
Several factors contribute to a range of administrative cost assumptions when expressed as a

percentage of premium. For example, the high nursing home expenses for some categories of
clients result in a fairly low administrative cost assumption when expressed as a percentage of a
relatively high premium rate. Another example would be if a Medicare eligible client is also
enrolled in the Medicare Advantage program with the same health plan. This would result in a
minimal additional administrative cost to Medicaid. Similarly, if a Medicare eligible client is not
enrolled in the same health plan for both Medicare and Medicaid, the administrative costs, as a
percentage of a relative low premium rate, would be high. Our administrative cost assumptions
are as follows:
Medical Component LTC Component

Low High Low High
Medicare Eligible 4% 10% 1% 2%
Medicaid Only 6% 10% 1% 2%
Caveats
The above analysis is based on Milliman’s experience in working with the projections of health
care claim costs for the Medicaid population. Actual experience will vary from our estimated
rates for many reasons, including trends in health status, changes in provider contracting, and
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Page 5
other non-random and random factors. It is important that actual experience be monitored and
that adjustments are made, as appropriate.
Hawaii. To the extent that any of this information is inaccurate or incomplete, modifications to
the rate ranges may be required.
Please let us know if you have any questions.
Sincerely,
Timothy S. Barclay, FSA, MAAA

Principal & Consulting Actuary
/kcp
Milliman
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Appendix 3
Appendix 3
Hawaii Medicaid Division

QUEST Expanded Access (QExA) Managed Care
Notes on Rate Setting Checklist
The following notes are labeled using the order numbers on the CMS rate setting checklist with edit date
7/22/03.
1.0 Overview of Rate Setting Methodology

The proposed rates for the QExA population are intended to be effective from 2/1/09 through 9/30/09.
These are full risk capitation payments with two exceptions. First, the State offers $300,000 stop-loss
reinsurance protection to the health plans, as discussed in more detail in subsection 6.2. Second, the
State has implemented a risk sharing program, discussed in this checklist presentation subsection 6.3.
Numerous sources of information have been relied upon during the rate setting process, including:
• Fee-for-service claims data

• Costs incurred for the covered population but paid outside the claims system
• Health plan bid rates
• Medicaid managed care experience from other states
• Milliman Health Cost Guidelines
• Milliman Care Management Guidelines
• Detailed eligibility files
Detailed cost models were constructed that represented expected per member per month (PMPM) costs
for an average QExA member. These models were developed for each rating category, island and
age/gender combination. The following steps were used in the creation of the rates.
• Utilization data was accumulated from the fee-for-service claims data

• Costs paid outside the claim system were allocated to the member where possible and across the
appropriate subpopulation where member level detail not available
• Cost models were examined by age/gender cohorts, by island and by aid category
• Costs were trended forward to the contract period (February 2009 – September 2009)
• Completion factors were applied to account for unpaid claims
• Spenddown was included in the models
• FQHC payment adjustments
• Public provider supplement adjustment
• Physician enhanced payment adjustment
• Catastrophic claims paid by the State are removed from each model
• Costs for required care management staffing levels prescribed in the RFP are added
• Adjustments are made for the impact on utilization and cost per service for managed care
• Rates are loaded to cover the costs of administration, risk/profit margin and taxes
Once claims data were adjusted and aggregated, actuarially sound rate ranges were calculated for each
island and rating category combination. There were three key variables that defined the spread in the
rate range. They are as follows:
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• Degree of Healthcare Management (DoHM) – Based on internal Milliman research, utilization
and cost benchmarks have been defined separately for populations over and under age 65. These
benchmarks assume an unmanaged population (0% DoHM) and a well managed population
(100% DoHM). The degrees of healthcare management assumed for the upper and lower
bounds of the rate ranges were 30%-40% for Medicare eligible clients and 50%-60% for
Medicaid only clients.
• Trend – Upper and lower bound trend rates were constructed by service category, which are
discussed in detail in Section 3.10 below.
• Administration and Risk Margins – We assumed a range of margins for administration and
risk/profit which varied between medical and long-term care services, and are discussed below
in Section 3.2.
A credibility threshold based on member months was established for each rating category. The high and
low rates were then computed based on a credibility weighted average of the island specific rate and the
composite rate for all islands. Recognizing that actuaries could reasonably apply differing credibility
formulas, we set the high end of the range as the greater of the raw island specific high rate and the
credibility weighted high rate. Similarly, the lower end of the rate range was set at the minimum of the
island specific low rate and the credibility weighted low rate. Given the small populations on Molokai
and Lanai, the rate ranges were set at the widest points of all other islands by rating category.
Due to delays in the implementation of this program, the rates previously proposed by the plans are
inconsistent with the actual effective period. Original bids were intended to be effective from
11/1/08 through 6/30/09. The revised initial rate period has shifted three months to 2/1/09 through
9/30/09. In an effort to preserve the integrity of the original bids, we have used the methods and
assumptions documented by each of the health plans to account for the three-month shift in the
rating period.
Trends provided by individual health plans were used, as well as starting assumptions for utilization
and average cost by major service line as presented by the plans in their respective bid proposals.
In addition, the rate ranges calculated by Milliman were also trended forward three months using
the same base trend assumptions as in the original analysis.
In addition to trend the following adjustments we made and described in more detail in the Appendix 1.
¾ SFY 2009 Physician Reimbursement Enhancement

