Report on an Actuarial Review of the HealthChoices Program in Southeastern Pennsylvania


House Resolution 207 called for an independent study of the actuarial soundness of the methodology and assumptions used by the Department of Public Welfare in setting rates for the physical health component of the HealthChoices program. HealthChoices is the mandatory Medicaid managed care program which began in Philadelphia and the four surrounding counties on February 1, 1997. The Legislative Budget and Finance Committee contracted with Arthur Andersen LLP to conduct this study. Arthur Andersen found:



Arthur Andersen recommends the Department of Public Welfare consider:


- Incorporating historical Medicaid managed care data from the HealthChoices program when prospectively developing

future target premium rates.

- Increasing the plans’ allowance for administrative expense, profit, and risk to 13% - 15% of medical expense.

- Making behavioral health providers financially accountable for the prescriptions they authorize.

- Modifying the rating process to compensate for key risk factors, such as AIDS cases and institutionalized recipients.

- Incorporating age, gender, and health status into the auto-enrollment process to reduce the plans’ unmanaged exposure

to uncompensated, random fluctuations in enrollment distributions.

- Retroactively eliminating the voluntary adjustment for General Assistance and SSI groups.

- Moderating the antiselection and managed care adjustment factors for the SSI eligibility groups to correct for
a net understatement in rates of at least 3% to 6%.

LB&FC: 2/11/98