Department of Civil Service

PA94-02

TO: Participating Agency Chief Executive Officers
FROM: Robert DuBois, Director, Employee Benefits Division
SUBJECT: Empire Plan Quarterly Report (October - December 1993)
DATE: February 18, 1994

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 9.6% of premium. The carriers final settlement reports for the 1993 plan year will be issued in March 1994. An Exhibit of the final 1993 experience will be sent to you with the Empire Plan First Quarter 1994 Experience Report.

The projected 1995 premium rates are provided in Exhibit II of the Report. Please note that these initial projections 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 their 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 1994 paid claims, and we will, of course, give you the revised projections.

Recently, Governor Cuomo issued a letter to State employees, stressing the importance of health insurance and expressing concern about the impact President Clinton's proposed Health Security Act may have on individuals and families covered under the New York State Health Insurance Program. A copy of the letter is enclosed. I have also enclosed a "fact sheet" which summarizes the major areas where the Health Security Act affects the New York State Health Insurance Program.

We ask that you join with the State and other Participating Agencies in sharing Governor Cuomo's letter and the fact sheet with the public employee workforce. If feasible, copies may be distributed to each of your employees. Alternatively, copies may be posted on bulletin boards and printed in employee newsletters. The important thing is that our enrollees become aware of the issues so that they can express their concerns to the political representatives and leaders. Thank you for your cooperation in this important matter.

Please be assured that we will inform you of any potential impact national health care initiatives may have on the New York State Health Insurance Program. As you know, there are many proposals and even different versions of some of the plans. Because of this, we will not attempt to communicate all of them to you. We will keep you informed about those which seem likely to have a major impact on the Program and which may be enacted.

EMPIRE PLAN EXPERIENCE REPORT
OCTOBER - DECEMBER 1993
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
EMPIRE PLAN 1993 EXPERIENCE

As presented in Exhibit I, the Empire Plan carriers project a composite 1993 dividend of $151.2 million or 9.6% of premium based on claims paid through December 1993. This represents an increase of $119.4 million over the margin loaded in the 1993 rates. The final 1993 experience will be available in March 1994.

Blue Cross

Blue Cross is projecting a 1993 dividend of $65.9 million or 11.2% of premium. This represents a $63 million increase over the margin loaded in the 1993 rates. The increase in dividends is due to a $15 million reduction in the 1992 reserve level in addition to a $44.9 million reduction to the 1993 claim base. The 1993 claim base was affected by both a reduction in the underlying trend from 10.4% projected at the 1993 rate renewal to approximately 6% and the application of audit recoveries. Administrative expenses are also $3.1 million lower than originally projected.

Metropolitan Medical

Metropolitan projects a composite 1993 dividend of $56.6 million or 8.6% of premium. This represents a $33.5 million increase over the margin loaded in the 1993 rates. The increase in the projected dividend is primarily attributable to a reduction in the 1992 claim base from what was projected at the time of rate development. This reduction impacts the 1993 claim base which was further reduced by a decrease in the trend. Furthermore, the implementation of a computerized coding fragmentation program produced savings of approximately $8.0 million.

Metropolitan Mental Health and Substance Abuse Program

Metropolitan projects a 1993 surplus of $2.7 million or 2.4% of premium for the Mental Health and Substance Abuse (MHSA) Program. When combined with the 1992 loss of $1.4 million, a dividend of $1.3 million is projected as of 12/31/93.

The implementation of the Managed MHSA Program has resulted in plan savings in excess of $60 million over a two year period. The going forward trend of 5.6% is projected as opposed to the 11% trend level observed prior to the implementation of the new program. Such results have been achieved without reduction to quality and with lower out of pocket costs to enrollees.

Cigna

Cigna projects a 1993 surplus of $25.9 million or 11.8% of premium, a $19.8 million increase over the margin loaded in the 1993 rates. When combined with the 1992 loss carryforward of $2.0 million, a dividend of $23.9 million is projected as of 12/31/93. The increase in the projected dividend is due to the following factors:

Trend Reduction: $12.7 million

Understated 1992 Claim Base: (.4)

Increased Administrative Expense: (.1)

COB Processing: 1.5

Demographics: 6.1

Total: $19.8 million

1995 PREMIUM RATES

Exhibit II presents the projected 1995 Empire Plan gross and net rates in comparison to the 1994 rates. The 1995 net rates reflect application of $179.5 million in dividends to all payors. Although NYSHIP gross premiums are expected to increase approximately 10.8% in 1995, the "best estimate" Empire Plan net rates for the Core Plus Medical and Psychiatric Enhancement option are expected to increase approximately 7% for both individual and family coverage. The lower net rate increase in comparison to the gross rate increase is attributable to an increased level of dividend application in 1995.

