Department of Civil Service

PA93-07

TO: Participating Agency Chief Executive Officers
FROM: Robert DuBois, Director, Employee Benefits Division
SUBJECT: Empire Plan 1992 Annual Experience Report Empire Plan Quarterly Experience Report (January - March, 1993)
DATE: March 19, 1993

Attached are the final 1992 Empire Plan experience report and the first quarter 1993 Empire Plan experience report. For the fifth consecutive year, the plan is in a surplus condition at the end a plan year. The net surplus for 1992 was $122.6 million or 8.2% of premium. We believe that the favorable experience is directly attributable to those cost containment measures and plan redesigns which have been implemented since 1988.

The experience through the first quarter of 1993 continues to reflect favorable experience, and the carriers project a dividend for the year which represents 5.5% of premium. Included in the report are the projected 1994 premium rates. Based on lower than expected trend experience thus far in 1993, the projected rates for 1994 are lower than those estimated in the fourth quarter 1992 experience report.

There are several items which I want to bring to your attention. The first is the prescription drug component of the Empire Plan is out for bid with a January 1, 1994 implementation date. We believe it is in the best interest of the Plan to periodically solicit bids to determine which insurance carrier and plan administrator can provide the best combination of service and price to Empire Plan enrollees. The current vendors, CIGNA and PAID Prescriptions, have provided benefits since 1986. We believe it is time to rebid the program, and have solicited bids from interested carriers. If a new prescription drug program carrier is selected, we expect the change will be basically transparent to your enrollees. We will, of course, provide you and all enrollees with information on any changes which may be made.

I'd also like to update you on our plans for forums to meet with the Participating Agency executive officers and health benefits administrators. As you may know, we have in the past attempted to include items of interest to both executive officers and HBAs at our PA Institutes. Because each group has different responsibilities and interests, we decided this year to conduct two series of meetings. The meetings for the HBAs have just concluded. The meetings were well attended and attendees had generally favorable comments on the meeting content, which was directly related to the work of the HBA. We are planning to hold a series of meetings this fall on broad employee benefit issues for Participating Agency chief executive officers, financial executive officers and personnel officers. We expect that by then, there may be a clearer picture of proposed health care policies at the national level and their impact on our employee benefits programs.

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 REPORTS
FINAL 1992 REPORT
JANUARY - MARCH 1993 REPORT

produced for

PARTICIPATING AGENCIES IN THE
NEW YORK STATE
HEALTH INSURANCE PROGRAM

by

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

A look inside ...

Empire Plan 1992 Experience

Empire Plan 1993 Experience

1994 Premium Rates

Keeping You Informed

- Locally Collectively Bargained Agreements

Exhibits

1. Empire Plan 1992 Experience (Final)
2. Empire Plan 1993 Experience (Year-to-date)
3. Empire Plan 1993 Experience (Projected Plan Year)
4. Empire Plan Estimated 1994 Premium Rates
5. Empire Plan PA Group Rates (1985 - 1994 Monthly Rates)

EMPIRE PLAN 1992 EXPERIENCE

The 1992 Empire Plan final experience as reported by the Empire Plan carriers is presented in Exhibit I. The Empire Plan realized a net surplus of $122.6 million or 8.2% of premium. Dividends amounting to $124.6 million were declared by Blue Cross and Metropolitan while a loss of $2 million was incurred by Cigna.

Blue Cross

Blue Cross declared a dividend of $88.8 million or 14.8% of premium. This represents an increase of $72.8 million over the margin loaded into the 1992 rates. As previously reported, this increase is primarily attributable to the combined effect of lower than anticipated 1991 plan year costs (which were estimated in September of 1991 when the 1992 rates were established), and an improvement in trend from 13.75% to 9.5%.

Metropolitan Medical

Metropolitan's declared dividend of $35.7 million consists of a $37.1 million dividend earned under the Medical plan and a $1.4 million loss incurred under the Mental Health and f Substance Abuse pool. The Medical surplus represents a $18.5 million improvement over the margin loaded in the 1992 rates. This improvement is attributable to the following factors:

Metropolitan/APM Mental Health and Substance Abuse Program

In it's first year of operation, the managed Mental Health and Substance Abuse (MHSA) Program incurred a $1.4 million loss or 1.5% of premium. Based on the incurral of a loss, it would appear that the experience was less favorable than projected at rate establishment; however, this is not the case. After the 1992 rates were implemented, a large group of enrollees joined the MHSA Program. Although the projected experience of the joining group was not as favorable as the overall group, the MHSA rates were not increased. Instead, the value of the required rate increase was guaranteed by NYSHIP. If a rate increase had been implemented, the Program would have earned a modest dividend approximately the same size as the margin.

The MHSA program is considered to be a success. It has realized savings for NYSHIP in the first 11 months of operation and provides high quality care with little out of pocket expenses when the network benefits are used.

Cigna

CIGNA incurred a $2.0 million loss or 1.2% of premium. This relatively small loss is attributable to unrealized coordination of benefits (COB) savings which were projected during the rate renewal, and a higher than projected use of "brand name only" drugs. This loss is expected to be recovered in 1993 from margin and retroactive implementation of the COB program.

PROJECTED 1993 EXPERIENCE

Empire Plan experience through the first quarter of 1993 and the 1993 annual experience projected by the insurance carriers are presented in Exhibits II and III, respectively. The composite 1993 Empire Plan dividend is projected at $85.4 million or 5.5% of premium. This represents an increase of $53.6 million over the margin loaded in the 1993 rates.

