Department of Civil Service

PA97-03

TO: Participating Agency Health Benefits Administrators
FROM: The Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report
DATE: March 24, 1997

Enclosed are the Fourth Quarter Empire Plan Experience Report for 1996 and the cover letter to Chief Executive Officers.

This report provides projected 1996 experience and projected 1998 premium rates.

March 24, 1997

Dear Chief Executive Officer:

Attached is the Participating Agency Fourth Quarter Report for 1996. This report provides projected 1996 Empire Plan Experience, based on claims paid through December 1996.

Based on claims paid through December 1996, the Empire Plan carriers project a surplus of approximately $211.7 million or 11.7% of premium. The report includes details for each of the carriers and, as in the past, these projections will be revised in the next quarterly report based on actual claims experience for 1996.

Initial projections of 1998 premium rates reflect increases of approximately 5.25% in the gross rates and 8.4% in the net rates. Please note that these projections have been made without any claims experience for 1997. The report discusses the basis for these projections and future reports will include revisions based on actual claims data available.

As you are probably aware, the New York Health Care Reform Act (HCRA) of 1996 became effective on January 1, 1997, and replaces NYPHRM. The report discusses the impact of HCRA on the Empire Plan and its enrollees.

I hope this report is informative and useful to you. If you have any questions, comments or suggestions, please don't hesitate to contact me.

Sincerely,

Robert W. DuBois, CEBS
Director
Employee Benefits Division

EMPIRE PLAN EXPERIENCE REPORT
OCTOBER - DECEMBER 1996
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

PROJECTED 1996 EMPIRE PLAN EXPERIENCE

Based on claims paid through December 1996, the Empire Plan carriers project a composite surplus of $211.7 million or 11.7% of premium. This represents an increase of $157.2 million over the margin loaded in the 1996 rates. The 1996 annual experience projected by the insurance carriers is reported in Exhibit I. Individual carrier projections are explained as follows:

Blue Cross

Blue Cross projects a 1996 dividend of $106.4 million or 16.5% of premium. This represents an $87.1 million increase over the margin loaded in the 1996 rates and is primarily due to a $41.0 million decrease in the 1995 claim base from what was estimated at the time the 1996 rates were developed. This improvement was caused in large part by Blue Cross's underassessment of the impact of electronic claim submissions. An additional $47.7 million of projected dividend is due to the reduction of projected 1996 trend from 7.6% to negative 0.5%. Partially offsetting these gains is an increase in retention, which is expected to be $1.6 million greater than the amount loaded in the rates.

MetraHealth Medical

MetraHealth projects a composite 1996 dividend of $37.9 million or 5.2% of premium representing a $16.2 million increase over the margin loaded in the 1996 rates. The modest increase in the projected dividend is attributable to a number of factors including an increase in the 1995 claim base offset by a decrease in the 1996 trend from 5.5% to 3.8%, and a $9.9 million decrease in the administrative expense.

The amount of the gains and losses on the components of the program is significantly smaller than what was reported in the 1st Quarter 1996 Report because Core premium was shifted to both the NY and PA Enhancements in an equitable manner. Since Participating Agencies with the Core Only option do not benefit from this shift, a premium credit was calculated and sent to Core Only Agencies in February for application against their next bill.

MetraHealth Mental Health and Substance Abuse Program

MetraHealth projects a 1996 surplus of $20.2 million or 18.1% of premium for the Mental Health and Substance Abuse (MHSA) Program. This represents an increase of $15.4 million over the margin loaded in the 1996 rates and is the result of the continuous improvement in reducing unnecessary and inappropriate inpatient utilization in the latter half of 1995 and through 1996. This continuous improvement was not considered in the development of the 1996 rates. In addition, administrative expenses are approximately $4.2 million lower than the budgeted amounts.

Cigna

A 1996 dividend of $47.2 million or 15.0% of premium is estimated by Cigna. This represents a $38.5 million increase over the margin loaded in the 1996 rates. This increase is primarily attributable to higher than anticipated savings generated from the Select Pharmacy Network and results in a relatively flat claim cost increase in 1996.

