Department of Civil Service

PA08-10

TO: Participating Agency Health Benefit Administrators
FROM: Robert W. DuBois, Director of the Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report
DATE: July 31, 2008

Enclosed are the First Quarter Empire Plan Experience Report for 2008 and the cover letter to the Chief Executive Officers. This report presents the projected 2007 Empire Plan experience and projected 2008 Empire Plan experience and the projected 2009 premium rates.

July 31, 2008

Dear Chief Executive Officer:

Attached is the Empire Plan First Quarter Experience Report for 2008. This report presents the actual 2007 Empire Plan experience, the projected 2008 Empire Plan experience, based on claims paid through March 31, 2008, and the projected 2009 premium rates.

For the 2007 Plan Year, the Empire Plan carriers declared a 2007 net dividend of $450.0 million, 8.6% of premium. This dividend will be used to offset future premium increases. For the 2008 Plan Year, the Empire Plan carriers project a net dividend of $244.3 million, 4.4% of premium. This report presents the basis for these projections and future reports will include revisions based on additional claims experience.

The projected 2009 premium rates are presented in Exhibit III and reflect a “best estimated” net rate increase of 8.1%. The range of the potential 2009 premium rate increase is included for your budget development considerations.

In addition, the New York State Health Insurance Program will begin offering the Excelsior Plan, a lower cost version of the Empire Plan, effective July 1, 2008. Currently, the lower cost option is known as The Empire Plan Core Only. The benefit design for agencies currently in the Core Only Option will change to the Excelsior Plan benefits effective January 1, 2009. These agencies have been notified of the changes. The Excelsior rates are included within the exhibits of this report.

I hope this report is informative. If you have any questions, comments or suggestions, please don’t hesitate to contact me.

Sincerely,

Robert W. DuBois, CEBS
Director
Employee Benefits Division

EMPIRE PLAN EXPERIENCE REPORT

FIRST QUARTER
(January - March 2008)

Produced for
PARTICIPATING AGENCIES IN THE
NEW YORK STATE
HEALTH INSURANCE PROGRAM
by
the Employee Benefits Division
New York State Department of Civil Service
Nancy G. Groenwegen
President, New York State Civil Service Commission

• 2007 Empire Plan Experience
• Projected 2008 Empire Plan Experience
• Projected 2009 Premium Rates

Exhibits

1. 2007 Empire Plan Experience
2. Projected 2008 Empire Plan Experience
3. Projected 2009 PA Premium Rates
4. Empire Plan PA 5-Tier Group Rates (2000-2009)
5. Empire Plan PA 2-Tier Group Rates (2000-2009)

• NYSHIP News
• Guidelines to Initiate Electronic Transfer of Funds

NEW YORK STATE HEALTH INSURANCE PROGRAM
PARTICIPATING AGENCY GROUP
EMPIRE PLAN EXPERIENCE REPORT
1st QUARTER REPORT

ACTUAL 2007 EMPIRE PLAN EXPERIENCE

The Empire Plan carriers declared a composite dividend of $450.0 million (8.6% of premium), or $316.9 million more than the margin loaded in the 2007 rates. The 2007 annual experience is reported in Exhibit I. An additional, $3.5 million in dividend was declared by Cigna which represents favorable 2007 activity pertaining to the prescription drug contract that terminated, effective 12/31/05. The experience under this contract will continue to be updated until we have accounted for all activity related to claims and pharma revenue incurred/earned by the Program

This 2007 settlement is based on thirteen months of 2007 paid claims data. The following chart presents the percentage of the incurred claims actually paid as well as the observed 2007 trend as compared to the trend assumed during the 2007 rate development:

The 2007 projected dividend for each carrier as compared to the margin level used in the 2007 premium development is as follows:

The large increase in the dividend is primarily attributable to the significant reduction in claim costs from those amounts projected during the development of the 2007 premium rates for the prescription drug, medical and hospital programs. When the 2007 premium rates were developed in October 2006, the amount of the actual 2006 incurred and paid claims through September was approximately 62% of the 2006 projected incurred claim amounts. Approximately 36% of the incremental dividend is attributable to a lower 2006 claim base as compared to the current projected 2006 claim base which is approximately 99.9% complete.

Another 63% of the incremental dividend is attributable to the lower actual 2007 composite trend of 7.3% as compared to the composite projected trend of 12.2% used in the 2007 premium development. The balance of the incremental dividend is attributable to a reduction in the retention charges over the amounts included in the premium development.

