Department of Civil Service

PE96-10

TO: Participating Employer Health Benefits Administrators
FROM: Robert DuBois, Director, Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report
DATE: April 30, 1996

The Participating Employer Fourth Quarter Report for 1995 is attached. This report provides projected 1995 Empire Plan Experience and an early projection of 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 Gross Rate and Net Rate increases of 4.6% and 10 .l % (Individual) and 5.2% and 11.4% (Family). 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.

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 .

PARTICIPATING EMPLOYERS

EMPIRE PLAN
1995 4TH QUARTER EXPERIENCE REPORT

APRIL 30, 1996

PREPARED BY THE DEPARTMENT OF CIVIL SERVICE

EMPIRE PLAN EXPERIENCE REPORT
PRODUCED FOR
PARTICIPATING EMPLOYERS 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 EMPLOYER GROUP
EMPIRE PLAN EXPERIENCE REPORT
4TH QUARTER REPORT

EMPIRE PLAN 1995 EXPERIENCE

Empire Plan 1995 annual experience projected by the insurance carriers is reported in Exhibit l. 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.

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 12/31/94 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 1995 secular 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 9/1/95 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 in 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 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 co-pay for most NY groups effective 9/1/95 from $5 to $7 and the switch to the 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

Exhibit II presents the 1997 projected Empire Plan gross and net rates in comparison to the 1996 rates. The 1997 net rates reflect the application of $130 million in dividends to all payors. On average, Empire Plan gross premiums are projected to increase 6.4% with a net premium increase projected at 11.8%. The higher increase in net premiums in relation to the increase in the gross premium reflects the decreased level of dividend application in 1997.

Though the projected net rate increase is considerably higher than the rate increases observed over the previous 5 years, the current projection may be viewed to be 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 12/31/96 and the State is currently evaluating proposals for the successor contract. This competitive bid process may result in a 1997 premium lower than the premium which is projected by the incumbent contractor.

The underlying trend assumptions used by the carriers for the 1997 Participating Employer Rates are as follows:

This trend factor reflects the upturn in trend which has been predicted by many experts in the health care field.

Exhibit III presents the individual and family rate history for the respective groups with and without drug coverage since the inception of the Empire Plan.

1995 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: 1995 Fourth Quarter Report

EMPIRE PLAN
Participating Employer Premium Rates
Comparison of 1996 and Projected 1997 Rates

NON-DRUGS - Individual (81)

NON-DRUGS - Family (82)

NON-DRUGS - Individual (51)

NON-DRUGS - Family (52)

(1) Represents premiums charged by the carriers.

(2) Represents cost to a participating employer.

PARTICIPATING EMPLOYER RATES
1985-1997 MONTHLY RATES
REPRESENTS ENROLLEES WITH RX DRUG COVERAGE

Individual

Individual Average Percent Increase

Family

Family Average Percent Increase

(1) Represents the effective amounts of the 1/88 and the 8/88 rate changes.

(2) Represents 1/1/91 - 6/30/91 rates

PARTICIPATING EMPLOYER RATES
1985-1997 MONTHLY RATES
REPRESENTS ENROLLEES WITHOUT RX DRUG COVERAGE

Individual

Individual Average Percent Increase

Family

Family Average Percent Increase

(1) Represents the effective amounts of the 1/88 and the 8/88 rate changes.

(2) Represents 1/1/91 - 6/30/91 rates