Department of Civil Service

PE98-09

TO: Participating Employer Health Benefits Administrators
FROM: Robert DuBois, Director, Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report
DATE: March 25, 1998

Attached is the Participating Employer Fourth Quarter Report for 1997. This report provides projected 1997 experience based on claims paid through December 1997, and 1999 projected premium rates.

The Empire Plan carriers are projecting a surplus for 1997 of $57.5 million, 5.0% of premium. A review of the projected annual experience of each of the carriers is included in the report. Early projections of 1999 rates show a 6.4% gross and a 8.3% net increase. As always these early projections should be viewed with caution.

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

PARTICIPATING EMPLOYERS

EMPIRE PLAN
1997 Fourth Quarter
Experience Report

Prepared by The State of New York Department of Civil Service

NYS HEALTH INSURANCE PROGRAM
PARTICIPATING EMPLOYER GROUP
EMPIRE PLAN EXPERIENCE REPORT
4TH QUARTER REPORT

PROJECTED 1997 EMPIRE PLAN EXPERIENCE

Based on claims paid through December, 1997, the Empire Plan carriers project a composite surplus of $87.5 million or 5.0% of premium. This represents an increase of $36.6 million from the margin loaded in the 1997 rates. The 1997 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 1997 dividend of $31.6 million or 5.6% of premium, which is $14.1 million more than the margin loaded in the 1997 rates. The rating of this component of the Empire Plan was very good given the uncertainties of the impact of the HCRA legislation, that went into effect on January 1, 1997. In general, the dividend increase is attributable to modestly lower 1997 claim and retention costs than were projected when the rates were developed.

United Health Care Medical

UnitedHealthcare projects a composite 1997 dividend of $28.5 million or 3.8% of premium representing a $6.3 million increase over the margin loaded in the 1997 rates. This modest dividend increase is due to the overestimation of the Health Care Reform Act (HCRA) charge partially offset by an understatement of the Open and Unreported Claims Reserve as of December 31, 1996.

United Health Care Mental Health and Substance Abuse Program

UnitedHealthcare projects a 1997 surplus of $23.5 million or 23.2% of premium for the Mental Health and Substance Abuse (MHSA) Program. The additional $21.0 million over margin is attributable to the continuous improvement in shifting unnecessary and inappropriate inpatient utilization to a lower cost outpatient setting. Also, both HCRA Bad Debt and Charity Assessment and retention are projected to be lower than 1997 rate development estimates.

Cigna

A 1997 dividend of $3.9 million or 1.2% of premium is estimated by Cigna. This represents a $4.8 million decrease over the margin loaded in the 1997 rates and is primarily attributable to a moderate upturn in trend partially offset by higher than expected cash flow interest credits.

1999 PREMIUM RATES

Exhibit II presents a projected range of 1999 gross and net rates comparison to the 1998 rates. In this projection, 1999 net rates assume the application of $126.0 million in dividend to all payors. Empire Plan gross premium would increase approximately 6.4% with a net premium increase of 8.3%. The higher rate of increase in net premium in relation to the increase in the gross premium reflects the projected decreased level of dividend application in 1999.

Effective January 1, 1999, new contracts are expected to be awarded for the Prescription Drug and Managed Mental Health and Substance Abuse Programs. It is not yet known what impact, if any, these contract awards may have on projected 1999 rates. Each Participating Employer should assess its financial situation in using the quoted range of rates.

The underlying trend assumptions used by the carriers for the projected 1999 Participating Employer rates are as follows:

Although the industry is predicting an upturn in trend for 1998 and 1999, we are confident that through strong management and prudent plan design Empire Plan trend will continue to be below industry averages.

Exhibit Ill presents the Individual and Family rate history for the groups with and without drug coverage since the inception of the Empire Plan.

1997 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.

(4) Excludes the impact of any increase in the Disabled Lives Liability.

Source: 1997 4th Quarter Report.

EMPIRE PLAN
Participating Employer Premium Rates
Comparison of 1998 and Projected 1999 Rates

Individual - Drugs

Family - Drugs

Individual - NON Drugs

Family - NON Drugs

(1) Represents premiums charged by the carriers.

(2) Represents cost to a participating employer.

PARTICIPATING EMPLOYER RATES
1985-1999 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
1985-1998 MONTHLY RATES
REPRESENTS ENROLLEES WITHOUT RX DRUG COVERAGE

Individual

Individual Average Percent Increase

Family

Family Average Percent Increase

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

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