Department of Civil Service

PA02-11

TO: Participating Agency Health Benefit Administrators
FROM: Employee Benefits Division
SUBJECT: Empire Plan Quarterly Experience Report
DATE: August 28, 2002

Enclosed are the Second Quarter Empire Plan Experience Report for 2002 and the cover letter to the Chief Executive Officers. This report presents the projected 2002 Empire Plan experience as well as the projected 2003 premium rates.

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August 28, 2002

Dear Chief Executive Officer:

Attached is the Empire Plan Second Quarter Experience Report for 2002. This report presents the projected 2002 Empire Plan experience based on claims paid through June 30, 2002 as well as the projected 2003 premium rates.

For Plan Year 2002, the Empire Plan carriers project a net dividend of $16.2 million, .5% of premium. The report explains the basis for these projections and future reports will include revisions based on additional claims experience.

The projected 2003 premium rates are presented in Exhibit II and reflect a "best estimate" net premium increase of 14.6%. The report also presents a range of the potential 2003 rate increase for your budget development considerations.

Please note that the projected 2002 experience and the projected 2003 rates assume that an agreement is reached between Empire BlueCross BlueShield and Long Island Health Network. If an agreement is not reached, any covered services incurred at these hospitals would be payable based on the actual charge and would have a significant impact on both the 2002 experience and 2003 premium rate.

Lastly, I direct your attention to the Keeping You Informed section for information on the termination of the Core Plus Medical Enhancement Option, effective December 31, 2002.

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

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EMPIRE PLAN 2002 SECOND QUARTER EXPERIENCE REPORT

APRIL – JUNE 2002
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 2002 EMPIRE PLAN EXPERIENCE

The Empire Plan carriers project a composite dividend of $16.2 million (.5% of premium), or $32.9 million less than the margin loaded in the 2002 rates. The 2002 annual experience projected by the insurance carriers is reported in Exhibit I.

For the Prescription Drug Program, Cigna projects a loss of $5.9 million in comparison to the $24.4 million margin level used in the development of the 2002 rates. Given the direction and the size of the change in projected experience, an underlying 2002 trend of 21% is assumed by the carrier vs. an 18% trend factor used in the development of the 2002 rates. While the current experience projection is quite possible given the dynamics of the prescription drug industry and the completion method used in the development of this experience projection, such projection is still viewed as moderately conservative.

UnitedHealthcare’s projects a gain of $31.1 million for the Medical Program. This projection is $17 million greater than the 1st quarter report projection. While this projection is based on an underlying 2002 trend of 11.2%, the observed trend (2001 over 2000) was less than 9%. As such, the 11.2% trend factor appears to be conservative resulting in a higher than expected incurred claim level.

Group Health Incorporated (GHI) projects a loss of $4.1 million for the Mental Health and Substance Abuse Program. The projected loss is $700,000 greater than the loss projected in the 1st quarter report. The projected loss is primarily attributable to an aggressive 2001 incurred claim projection at the time of rate development coupled with a margin load equal to .75% of premium.

Empire BlueCross BlueShield (EBCBS) projects a loss of $5 million for the Hospital Program. The projected loss is largely the result of a significant increase in the projected administrative expenses in comparison to the amount loaded in the rates. In addition, the aggregate trend is currently projected at 10% as opposed to the rate renewal trend estimate of 7.7%. Please note that the experience estimate and resultant projected loss $5 million has been presented as a "Best Case" scenario. Currently EBCBS is involved in negotiations with the Long Island Health Network (LIHN) to retain their hospital based services as part of the EBCBS network. If LIHN drops out of the EBCBS network, a loss of $45.7 million is projected of which $18.3 million would be payable in the form of a retrospective premium payment.

2003 PROJECTED PREMIUM RATES

Exhibit II presents the projected 2003 Empire Plan gross and net premium rates assuming the application of $115.0 million in dividend to all payors. In the aggregate, the Empire Plan gross premium is projected to increase approximately 15.7% while the net premium is projected to increase 14.6%.

A range of the projected net premium increase (11.1% - 18.2%, in aggregate) is also included. While the current rate estimates are considered to be conservative at this time, the rate of increase would be approximately 5% higher if EBCBS and Long Island Health Network fail to reach agreement. Given the range in the potential carrier rate estimates, each agency should assess its budgetary environment in using the enclosed projections.

Exhibit III presents the individual and family rate history for the Core Plus Medical and Psychiatric Enhancements option based on the 5-tier Empire Plan billing rate structure in effect since January 1, 1996. Exhibit IV presents, for illustrative purposes only, the 2-tier rate history from 1995 to 2003. In addition, the Core plus Medical Enhancement Option will not be offered effective January 1, 2003. Current agencies with this option will be required to select one of the two available options (Core Only or Core plus Medical and Psychiatric Enhancements).

