Department of Civil Service

PA01-29

TO: Participating Agency Health Benefit Administrators
FROM: The Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report
DATE: December 21, 2001

Enclosed are the Third Quarter Empire Plan Experience Report for 2001 and the cover letter to the Chief Executive Officers. This report presents the projected 2001 Empire Plan experience as well as the approved 2002 premium rates.

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December 21, 2001

Dear Chief Executive Officer:

Attached is the Participating Agency Third Quarter Report for 2001. This report presents the projected 2001 Empire Plan experience based on claims paid through September 30, 2001 as well as the 2002 premium rates.

The Empire Plan carriers project a 2001 net dividend of $111.5 million, 4.2% of premium. The report explains the basis for this projection and future reports will include revisions based on additional claims experience. The carriers will issue the annual experience statement on March 15, 2002.

The approved 2002 premium rates are presented in Exhibit II and reflect a net rate increase of 10.2%. The report also presents the major factors driving this rate increase.

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.

Our best wishes for a happy holiday season.

Sincerely,

Robert W. DuBois, CEBS
Director
Employee Benefits Division

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PARTICIPATING AGENCIES
EMPIRE PLAN
2001 Third Quarter (JULY – SEPTEMBER 2001)
Experience Report

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

PROJECTED 2001 EMPIRE PLAN EXPERIENCE

The Empire Plan carriers project a composite dividend of $111.5 million (4.2% of premium), or $81.4 million more than the margin loaded in the 2001 rates. The 2001 annual experience projected by the insurance carriers is reported in Exhibit I.

Approximately $47.8 million of the projected surplus is attributable to the better than expected experience of the Prescription Drug Program. Such improvement is attributable to the softening of the prescription drug trend. A comparison of claims incurred in the first six months of 2001 with the same period of 2000 resulted in a trend of 15.5%. After adjusting for plan and discount pricing changes, the normalized trend, reported by Cigna, is 18.8% or approximately 25% below the pricing trend factor used in the development of the 2001 prescription drug rates. While this is good news, the prescription drug program is trending at almost twice the rate of the medical and hospital programs. The prescription drug component now represents approximately 28% of the Empire Plan premium.

Moderate experience improvements are also projected for both the Medical Program and the Mental Health and Substance Abuse (MHSA) Program. The improved experience in these programs is primarily attributable to the reduction in the actual 2000 claim base in comparison to the amount projected and used in the development of the 2001 premium rates. This improvement is partially offset by the marginally higher rate of trend observed, on both programs, in comparison to the trend factors used in the 2001 rate development.

Empire BlueCross BlueShield is projecting a marginal loss. If such loss occurs, Empire BlueCross BlueShield may call additional funds from previously earned dividend reserves not to exceed 3% of premium. This retro premium arrangement was negotiated in exchange for a marginless 2001 premium rate.

2002 PREMIUM RATES

Exhibit II presents the 2002 Empire Plan gross and net premium rates and includes the application of $69.9 million in dividend to all payors. In the aggregate, the Empire Plan gross premium increased approximately 9.3% while the net premium increased 10.2%.

This premium increase compares favorable with the reported increase of many other large employers (i.e. Federal Employees – 13.2%). While the rate of trend has been increasing over the last few years, we have been able to achieve a relatively favorable 2002 rate increase by the use of retrospective premium arrangements.

Specifically, a carrier will agree to reduce the required premium level by a specific dollar amount in exchange for the program agreeing to pay the carrier additional money as a retrospective premium payment should claims and expenses exceed the earned premium. Any retrospective premium would be funded through available dividends or future premiums. Another benefit from this type of arrangement is that carriers will reduce the risk charges and are not as likely to be as conservative in their claim projections, margin factors and overall premium development. In sum, the retro arrangements have reduced premium $52.6 million or 1.8%.

On a composite basis, the 2002 premium rate development includes a 12% trend factor and a margin equivalent to 1.8% of claims. While the retro premium liability is approximately $246 million, the State and its benefit consultant do not at this time expect that any payment will be necessary.

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, while Exhibit IV presents the five tier history from 1996 to 2002.

KEEPING YOU INFORMED

Transmission of Reports Electronically

The Employee Benefits Division has the capability to transmit the Participating Agency Quarterly Experience Report via E-mail. Using a software product called Adobe Acrobat Reader™, the PA Quarterly Report is converted into a portable document format (PDF). This is a format that can be read by any recipient, if they have Adobe Acrobat Reader™ installed on their system. Adobe Acrobat Reader™ is available free from Adobe Systems, Inc., at http://www.adobe.com.

There are many advantages to receiving the reports electronically including: reports will be received sooner; there will be less paper to handle; and the reports can be stored electronically and/or a hard copy may be printed.

If you would like to receive the report electronically, please provide your E-mail address by completing the bottom section of Attachment 1 and returning it to the Employee Benefits Division.

PA Regional Meetings

The PA Regional Meetings were held on:

• November 8, 2001, in Saratoga Springs, NY.
  
