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.
GOVERNOR
DEPARTMENT OF CIVIL SERVICE
ALBANY, NEW YORK 12239
www.cs.ny.gov
COMMISSIONER
DANIEL E. WALL
EXECUTIVE
DEPUTY COMISSIONER
PA96-03
TO: Participating Agency Health Benefits Administrators
FROM: The Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report
DATE: April 12, 1996
The Fourth Quarter Empire Plan Experience Report and the cover letter to Chief Executive Officers are enclosed.
This report provides projected 1995 experience and projected 1997 rates in the new MediPrime Rate structure.
April 12, 1996
Dear Chief Executive Officer:
The Participating Agency Fourth Quarter Report for 1995 is attached. This report provides projected 1995 Empire Plan Experience and an early projection of the 1997 premium rates.
The Plan reflects favorable 1995 experience, with the carriers projecting a surplus for the year of $75.3 million, or 4.5% of premium. A summary of each carriers experience is included. The final experience for 1995 will be provided in the next quarterly report.
Initial projections of 1997 premium rates reflect increases of approximately 8.3% in the gross rates, and 13.4% (Individual) and 14.1% (Family) in the net rates. Please keep in mind that these early projections have been made without any claims experience for 1996. The second quarter report will contain the first projections of 1997 rates using 1996 claims information. These figures are provided for your use in developing your budget proposals for the next fiscal year. As in the past, these projections will be revised in each quarterly report based on the latest available claims data.
Many of you are aware that a Hearing on NYSHIP Medicare Part B Reimbursement was held on March 5, 1996. Commissioner Sinnott's testimony at that hearing is included in this report as Attachment I.
I hope this report is informative and useful to you. Please don't hesitate to contact me if you have any questions, comments or suggestions.
Sincerely,
Robert W. DuBois, CEBS
Director
Employee Benefits Division
EMPIRE PLAN EXPERIENCE REPORT
OCTOBER - DECEMBER 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 GROUP
EMPIRE PLAN EXPERIENCE REPORT
4TH QUARTER REPORT
EMPIRE PLAN 1995 EXPERIENCE
Based on claims paid through December, the Empire Plan carriers project a composite 1995 surplus of $75.3 million or 4.5% of premium. This represents an increase of $31.1 million over the margin loaded in the 1995 rates. Exhibit I presents the 1995 Projected Empire Plan Experience.
Following is a summary of the 1995 projected experience for each of the carriers:
Blue Cross
Blue Cross projects a 1995 dividend of $35.3 million or 5.8% of premium. This represents a $23.3 million increase over the margin loaded in the 1995 rates and is primarily due to a decrease in the 1994 claim base and improved claims runout in relation to the established December 31, 1994, outstanding and Unreported Claims Reserve. In addition, the observed 1995 trend is currently estimated at 5.6% as opposed to the 6.2% estimate used in the establishment of the 1995 rates.
Metropolitan Medical
Metropolitan projects a composite 1995 dividend of $21.9 million or 3.2% of premium representing a $2.0 million increase from the margin loaded in the 1995 rates. The increase in the projected dividend is attributable to an improvement in the secular 1995 trend offset by an increase in the 1994 claim base that was projected at the time the rates were developed. The latest projection also includes the cost impact of implementing the Managed Physical Medicine Program effective, September 1, 1995, and other benefits implemented throughout 1995 for the NY group as a result of collective bargaining.
Metropolitan Mental Health and Substance Abuse Program
Metropolitan projects a 1995 surplus of $11.4 million or 10.2% of premium for the Mental Health and Substance Abuse (MHSA) Program. This represents an increase of $6.5 million over the margin loaded in the 1995 rates and is a result of a $5.4 million reduction in the 1994 claim base and a modest decrease in the 1995 trend partially offset by an increase in retention.
Cigna
A 1995 surplus of $6.6 million or 2.5% of premium is estimated by Cigna. This reflects a $0.7 million decrease in the margin loaded in the 1995 rates and is attributable to an increase in trend from 11% projected at the rate renewal to approximately 14%. This additional cost was offset by the savings resulting from an increase in copay, from $5 to $7, for most NY groups effective September 1, 1995, and the switch to Select Pharmacy Network providing larger discounts. After accounting for the 1994 carryforward loss, a $3.6 million dividend is projected to be declared.