KEEPING YOU INFORMED

Participating Agency Benefit Statements

We are pleased to announce that the 2002 New York State Health Insurance Program (NYSHIP) Empire Plan PA Benefit Statements and Coordination of Benefits (COB) forms will be mailed to your employees by first class mail in September 2002. The annual NYSHIP Empire Plan Benefit Statement is designed to reduce NYSHIP costs by correcting enrollment records. The COB component has the potential to save the Plan thousands of dollars each year. This is the second time we have produced the Benefit Statements for enrollees of Participating Agencies. Statements are produced by extracting data from the New York Benefits Eligibility and Accounting System (NYBEAS) and laser printing it to create a personalized Benefit Statement for each enrollee. Prior to the mailing, we will send each PA Health Benefits Administrator (HBA) an explanatory memo with a sample packet containing a blank Benefit Statement, a Statement with printed sample data, and a sample COB form. Please encourage your enrollees to complete the Benefit Statements/COB forms and return them within the specified timeframe.

Core Plus Medical Enhancement Option

This option will be discontinued on December 31, 2002. Agencies currently offering this option will have the choice of moving their enrollees to "Core Only" or "Core Plus Medical and Psychiatric Enhancements". We will contact each agency to make the necessary arrangements. If you do not hear from us by October 1, 2002, please contact your processor for instructions.

Health Insurance Portability and Accountability Act

In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA) to improve the efficiency and effectiveness of the health care system. The Act includes a series of administrative simplification provisions requiring the use of industry-wide standard data sets, and calls for new safeguards on the privacy and security of personal health information. Health plans, health care clearinghouses, and providers that conduct certain transactions electronically are considered ‘Covered Entities’ under HIPAA and must comply with the regulations.

Pursuant to HIPAA, the U.S. Department of Health and Human Services has published the Standards for Privacy of Individually Identifiable Health Information (Privacy Rule), with a compliance date of April 14, 2003. The Privacy Rule is the first comprehensive federal protection for the privacy of individuals’ medical records and other personal health information. In general, the Privacy Rule limits the use and disclosure of individually identifiable health information, gives individuals the right to access their medical records, restricts most disclosures of information to the minimum needed for the intended purpose, and provides civil and criminal penalties if these privacy rights are violated.

As a group health plan, NYSHIP is a covered entity under HIPAA, subject to the provisions of the Privacy Rule. We are taking the actions necessary to ensure compliance with the issued regulations. Likewise, the Empire Plan carriers are covered entities under HIPAA and are working towards full compliance.

Based on our review of the HIPAA regulations, we currently consider Participating Agencies as employers under HIPAA with respect to their relationship with NYSHIP and the Employee Benefits Division (EBD). Employers are not covered entities under HIPAA, minimizing the direct impact of HIPAA on your agency’s relationship with NYSHIP. We will keep you updated on further HIPAA issues as the regulations are finalized.

Please note that if you offer other health insurance plans you should discuss with your legal counsel how the provisions of HIPAA affect you in relation to those plans.

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.

NYSHIP Representation at Municipal Events

NYSHIP’s Empire Plan will be represented at the following municipal events:

• The 2002 Fall Training School, sponsored by the NYS Conference of Mayors on September 23-27, 2002, in Saratoga Springs, NY.
  
• The 2002 Annual Convention and Educational Trade Show, sponsored by the NYS School Boards Association on October 24-27, 2002, in Syracuse, NY.

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 B. Kavanaugh
Director
Employee Insurance Programs
NYS Department of Civil Service
State Office Campus, Bldg. #1
Albany, NY 12239

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TRANSMISSION OF REPORTS ELECTRONICALLY

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

Mr. Stephen Kavanaugh
Director
Employee Insurance Programs
NYS Department of Civil Service
State Office Campus, Bldg #1
Albany, New York 12239

Agency Code: _____________________________

Agency Name: ____________________________________________

Contact Person: ____________________________________________

E-mail Address: ____________________________________________

Phone Number: _____________________________

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Exhibit I

2002 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
(A) Premium (1)	864,843	999,798	111,394	91,747	1,202,939	59,828	7,333	5,295	72,456	859,474	2,999,712
(B) Incurred Claims (2)	801,340	873,174	103,247	86,802	1,063,223	51,252	6,855	4,359	62,466	848,107	2,775,136
(C) Administrative Expense (3)	68,474	93,295	8,376	6,899	108,570	11,638	1,426	1,030	14,094	17,218	208,356
(D) Gain/(Loss) (A-B-C)	(4,971)	33,329	(229)	(1,954)	31,146	(3,062)	(948)	(94)	(4,104)	(5,851)	16,220

(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 other retention.

