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The Empire Plan is a unique health insurance plan designed especially for public employees in New York State. Empire Plan benefits include inpatient and outpatient hospital coverage, medical/surgical coverage, Centers of Excellence for transplants, infertility and cancer, home care services, equipment and supplies, mental health and substance abuse coverage and prescription drug coverage.

State Seal
GEORGE E. PATAKI
GOVERNOR
STATE OF NEW YORK
DEPARTMENT OF CIVIL SERVICE
ALBANY, NEW YORK 12239
www.cs.ny.gov
GEORGE C. SINNOTT
COMMISSIONER
DANIEL E. WALL
EXECUTIVE
DEPUTY COMISSIONER

PA95-10

TO: Participating Agency Health Benefits Administrators
FROM: The Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report
DATE: September 14, 1995

The Second Quarter Empire Plan Experience Report and the cover letter to Chief Executive Officers are enclosed.

Several changes to the Empire Plan, which alter both the benefits and the rates, are discussed. Please read both documents carefully.

A memorandum containing a detailed explanation of the methodology used to establish the Mediprime Rates and the procedures you will use to correct and update Medicare information will be mailed to you in the next few weeks.

An Empire Plan Report containing information about the benefit changes will be mailed directly to your employees' homes this Fall. Actual 1996 rates which factor in all the changes and which are split into Mediprime and Plan Prime rates will be in the third quarter report, which we expect to issue the middle part of November.

September 14, 1995

Dear Chief Executive Officer:

The NYSHIP Participating Agency Second Quarter 1995 Report is enclosed. This report provides both the final 1994 Empire Plan experience, typically included in the First Quarter Report which is combined with this report, and 1995 experience through June 30, 1995. The report also provides projected 1995 experience for the full rate year and projected 1996 rates based on trended 1995 experience and the current level of benefits. These rates do not take into account two important areas of change, Medicare primary coverage and benefit changes effective January 1, 1996, which are discussed below. Preliminary estimates of the impact of these changes are outlined herein and the Third Quarter Report will integrate a refined estimate into the projected 1996 rate exhibit.

In the Fourth Quarter 1994 Report, we indicated that the Department would examine the possibility of offering a Medicare supplemental plan under NYSHIP. Our review determined that, while there was no programmatic advantage to splitting the risk pool, modifying the Plan's premium structure to include Medicare Primary coverage was a necessary step to protect the program from adverse selection fostered by the development of group Medicare supplemental plans.

As of January 1, 1996, persons enrolled under NYSHIP who are eligible for primary coverage under the federal Medicare Program will be enrolled with either Mediprime individual or Mediprime family coverage. Under this arrangement, the premium cost for your agency's Medicare Primary enrollees will drop while the cost for active employees will increase. In the aggregate, all Participating Agencies will pay the same premium under the 1996 premium structure as they would pay under the current structure. Depending on the ratio of NYSHIP primary to Medicare primary enrollees, some Participating Agencies will see their overall cost rise while others will see their cost drop due to this change. The preliminary estimates are that premium for Mediprime individual enrollees will be from twenty-five to thirty-five percent lower than the "plan average" individual premium. Family coverage costs will be reduced depending on the number of Medicare primary enrollees covered.

September 14, 1995

Chief Executive Officer

Absent plan design changes and trend, premiums for plan primary individual and family coverage will increase approximately 7 to 10 percent respectively as a result of this change in rating structure. Note, however, that the benefit changes outlined in the "Keeping You Informed" section will substantially temper these increases.

In addition, we are in the process of changing the regulations which govern NYSHIP to make the reimbursement of the Medicare Part B premium permissive rather than mandatory for Participating Agencies. The removal of this unfunded mandate means that, effective immediately upon completion of this process, Participating Agencies will have discretion in deciding whether to reimburse all, part, or none of the Part B premium. For those of you who choose not to reimburse, this will result in reduced cost of over $500 per Medicare eligible enrollee or dependent, in 1996. We will advise Agency Health Benefit Administrators as soon as this change is promulgated.

Lastly, we are modifying the benefits effective, January 1, 1996. These changes, which are similar to those that went into effect for unrepresented state employees, are enumerated in the "Keeping You Informed" section of this Quarterly Report.

Details of the methodology used to calculate the Mediprime rates and procedural changes necessary to correct and maintain Medicare information will be sent to your agency's Health Benefits Administrators in the next few weeks.

As always, if you have any questions or comments, please feel free to contact me.