The loss incurred under the Mental Health and Substance Abuse Program was primarily due to the passage of Timothy’s Law which occurred a few months after the 2007 rates were developed. This resulted in increased claim costs under the non-network benefit. Under normal circumstances, the loss declared by GHI would be problematic to GHI and the Program. However, the loss is recoverable in its entirety by GHI as the State and GHI agreed to a retrospective premium arrangement. Dividends declared by GHI in 2006 will be used to fund this payment.

PROJECTED 2008 EMPIRE PLAN EXPERIENCE

The Empire Plan carriers project a composite dividend of $244.3 million (4.4% of premium), or $94.2 million more than the margin loaded in the 2008 rates. The 2008 annual experience projected by the insurance carriers is reported in Exhibit II.

This projection is based on only three months of 2008 paid claim data. The following chart presents the percentage of the projected incurred claims actually paid as well as the current 2008 trend as compared to the trend assumed during the 2008 premium rate development:

The 2008 projected dividend for each carrier as compared to the margin level used in the 2008 premium development is as follows:

The increase in the dividend projection is primarily attributable to the decrease in the 2007 claims base for the medical and prescription drug components projected during the development of the 2008 rates and an improvement in 2008 trend for the medical and hospital programs. There also is a substantial increase in the projected pharma revenue for the prescription drug program. Offsetting the favorable prescription drug program experience is a significant increase in the disabled lives reserve. The reserve amount projected by UnitedHealthcare is considered to be excessively conservative and will be reviewed.

2009 PROJECTED PREMIUM RATES

Exhibit III presents the projected 2009 Empire Plan gross and net premium rates assuming the application of $350.0 million in dividend to all payors. In aggregate, the Empire Plan gross premium is projected to increase approximately 7.6% while the net premium is projected to increase approximately 8.1%.

A range of the projected gross and net premium rate increase is also included (5.0% - 11.2%). Carrier rate projections made at this time of the year have been historically conservative with the rates ultimately approved and implemented being significantly less than the projections contained in 1st Quarter Reports. Each agency should assess its budgetary environment in using the enclosed projections.

Exhibit III also presents the 2008 (effective July 1, 2008) and projected 2009 rates for the Excelsior Plan. As compared to the Empire Plan rates, the Excelsior Plan rates are in aggregate 15% lower.

Exhibit IV presents the individual and family rate history for the Core plus Medical and Psychiatric Enhancement option based on the 5-tier Empire Plan billing rate history in effect since January 1, 1999. Exhibit V presents, for illustrative purposes only, the 2-tier rate history from 2000 to 2009.

Exhibit I

2007 EMPIRE PLAN EXPERIENCE
In (000's)

(1) Earned Premium - Premium which pays for coverage for the period reported (accrual basis).
(2) Incurred Claims - Represents the cost of covered services provided during the period reported by the insurance company (accrual basis).
(3) Administrative Expenses - All charges by the insurance carrier other than for the payment of claims. Includes carrier’s cost to administer the program, interest charges, and other retention.

Source: Carrier 2007 Annual Statements
Includes SEHP

Exhibit II

2008 PROJECTED EMPIRE PLAN EXPERIENCE
In (000's)

(1) Earned Premium - Premium which pays for coverage for the period reported (accrual basis).
(2) Incurred Claims - Represents the cost of covered services provided during the period reported by the insurance company (accrual basis).
(3) Administrative Expenses - All charges by the insurance carrier other than for the payment of claims. Includes carrier’s cost to administer the program, interest charges, and other retention.

Source: Carrier 2008 1st Quarter Reports

Exhibit III

Participating Agency Premium Rates
Comparison of 2008 and Projected 2009 Rates

CORE PLUS MEDICAL & PSYCHIATRIC ENHANCEMENTS

Plan Prime: Individual

Plan Prime: Family

Medprime: Individual

Medprime: Family-1

Medprime: Family-2

(1) Represents premiums charged by the carriers.
(2) Represents cost to a participating agency.
(3) Projected Rates.

EXCELSIOR PLAN

Plan Prime: Individual

Planprime: Family

MediPrime: Individual

MediPrime: Family-1

MediPrime: Family-2

(1) Represents premiums charged by the carriers.
(2) Represents cost to a participating agency.
(3) Projected Rates.

Exhibit IV

EMPIRE PLAN
PA 5 TIER GROUP RATES
2000-2009 Monthly Rates

Core Plus Medical & Psychiatric Enhancements

Individual Planprime

Average Percent Increase

Family Planprime

Average Percent Increase

Individual Medprime

Average Percent Increase

Family - 1 Medprime

Average Percent Increase

Family - 2 or More Medprime