¾ Treatment of Spenddown in the Rate Ranges
¾ Age/Gender Factor Revisions
¾ FQHC Out-of-Network Adjustment
¾ Public provider supplement adjustment
¾ Insurance Premium Tax Status Change
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Adjusted bid rates submitted by each vendor were compared by island and rating category to the State
rate ranges. Those bid rates above the range were lowered to the midpoint of the rate range. Adjusted
bid rates that were below the range were raised to the lower bound of the range.
1.1 Actuarial Certification

The actuarial certification follows as Appendix 6.
1.2 Projection of Expenditures

The following projections of expenditures under a continued fee-for-service model and under the
contracted rates are based on the level of enrollment and case mix found in the Federal Fiscal Year 2006
program enrollment.
February 2009 – September 2009 Expenditure Projections
Projected Continued Fee-

Member For-Service Proposed Rate
Months Model Rates Increase
312,815 $370,754,228 $348,749,496 -5.9%
1.3 Procurement, Prior Approval and Rate Setting

Option 2: Competitive Procurement -- The State of Hawaii established rate ranges for each island and
rating category. The State also established age/gender adjustment factors for each rating category. The
contracting health plans bid rates by island and rating category. Rates above the State defined rate
ranges were lowered to the midpoint of the rate ranges. The contracting health plans then certified the
adjusted bid rates.
1.5 Risk Contracts

The entity assumes risk for the cost of services covered under the contract and incurs loss if the cost of
furnishing the services exceeds the payments under the contract. The entity must accept as payment in
full the amount paid by the State. The State does offer reinsurance protection, as discussed in Section
6.2 and 6.3 below.
1.6 Limit on Payment to Other Providers

No payment is made to a provider other than the entity for services available under the contract between
the state and the entity, except if these payments are provided for in Title XIX of the Act, in 42 CFR.
The state has not adjusted capitation rates for any GME payments.
1.7 Rate Modifications

Section 40.810 of the RFP document prescribes minimum staffing levels for the care coordination
system. Much of this proposed staffing is in excess of that being provided in the current fee-for-
service system. Cost increases vary between Nursing Home, Home & Community Based Service
(HCBS) and Medical Only clients. Additional PMPM amounts added to each rate cell are as
follows:
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Care Coordination Service Cost
Nursing Home $34.72
HCBS $83.33
Medical Only $5.56
2.0 Base Year Utilization and Cost Data

Historical fee-for-service experience data was used by the State to construct the rate ranges. In addition,
this same historical data was summarized in 89 cost models that varied by rating category and island and
provided as a data book to the potential health plans. Appendix 4 contains the documentation of this
source data as provided during the procurement process. The data book of cost models is available to
CMS upon request.
Per our work in the development of the data book and rate ranges, our review of the bid rate
documentation from the plans, and conversations with the Med-QUEST Division and CMS, we
understand that the payment rates are based only upon services covered under the State plan or costs
directly related to providing these services to Medicaid-eligible individuals. Additionally, the cost data
used did not include any of the costs related to the hospital uncompensated care payments described in
Section X of the 1115 waiver Special Terms and Conditions.
2.1 Medicaid Eligibles under the Contract

The cost models, eligibility files, and other data sources used to create the rates and rate factors for the
QExA populations are based on eligible clients only.
2.2 Dual Eligibles

Dual eligible members are included in the QExA program. Separate rates have been established for dual
eligibles. These separate rating categories are further delineated between Aged and Disabled, as well as
between those residing in a Nursing Facility, Community Based Clients and All Other Duals. QMB-
Only, QDWI, SLMB-only, and QI-1 beneficiaries are excluded from the program.
2.3 Spenddown
Spenddown amounts have been included in the rate setting process. We have added the member share
of cost applicable to the base time period and modified the rate ranges accordingly.
It is our understanding that rates were to be developed as gross rates including cost sharing and that
spenddown amounts were to be deducted from capitation payments.
2.4 State Plan Services Only

Base costs included in the attached cost models have been grouped by service line item to ensure that
only state plan services are included in the rate development. Specifically, services such as AMHD,
CAMHD, SHOTT and ICF/MR are not included.
2.5 Services that may be Covered by a Capitated Entity out of Contract Savings
No services outside the state plan covered services are included in the rate development.
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3.0 Adjustments to the Base Year Data
All adjustments to the base year data are discussed in this checklist documentation or the attached
appendicies.
3.1 Benefit Differences