Sincerely,

Robert W DuBois, CEBS
Director
Employee Benefits Division

EMPIRE PLAN EXPERIENCE REPORT
JANUARY - JUNE 1995
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
NYS HEALTH INSURANCE PROGRAM
PARTICIPATING AGENCY
EMPIRE PLAN REPORT
2nd QUARTER REPORT
FINAL 1994 EMPIRE PLAN EXPERIENCE

The Empire Plan carriers have declared a composite 1994 dividend of $205.3 million or 12.5% of premium. The declared dividend is $154.4 million more than the margin loaded in the 1994 rates. More detailed experience information is provided in Exhibit I. Individual carrier dividend amounts are explained below.

Blue Cross

Blue Cross declared a 1994 dividend of $142.2 million or 22.8% of premium. This represents a $123.3 million increase over the margin loaded in the 1994 rates and is the result of the following factors:

Factor
Amount
Margin in Rates
$18.9 million
Reduction in Claims
115.9
Reduction in Retention
7.4
Total
$142.2 million

Approximately 82% of the dividend is attributable to a reduction in claims from what was projected at the time the 1994 rates were developed. The reduction in claims is attributable to three main reasons: reduction in trend from 10.4% to approximately 2%, return of overstated reserves, and the return of reserves previously established for prospective supplemental claims. The lower retention amount was caused by the impact of breakeven premium (claims plus retention) driven factors on such things as the NYS Insurance Department Assessment and contribution to community and contingency charges, higher interest earnings on the dedicated cash account and lower claims administration charges.

Metropolitan Medical

Metropolitan declared a composite 1994 dividend of $29.8 million or 4.5% of premium. This dividend represents a $10.0 million increase over the margin loaded in the 1994 rates and is comprised of the following factors:

Factor
Amount
Margin in Rates
$19.8 million
Surplus carryforward
(3.8)
Impact of Overstated 1993 Claims Base
2.1
Reduction in Projected 1994 Trend
24.8
Par Fee Increase (1/2 Year)
(10.0)
Increase in Retention
(7.8)
Audit Credits from 1989 and 1990
2.7
Additional Utilization Savings
2.0
Total
$29.5 million

After normalizing for plan changes in 1994, the observed 1994 trend is approximately 4.0% versus the 7.1% trend factor loaded in the 1994 rates.

Metropolitan Mental Health and Substance Abuse Program

Metropolitan declared a 1994 surplus of $36.3 million or 27.3% of premium for the Mental Health and Substance Abuse (MHSA) Program. This is $32.6 million more than the margin loaded in the 1994 rates and is attributable to the following changes in the rate renewal assumptions:

Factor
Amount
Margin Loaded
$3.7 million
Deficit Recovery Premium Load not Needed
3.8
Decrease in the 1993 claim base
6.4
Improvements in Case Management Process
21.5
Reduction in Retention
.9
Total
$36.3 million

The bulk of the dividend is attributable to Value Behavioral Health's efforts in negotiating inpatient rates in late 1993 as well as the reduction in the average length of stay for inpatient services from 18.3 days to 15.1 days. The observed average length of stay in the 4th quarter was 13.7 days.

Cigna

Cigna reported a 1994 deficit of $2.9 million or 1.3% of premium. This loss is the same amount that was projected in the 1994 fourth quarter report. Cigna has been requested to present the causes of the loss in relation to the assumptions used to develop the 1994 premium rates. Such causes are expected to be communicated in the next quarterly report.

PROJECTED 1995 EMPIRE PLAN EXPERIENCE

Based on claims paid through June, the Empire Plan carriers project a composite 1995 surplus of $56.6 million or 3.4% of premium. This is $12.4 million more than the margin loaded in the 1995 rates.

Empire Plan experience through the second quarter of 1995 and the 1995 annual experience projected by the insurance carriers are reported in Exhibits II and III, respectively.

Blue Cross

Blue Cross projects a 1995 dividend of $19.1 million or 3.1% of premium. The projected dividend is $7.1 million more than the margin loaded in the 1995 rates. The additional dividend is the net result of a decrease in the 1994 claim base and improved claims runout offset by an increase in the 1995 trend from 6.2% (projected at the time the 1995 rates were developed) to approximately 7.3%.

Metropolitan Medical

Metropolitan projects a composite 1995 dividend of $25.1 million or 3.6% of premium and is $5.2 million more than the margin loaded in the 1995 rates. The increase in the projected dividend is the net result of an improvement in the secular 1995 trend offset by an increase in the 1994 claim base that was used to develop the 1995 rates.