1997 PROJECTED PREMIUM RATES
The 1997 net rates reflect the application of $130 million in dividends to all payors. Empire Plan gross premiums are projected to increase approximately 8.3% with a net premiums increase projected at 13.5%. The higher rate increase of net premiums in relation to the increase in the gross premiums reflects the decreased level of dividend application in 1997. Exhibit II presents a comparison of projected 1997 Empire Plan gross and net rates and 1996 rates for each option based on the Five Tier MediPrime Rate Schedule.
Though the projected net rate increase is considerably higher than the rate increases observed over the previous five years, the current projection is viewed as conservative due to the following points:
- General conservatism by the carriers with no actual 1996 claim experience.
- NYPHRM V legislation which controls hospital reimbursement is scheduled to terminate effective, June 30, 1996. Blue Cross, because of its market share, may be able to negotiate deep discounts in the post NYPHRM era.
- The current Prescription Drug contract ends December 31, 1996, and the State is currently evaluating proposals for the successor contract. This competitive bid process may result in a 1997 premium lower than that projected by the incumbent contractor.
The underlying trend assumptions used by the carriers for the 1997 Participating Agency Rates are as follows:
| Component | Trend |
|---|---|
| Blue Cross | 7.6% |
| Metropolitan Medical Core | 5.3% |
| Metropolitan Medical Enhancement | 7.8% |
| Metropolitan MHSA Core | 3.0% |
| Metropolitan MHSA Enhancement | 3.0% |
| Cigna | 14.7% |
| Composite | 7.8% |
This factor reflects the upturn in trend which has been predicted by many experts in the health care field.
For comparison purposes, Exhibit III presents the individual and family rate history for the Core plus Medical and Psychiatric Enhancements option based on Two Tier Empire Plan Rates. The new Five Tier MediPrime Rate Schedule became effective January 1, 1996.
Exhibit I
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 MHSA Core | METROPOLITAN MHSA NY Enhancement | METROPOLITAN MHSA PA Enhancement | METROPOLITAN MHSA Combined | CIGNA | TOTAL |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Premium (1) | 609,984 | 533,700 | 80,900 | 81,100 | 695,700 | 77,600 | 18,300 | 16,000 | 111,900 | 264,992 | 1,682,576 |
| Incurred Claims (2) | 543,738 | 527,000 | 36,400 | 28,600 | 592,000 | 63,600 | 8,400 | 7,200 | 79,200 | 247,339 | 1,462,277 |
| Admin. Expenses (3) | 30,901 | 69,327 | 6,509 | 5,935 | 81,771 | 15,458 | 3,124 | 2,693 | 21,275 | 11,008 | 144,955 |
| Gain/ Loss (A-B-C) | 35,345 | (62,627) | 37,991 | 46,565 | 21,929 | (1,458) | 6,776 | 6,107 | 11,425 | 6,645 | 75,344 |
(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 Fourth Quarter Report
Exhibit II
EMPIRE PLAN
Participating Agency Premium Rates
Comparison of 1996 and Projected 1997 Rates
CORE ONLY
Plan Prime: Individual
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 225.10 | 227.32 | 1.0% | 203.90 | 213.74 | 4.8% |
| Best Estimate | 225.10 | 237.70 | 5.6% | 203.90 | 224.12 | 9.9% |
| Pessimistic | 225.10 | 247.93 | 10.1% | 203.90 | 134.35 | 14.9% |
Plan Prime: Family
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 499.74 | 504.01 | 0.9% | 372.35 | 474.22 | 5.3% |
| Best Estimate | 499.74 | 527.15 | 5.5% | 372.35 | 497.36 | 10.5% |
| Pessimistic | 499.74 | 549.89 | 10.0% | 372.35 | 520.10 | 15.5% |
MediPrime: Individual
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 155.11 | 161.95 | 4.4% | 133.91 | 148.75 | 11.1% |
| Best Estimate | 155.11 | 167.90 | 8.2% | 133.91 | 154.70 | 15.5% |
| Pessimistic | 155.11 | 173.80 | 12.0% | 133.91 | 160.60 | 19.9% |
MediPrime: Family - 1
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 429.76 | 438.64 | 2.1% | 383.74 | 409.24 | 7.6% |
| Best Estimate | 429.76 | 457.35 | 6.4% | 383.74 | 427.95 | 12.6% |
| Pessimistic | 429.76 | 475.76 | 10.7% | 383.74 | 446.36 | 17.4% |
MediPrime: Family - 2
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 359.53 | 372.99 | 3.7% | 309.98 | 343.97 | 11.0% |
| Best Estimate | 359.53 | 387.27 | 7.7% | 309.98 | 358.25 | 15.6% |
| Pessimistic | 359.53 | 401.35 | 11.6% | 309.98 | 372.33 | 20.1% |
(1) Represents premiums charged by the carriers.
