Prescription Advantage Actuarial Report

Actuarial Report February 19, 2003

Secretary Jennifer Davis Carey Executive Office of Elder Affairs Commonwealth of Massachusetts

Prescription Advantage Actuarial Report Prepared for the Executive Office of Elder Affairs By Ernest J. Lampron, ACA, MAAA, February 19, 2003

Data Sources The data used to produce the actuarial and financial projections is provided by the Executive Office of Elder Affairs (Elder Affairs), AdvancePCS, (the Plan’s pharmacy benefits manager) and by the University of Massachusetts Medical School (UMASS) on a monthly basis. As the enrollment broker for the Plan, UMASS provides both monthly premium data, as well as monthly prescription drug claims data that it receives from AdvancePCS. UMASS also provides all other administrative financial data associated with the Plan’s billing and enrollment functions. Elder Affairs provides other operational cost information including staffing costs, consulting fees and other administrative expenses.

Components for Financial Projections

A financial projection model has been developed to project the Plan’s benefit and administrative costs and future expenditures. Each month, as actual data becomes available, the model is updated. Part of the updating process is a reconsideration of assumptions and the adjustment of the Plan’s annual cost and utilization trends.

The financial projections are based on the prescription drug claim payments reported for Prescription Advantage from April 1, 2001 through December 31, 2002.

Fiscal Year 2003 Financial Projections Financial projections for fiscal year 2003 include the plan design changes effective July 1, 2002. The projected FY2003 cost is $93.1 million.

Actuarial Opinion Without additional modifications to the terms of the Plan, the projected expenditures of $93.1 million will exceed the current appropriation of $85.6 million. Although there is some uncertainty attributable to present Plan data, it provides the most reliable information available for the Plan’s financial projections and, where appropriate, has been adjusted to compensate for any recognized deficiencies. The methods used to develop the Plan’s financial projections meet applicable actuarial standards and reasonably account for all anticipated Plan design and administrative changes.