Metropolitan Mental Health and Substance Abuse Program

Metropolitan projects a 1995 surplus of $11.0 million or 9.8% of premium for the Mental Health and Substance Abuse (MHSA) Program. This represents in an increase of $6.0 million over the margin loaded in the 1995 rates and is the net result of a $8.3 million reduction in the 1994 claim base offset by a $2.3 million projected increase in retention.

Cigna

A 1995 surplus of $1.4 million or 0.5% of premium is estimated by Cigna. This is $5.9 million less than the margin loaded in the 1995 rates and is largely attributable to a modest increase in claims as well as a reduction in the projected interest credits earned in the dedicated cash account. After accounting for the 1994 carryforward loss, a $1.6 million loss is projected at 12/31/95.

PROJECTED 1996 PREMIUM RATES

Exhibit IV presents the projected 1996 Empire Plan gross and net rates in comparison to the 1995 rates. The 1996 net rates assume the application of $197.8 million in dividends to all payors. Although Empire Plan gross premiums are projected to increase approximately 5.9% in 1996, the "Best Estimate" net rates for the Core Plus Medical and Psychiatric Enhancement option are projected to increase 4.7% and 2.9% for individual and family coverage, respectively. The lower net rate increase in comparison to the gross rate increase is attributed to an increased level of dividend application in 1996. Please remember that these projections are based on current plan design and do not take benefit changes or the establishment of a Medicare primary rate into account. Rough estimates of the combined impact can be established by applying the factors provided in the cover letter of this report. Our next quarterly report will contain carrier projections which include these factors.

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

 
Trend
Blue Cross
7.5%
Metropolitan Medical Core
5.8%
Metropolitan Medical Enhancement
9.9%
Metropolitan MHSA Core
3.0%
Metropolitan MHSA Enhancement
3.0%
Cigna
13.0%
Composite
7.9%

This composite trend factor estimate is slightly higher than earlier projections and reflects the carriers observed upward creep in 1995 trend. Such an upturn in trend has been predicted by many experts in the health care field. Given the dynamics of NYSHIP, the upcoming Plan changes, and the slight upturn in trend, it is impossible to predict 1996 costs 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. The actual 1996 rates will be negotiated in September and October and are expected to be finalized by October 31st.

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

KEEPING YOU INFORMED

The Participating Agency Empire Plan is being modified in three ways, effective January 1, 1996. Two of these, the Medicare primary rates and removing the mandate to reimburse Medicare Part B premiums are described in the Director's cover letter to Chief Executive Officers, which accompanies this Report. The third change, modifying the benefits under NYSHIP, is described in Attachment A.

All the changes in Attachment A, except the move to the Select network for Prescription Drugs, are effective January 1, 1996. The change to the Select Network was made on September 1, 1995, and is explained in a separate HBA Memorandum. Attachment A provides a brief description of the changes. A complete description will be sent to you and to each enrollee's home prior to January 1, 1996.

Exhibit I

1994 EMPIRE PLAN EXPERIENCE
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)
622,468
478,706
89,973
88,252
656,931
97,529
19,841
15,640
133,010
224,634
1,637,043
Incurred
Claims
(2)
452,825
409,979
69,867
69,166
549,012
58,499
11,100
8,493
78,092
218,077
1,298,006
Admin.
Expenses
(3)
27,437
58,512
9,769
9,841
78,122
13,683
2,740
2,164
18,587
9,492
133,638
Gain/ Loss
(A-B-C)
142,206
10,215
10,337
9,245
29,797
25,347
6,001
4,9834,983
36,331
(2,935)
205,399

(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 Experience Statements

Exhibit II

EMPIRE PLAN EXPERIENCE
Through Second Quarter 1995
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)
304,325
266,500
40,300
40,600
347,400
38,700
9,100
8,000
55,800
131,903
839,428
Incurred
Claims
(2)
284,568
257,100
21,100
17,500
295,700
36,500
3,200
2,700
42,400
126,476
749,144
Admin.
Expenses
(3)
16,415
34,875
3,615
3,396
41,886
8,179
1,544
1,297
11,020
5,710
75,031
Gain/ Loss
(A-B-C)
3,342
(25,475)
15,585
19,704
9,814
(5,979)
4,356
4,003
2,380
(283)
15,253

(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: 1995 2nd Quarter Reports

Exhibit III

1995 PROJECTED EMPIRE PLAN EXPERIENCE
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)
608,649
534,900
81,200
81,200
697,300
77,700
18,400
16,000
112,100
264,144
1,682,193
Incurred
Claims
(2)
556,875
499,763
47,600
41,400
588,763
65,000
8,700
7,700
81,400
251,461
1,478,499
Admin.
Expenses
(3)
32,651
69,400
7,260
6,824
83,484
14,124
2,989
2,575
19,688
11,268
147,091
Gain/ Loss
(A-B-C)
19,123
(34,263)
26,340
32,976
25,053
(1,424)
6,711
5,725
11,012
1,415
56,603