There are no planned changes to the covered services package so no benefit difference adjustments have
been made from the base experience data.
3.2 Administrative Cost Allowance Calculations

Several factors contribute to a range of administrative cost assumptions when expressed as a
percentage of premium. For example, the high nursing home expenses for some categories of
clients result in a fairly low administrative cost assumption when expressed as a percentage of a
relatively high premium rate. Another example would be if a Medicare eligible client is also
enrolled in the Medicare Advantage program with the same health plan. This would result in a
minimal additional administrative cost to Medicaid. Similarly, if a Medicare eligible client is not
enrolled in the same health plan for both Medicare and Medicaid, the administrative costs, as a
percentage of a relative low premium rate, would be high. Our administrative cost assumptions are
as follows:
Medical Component LTC Component

Low High Low High
Medicare Eligible 4% 10% 1% 2%
Medicaid Only 6% 10% 1% 2%
In addition to the administrative costs and risk/profit margins, both of the plans pay an insurance
premium tax of 4.265%. The final after-tax capitation rates are included in Appendix 1.
3.3 Special Populations’ Adjustments

There are no special population adjustments applied to the capitation rates.
3.4 Eligibility Adjustments

In the construction of the underlying cost models, eligible member months were matched to claim
incurred dates to ensure that only eligible claims are included in the model. Retroactive eligibility
changes are recognized in the eligibility data provided by the state.
3.5 DSH Payments

No DSH payments are included in the rate development.
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3.6 TPL
Historical claim costs included in the data book are net of third party liability collections and the health
plans retain third party collections prospectively.
3.7 Copayments, Coinsurance and Deductibles in Capitated Rates

Neither the base experience data nor the program in the prospective rating period includes any of these
member cost sharing provisions.
3.8 Graduate Medical Education (GME)

No GME expenses are included in the cost models or rate development process.
3.9 FQHC and RHC Reimbursement

It is our understanding that the plans will be expected to pay in-network FQHCs using the PPS
rates. This is consistent with the fee-for-service data provided in the data book, so no adjustment is
required for these clinics. The out-of-network clinics will be paid at standard fee-for-service levels
and the State will make a settlement payment for the difference in the amount collected from plans
and the PPS rate. Therefore, a capitation rate reduction is required to reflect the expectation of
reduced health plan reimbursement to out-of-network clinics.
We were provided a list of the FQHCs that each plan has contracted with for the February 1, 2009
effective date. Due to the data limitations that prohibit the direct repricing of the FQHC claims at
standard fee-for-service levels, we have instead used the settlement percentages from the QUEST
program and applied them on a claim-by-claim basis to the base data and calculated the total
reduced capitation for each plan. The percentages of the compensation paid as part of the
settlement by FQHC are as follows (includes any FQHC that has not contracted with both plans):
Percentage
of PPS
Paid as
Settlement
Waianae Coast Comprehensive Health Center 49.3%
Community Clinic of Maui 19.1%
Waikiki Health Center 60.0%
Hamakua Health Center 42.6%
Waimanalo Health Center 38.2%
The calculated rates only include costs expected to be paid by the health plans.
3.10 Medical Cost/Trend Inflation

Claim costs are trended forward in time from the midpoint of the data collection period – April 1,
2006 – to the midpoint of the first contract period – June 1, 2009. Annual trend rates varied from
low to high estimates by major category of service as follows:
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Annual Trend Rates
Low High
Inpatient Hospital 2.50% 5.00%
Outpatient Hospital 4.00% 7.00%
Nursing Home 3.00% 6.00%
Physician 2.00% 4.00%
Other 2.00% 4.00%
Pharmacy 5.00% 9.00%
Home & Community Based 3.00% 5.00%
These trend rates are applied to per member per month costs, which includes both the utilization and
unit cost components of the annual trend rates.
3.11 Utilization Adjustments

Adjustments to the per member per month (PMPM) costs were made for the introduction of
managed care for the QExA population. For the medical portion of the capitation rates, Milliman
quantifies the degree of health care management (DOHM) on a scale of 0% (meaning unmanaged)
to 100% (indicating optimally or well managed). We examined the feasibility of first year program
management as well as the State’s desire to achieve cost savings in our managed care assumptions.
The DOHM varied by Medicare eligibility status as well as varying between a greater DOHM
assumption for the low end of the rate range and a lesser DOHM assumption for the high end of the
rate range. DOHM assumptions are as follows:
DOHM
Greater Lesser
Medicare Eligible 40% 30%
Medicaid Only 60% 50%
Management of long term care services were assumed to reflect a range of savings factors from
0.980 to 0.950, while home and community based services were assumed to range between 0.950
and 0.850 for all rating categories.
3.12 Utilization and Cost Assumptions

