Department of Civil Service

PA95-03

TO: Participating Agency Chief Executive Officers
FROM: Robert DuBois, Director, Employee Benefits Division
SUBJECT: Empire Plan Quarterly Report (October - December 1994)
DATE: March 6, 1995

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 9.7% of premium. The carriers final settlement reports for the 1994 plan year will be issued in March 1995. An exhibit of the final 1994 experience will be sent to you with the Empire Plan First Quarter 1995 Experience Report.

The projected 1996 premium rates are provided in Exhibit II of the Report. Please note that these initial projections are developed by the Empire Plan 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 1995 paid claims, and we will, of course, give you the revised projections.

I call your attention to the article, NYSHIP Risk Pool, in the attached report. As we review the possibility of offering a Medicare supplement plan under NYSHIP, I welcome any comments you may have on this subject.

Throughout this year, we will be participating with Empire Plan carrier representatives as an exhibitor at many of the conferences of public sector statewide organizations. If you attend any of those conferences, please stop by our booth to meet our representatives.

EMPIRE PLAN EXPERIENCE REPORT
OCTOBER - DECEMBER 1994
produced for
PARTICIPATING AGENCIES IN THE
NEW YORK STATE
HEALTH INSURANCE PROGRAM
by
the Employee Benefits Division
New York State Department of Civil Service
George C. Sinnott
President New York State Civil Service Commission

EMPIRE PLAN 1994 EXPERIENCE

The Empire Plan 1994 annual experience projected by the insurance carriers in the 4th Quarter Reports is presented in Exhibit I. The Empire Plan carriers project a composite 1994 dividend of $158.1 million or 9.7% of premium based on claims paid through December 1994. This represents an increase of $107.2 million over the margin loaded in the 1994 rates.

Blue Cross

Blue Cross projects a 1994 dividend of $94.1 million or 15.1% of premium. This represents a $75.2 million increase over the margin loaded in the 1994 rates and is the result of the following factors:

Margin in Rates: $18.9 million

Reduction in 1993 Claim Base: 18.7

Reduction in Projected 1994 Trend: 41.6

1993 Claim Runout Improvement: 12.5

Reduction in Retention: 2.4

Total: $94.1 million

As presented, approximately $31.2 million of the dividend is attributable to a reduction in the 1993 claim base (including 1993 runout improvement) from what was projected at the time the 1994 rates were developed (10/93). This compounds and impacts the 1994 claim base. An additional $41.6 million in dividend results from the reduction in the observed 1994 trend currently projected at approximately 4.0% as opposed to the 10.4% trend factor projected at the time the 1994 rates were developed. The low 1994 trend is partially attributable to 1992 and 1993 negative case mix adjustments which were reflected in 1994 hospital payments.

Metropolitan Medical

Metropolitan projects a composite 1994 dividend of $30.9 million or 4.7% of premium. This projected dividend represents a $11.1 million increase over the margin loaded in the 1994 rates and is attributable to the following factors:

Margin in Rates: $18.9 million

Surplus Carryforward: (3.8)

Impact of Overstated 1993 Claims Base: 2.0

Reduction in Projected 1994 Trend: 26.4

Par Fee Increase (1/2): (0.0)

Increase in Renention: (9.0)

Audit Credits from 1989 and 1990: 2.3

Additional Utilization Savings: 3.2

Total: $30.9 million

After normalizing for plan changes and utilization review activities, the observed 1994 trend is approximately 2.7% versus the 7.1% trend factor loaded in the 1994 rates.

Metropolitan Mental Health and Substance Abuse Program

Metropolitan projects a 1994 surplus of $36.0 million or 27.1% of premium for the Mental Health and Substance Abuse (MHSA) Program. This represents an increase of $32.3 million over the margin loaded in the 1994 rates and is attributable to the following changes in the rate renewal assumptions:

Margin Loaded: $3.7 million

Deficit Recovery Premium Load not needed: 3.8

Decrease in the 1993 claim base: 6.3

Improvements in Case management Process: 21.3

Reduction in Retention: .9

Total: $36.0 million

This large dividend is mainly attributable to Value Health's efforts in renegotiating inpatient rates in late 1993 as well as the reduction in the average length of stay for inpatient services from 18.3 days to 15.2 days.