(2) Represents cost to a participating agency.
Exhibit II
EMPIRE PLAN
Participating Agency Premium Rates
Comparison of 1996 and Projected 1997 Rates
CORE PLUS MEDICAL ENHANCEMENT
Plan Prime: Individual
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 230.91 | 238.73 | 3.4% | 204.00 | 220.41 | 8.0% |
| Best Estimate | 230.91 | 249.70 | 8.1% | 204.00 | 231.38 | 13.4% |
| Pessimistic | 230.91 | 260.97 | 13.0% | 204.00 | 242.65 | 18.9% |
Plan Prime: Family
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 512.24 | 528.56 | 3.2% | 449.50 | 488.12 | 8.6% |
| Best Estimate | 512.24 | 552.99 | 8.0% | 449.50 | 512.55 | 14.0% |
| Pessimistic | 512.24 | 549.89 | 10.0% | 449.50 | 536.58 | 15.5% |
MediPrime: Individual
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 158.35 | 168.32 | 6.3% | 131.44 | 150.40 | 14.4% |
| Best Estimate | 158.35 | 174.61 | 10.3% | 131.44 | 156.69 | 19.2% |
| Pessimistic | 158.35 | 180.84 | 14.2% | 131.44 | 162.92 | 24.0% |
MediPrime: Family - 1
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 439.69 | 458.15 | 4.2% | 376.95 | 418.10 | 10.9% |
| Best Estimate | 439.69 | 477.90 | 8.7% | 376.95 | 437.85 | 16.2% |
| Pessimistic | 439.69 | 497.33 | 13.1% | 376.95 | 457.28 | 21.3% |
MediPrime: Family - 2
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 366.90 | 387.46 | 5.6% | 309.98 | 347.82 | 14.4% |
| Best Estimate | 366.90 | 402.53 | 9.7% | 309.98 | 362.89 | 19.3% |
| Pessimistic | 366.90 | 417.36 | 13.8% | 309.98 | 377.72 | 24.2% |
(1) Represents premiums charged by the carriers.
(2) Represents cost to a participating agency.
Exhibit II
EMPIRE PLAN
Participating Agency Premium Rates
Comparison of 1996 and Projected 1997 Rates
CORE PLUS MEDICAL & PSYCHIATRIC ENHANCEMENTS
Plan Prime: Individual
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 234.59 | 242.28 | 3.3% | 207.66 | 222.99 | 7.4% |
| Best Estimate | 234.59 | 253.44 | 8.0% | 207.66 | 234.15 | 12.8% |
| Pessimistic | 234.59 | 264.90 | 12.9% | 207.66 | 245.61 | 18.3% |
Plan Prime: Family
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 521.96 | 537.96 | 3.1% | 459.16 | 494.51 | 7.7% |
| Best Estimate | 521.96 | 562.89 | 7.8% | 459.16 | 519.44 | 13.1% |
| Pessimistic | 521.96 | 587.41 | 12.5% | 459.16 | 543.96 | 18.5% |
MediPrime: Individual
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 158.65 | 168.61 | 6.3% | 131.72 | 149.73 | 13.7% |
| Best Estimate | 158.65 | 174.92 | 10.3% | 131.72 | 156.04 | 18.5% |
| Pessimistic | 158.65 | 181.16 | 14.2% | 131.72 | 162.28 | 23.2% |
MediPrime: Family - 1
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 446.03 | 464.29 | 4.1% | 383.23 | 421.26 | 9.9% |
| Best Estimate | 446.03 | 484.37 | 8.6% | 383.23 | 441.34 | 15.2% |
| Pessimistic | 446.03 | 504.11 | 13.0% | 383.23 | 461.08 | 20.3% |
MediPrime: Family - 2
| | GROSS RATES (1) 1996 | GROSS RATES (1) 1997 | GROSS RATES (1) % Change | NET RATES (2) 1996 | NET RATES (2) 1997 | NET RATES (2) % Change |
|---|---|---|---|---|---|---|
| Optimistic | 369.87 | 390.34 | 5.5% | 307.07 | 347.73 | 13.2% |
| Best Estimate | 369.87 | 405.57 | 9.7% | 307.07 | 362.96 | 18.2% |
| Pessimistic | 369.87 | 420.53 | 13.7% | 307.07 | 377.92 | 23.1% |
(1) Represents premiums charged by the carriers.
