Delta Dental Plan of New Jersey (Delta Dental) is engaged in an enterprise-wide project to meet HIPAA mandates governing the Standards for Electronic Transactions and the Privacy of Individually Identifiable Health Information. Delta Dental has identified and implemented reasonable system changes, policies, procedures and documentation necessary to comply with the final Privacy Rule as it applies to dental benefit programs. As each final rule is issued, Delta Dental will begin another project cycle of assessment, planning and implementation. Delta Dental will continue to commit the resources and funding we believe is necessary to meet the compliance deadlines.

To achieve a successful implementation of the new Health Insurance Portability and Accountability Act (HIPAA) transaction and code sets regulation, Delta Dental will continue to accept existing claim formats, in addition to HIPAA compliant transactions, under its contingency plan. During this time, Delta Dental will continue to transition our providers to HIPAA compliant transactions. Delta Dental will continually monitor the situation and will make a determination on how long to continue our contingency plan based on the unique business environment of our service area.

The new HIPAA transaction and code sets rules represent the most sweeping change ever in the way electronic healthcare claims are processed. Our decision to accept non-compliant transactions reflects the increasing likelihood that many healthcare providers will be unable to meet the October 16 HIPAA transactions and code sets regulation deadline. Noncompliance with the HIPAA requirements could result in several unintended consequences, the most important of which would be a return to inefficient and costly paper transactions.

According to a July 24, 2003 guidance issued by the Department of Health and Human Services (HHS), payers will not be penalized for accepting existing transactions during a transition period as part of their contingency plan provided they can demonstrate good faith efforts in working with their providers to facilitate compliance. Delta Dental has been working closely with our trading partners to ensure a smooth transition.

We believe we are compliant with the most important of the covered transactions - Health Care Claims (837), Eligibility Benefit Inquiry (270/271), Claims Status Request and Response (276/277) and Benefit Enrollment and Maintenance (834). There are some transactions - Health Care Services Review, Request for Review and Response (278), Payroll Deducted and Other Group Premium Payment for Insurance Products (820) and Health Care Claim Payment/Advice (835) for which we have had no trading partner request that we conduct these transactions. Although we have worked on these transactions, we will work towards full compliance when necessary. In addition, testing of all of the transactions has been difficult to complete, as many trading partners (mostly clearinghouses) have not been able to test with all of their payers. We fully expect however, to see no adverse impact on our claim adjudication or customer service processes.

Delta Dental encourages any client who wishes to send enrollment data to us using a standard 834 transaction to contact their account executive or service coordinator as soon as possible to schedule the necessary testing. Delta Dental's Information Services personnel will establish each client's testing schedule based upon resource availability.

Delta Dental Plan of New Jersey is an independent licensee of the Delta Dental Plans Association ("DDPA"). Delta Dental Plan of New Jersey is a not-for-profit service corporation subject to regulation by the New Jersey Department of Banking and Insurance under the Dental Service Corporation Act for New Jersey. The Connecticut Department of Insurance regulates Delta Dental Insurance Company in Connecticut. Delta Dental Plan of New Jersey cooperates with other DDPA licensees to service national accounts with employees/members residing and working in multiple jurisdictions. This is done through Delta Dental's DeltaUSA program, which is administered by DeltaUSA (an affiliate of DDPA).

To date, each licensee, including Delta Dental Plan of New Jersey, has appointed staff to be in charge of HIPAA compliance, and licensees continue to take steps to achieve readiness in a timely fashion.