As a mandatory program, the risk adjustment and assessment process described in this section is not
applicable.
3.13 Post-Eligibility Treatment of Income (PETI)

The costs contained in the data book, as well as the ultimate rates developed from that data book, are net
of any client liability. Net claim costs were processed on a member specific basis.
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3.14 Incomplete Data Adjustment
The experience in the data book contained claims incurred between October 1, 2005 and September
30, 2006, and paid before June 30, 2007. Pharmacy experience from October 1, 2005 through
December 31, 2005 was removed because this was prior to the introduction of Medicare Part D
coverage for the dual eligibles. The computed degree of completion by major category of service is
summarized in the following table:
Category of Service Completion Factor

Long Term Care .9983
Physician .9928
Hospital .9689
Pharmacy .9030
4.0 Establish Rate Category Groupings

Rate cells have been reviewed and modified as deemed necessary and allowed by the available data.
The general rate structure includes differences by age, gender, rating category, and geographic area as
discussed in the following subsections 4.1 – 4.4.
4.1 Age and 4.2 Gender

Age/gender relativities are based on the fee-for-service experience summarized in the data book, but
further detailed by age and gender. The State computed factors are applicable to the base rates for both
health plans. The table of age/gender factors by rating category is shown in Appendix 1.
4.3 Locality/Region
Although rate ranges computed by Milliman varied by rating category and island, proposed rate
differences by island and aid category are determined by health plan bids by island and rating category.
In some cases bids had to be adjusted to be within the Milliman ranges, but generally bids were within
the ranges of sound rates. Proposed rates included in this rate packet vary by island and rating category.
4.4 Eligibility Categories

Refer to subsection 4.3 above.
5.0 Data Smoothing

The cost model has been modified to reflect the contractual stop-loss provision of reinsurance for
catastrophic claims defined as annual amounts in excess of $300,000. Given that the cost model already
includes this adjustment, no data smoothing was performed in the rate setting methodology.
5.1 Special Populations and Assessment of the Data for Distortions

No special adjustments were made for distortions in data based on the following conditions:
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• Mandatory program
• Catastrophic stop-loss provided by the state
• Aggregation of experience for all fee-for-service members produced the rate ranges.
5.2 Cost-neutral Smoothing Adjustment

Because catastrophic claims are not distorting the rate setting process, no cost neutral data smoothing
was necessary.
5.3 Risk Adjustment

The State intends to apply diagnosis based risk adjustment to the medical component of the rates and to
apply a functionality based risk adjustment to the home and community care component of the rates.
The details of these adjustments have not yet been determined, but will ultimately be budget neutral
from the State’s perspective.
We understand that once this is complete it will require an additional certification of budget neutrality
and approval by CMS.
6.0 Stop-Loss, Reinsurance, or Risk-sharing Arrangements

The state provides stop-loss coverage for annual claims in excess of $300,000, as discussed below in
subsection 6.2.
6.1 Commercial Reinsurance

The state does not require the purchase of commercial reinsurance.
6.2 Simple Stop-Loss Program

The state provides simple stop-loss protection to the participating health plans for claims in excess of
$300,000 per member on an annual basis at 85% reinsurance up to $1,000,000. Claim costs in excess of
$1,000,000 are reinsured at 100%. The cost models in the data book reflect the application of this
reinsurance mechanism.
6.3 Risk Corridor Program

Milliman has included a portion from the RFP, which details the risk corridor program as Appendix 5 of
this document.
7.0 Incentive Arrangements