(2) Represents cost to a participating agency.
Exhibit III
EMPIRE PLAN
PA GROUP RATES
1985-1997 Monthly Rates
Individual
| Core plus Med. & Psych. Enh. | Gross rate | % Change | Net Rate | % Change |
|---|---|---|---|---|
| 1985* | 95.71 | | 92.85 | |
| 1986 | 91.97 | -3.9% | 91.45 | -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 (4) | 219.20 | 2.1% | 192.27 | -0.7% |
| 1997 (4) Projected | 237.29 | 8.3% | 218.08 | 13.4% |
| Average Percent Increase | Gross rate | % Change | Net Rate | % Change |
|---|---|---|---|---|
| From Inception | | 8.4% | | 7.9% |
| Most Recent 10 Years | | 9.2% | | -8.6% |
| Most Recent 5 Years | | 3.7% | | 3.9% |
Family
| Core plus Med. & Psych. Enh. | Gross rate | % Change | Net Rate | % Change |
|---|---|---|---|---|
| 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 (4) | 491.07 | 0.8% | 428.27 | -2.7% |
| 1997 (4) Projected | 531.86 | 8.3% | 488.58 | 14.1% |
| Average Percent Increase | Gross rate | % Change | Net Rate | % Change |
|---|---|---|---|---|
| From Inception | | 9.0% | | 8.6% |
| Most Recent 10 Years | | 9.9% | | 9.2% |
| Most Recent 5 Years | | 3.7% | | 3.9% |
*Statewide Plan Premium Rates
(1) 1988 rates represent the effective amounts of the 1/88 and 8/88 rate changes.
(2) No change in effective net rate over 1989.
(3) Represents rates effective 1/1/91 - 6/30/91.
(4) Represents 2 tier Empire Plan Rates; 5 tier schedule effective 1/1/96.
Testimony
Hearing on NYSHIP Medicare Reimbursement
George C. Sinnott
President, Civil Service Commission
March 5, 1996
Testimony For Hearing on NYSHIP Medicare Reimbursement
March 5, 1996
Honorable Chairman Vitaliano, Chairman Harenberg, Chairman Grannis , and esteemed members of the Joint Committee.
Thank you for the opportunity to testify before you today in regard to the New York State Health Insurance Plan (NYSHIP) and the issue of Medicare Premium Reimbursement for retirees of local government.
I will keep my remarks brief and to the extent possible, non-technical.
As President of the State Civil Service Commission, I am statutorily charged with the responsibility for the administration of NYSHIP. The Program is administered by our Employee Benefits Division. To place the Program in perspective, you should know the following:
- NYSHIP is one of the three largest public employer Health Insurance Programs in America.
- NYSHIP insures over 1 MILLION active and retired public employees from all branches of State and local government and other public employers.
- NYSHIP premiums total $ 2 BILLION per year.
In terms of performance,
- Cost increases within NYSHIP through Plan year 1995 have been held below the national and regional averages through prudent management and constant innovation in Plan Design, Marketing and Risk Containment Strategy.
My testimony today is prompted in large part due to an assessment underway in the Department as to how best guarantee the continued success of NYSHIP in a period of escalating health insurance costs nationwide when fiscal problems are mounting for local government participants in NYSHIP, which we call PAs.
Let me clarify one point right now. There appears to be the impression in some quarters that the Department of Civil Service has already advanced a regulation to repeal the requirement that PAs reimburse Medicare Part "B" premiums. THIS IS NOT ACCURATE.
While the Department had considered such a change in the Fall of 1995, we determined it appropriate to explore such an action with all involved, including representatives of our retired public employee organizations, our PAs, and our public employee unions. This review and consideration continues today.