The underling trend assumptions for the "Best Estimated 1995 Participating Agency Rates" are as follows:

Blue Cross: 8.0%

Metropolitan Medical Core: 6.2%

Metropolitan Medical Enhancement: 11.7%

Metropolitan MHSA Core: 5.6%

Metropolitan MHSA Enhancement: 5.6%

Cigna: 15.0%

Composite: 8.9%

Given that such projections were made without benefit of any observed 1994 incurred claim information, each Participating Agency must determine its own level of conservatism when using the projected 1995 rates. Updated projections will be provided in subsequent quarterly reports.

Exhibit Ill presents the individual and family rate history for the Core plus Medical and Psychiatric Enhancements option.

KEEPING YOU INFORMED

The Empire Plan will have an exhibit at the following conferences and annual meetings this year. Representatives from the Employee Benefits Division and the Empire Plan insurance carriers will be available to answers any questions attendees may have about the Plan.

February
NYS Association of Towns Annual Meeting

March
NYS Supervisors & County Legislators Conference
NYS Government Finance Officers Conference

May
NYS Association of School Business Officials Annual Meeting

June
NYS Conference of Mayors Annual Meeting
NYS Supervisors & County Legislators Association Summer Conference

September
Fall Training School for City & Village Officials

October
NYS School Boards Association Annual Meeting

Exhibit I

EMPIRE PLAN EXPERIENCE
Projected 1993 Year
In (000's)

	BLUE CROSS	METROPOLITAN MEDICAL Core	METROPOLITAN MEDICAL NY Enhancement	METROPOLITAN MEDICAL PA Enhancement	METROPOLITAN MEDICAL Combined	METROPOLITAN MEDICAL Core	METROPOLITAN MHSA NY Enhancement	METROPOLITAN MHSA PA Enhancement	METROPOLITAN MHSA Combined	CIGNA	TOTAL
Premium (1)	588,703	471,960	82,982	99,708	654,650	94,102	17,606	6,319	118,027	219,975	1,581,355
Incurred Claims (2)	491,757	382,513	72,202	71,710	526,425	67,012	16,085	13,355	96,452	186,112	1,300,746
Admin. Expenses (3)	31,028	52,950	9,219	9,459	71,628	14,746	2,839	1,209	18,794	7,953	129,403
Gain/ Loss (A-B-C)	65,918	36,497	1,561	18,539	56,597	12,344	(1,318)	(8,245)	2,781	25,910	151,206

(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.

Exhibit II

Source: 1993 4th Quarter Reports.

EMPIRE PLAN
Estimated 1995 Premium Rates
CORE ONLY

Individual (81)

EMPIRE PLAN OPTION	GROSS RATES (1) 1994	GROSS RATES (1) 1995	GROSS RATES (1) % Change	NET RATES (2) 1994	NET RATES (2) 1995	NET RATES (2) % Change
Optimistic	182.20	192.07	5.4%	166.03	170.58	2.7%
Best Estimate	182.20	198.42	8.9%	166.03	176.93	6.6%
Pessimistic	182.20	206.39	13.3%	166.03	184.90	11.4%

Family (82)

EMPIRE PLAN OPTION	GROSS RATES (1) 1994	GROSS RATES (1) 1995	GROSS RATES (1) % Change	NET RATES (2) 1994	NET RATES (2) 1995	NET RATES (2) % Change
Optimistic	409.09	430.01	5.1%	372.35	382.54	2.7%
Best Estimate	409.09	444.74	8.7%	372.35	397.27	6.7%
Pessimistic	409.09	462.92	13.2%	372.35	415.45	11.6%

CORE PLUS PSYCHIATRIC ENHANCEMENT

Individual (51)

EMPIRE PLAN OPTION	GROSS RATES (1) 1994	GROSS RATES (1) 1995	GROSS RATES (1) % Change	NET RATES (2) 1994	NET RATES (2) 1995	NET RATES (2) % Change
Optimistic	185.57	197.28	6.3%	169.20	175.79	3.9%
Best Estimate	185.57	203.90	9.9%	169.20	182.41	7.8%
Pessimistic	185.57	212.14	14.3%	169.20	190.65	12.7%

Family (52)