(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: 1995 2nd Quarter Reports

Exhibit IV

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

EMPIRE PLAN OPTION CORE ONLY

Individual (81)

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
185.11
205.13
10.8%
164.09
182.97
11.5%
Best Estimate
185.11
212.51
14.8%
164.09
190.35
16.0%
Pessimistic
185.11
220.38
19.1%
164.09
198.22
20.8%

Family (82)

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
417.11
458.75
10.0%
370.81
407.13
9.8%
Best Estimate
417.11
475.71
14.0%
370.81
424.09
14.4%
Pessimistic
417.11
493.68
18.4%
370.81
442.06
19.2%

CORE PLUS PSYCHIATRIC ENHANCEMENT

Individual (51)

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
189.04
208.06
10.1%
168.01
185.89
10.6%
Best Estimate
189.04
215.59
14.0%
168.01
193.42
15.1%
Pessimistic
189.04
223.61
18.3%
168.01
201.44
19.9%

Family (52)

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
429.25
467.02
8.8%
382.89
415.32
8.5%
Best Estimate
429.25
484.41
12.9%
382.89
432.71
13.0%
Pessimistic
429.25
223.61
17.1%
382.89
451.11
17.8%

CORE PLUS MEDICAL ENHANCEMENT

Individual (61)

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
210.77
217.88
3.4%
189.63
191.58
1.0%
Best Estimate
210.77
225.93
7.2%
189.63
199.63
5.3%
Pessimistic
210.77
234.47
11.2%
189.63
208.17
9.8%

Family (62)

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
474.85
487.35
2.6%
428.26
426.12
-0.5%
Best Estimate
474.85
505.81
6.5%
428.26
444.58
3.8%
Pessimistic
474.85
525.28
10.6%
428.26
464.05
8.4%

CORE PLUS MEDICAL & PSYCHIATRIC ENHANCEMENTS

Individual (71)

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
214.70
220.81
2.8%
193.54
194.49
0.5%
Best Estimate
214.70
229.01
6.7%
193.54
202.69
4.7%
Pessimistic
214.70
237.70
10.7%
193.54
211.38
9.2%

Family (72)

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
486.99
495.62
1.8%
440.35
434.32
2.9%
Best Estimate
486.99
514.51
5.7%
440.35
453.21
2.9%
Pessimistic
486.99
534.41
9.7%
440.35
473.11
7.4%

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

Exhibit V

EMPIRE PLAN
PA GROUP RATES
1985-1996 Monthly Rates

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
214.70
0.4%
193.54
-2.0%
1996 (projected)
229.01
6.7%
8.8%
202.69
4.7%
7.9%

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
486.99
0.5%
440.35
-1.5%
1996 (projected)
514.51
5.7%
9.5%
453.21
2.9%
8.6%

*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.

Attachment A

Empire Plan Benefit Changes*
1996

Change
Core only
Core & Psychiatric
Core & Medical
Core & Psych. & Med.
Annual Deductible increasing from $209 to $250
No, currently $500
No, currently $500
Yes
Yes
Annual Maximum out of Pocket Expense increasing from $1005 to $1250
No, currently $2500
No, currently $2500
Yes
Yes
Office Visit, Office Surgery, Lab and radiology copayment increasing from $8 to $10
Yes
Yes
Yes
Yes
Increase Hospital outpatient Copay from $15 to $25
Yes
Yes
Yes
Yes
Prescription Drug copayment increasing from $5 to $10
Yes
Yes
Yes
Yes
Begin covering oral contraceptives and Prescription Vitamins
Yes
Yes
Yes
Yes
Improved ambulance benefit - $35 dollar Copay
Yes
Yes
Yes
Yes
Managed Physical Medical Program (inproved Chiropractic and Physical Therapy services)
Yes
Yes
Yes
Yes
Improved Hearing aid benefits - $600 every 4 years
No
No
Yes
Yes
Eliminate PPR for all procedures except MRIs
Yes
Yes
Yes
Yes
Increase payment for routine physicals - $250 each enrollee and spouse every 2 years
No
No
Yes
Yes
Change in Domestic Partner eligibility criteria - 1 year to be eligible and years between partnerships
Yes
Yes
Yes
Yes

*All changes are effective on January 1, 1996.