The contract includes no incentive arrangements.
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Appendix 4
Data Book Summary
The 11/15/2007 revision of the cost models in the data book included the following
changes
1) Prescription Drugs are based on claims in the period January 2006 - September
2006. (lines P81 and H81). A fix was made to line H81 as it was using the
incorrect membership.
2) A correction was made to the Outpatient Hospital subtotal to include the claims
with no detail claim information.
3) Total member months for January 2006 - September 2006 are shown in the
exhibit. It is used in the Util. / 1,000 calculation for the prescription drug lines.
Note this is not the entire calendar year.
4) This version includes some rate cell shifting, due to the identification of some
nursing home wait list clients that will be considered nursing home clients. Many
of these clients have relatively high inpatient expenses, so this shift has resulted
in a significant change in the inpatient PMPM for some rate cells, as well as other
cost reallocations.
5) The Catastrophic Care Recoveries line incorrectly included some LTC services.
This has been corrected to only include medical services.
6) Several additional tables have been provided to address requests from the
business proposal orientation on 11/9/2007. These are found in the workbook
labeled QExA_RFP_AdditionalData_20071115.xls
The data book for the QExA Request for Proposals for the State of Hawaii contains 89
cost models (for various island, aid category, rate cell, and Medicare eligibility
combinations), a demographic summary, and the required bid forms in the following
Microsoft Excel spreadsheets:
• QExA_RFP_BidForms_20071115.xls
• QExA_RFP_Costmodels_20071115.xls
• QExA_RFP_AdditionalData_20071115.xls
These models have been constructed using information provided by the DHS.
The DHS provided the following data elements that were used in the development of the
cost models. Demographic and eligibility data elements included fields to identify island,
Medicare eligibles, period of eligibility, aid category, age, gender, and HCBS recipients.
We have used eligibility and claims data for the period October 1, 2005 - September 30,
2006, with nine months of run out on claims (through June 30, 2007).
Claims data was provided in a variety of formats. Most data used to develop the models
was from the DHS claims payment system. We were initially provided data at the header
level of detail. This data was then supplemented with the revenue and procedure codes to
categorize the services of a hospital claim. In some cases there was no supplemental
detail to match to the hospital record. Those claims have been mapped to service
categories based on the type of form used for the claim and noted in the model.
Some of the HCBS costs were paid outside of the claims system, these services include:
• Consumer Directed Personal Assistance
• CHORE Services
• Case Management
• Non-Medical Transportation
• Environmental Modification
• Home Maintenance
• Moving Assistance
• Specialized Medical Equipment
Most of the HCBS data was provided at the member level of detail. Some of these
services were provided at the SSD program level of detail. In these cases the costs were
assumed to be uniform across all members and months in that program.
Non-emergency transportation (NET) costs are not part of the claims system. The costs
for this service are accumulated for all eligibles, including the QExA population as well
as other Medicaid eligibles. We were provided with member level detail for air
transportation. The remaining NET dollars were allocated to the ABD population at a rate
of $2.07 PMPM and $0.77 PMPM for the Quest population. This allocation was based on
ratios observed in other states. We have no specific use rates by population in Hawaii
outside of the air travel.
Claims provided at the member level of detail were only included in the cost model if the
member was determined to be QExA eligible at the time of the service.
In an effort to make the data book as useful as possible, very few modifications have
been performed to the historical experience. We also recognize that many of the cost
models lack sufficient volume to produce statistically credible results. However, we have
presented these results to allow the offerors and their actuaries the flexibility to project
the experience to fit their expectations. The following are a collection of notes regarding
the construction of the data book cost models:
1. The nursing home population was determined as those clients who had claims
where the expense type indicated a nursing home claim. If the client was in the
nursing home on their first month of eligibility or as of October 1, 2005, the client
was placed in rate cell 1. If the client entered the nursing home during the year
that client was placed in rate cell 2.
2. Clients who either through the eligibility or claims data were determined to be
receiving HCBS were included in rate cell 2, unless they were identified as a
nursing home client and eligible for rate cell 1 as described above. All other
clients were placed in rate cell 3. The exception to this is the DD/MR population.
The HCBS costs for these clients have been removed from the contract and these
models, therefore a DD/MR client not in a nursing home setting will be classified
in rate cell 3.
3. There are no IBNR or trend adjustments made to the data provided in the cost
models.
4. The cost models have been adjusted to reflect the DHS catastrophic reinsurance
program. The amount shown is the recovery amount divided by the appropriate
member months. As indicated above, no adjustments were made to this amount.
5. Prescription drug costs were based on the period January 1, 2006 – September 30,
2006. Due to the implementation of Part D coverage, we excluded the last quarter
of 2005. The utilization per 1000 and the PMPM for this service are based on the
membership for the same period.
6. Drugs costs shown do not include an adjustment for rebates.
7. Mental health services for children diagnosed with SEBD and adults diagnosed
with SMI have been removed from these models.
8. Case Management costs were generated based on daily rates in SSD programs.
These daily rates were applied based on the number of eligible days in the period
where the client was not in the nursing home or hospital setting.
9. CHORE services were provided at times to multiple individuals in the same