EMPIRE PLAN OPTION	GROSS RATES (1) 1994	GROSS RATES (1) 1995	GROSS RATES (1) % Change	NET RATES (2) 1994	NET RATES (2) 1995	NET RATES (2) % Change
Optimistic	421.33	446.52	6.0%	383.74	399.08	4.0%
Best Estimate	421.33	462.11	9.7%	383.74	414.67	8.1%
Pessimistic	421.33	481.15	14.2%	383.74	433.71	13.0%

CORE PLUS MEDICAL ENHANCEMENT

Individual (61)

EMPIRE PLAN OPTION	GROSS RATES (1) 1994	GROSS RATES (1) 1995	GROSS RATES (1) % Change	NET RATES (2) 1994	NET RATES (2) 1995	NET RATES (2) % Change
Optimistic	210.46	223.75	6.3%	194.22	197.82	1.9%
Best Estimate	210.46	231.77	10.1%	194.22	205.84	6.0%
Pessimistic	210.46	241.41	14.7%	194.22	215.48	10.9%

Family (62)

EMPIRE PLAN OPTION	GROSS RATES (1) 1994	GROSS RATES (1) 1995	GROSS RATES (1) % Change	NET RATES (2) 1994	NET RATES (2) 1995	NET RATES (2) % Change
Optimistic	472.45	501.07	6.1%	435.55	443.31	1.8%
Best Estimate	472.45	519.54	14.6%	435.55	461.78	6.0%
Pessimistic	472.45	541.46	14.6%	435.55	483.70	11.1%

CORE PLUS MEDICAL & PSYCHIATRIC ENHANCEMENTS

Individual (71)

EMPIRE PLAN OPTION	GROSS RATES (1) 1994	GROSS RATES (1) 1995	GROSS RATES (1) % Change	NET RATES (2) 1994	NET RATES (2) 1995	NET RATES (2) % Change
Optimistic	213.83	228.96	7.1%	197.39	203.03	2.9%
Best Estimate	213.83	237.25	11.0%	197.39	211.32	7.1%
Pessimistic	213.83	247.16	15.6%	197.39	221.23	12.1%

Family (72)

EMPIRE PLAN OPTION	GROSS RATES (1) 1994	GROSS RATES (1) 1995	GROSS RATES (1) % Change	NET RATES (2) 1994	NET RATES (2) 1995	NET RATES (2) % Change
Optimistic	484.69	517.58	6.8%	446.94	459.85	2.9%
Best Estimate	484.69	536.91	15.5%	446.94	479.18	7.2%
Pessimistic	484.69	559.69	15.5%	446.94	501.96	12.3%

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

Exhibit III

EMPIRE PLAN
PA GROUP RATES
1985-1995 Monthly Rates
Core plus Med. & Psych. Enh.

Individual

Year	Gross Rate	% Change	Average Increase From 1985	Net Rate	% Change	Average Increase From 1985
1985*	95.71			92.85
1986	91.97	-3.9		91.49	-1.5%
1987	103.14	12.1%		101.65	11.1%
1988 (1)	142.01	37.7%		141.52	39.2%
1989	168.72	18.8%		168.05	18.7%
1990 (2)	179.50	6.4%		167.09	-0.6%
1991 (3)	202.09	12.6%		185.09	10.8%
1992	198.85	-1.6%		181.81	-1.8%
1993	214.30	7.8%		194.64	7.1%
1994	213.83	-0.2%		197.39	1.4%
1995 (projected)	237.25	11.0%	10.1%	211.32	7.1%	9.2%

Family

Year	Gross Rate	% Change	Average Increase From 1985	Net Rate	% Change	Average Increase From 1985
1985*	203.97			197.57
1986	195.31	-4.2%		194.30	-1.7%
1987	222.39	13.9%		219.20	12.8%
1988 (1)	324.13	45.7%		323.06	47.4%
1989	383.42	18.3%		381.95	18.2%
1990 (2)	403.75	5.3%		380.15	-0.5%
1991 (3)	464.39	15.0%		417.36	9.8%
1992	445.64	-4.0%		407.76	-2.3%
1993	479.37	7.6%		426.35	4.6%
1994	484.69	1.1%		446.94	4.8%
1995 (projected)	536.91	10.8%	10.9%	479.18	7.2%	10.0%

*Statewide Plan Premium Rates

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

December 31, 1993

Dear Fellow Public Employee:

We are pleased that President Clinton is pushing hard for health care reform and, as a state that has led the way in this area, we are eager to do still more.

