Department of Civil Service

PA93-02

TO: Participating Agency Chief Executive Officers
FROM: Robert DuBois, Director, Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report (October - December, 1992)
DATE: February 10, 1993

Attached is the Empire Plan Fourth Quarter Experience Report. The Plan continues to reflect favorable experience and the carriers project a dividend for the year which represents 8.2% of premium. The carriers final settlement reports for the 1992 plan year will be issued in March 1993. An Exhibit presenting the final 1992 experience will be sent to you with the Empire Plan First Quarter 1993 Experience Report.

Also attached are the projected 1994 premium rates. As in past years, I must point out that the initial projections of the following year's premiums are developed by the carriers without any observed claims experience for the current Plan year. We provide them to you at this time because many Participating Agencies are preparing budgets and need any available information. Due to the early nature of the projections, the level of conservatism used in budgeting for health care must be left to each Participating Agency. Updated projections will be provided by the carriers after each quarter of observed 1993 paid claims, and we will, of course, give you the revised projections.

We are making plans to conduct a series of meetings for Participating Agencies beginning the latter part of April 1993. We will provide details in the near future so that you and your agency's Health Benefits Administrator can make plans to attend a meeting.

If you have any suggestions on how we can better meet your needs of providing health care to your employees, please feel free to contact me.

EMPIRE PLAN EXPERIENCE REPORT
OCTOBER - DECEMBER 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

1994 Premium Rates (projected)

Empire Plan Rate History

Keeping You Informed

- Disclosure of Non-pension Postemployment Benefits by Public Employers

Exhibits

1. Empire Plan Experience (Projected 1992 Plan Year)
2. Empire Plan Estimated 1994 Premium Rates
3. Empire Plan PA Group Rates (1985 - 1994 Monthly Rates)

EMPIRE PLAN 1992 EXPERIENCE

The Empire Plan 1992 experience projected by the insurance carriers appears in Exhibit I. The composite 1992 Empire Plan dividend is projected at $122.6 million, or 8.2% of premium, an increase of approximately $80.3 million over the margin loaded into the 1992 premium structure. Final 1992 experience will be available in March 1993.

Blue Cross

On the basis of claims paid through December, Blue Cross projects a 1992 dividend of $84.7 million, or approximately 14.1% of premium. This is an increase of $68.7 million over the margin loaded into the 1992 rates. Approximately $62.7 million of the dividend is attributable to the combined effect of lower 1991 plan year costs than were anticipated in September of 1991 when the 1992 rates were established and an improvement in trend from 13.75% to 9.5%. The remaining increase in dividend represents $3 million savings from increased DRG/medical reviews and a $3 million settlement with the Health and Hospital Corporation concerning supplemental appeals under NYS Department of Health regulations.

Metropolitan Medical

Metropolitan projects a composite dividend for 1992 of $39.2 million, or 6.2% of premium, for the medical component of the Empire Plan. This projection represents a $20.6 million improvement over the margin loaded into the 1992 rates. This improvement is attributable to the following factors:

Metropolitan/APM Mental Health and Substance Abuse Program

On the basis of Mental Health/Substance Abuse claims paid from February to December 1992, Metropolitan projects a loss of $283,000 (less than 1% of premium). Though the loss represents a modest reduction from the claims experience projected during the RFP process, significant savings have been achieved under the new program. Dividend/deficit projections should be viewed cautiously as treatment and payment patterns are not yet mature.

Cigna

While CIGNA continues to project a loss for 1992, the amount of the loss has been lowered to approximately $1.1 million (less than 1% of premium). This relatively small projected loss is attributable to unrealized coordination of benefits (COB) savings, projected when the rate was set, and deterioration of claims experience resulting from the higher than projected use of "brand name only" drugs. Cigna's implementation of COB processing in 1993 is expected to produce credits that will more than offset the 1992 loss.

1994 PREMIUM RATES

Exhibit II presents the projected 1994 Empire Plan gross and net rates in comparison to the 1993 rates. The 1994 net rates reflect the application of $151.8 million in dividend to all payers. Although medical costs are expected to increase approximately 11% in 1994, the "best estimate" Empire Plan net rates for the Core Plus Medical & Psychiatric Enhancement option are expected to increase 14.1% and 15.6 % for individual and family coverage respectively. The higher rate increase over trend is mainly attributable to a decreasing level of dividend application.

Given that no 1993 incurred claims information was used in projecting the 1994 rates, each Participating Agency must determine its own level of conservatism when using the projected 1994 rates. Updated projections will be provided in subsequent quarterly reports.

EMPIRE PLAN RATE HISTORY

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

KEEPING YOU INFORMED

Disclosure of Non-pension Postemployment Benefits by Public Employers

We have received several letters from Participating Agencies regarding their need to disclose and account for their financial liability for non-pension postemployment benefits. The inquiries were prompted by widespread notice of the promulgation of final disclosure and recognition of financial liability rules for ' retiree benefits by the Financial Accounting Standards Board (FASB) in Statement No. 106.

The FASB rules apply to private employers, not public employers. However, there are financial accounting standards which do apply to public employers; those standards are promulgated by the Governmental Accounting Standards Board (GASB).

In 1989, the Governmental Accounting Standards Board circulated an exposure draft of a rule to require public sector entities to disclose basic information about their non-pension, other postemployment benefits (OPEBs) in their financial statement. (The term "OPEB" includes all postemployment health care benefits.) The rule was adopted as GASB Statement No. 12, and applies to the financial reports of all state and local governmental employers for fiscal years beginning after June 15, 1990. For your information, the following is the postemployment disclosure statement which appears in the State of New York Comprehensive Annual Financial Report for the fiscal year ending March 31, 1992:

m. Post-retirement Benefits

In addition to providing pension benefits, the State provides health insurance coverage and survivor benefits for retired employees and their survivors. Substantially all of the State's employees may become eligible for these benefits if they reach normal retirement age which working for the State. Health care benefits are provided through an insurance company whose premiums are based on the benefits paid during the year. The State recognizes the cost of providing health insurance by recording its share of insurance premiums ($245 million for 85,180 retirees and their dependents) as an expenditure in the General Fund in the year paid. Additionally, the survivor's benefit program provides for a death benefit to be paid by the State to a retiree's designated beneficiary. During the year, $7.5 million was paid on behalf of 2,490 retirees and recorded as an expenditure in the General Fund.

In regard to recognition and measurement of such expenses, GASB Statement No. 12 provides that until the time that the Governmental Accounting Standards Board completes its project, state and local governmental employers are not required to change their accounting and financial reporting of postemployment nonpension benefits. Our latest information from GASB indicates that recognition and measurement standards for OPEB are expected to be implemented no earlier than fiscal years beginning in 1997 or 1998.

Exhibit I

EMPIRE PLAN EXPERIENCE
Projected 1992 Year
In (000's)

(1) Earned Premium - Premium which pays for coverage for the period reported (accrual basis).
(2) IncurredClaims - Represents thecostofcovered services provided during the period reported by the insurance company (accrual basis).
(3) Administrative Expenses - All charges bythe insurance carrier otherthan for the payment of claims.
Includescarrier'scost to administer the program,interest charges,and retention.
(4) Premium includes $1 million dividend transfer earned in prior years.

Source: 1992 Fourth Quarter Reports

Exhibit II

EMPIRE PLAN
ESTIMATED 1994 PREMIUM RATES

(1) Represents premiumscharged by the carriers.
(2) Representscost to a participating agency.

Exhibit III

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