Blue Cross

Blue Cross is projecting a 1993 dividend of $26.5 million or 4.5% of premium. This represents a $23.6 million increase over the margin loaded in the 1993 rates. The increase is due primarily to an overstatement of the 1992 claims base, and a reduction in trend from 10.4% to 10.2%.

Metropolitan Medical

Metropolitan projects a composite 1993 dividend of $41.8 million or 6.4% of premium. This represents a $18.7 million increase over the margin loaded in the 1993 rates. The increase in the projected dividend is attributable to the following:

Metropolitan/APM Mental Health and Substance Abuse Program

Metropolitan/APM project a 1993 dividend of $2.0 million or 1.7% of premium for the Mental Health and Substance Abuse Program. The projected dividend will cover the 1992 loss recovery of $1.4 million.

Cigna

Cigna is projecting a 1993 dividend of $15.1 million which will cover the projected 1992 loss. The increase in the projected dividend is primarily due to the anticipated reduction in trend from 19.5% to 15% in 1993.

1994 PREMIUM RATES

Exhibit IV presents the projected 1994 Empire Plan gross and net rates in comparison to the 1993 rates. Exhibit V presents the individual and family rate history of the Core plus Medical and Psychiatric Enhancements option. The 1994 net rates reflect the application of $151.7 million in dividend to all payers. Although NYSHIP gross premiums are expected to increase approximately 8% in 1994, the "best estimate" Empire Plan net rates for the Core Plus Medical and Psychiatric Enhancement option are expected to increase 9.5% and 12.3% for individual and family coverage respectively. The higher net rate increase is mainly attributable to a decreasing level of dividend application.

The 1994 projected rates are significantly lower than originally estimated in the Fourth Quarter 1992 Participating Agency Report. The decrease in the 1994 rates is attributable to lower trend experienced thus far in 1993, resulting in a lower projected 1993 claims base, and a continuation of the lower trend patterns into 1994. Trend assumptions for 1994 have varied as follows:

It should be noted that the drug component of the NYSHIP program is out for bid for the calendar year commencing January 1, 1994, and as a consequence, the 1994 estimated drug rates are expected to be different. Each Participating Agency must determine its own level of conservatism when using the projected 1994 rates.

KEEPING YOU INFORMED

Local Collectively Bargained Agreements

Recently, our Counsel's office issued an opinion regarding a provision in a Participating Agency's collectively bargained agreement.

The agreement provides that new employees (covered under the agreement) are not eligible for health insurance coverage through the Participating Agency if they have comparable benefits under a spouse's plan. In general, a new employee who otherwise meets the eligibility requirements for New York State Health Insurance Program (NYSHIP) coverage is entitled to that coverage. However, Counsel determined that in this case exclusion from NYSHIP coverage can be effected under our regulatory eligibility standards. Under our rules, an otherwise eligible employee may waive coverage. The bargained provision is viewed as a waiver of coverage on behalf of represented employees by their authorized agent. It does not alter a statutory or regulatory eligibility standard and is, therefore, permissible.

In administering the provision, the agency should carry the affected employees in a category of having declined coverage with a further explanatory reference to the contractual requirement and proof of the spouse's coverage.

If you should have any questions about proposed employee benefit provisions of your collectively bargained agreements, please contact the Employee Benefits Division for an opinion before entering into an agreement. We will respond to such requests as promptly as possible.

Exhibit I

EMPIRE PLAN 1992 EXPERIENCE
In (000's)

(1) EarnedPremium - Premiumwhich pays forcoverage for the period reported(accrual basis).
(2) Incurred Claims- Representsthe costofcoveredservices providedduringthe periodreported by the insurance company (accrual basis).
(3) AdministrativeExpenses- All charges by the insurance carrier otherthan forthe paymentofclaims.
Includes carrier's costto administerthe program, interestcharges, andretention.
(4) Premium includes $900,00 dividend transfer earned in prior years.

Source: 1992 Experience Statements

Exhibit II

EMPIRE PLAN EXPERIENCE
1993 Year-to-date
In (000's)

(1) EarnedPremium - Premiumwhich pays forcoverage for the period reported(accrual basis).
(2) Incurred Claims- Representsthe costofcoveredservices providedduringthe periodreported by the insurance company (accrual basis).
(3) AdministrativeExpenses- All charges by the insurance carrier otherthan forthe paymentofclaims.
Includes carrier's costto administerthe program, interestcharges, andretention.

Source: 1993 1st QuarterReports

Exhibit III

EMPIRE PLAN EXPERIENCE
PROJECTED 1993 YEAR
In (000's)

(1) Earned Premium- Premium which pays forcoverage forthe periodreported (accrual basis).
(2) Incurred Claims- Represents the cost ofcoveredservicesprovidedduring the period reported by the insurance company(accrual basis).
(3) AdministrativeExpensesa?? All charges by the insurance carrier other than forthe paymentofclaims.
Includescarrier's cost to administer the program, interest charges,and retention.
(4) Premium excludespotential prior perioddividendtransfer of$15.7million for margin guarantee.

Source: 1993 1st QuarterReports

Exhibit IV

EMPIRE PLAN
ESTIMATED 1994 PREMIUM RATES

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

Exhibit V

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 ofthe 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.