• November 13, 2001, in Rockland County, NY.
  
• November 14, 2001, in Long Island, NY.

About 400 Participating Agency representatives attended these one-day sessions. Attachment 2 includes the agenda and handout materials from these meetings. Please note that the proposed rates for 2002 presented at the meetings were modified slightly; the final approved rates are included in Exhibit II of this report.

Since there are a number of health insurance issues which could be covered at these sessions, including the expansion and refinement of NYBEAS, consideration is being given to expanding these meetings to two-day sessions for the Fall of 2002. Please let us know if you think this would be worthwhile and if there are specific questions, issues or other suggestions for the agenda.

Name and Address Changes

Please be sure to notify the Employee Benefits Division of any changes so that we may keep our mailing lists up-to-date. This updated information may be sent to:

Mr. Stephen Kavanaugh
Director
Employee Insurance Programs
NYS Department of Civil Service
State Campus, Bldg.1, Rm. 159
Albany, NY 12239

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Attachment 1

TRANSMISSION OF REPORTS ELECTRONICALLY

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If you would like to receive the report electronically, please complete this form and return it to:

Mr. Stephen Kavanaugh
Director
Employee Insurance Programs
NYS Department of Civil Service
State Campus, Bldg.1, Rm. 159
Albany, NY 12239

Agency Code: _________________________

Agency Name: _________________________

Contact Person: _________________________

E-mail Address: _________________________

Phone Number: _________________________

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Exhibit I

2001 PROJECTED EMPIRE PLAN EXPERIENCE
In (000’s)

	EMPIRE BLUE CROSS	UnitedHealthcare MEDICAL - Core	UnitedHealthcare MEDICAL - NY Enhancement	UnitedHealthcare MEDICAL - PA Enhancement	UnitedHealthcare MEDICAL - Combined	GHI MHSA - Core	GHI MHSA - NY Enhancement	GHI MHSA - PA Enhancement	GHI MHSA - Combined	CIGNA	TOTAL
Premium (1)	760,336	890,221	105,757	81,626	1,077,604	59,362	8,395	5,820	73,577	740,053	2,651,570
Incurred Claims (2)	718,088	772,690	85,958	67,954	926,602	45,287	5,261	3,243	53,791	675,811	2,374,292
Administrative Expense (3)	42,497	80,101	7,522	5,835	93,458	10,765	1,523	1,055	13,343	16,491	165,789
D Gain/(Loss) (A-B-C)	(249)	37,430	12,277	7,837	57,544	3,310	1,611	1,522	6,443	47,751	111,489

(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: 2001 3rd Quarter Report

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Exhibit II

Empire Plan
Participating Agency Premium Rates
Comparison of 2001 and 2002 Rates
Mediprime Rate Structure

CORE ONLY - Non-Medicare

	Gross Rates(1) 2001	Gross Rates(1) 2002	Gross Rates(1) % Change	Net Rates(2) 2001	Net Rates(2) 2002	Net Rates(2) % Change
Individual (81)	293.01	320.42	9.4%	283.24	315.11	11.3%
Family (82)	608.59	674.55	10.8%	588.51	663.24	12.7%

CORE ONLY - Medicare

	Gross Rates(1) 2001	Gross Rates(1) 2002	Gross Rates(1) % Change	Net Rates(2) 2001	Net Rates(2) 2002	Net Rates(2) % Change
Individual	236.42	249.75	5.6%	230.99	244.60	5.9%
Family - 1 medicare	553.16	603.88	9.2%	537.43	592.72	10.3%
Family - 2 medicares	495.31	533.22	7.7%	483.91	522.22	7.3%

 

CORE PLUS MEDICAL ENHANCEMENT - Non-Medicare

	Gross Rates(1) 2001	Gross Rates(1) 2002	Gross Rates(1) % Change	Net Rates(2) 2001	Net Rates(2) 2002	Net Rates(2) % Change
Individual (61)	323.21	352.10	8.9%	312.44	343.04	9.8%
Family (62)	668.99	738.98	10.5%	646.91	720.19	11.3%

CORE PLUS MEDICAL ENHANCEMENT - Medicare

	Gross Rates(1) 2001	Gross Rates(1) 2002	Gross Rates(1) % Change	Net Rates(2) 2001	Net Rates(2) 2002	Net Rates(2) % Change
Individual	245.51	259.76	5.8%	239.82	253.62	5.8%
Family - 1 medicare	592.45	646.65	9.1%	575.44	630.76	9.6%
Family - 2 medicares	513.49	554.32	8.0%	501.56	541.36	7.9%

 

CORE PLUS MEDICAL AND PSYCHIATRIC ENHANCEMENTS - Non-Medicare

	Gross Rates(1) 2001	Gross Rates(1) 2002	Gross Rates(1) % Change	Net Rates(2) 2001	Net Rates(2) 2002	Net Rates(2) % Change
Individual (71)	325.23	353.81	8.8%	314.26	344.66	9.7%
Family (72)	673.67	742.98	10.3%	651.09	723.97	11.2%