household. We divided the costs equally among the eligibles listed as receiving
the service.
10. Nursing Home Without Walls data for Consumer Directed Personal Assistance
was provided at the member level for calendar year 2006. Therefore, the
utilization per 1000 and PMPM cost for this service line is based on data from a
slightly different time period than the other components of the cost model.
11. Additional detail will be provided regarding costs for hospital CCA rate
reconciliation and capital improvement costs. These are reconciliation payments
historically made by DHS to the hospitals. In FFY 2006 this amount was $8.6
million. Currently these costs are not included in the cost models.
12. Due to incomplete costs for the PACE population, (PACE clients are eligible for
this program) their member months and partial claims have been removed from
these cost models. Removed member months totaled 696.
13. Age/Sex factors by aid category and rate cell will be a later supplement to the data
book.
The historical data in the cost models have not been modified to reflect future
expenditures. Health plan specific levels of management, specifics of provider
contracting, pharmacy rebates, expenses not included in the cost models, and contractual
differences between historical and future contractual periods will all need to be
considered by offerors in the construction of bid rates.
This analysis has relied extensively on data provided by DSH. While numerous checks
of reasonableness have been performed, no independent audit of the data has been
performed. Errors in data reporting will flow through the analysis, and as such would
impact the results.
The information contained in the data book has been prepared for the DHS. Milliman
makes no representations or warranties regarding the contents of this data book to third
parties. Likewise, third parties are instructed that they are to place no reliance upon this
data book prepared for the DHS by Milliman that would result in the creation of any duty
or liability under any theory of law by Milliman or its employees to third parties. Any
user of the data must possess a certain level of expertise in actuarial science and
healthcare modeling so as not to misinterpret the data presented.
Appendix 5
State of Hawaii
Department of Human Services
Med-QUEST Division
Amendment # 2
Issued on: October 26, 2007
For Requests for Proposals RFP-MQD-2008-006
QUEST Expanded Access (QExA) Managed Care Plans to Cover Eligible Individuals Who Are Aged, Blind or Disabled
# RFP Section # RFP Language Amendment

1 Appendix B Replace current Appendix B with revised Appendix B
below.
1 RFP-MQD-2008-006
Amendment #2
10/2607
Amendment #2
Revised APPENDIX B
APPENDIX B
RISK SHARE PROGRAM
Objective of the Program: The State acknowledges that due to circumstances beyond
the control of the health plans and the State, the established capitation rates may not be
appropriate for the services to be provided. Even with utilization data and experience
serving the ABD enrollees, it is difficult for the plans and the State to accurately predict
the actual peformance or utilization of services by the enrolled population. It is possible
that more recipients will utilize more services than estimated. Conversely, it is also
possible that more recipients will utilize substantially less services than estimated.
To address the unknown risk to the health plans and the State, the DHS will implement
a risk share program. The risk share program will be applied when there is an overall
impact on the program such that there is a significant differential between the total funds
provided to the plans for health care and the aggregate health care expenses of the
plans. It is not intended to protect any one health plan from poor performance due to
ineffective management of utilization, or the inability to negotiate effective and
economical contracts. The risk share program cannot be activated by a single plan.
Conceptual Framework: Under the risk share program, the DHS will share in a
significant difference between the capitated revenues and the actual costs experienced
by the totality of the plans. Six (6) months following the end of the fiscal year (by
December 31), using the financial reports provided by the participating health plans, a
simple profit and loss statement will be developed for the health services portion of the
QExA program. The health care services portion of the capitation revenues is assumed
to be 93%. Actual administrative expenses will not be included in the computation since
the intent of the program is to adjust for unknown risk associated with providing the
health services to the enrolled population. Note that service coordination costs are
reported as healthcare services and not as administrative costs for this computation.
Following the computation of the aggregate profit and loss statement, a net loss or gain
percentage will be computed based upon the total capitations paid to the plans for
health care. If the loss percentage is within a 5% risk corridor, there will be no loss
sharing between the DHS and the health plans and the health plans will absorb all of
the loss. If the aggregate loss is outside of this risk corridor, the DHS will share equally
in the loss exceeding the risk corridor up to the risk share limit of $5,000,000. If there is
an aggregate gain exceeding 3%, the DHS will share equally in the gain between 3%
and 5%. The DHS will recover all gains exceeding 5%.
If there is to be risk sharing, each health plan would be compensated individually based
on the number of eligible months. Using an example of a net loss of 7%, with the risk
corridor at 5%, the 2% difference would be shared equally between the DHS and the
health plans up to $5,000,000. Since the DHS and the health plans share equally in the
loss, the amount to be remitted back to the health plans is 1% of the total capitations
B-1
Amendment #2
Revised APPENDIX B
paid to the health plans for health care. Only health plans experiencing an actual loss
will benefit from the risk share program.
Similarly, if there is a net gain of 7%, there will be profit sharing for the 4% difference
beyond the 3% corridor. The first 2% difference will be shared equally between the
DHS and the plans. The second 2% will be returned to the State. Only health plans
experiencing an actual gain above the 3% corridor will be required to reimburse the
State.
The individual amounts to be remitted to the plans or to the State will be distributed
based on eligible months. The following formula will be used to determine the
aggregate gain/loss*:
∑Total revenue (based on capitations paid to each plan for the health care
portion)
Less: ∑Net health care expenses (based on the actual experience for health care)
Equals: Net profit/loss (for the health care services provided to QExA populations)
The net profit/loss divided by the total revenue will provide a percentage of the
profit/loss which will be compared to the risk corridor established by the DHS.
* The following definitions apply:
Total Revenue is the sum of all capitation payments made to each health plan during
the fiscal year. Total Revenue for Health Care is defined as Total Revenue times 94%.
Net Health Care Expenses will be based on the actual service expenses less any
reimbursements from third party reimbursements. The expenses will be taken from the
financial reports provided by the health plans for the year ended June 30. DHS
recognizes that the financial reports are due within 45 days from the end of the reporting
period and that some data may not be available at the time the reports are submitted.
Therefore, prior to compiling the profit/loss statement for the risk share program, the
plans will be requested to update their prior year’s report for any adjustments. The
report will be due to the DHS by January 15.
All net expenses for all health plans will be summed to determine the total net expenses
for care.
Examples: The following examples illustrate how the Risk Share Program would be
applied in aggregate and individually to the plans
B-2
Amendment #2
Revised APPENDIX B
Example 1: Aggregate Program Calculation for Loss
Recipient Capitation Medical Portion Medical Net Gain (Loss)