Source: 2002 2nd Quarter Report

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Exhibit II

Empire Plan
Participating Agency Premium Rates
Comparison of 2002 and Projected 2003 Rates
CORE ONLY

Plan Prime - Individual

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	320.42	356.97	11.4%	315.11	346.46	9.9%
Best Estimate	320.42	368.22	14.9%	315.11	357.71	13.5%
Pessimistic	320.42	379.46	18.4%	315.11	368.95	17.1%

Plan Prime - Family

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	674.55	751.12	11.4%	663.24	729.41	10.0%
Best Estimate	674.55	774.88	14.9%	663.24	753.17	13.6%
Pessimistic	674.55	798.65	18.4%	663.24	776.94	17.1%

MediPrime - Individual

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	249.75	293.59	17.6%	244.60	285.30	16.6%
Best Estimate	249.75	299.05	19.7%	244.60	290.76	18.9%
Pessimistic	249.75	304.51	21.9%	244.60	296.22	21.1%

MediPrime - Family-1

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	603.88	687.73	13.9%	592.72	668.24	12.7%
Best Estimate	603.88	705.72	16.9%	592.72	686.23	15.8%
Pessimistic	603.88	723.69	19.8%	592.72	704.20	18.8%

MediPrime - Family-2

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	533.22	624.35	17.1%	522.22	607.06	16.2%
Best Estimate	533.22	636.54	19.4%	522.22	619.25	18.6%
Pessimistic	533.22	648.73	21.7%	522.22	631.44	20.9%

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

 

CORE PLUS MEDICAL & PSYCHIATRIC ENHANCEMENTS

Plan Prime - Individual

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	353.81	392.38	10.9%	344.66	377.66	9.6%
Best Estimate	353.81	405.42	14.6%	344.66	390.70	13.4%
Pessimistic	353.81	418.52	18.3%	344.66	403.80	17.2%

Plan Prime - Family

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	742.98	823.68	10.9%	723.97	793.54	9.6%
Best Estimate	742.98	851.09	14.6%	723.97	820.95	13.4%
Pessimistic	742.98	878.67	18.3%	723.97	848.53	17.2%

MediPrime - Individual

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	259.96	304.43	17.1%	253.82	294.87	16.2%
Best Estimate	259.96	310.43	19.4%	253.82	300.87	18.5%
Pessimistic	259.96	316.46	21.7%	253.82	306.90	20.9%

MediPrime - Family-1

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	649.14	735.72	13.3%	633.13	710.74	12.3%
Best Estimate	649.14	756.12	16.5%	633.13	731.14	15.5%
Pessimistic	649.14	776.61	19.6%	633.13	751.63	18.7%

MediPrime - Family-2

	Gross Rates(1) 2002	Gross Rates(1) 2003	Gross Rates(1) % Change	Net Rates(2) 2002	Net Rates(2) 2003	Net Rates(2) % Change
Optimistic	555.29	647.77	16.7%	542.29	627.95	15.8%
Best Estimate	555.29	661.13	19.1%	542.29	641.31	18.3%
Pessimistic	555.29	674.55	21.5%	542.29	654.73	20.7%

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

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Exhibit III

EMPIRE PLAN
PA 5 TIER GROUP RATES
1995-2003 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%
2003 (Projected)	405.42	14.6%	390.70	13.4%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure (1996)	8.3%	9.2%

 

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%
2003 (Projected)	851.09	14.6%	820.95	13.4%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure (1996)	7.3%	8.2%

 

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%
2003 (Projected)	310.43	19.4%	300.87	18.5%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure (1996)	5.8%	7.2%

 

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%
2003 (Projected)	756.12	16.5%	731.14	15.5%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure (1996)	6.0%	7.0%

 

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%
2003 (Projected)	661.13	19.1%	641.31	18.3%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception of 5 Tier Structure (1996)	5.1%	6.5%

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

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Exhibit IV

EMPIRE PLAN
PA 2 TIER GROUP RATES
1995-2003 Monthly Rates
(For Illustrative Purposes Only)

Core Plus Medical & Psychiatric Enhancement

Individual

Year	Gross Rate	% Change	Net Rate	% Change
1995	214.70	0.4%	193.54	-2.0%
1996 (1)	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%
2003 (Projected)	363.97	16.1%	351.35	14.9%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception (1986)	8.1%	8.1%
Most Recent 10 Years	5.6%	6.2%
Most Recent 5 Years	9.9%	11.5%

 

Family

Year	Gross Rate	% Change	Net Rate	% Change
1995	486.99	0.5%	440.35	-1.5%
1996 (1)	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%
2003 (Projected)	813.50	15.6%	785.51	14.5%

Average Percent Increase

	Gross Rate % Change	Net Rate % Change
From Inception (1986)	8.5%	8.5%
Most Recent 10 Years	5.5%	6.4%
Most Recent 5 Years	9.7%	11.1%

(1) Represents 2 tier Empire Plan Rates; See 5 tier rate schedule effective 1/1/96.