Department of Civil Service

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.