Plan Months Paid (total) % $ Expenses Profit (Loss) Percentage
A 205,200 102,600,000 93% 95,418,000 106,618,842 -11,200,842 -11.74%
B 154,800 77,400,000 93% 71,982,000 79,122,150 -7,140,150 -9.92%
360,000 180,000,000 167,400,000 185,740,992 -18,340,992 -10.96%
Total Capitations Paid to the Plans for Care 167,400,000

Total Expenses Related to Care 185,740,992
Net Loss 18,340,992
Loss Percentage for the Program 10.96%
Risk corridor is 5% -5.00%
% of loss to be shared equally between plans and DHS 5.96%
% to be returned to plans (50/50 share) 2.98%
Since in aggregate, the program experienced a loss greater than the 5% corridor, the
risk share program will be implemented.
Example 2: Distribution to the Plans
The plans and DHS share equally in the loss over 5% (i.e., in this example 5.96%). The
total amount to be returned to the plans is calculated based on 2.98% of the services
portion of the capitations received by the plan experiencing a loss (2.98% x
$167,400,000 = $4,988,520). A per capita amount to be returned can be calculated
using the total amount to be returned divided by the total number of recipient months
served by the plans experiencing a loss (which could be a single plan). In this example,
the per capita amount would be $13.857 per recipient month ($4,988,520 / 360,000).
As long as the $5,000,000 limit was not reached, the calculation would be computed as
follows: Each plan with a loss will receive $13.857 per recipient month. Plan A would
receive $2,843,456 (205,200 x 13.857); and Plan B would receive $2,145,063 (154,800
x 13.857). A plan would not receive any payment from the Risk Share Program if it did
not actually experience a loss.
If the limit of $5 million had been exceeded, each plan with a loss will receive a pro rata
share of the $5,000,000 based on the plan’s recipient months. Plan A would receive
$2.85 million (57% x 5,000,000); and Plan B would receive $2.15 million (43% x
5,000,000).
B-3
Amendment #2
Revised APPENDIX B
Example 3:Aggregate Calculation of Gain
If there is a net gain, the net gain percentage will be computed and distributed among
the plans exceeding the 3% allowable gain.
Recipient Capitation Medical Portion Medical Net Gain (Loss)

Plan Months Paid (total) % $ Expenses Profit (Loss) Percentage
A 205,200 102,600,000 93% 95,418,000 92,142,598 3,275,402 3.43%
B 154,800 77,400,000 93% 71,982,000 66,404,401 5,577,599 7.75%
360,000 180,000,000 167,400,000 158,546,999 8,853,001 5.29%
Total Capitations Paid to the Plans for Care 167,400,000