But, we must be sure so-called reforms are fair to New Yorkers. One part of the President's proposal concerns me greatly. We believe that our current New York State health plan for public employees is the best in America. Few plans--public or private--can boast the success that the State's plan has achieved in quality of care or in cost control.

It is already clear that the Administration's plan would not treat our New York State health plan and public sector employees equitably. The President's proposal would dismantle and undermine our plan in a number of ways. The worst would be to treat it less generously than private employers' plans. Costs for the private employers would be capped at 7.9% of payroll with the Federal Government picking up costs above that. But, for our plan, there would be no such cap. That would create a threat of potential reduction in hard won benefits and increased costs for the State, for you and for your family.

I am proud of our current health care benefits and committed to protecting them in every way possible. By working together with combined strength, we can make clear to Washington the inequities within the Administration's current proposal and ensure New York State has the flexibility and authority to preserve in our system what works and to receive the appropriate tools to correct our flaws.

With that in mind, I have asked your leaders--at the state and national levels--to join with me in an all-out campaign to preserve our current New York State health plan and to work with me to ensure reform is achieved. I hope that you will join us in this vital cause.

Sincerely,

Mario M. Cuomo

FACT SHEET

The Health Security Act (HSA) provides for the replacement of current health care plans, including those sponsored by State and local government employers and unions, with regional health care alliances. These regional alliances will basically be health care purchasing and management cooperatives which will contract with health care insurers and Health Maintenance Organizations. Every individual and family within an alliance's region, including public and private sector employees, under age 65 retirees, the currently uninsured, and Medicaid recipients must select their health care plan from one of the insurers or HMOs offered by the alliance. Other than paying its average share of the premium, employers will have no input, or responsibility, for the health benefits of their employees and retirees.

Adoption of the Health Security Act, as currently written, will result in the elimination of the New York State Health Insurance Plan (NYSHIP) and all other public sector health care plans throughout New York State.

NYSHIP is one of the largest and most successful health care purchasing cooperatives in the nation. Currently, NYSHIP covers over 400,000 State and local government employees, retirees, and more than 700,000 of their dependents.

NYSHIP is not only a large purchasing cooperative, it is an extremely successful one. Rates of premium increase are substantially below other large private and public sector employers. In fact, over the past five years, NYSHIP's annual premium increase for its basic indemnity plan - the Empire Plan - has averaged less than 4%, while national and regional increases have been in the 16-22% range.

The elimination of NYSHIP will remove the current statewide pooling of risks which has generated this stable premium base. All plan participating employers, including the State, from the smallest village in the Adirondacks to the largest county on Long Island, pay the same premium for the plan's basic benefit package. The current statewide "community rating" provides for real risk sharing among all participants. Should HSA result in more than one regional alliance within New York, this type of statewide pooling will cease to exist under the new plan.

Only private sector employees with more than 5,000 employees will not be required to join local alliances and may opt to create their own "corporate alliance." This inequitable treatment of private verses public employers is difficult to justify, especially in light of the success of NYSHIP.

The HSA establishes a national uniform benefit package. This package of benefits, while comprehensive for preventive and acute care, is less comprehensive than NYSHIP's Empire Plan for chronic mental health, substance abuse, and rehabilitation. In addition, the uniform benefit package provides very limited vision and dental benefits. Yet even with these marked decreases in benefits, we project that the cost of the national uniform benefit package for New York State, and other employers currently participating in NYSHIP, will be higher. We expect that costs for other public sector employers could increase likewise.

Private sector employers' cost of health care will be capped at 7.9% of payroll, and expenditures above that cap for the basic plan will be paid by the federal government. This cap does not apply to any public sector employer.

NYSHIP's current costs, which approximate 9.7% of payroll, exceed this cap due to the higher than average age of our employees and the concentration of NYSHIP covered lives in the higher cost medical areas of the State. Such factors, which are beyond our control, are completely ignored by the proposal. There is little reason to believe that with the elimination of NYSHIP, participating employers' costs would be reduced below the current level and, in fact, it is reasonable to expect higher costs for a less comprehensive benefit package.

All public sector employees, as taxpayers, will pay for subsidizing private sector employees whose costs exceed 7.9% of payroll, yet no such financial help is provided to public sector employers.

Public employers, large and small, will likely face higher premium costs for less comprehensive benefits. Without a 7.9% cap on overall health expenditures, they will subsequently be forced to consider sharing some of the additional expense with employees through cost shifting or salary offsets.