CORE PLUS MEDICAL AND PSYCHIATRIC ENHANCEMENTS - Medicare

	Gross Rates(1) 2001	Gross Rates(1) 2002	Gross Rates(1) % Change	Net Rates(2) 2001	Net Rates(2) 2002	Net Rates(2) % Change
Individual	245.64	259.96	5.8%	239.94	253.82	5.8%
Family - 1 medicare	595.25	649.14	9.1%	577.95	633.13	9.5%
Family - 2 medicares	514.40	555.29	7.9%	502.37	542.29	7.9%

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

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Exhibit III

EMPIRE PLAN
PA 2 TIER GROUP RATES
1985-2002 Monthly Rates
(For Comparison Purposes Only)

Core Plus Med. & Psych. Enh. - Individual

Year	Gross Rate	% Change	Net Rate	% Change
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 (4)	219.20	2.1%	192.27	-0.7%
1997	219.87	0.3%	198.37	3.2%
1998	227.35	3.4%	204.38	3.0%
1999	239.24	5.2%	222.00	8.6%
2000	260.67	9.0%	253.98	14.4%
2001	289.41	11.0%	280.25	10.3%
2002	313.58	8.4%	305.67	9.1%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception	7.6%	7.7%
Most Recent 10 Years	4.7%	5.5%
Most Recent 5 Years	7.4%	9.1%

 

Core Plus Med. & Psych. Enh. - Family

Year	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	495.81	1.0%	447.22	4.4%
1998	514.28	3.7%	463.62	3.7%
1999	539.14	4.8%	499.75	7.8%
2000	578.26	7.3%	563.03	12.7%
2001	640.64	10.8%	619.28	10.0%
2002	703.61	9.8%	685.83	10.7%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception	8.1%	8.1%
Most Recent 10 Years	4.7%	5.4%
Most Recent 5 Years	7.3%	9.0%

*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 rate schedule effective 1/1/96.

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Exhibit IV

EMPIRE PLAN
PA 5 TIER GROUP RATES
1995-2002 Monthly Rates

Core Plus Medical & Psychiatric Enhancement

Individual Planprime

Year	Gross Rate (1)	% Change	Net Rate (2)	% Change
1995	214.70		193.54
1996 (3)	234.59	9.3%	207.66	7.3%
1997	261.80	11.6%	240.22	15.7%
1998	267.89	2.3%	246.07	2.4%
1999	279.56	4.4%	261.18	6.1%
2000	294.94	5.5%	286.53	9.7%
2001	325.23	10.3%	314.26	9.7%
2002	353.81	8.8%	344.66	9.7%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure	7.4%	8.7%

Family Planprime

Year	Gross Rate (1)	% Change	Net Rate (2)	% Change
1995	486.99		440.35
1996 (3)	521.96	7.2%	459.16	4.3%
1997	537.96	3.1%	489.22	6.5%
1998	552.00	2.6%	503.78	3.0%
1999	573.33	3.9%	531.89	5.6%
2000	607.33	5.9%	590.16	11.0%
2001	673.67	10.9%	651.09	10.3%
2002	742.98	10.3%	723.97	11.2%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure	6.3%	7.4%

Individual Medprime

Year	Gross Rate (1)	% Change	Net Rate (2)	% Change
1995	214.70		193.54
1996 (3)	158.65	-26.1%	131.72	-31.9%
1997	150.53	-5.1%	129.28	-1.9%
1998	167.91	11.5%	151.34	17.1%
1999	186.46	11.0%	175.61	16.0%
2000	217.94	16.9%	214.25	22.0%
2001	245.64	12.7%	239.94	12.0%
2002	259.96	5.8%	253.82	5.8%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure	3.8%	5.6%

Family - 1 Medprime

Year	Gross Rate (1)	% Change	Net Rate (2)	% Change
1995	486.99		440.35
1996 (3)	446.03	-8.4%	383.23	-13.0%
1997	427.23	-4.2%	378.82	-1.2%
1998	452.73	6.0%	409.76	8.2%
1999	480.95	6.2%	447.05	9.1%
2000	530.97	10.4%	518.52	16.0%
2001	595.25	12.1%	577.95	11.5%
2002	649.14	9.1%	633.13	9.5%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure	4.4%	5.7%

Family - 2 or More Medprime

Year	Gross Rate (1)	% Change	Net Rate (2)	% Change
1995	486.99		440.35
1996 (3)	369.87	-24.0%	307.07	-30.3%
1997	315.24	-14.8%	267.15	-13.0%
1998	351.98	11.7%	314.25	17.6%
1999	387.05	10.0%	360.66	14.8%
2000	453.22	17.1%	445.51	23.5%
2001	514.40	13.5%	502.37	12.8%
2002	555.29	7.9%	542.29	7.9%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure	3.0%	4.8%

(1) Represents premiums charged by the carriers.
(2) Represents cost to a participating agency.
(3) Inception of Mediprime Rate Structure.

 

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