Accordingly, I am not only pleased to have the opportunity to address you today, I am equally pleased to have the opportunity to hear your views on this most important issue.
According to the nationally known benefits consulting firm of A. Foster Higgins, THE RATE OF GROWTH in health care expenditures is again on the rise, especially in the Northeast, where cost is RISING AT THREE TIMES THE NATIONAL AVERAGE.
Further, we are all aware that the national recession of 1990-91 has had a devastating impact on local governments through the decline in property values, wage stagnation and the continued pressures on local governments in the form of unfunded mandates across a wide variety of programs.
Clearly, the costs of Public Employee and retired Public Employee Health Insurance is a major target for potential savings. It comes as no surprise, therefore, that PAs look at this cost center for potential cost-cutting.
As you are already aware , Section 73.3(B) 6 of the President's regulations governing Health Insurance, mandates employer reimbursement of Medicare's Part "B" premiums. Presently, such reimbursement amounts to $42.50 per enrollee per month. In the aggregate, reimbursement of this sum costs local governments over 31 million dollars per year. While reimbursement of these premiums is mandatory, such mandate only applies to employers who choose to include their retirees in NYSHIP. Consequently, a local government needs merely to withdraw its retirees from coverage to avoid this expense. Withdrawal, however, has implications for both NYSHIP and the retiree who must now personally assume the cost of Part "B" and may receive inferior coverage.
For NYSHIP, its success, like that of any other insurance plan, is directly related to the issue of risk and the sharing of risk throughout the Plan membership.
Generally, while forces which increase the amount of risk tend to drive unit costs upward, actions which produce less risk tend to keep unit costs down.
In regard to NYSHIP, experience indicates that the cost of retiree membership is but 70% of the Plan average, as Medicare pays the majority of hospital and medical costs. Thus, we need Medicare eligible retirees in our Plan.
Incentives which lead to the removal of good-risk enrollees, such as Medicare eligible retirees, hurt the plan and the retirees as well. Specifically, when a PA goes to the insurance market and contracts with a provider for supplemental Medicare insurance, such providers can offer such plans at 75-80% of the NYSHIP cost and save the PA the cost of Medicare premium reimbursement. Thus, the Plan loses good-risk enrollees, and the retirees lose the reimbursement.
The repeal of our regulation mandating reimbursement of Medicare Part "B" is not the only measure which we have considered to address this serious threat to the Plan. Effective January 1, 1996, the Department instituted a new rate structure called MEDIPRIME, which reduced retiree premium costs by over 30%. This act effectively eliminated premium cost as an incentive to remove Medicare eligibles from NYSHIP. Incidentally, it also conferred a considerable savings to a substantial number of retirees who contribute to the cost of their health insurance in retirement.
Notwithstanding the improvements, several large municipalities on Long Island have already removed their primary Medicare enrollees from NYSHIP and enrolled them in less costly plans. We expect others will follow.
The long-term consequence of this is a degradation of the NYSHIP risk pool and higher premium costs. If withdrawals are widespread, an initial premium increase of 3% is inevitable. Such cost increases will then drive out other PAs, thus furthering the risk in the Plan, triggering further increases in costs and premiums, thus....you get the picture.
This is a prescription for disaster - insolvency and chaos will invade a plan which has for 30 years been a model of success.
This, then, is why we are we considering the elimination of Regulation 73.3.
In today's environment, the practical effect of Regulation 73.3 Medicare Part "B" Reimbursement - is to drive PAs to the private sector insurance market to reduce costs. And when they do, the retirees will become susceptible to loss of the premium reimbursement they now receive.
Elimination of the regulation would allow NYSHIP to compete on an equal footing with other insurance providers now selling Medicare supplemental programs to the PAs.
We believe that if the economic incentive to pull retirees from NYSHIP is removed, the Plan will compete on an equal footing on the quality of the product. We want to compete in this market this way.
We believe that this is the best public policy approach to take and one which is in the best interests of active and retired plan members alike.
While the prospect of moving the premium to the retiree is troublesome, the loss of membership in NYSHIP is also very troublesome as outlined in my earlier remarks.
We know that the presence of the regulation does not protect the reimbursement. In fact, it is placing the reimbursement in jeopardy.
I would be pleased to answer any questions you may have of me today. In addition, I stand ready to have my staff available to you to discuss any aspect of NYSHIP and the problem discussed today at your convenience.