Cigna

Cigna projects a 1994 deficit of $2.9 million or 1.3% of premium. This represents a modest increase in the deficit that was projected and reported in the 3rd Quarter Report. This modest deterioration is attributable to lower coordination of benefit (COB) credits as well as higher than projected claims for the 4th quarter. According to Cigna, the increase in the incurred experience as compared to the bid projection is primarily due to the change in the drug mix.

1996 PROJECTED PREMIUM RATES

Exhibit II presents the projected 1996 Empire Plan gross and net rates in comparison to the 1995 rates. The 1996 net rates reflect application of $197.4 million in dividends to all payors. Although Empire Plan gross premiums increased approximately 7.5% in 1996, the "Best Estimate" net rates for the Core Plus Medical and Psychiatric Enhancement option are projected to increase 6.0% and 4.9% for 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 1996.

The underling trend assumptions used by the carriers for the 1996 Participating Agency Rates are as follows:

Blue Cross: 7.0%

Metropolitan Medical Core: 5.3%

Metropolitan Medical Enhancement: 9.8%

Metropolitan MHSA Core: 3.0%

Metropolitan MHSA Enhancement: 3.0%

Cigna: 13.0%

Composite: 7.6%

This preliminary trend factor estimate is 27% higher than the trend used to develop the 1995 rates. Although most experts in the health care field are predicting an upturn in trend, the dynamics of NYSHIP make it difficult to predict 1996 cost with great certainty at this time. As a consequence, each Participating Agency must determine its own level of conservatism when using the projected 1996 rates. Updated projections will be provided in subsequent reports.

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

KEEPING YOU INFORMED

NYSHIP RISK POOL

Throughout the history of the New York State Health Insurance Plan (NYSHIP) there has been a single risk pool without regard to characteristics such as employer affiliation (NY vs. PA), geographical location (Upstate vs. Downstate) and enrollee status (active vs. retired). When federal legislation established Medicare, Civil Service Law was amended to require that employers reimburse Medicare Part B premium to eligible enrollees. The rationale for the NY legislative change was to encourage Medicare participation thereby improving the overall risk of the NYSHIP pool. Since 1967 billions of dollars in claims expense has been shifted to the federal Medicare program and as a consequence contributed to the general rate stability of NYSHIP.

We know that many participating agencies, often times encouraged by brokers, are considering carving out their Medicare risk group from NYSHIP or withdrawing completely from NYSHIP in anticipation of savings through wrap-around products for Medicare eligibles. As a result we are reviewing the possibility of offering a Medicare supplement rate. Employers should be aware that the establishment of a Medicare carve out program requires that the remaining actives in the aggregate pay a higher premium which would be equal to the savings under the Medicare risk contract. In other words, assuming the Medicare risk product has the same benefits as NYSHIP, the establishment of two pools is merely an apportionment of the same risk between the two pools. Obviously there would be winners and losers among the employers based on the ratio of Medicare to non-Medicare enrollees.

We are committed to building on the success of NYSHIP to date and will seek new and innovative responses to meeting the health insurance need of our local government participants.

Exhibit I

1994 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 retention.

Source: 1994 4th Quarter Reports

Exhibit II

EMPIRE PLAN
Participating Agency Premium Rates
Comparison of 1995 and Projected 1996 Rates
CORE ONLY

Individual (81)

Family (82)

CORE PLUS PSYCHIATRIC ENHANCEMENT

Individual (51)

Family (52)

Family (52)

CORE PLUS MEDICAL ENHANCEMENT

Individual (61)

Family (62)

CORE PLUS MEDICAL & PSYCHIATRIC ENHANCEMENTS

Individual (71)

Family (72)

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

Exhibit III

EMPIRE PLAN
PA GROUP RATES
1985-1996 Monthly Rates

Individual

Family

*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.