Total Expenses Related to Care 158,546,999
Net Gain 8,853,001
Gain Percentage for the Program 5.29%
Risk corridor is 3% 3.00%
Since in aggregate, the program experienced a gain greater than the 3% corridor, the
risk share program will be implemented.
Example 4: Plan Specific Calculations
The plans and DHS share equally in the gain between 3% and 5% and any gain at or
over 5% is returned to the State. If a plan has a gain over 5%, the maximum amount
that the plan will be allowed to retain will be 4%. The gain allocation would be applied
only to plans which experienced a gain over 3%. In this example, Plan A had a gain of
3.43% and would return half of the gain in excess of 3%, or 0.215% ( [3.43 – 3.00] / 2).
Plan A would retain $3,069,299 and would return $206,103 to DHS. Plan B had a gain
of 7.75% and would be allowed to retain 4%. Plan B would retain $2,879,280 and
would return $2,698,319 to DHS. If a plan has a gain of less than 3% or a loss, they
would not make any payment to the state under the gain sharing provision.
B-4
Appendix 6
Capitated Contracts Ratesetting
Actuarial Certification
I, Timothy S. Barclay, am associated with the firm of Milliman, Inc., and am a member of the
American Academy of Actuaries and meet its Qualification Standards for Statements of Actuarial
Opinion. I have been retained by the State of Hawaii Department of Human Services (DHS) to
perform an actuarial certification of the QExA managed care capitation rates for the period
February 1, 2009 through September 30, 2009. I have assisted with the development of the
managed care capitation rates used by DHS and am familiar with the Code of Federal
Regulations, 42 CFR 438.6(c) and the Centers for Medicare & Medicaid Services Appendix A,
PAHP, PIHP and MCO contracts Financial Review Documentation for At-risk Capitated
Contracts Ratesetting.
I have examined the actuarial assumptions and actuarial methods used in setting the DHS
managed care capitation rates for the contract period of February 1, 2009 through September 30,
2009 for the QExA program.
To the best of my information, knowledge and belief, for the months of February 1, 2009 through
September 30, 2009, the managed care capitation rates offered by DHS are in compliance with 42
CFR 438.6(c). The attached report describes the rate review.
In my opinion, the capitation rates are actuarially sound, have been developed in accordance with
generally accepted actuarial principles and practices, and are appropriate for the populations to be
covered and the services to be furnished under the contract.
In making my opinion, I have relied upon the historical claim data for eligible members, program
eligibility data, experience in other states, and Milliman research, as well as representations made
by DHS. This data has been supplemented with research and actuarial judgment as detailed in
the attached actuarial report. I performed no independent audit of the underlying data, but did
perform appropriate reasonableness checks and edits as described in the attached actuarial report.
In other respects, I have reviewed the underlying assumptions and methods used and performed
such tests of the calculations, as I considered necessary.
Actuarial methods, considerations, and analyses used in forming my opinion conform to the
appropriate Standards of Practice as promulgated from time-to-time by the Actuarial Standards
Board, whose standards form the basis of this Statement of Opinion.
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This Opinion is intended for the State of Hawaii and should not be relied on by other parties. The
reader should be advised by actuaries or other professionals competent in the area of actuarial
projections of the type in this Opinion, so as to properly interpret the projection results. It should
be emphasized that capitation rates are a projection of future costs based on a set of assumptions.
Actual costs will be dependent on each contracted health plan’s situation and experience.
Timothy S. Barclay
Member, American Academy of Actuaries
January 29, 2009

Date
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1301 Fifth Avenue

January 29, 2009

Ms. Patricia M. Bizan

Re: Revised QExA Actuarial Soundness Documentation

Limitations and Caveats

Please let me know if you have any questions.

Justin C. Birrell, ASA, MAAA

January 29, 2009

Ms. Patricia M. Bazin

Re: Revised QExA Rates Effective February 2009 – September 2009

¾ Effective Period of the Rates

Offices in Principal Cities Worldwide

Effective Period of Rates

Physician Reimbursement Enhancement

This adjustment was similarly applied to the Milliman rate ranges.

Spenddown in Milliman Rate Ranges

FQHC Out-of-Network Adjustment

State Provider Supplemental Payment

Insurance Premium Tax

Please let us know if you have any questions.

Timothy S. Barclay, FSA, MAAA

Pre-Insurance Premium Tax Bid Rates

Revised Effective Period - Trend Adjustment

Physician Fiscal Year 2009 Enhancement

Rate Range Adjustment

FQHC Out-of-Network Adjustment

State Provider Supplemental Payment

Final Rates Loaded for Insurance Premium Tax (4.265%)

Pre-Insurance Premium Tax Bid Rates

Revised Effective Period - Trend Adjustment

Physician Fiscal Year 2009 Enhancement

Rate Range Adjustment

FQHC Out-of-Network Adjustment

State Provider Supplemental Payment

Final Rates Loaded for Insurance Premium Tax (4.265%)

January 30, 2008

Ms. Patricia M. Bazin

Re: QExA Actuarially Sound Rate Range Development

Offices in Principal Cities Worldwide

Adjustments for IBNP

Category of Service Completion Factor

Annual Trend Rates

Managed Care Savings

Care Coordination Cost Increase

Care Coordination Service Cost

Health Plan Administration

Several factors contribute to a range of administrative cost assumptions when expressed as a

Medical Component LTC Component

Please let us know if you have any questions.

Timothy S. Barclay, FSA, MAAA

Hawaii Medicaid Division

1.0 Overview of Rate Setting Methodology

• Fee-for-service claims data

• Utilization data was accumulated from the fee-for-service claims data

¾ SFY 2009 Physician Reimbursement Enhancement

1.1 Actuarial Certification

1.2 Projection of Expenditures

February 2009 – September 2009 Expenditure Projections

Projected Continued Fee-

312,815 $370,754,228 $348,749,496 -5.9%

1.3 Procurement, Prior Approval and Rate Setting

1.5 Risk Contracts

1.6 Limit on Payment to Other Providers