1998 PREMIUM RATES

Exhibit II presents the projected 1998 Empire Plan gross and net rates in comparison to the 1997 rates. The 1998 net rates reflect the application of $155.5 million in dividends to all payors. Empire Plan gross premium is projected to increase approximately 5.25% with a net premium increase at 8.4%. The higher net premium rate increase in relation to the increase in the gross premium reflects the decreased level of dividend application in 1998.

The projected net rate increase for the Mediprime group is modestly higher than the rate increase for the Planprime group. 1998 will be the first year that dividend credit is based on the five tier rate structure. Consequently, while the total Participating Agency dividend remains the same as it would have been under the two tier rate structure, the allocation is different. This results in a lower amount of the dividend being allocated to MediPrime. Historically, dividend credits are allocated in relation to the original premiums billed. Since Mediprime is lower than Planprime premium the dividend allocation reflects this premium differential. This practice is integral to the 1998 rate development.

The composite rate increase under the five tier basis is also modestly greater than the composite rate increase under the two tier basis. This is due to the fact that the 1996 five tier rate generated approximately $6 million less than the two tier premium liability due to the Empire Plan carriers. Since any deviation between the two tier and the five tier rates are adjusted in subsequent premium rates, we have increased the 1998 rate to recoup the additional premium due for 1996.

The underlying trend assumptions used by the carriers for the 1998 Participating Agency rates are as follows:

These trend factors reflect the continuing favorable trends observed by the Empire Plan carriers which are reflective of strong claims management and prudent plan design changes over the recent years.

For comparison purposes, Exhibit III presents the Individual and Family rate history for the Core Plus Medical and Psychiatric Enhancements option based on the Two Tier Empire Plan rate structure in effect prior to January 1, 1996.

KEEPING YOU INFORMED

Health Care Reform Act

The New York Health Care Reform Act (HCRA) of 1996 took effect on January 1, 1997. This legislation replaces the New York Prospective Hospital Reimbursement Methodology (NYPHRM). As of this effective date, hospital rates were deregulated. Several new surcharges and assessments will be used to cover the costs of bad debt and charity care, Graduate Medical Education and health care initiatives, which were previously funded under NYPHRM.

Empire Plan enrollees will be affected most directly by an 8.18% surcharge which will be applied to all inpatient and outpatient hospital services rendered by diagnostic and treatment centers that provide comprehensive primary care services or ambulatory surgical services, and free-standing clinical laboratories. The surcharge applies to services by these designated providers located in New York State; when laboratory samples are collected or drawn outside of New York State, related laboratory services are exempt from the surcharge.

Empire Plan carriers will pay surcharges directly to the New York State Department of Health on benefits paid by the Plan, amounts applied to deductibles, and copayment amounts. Enrollees are responsible for the 8.18% surcharge only on coinsurance amounts and on any charges not covered by the Plan; for example, charges in excess of reasonable and customary amounts and charges for noncovered services. For those covered by Medicare, the surcharge applies only when Medicare benefits for a particular service are exhausted or if the service is not covered by Medicare.

Information on the HCRA and related surcharge will be provided in a future issue of the Empire Plan Report which will be mailed directly to enrollees.

Enrollees and providers who have questions about their surcharge liability for Empire Plan covered expenses may call MetraHealth at 1-800-942-4640.

Exhibit I

1996 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: 1996 4th Quarter Report

Exhibit II

EMPIRE PLAN
Participating Agency Premium Rates
Comparison of 1997 and Projected 1998 Rates
CORE ONLY

Plan Prime: Individual

Plan Prime: Family

Medi Prime: Individual

Medi Prime: Family-1

Medi Prime: Family-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 1997 and Projected 1998 Rates
CORE PLUS MEDICAL ENHANCEMENT

Plan Prime: Individual

Plan Prime: Family

Medi Prime: Individual

Medi Prime: Family-1

Medi Prime: Family-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 1997 and Projected 1998 Rates
CORE PLUS MEDICAL & PSYCHIATRIC ENHANCEMENTS

Plan Prime: Individual

Plan Prime: Family

Medi Prime: Individual

Medi Prime: Family-1

Medi Prime: Family-2

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

Exhibit III

EMPIRE PLAN
PA GROUP RATES
1985-1998 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 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.