Department of Civil Service

PA92-15

TO: Participating Agency Chief Executive Officers
FROM: Robert DuBois, Director, Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report (July - September, 1992)
DATE: December 11, 1992

Attached is the Empire Plan Quarterly Experience Report for the period July - September 1992. The Plan continues to reflect favorable experience through the third quarter of 1992 and the carriers project a dividend for the year which represents 7% of premium. Rates for the 1993 Plan Year reflecting this experience were recently sent to you under separate cover.

Thirty-five years ago this month on December 5, 1957, the New York State Health Insurance Program began. The law establishing the program authorized and directed the President of the Civil Service Commission to "establish a health insurance plan for State officers and employees and their dependents... The following year, the law was amended to authorize the President to include in the plan employees and dependents of employees of local subdivisions of the State. It is quite likely that no one who was there at the beginning of the program could envision what it would become in the next three and a half decades. The impact of such factors as collective bargaining, federal health care legislation, and the cost of medical care have substantially impacted NYSHIP during that time. There is good reason to expect that these same factors will continue to have future impact as well.

As the Program begins its 36th year, we are committed to continuing to provide to your agency and to other localities a high quality, cost effective health care plan. To make the Program as responsive as possible to the needs of local government, we have over the past few years solicited suggestions from the CEOs of Participating Agencies. In the coming months we will be surveying local governments regarding their needs in this area and planning a series of meetings to be held next Spring. In the meantime, please feel free to contact me at any time with your suggestions.

EMPIRE PLAN EXPERIENCE REPORT
JULY - SEPTEMBER 1992

produced for

PARTICIPATING AGENCIES IN THE
NEW YORK STATE
HEALTH INSURANCE PROGRAM

by

the Employee Benefits Division
New York State Department of Civil Service
Josephine L. Gambino
President New York State Civil Service Commission

A look inside ...

• Empire Plan 1992 Experience

• 1993 Premium Rates

• Empire Plan Rates (1986 - 1993)

• Keeping You Informed
  - Health Insurance and Collective Negotiations

• Exhibits

1. Empire Plan Experience (Through Third Quarter 1992)

2. Empire Plan Experience (Projected 1992 Contract Year)

3. Empire Plan Premium Rates (Comparison of 1992 and 1993 Rates)

4. Empire Plan PA Group Rates (1986 - 1993 Monthly Rates)

EMPIRE PLAN 1992 EXPERIENCE

Empire Plan experience through the third quarter of 1992 and the 1992 annual experience projected by the insurance carriers are presented in Exhibits I and II. The composite 1992 Empire Plan dividend is projected at $105.1 million, or 7% of premium, an increase of approximately $62.7 million over the margin load in the 1992 premium structure.

Blue Cross

Based on claims paid through September, Blue Cross projects a 1992 dividend of $77 million, or approximately 12.8% of premium. This is an increase of $61 million over the margin loaded into the 1992 rates. Approximately $58 million of the dividend is attributable to the combined effect of the overstatement of the 1991 claim base in the 1992 rate renewal submission and an improvement in trend from 13.75% to 9.5%. The remaining dividend represents savings from increased hospital DRG and medical reviews.

Metropolitan Medical

Metropolitan is projecting a composite dividend for 1992 of $30.7 million, or 4.9% of premium, for the medical component of the Empire Plan. This projection represents a $12.1 million improvement over the margin loaded into the 1992 rates. The increase in dividend is largely due to a modest improvement in trend.

Metropolitan/APM Mental Health and Substance Abuse Program

Based on claims paid from February through September, Metropolitan is projecting a loss of $928,000 (less than 1% of premium) for the new Managed Mental Health and Substance Abuse Program (MHSA). Though the loss represents a modest reduction from the claims experience projected during the RFP process, significant savings projected at $30 million have been achieved under the new program. Dividend/deficit projections should be viewed cautiously as treatment and payment patterns are not yet mature. In addition, approximately 20,000 new enrollees began participation in the program effective 10/1/92 thereby potentially effecting dividend/deficit projections.

CIGNA

While CIGNA continues to project a loss for 1992, the amount of the loss has been lowered to approximately $1.7 million, about fifty percent of the $3.4 million loss projected in the second quarter report. This relatively small projected loss, representing 1% of premium, is attributable to unrealized coordination of benefits savings and a deterioration of claims experience resulting from the higher than projected use of "brand name only" drugs.

1993 PREMIUM RATES

Exhibit III presents the established 1993 Empire Plan gross and net rates in comparison to the 1992 rates. The net rates reflect the application of $145 million in dividend to all payors. Though actual medical costs are expected to increase approximately 11% in 1993, a modest 5% composite rate increase was possible due to the higher than required 1992 premium base and the increase in dividend application.

Note: Due to the application of dividend monies to the psychiatric component of the premiums, the 1993 Net Rates for Core Plus Psychiatric Enhancement (Option 5) are less than Core Only (Option 8) and Core Plus Medical & Psychiatric Enhancements (Option 7) are less than Core Plus Medical Enhancement (Option 6). The dividend applied to the psychiatric component of the premiums for Options 5 and 7 is greater than the Psychiatric Enhancement premium. Such dividend share was earned by the Metropolitan PA Psychiatric Enhancement pool in 1991.

EMPIRE PLAN RATES (1986 - 1993)

Exhibit IV presents the Empire Plan rate history for groups with both medical and psychiatric enhancements since the inception of the Plan in 1986. The average annual increase for the 8 year period is approximately 11%.

KEEPING YOU INFORMED

Health Insurance and Collective Negotiations

Recently, we have become aware of several local negotiated agreements of Participating Agencies which contain provisions outside the parameters established by laws, regulations and rules governing the New York State Health Insurance Program.

While the Program allows local discretion in such areas as contribution rates, effective dates, and the extension of coverage into retirement, we cannot recognize any variation outside that explicitly permitted in the Manual for Participating Subdivisions in such areas as eligibility requirements and benefits. A basic reason for this position is that since all participants are experience rated as a group, equity requires that all comply with those aspects of the Program which affect experience.

Section 605 of the Manual for Participating Subdivisions provides general information which serves as a guide for agency administrators in their negotiations with employee bargaining units. In the event of a proposal or question which cannot be answered by referring to that section, contact Mr. David E. Kline, Manager of Agency Services of the Employee Benefits Division, for an opinion.

Exhibit I

EMPIRE PLAN EXPERIENCE
Through Third Quarter 1992
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 retention.

Source: 1992 Third Quarter Reports

Exhibit II

EMPIRE PLAN EXPERIENCE
Projected 1992 Year
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 retention.
(4) Premium excludes potential $2,772 million dividend call for margin guarantee.
(5) Premium excludes potential $3,848 million dividend call for PEF rate guarantee.
(6) Premium includes $1 million dividend advance, if necessary.
Source: 1993 Third Quarter Reports

Exhibit III

EMPIRE PLAN
Participating Agency Premium Rates
Comparison of 1992 and 1993 Rates

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

EMPIRE PLAN
PA GROUP RATES
1985 - 1994 Monthly Rates

Core plus Med & Psych. Enh.

Individual

Family

* Statewide Plan Premium Rates

(1) 1988 rates represent the effective amounts of the 1/88 and the 8/88 rate changes.
(2) No change in effective net rate over 1989.
(3) Represents rates effective 1/1/91 - 6/30/91.