Department of Civil Service

PA04-23

TO: Participating Agency Health Benefits Administrators
FROM: Employee Benefits Division
SUBJECT: Plan Year 2005 NYSHIP Empire Plan Rates
DATE: November 16, 2004

Enclosed are the Plan Year 2005 rates for the New York State Health Insurance Program (NYSHIP) and the cover letter to Chief Executive Officers. Schedule I contains the full share rates, the COBRA rates and the NYS Continuity of Coverage rates. Schedule II represents the Employee/Employer Variable Contribution Rate Table (PS-508). Your bill for January 2005 coverage will reflect the new rates.

The net Five-Tier Mediprime rates for the Core Plus Enhancement option have, in the aggregate, increased 7.4%. The factors contributing to this favorable rate action are as follows:

Plan Design Savings

As a result of collective bargaining activities between the State and the unions representing most state employees, various plan design changes will have occurred or will become effective 1/1/2005. These Empire Plan design changes were extended to the unrepresented enrollees, including those enrollees of Participating Agencies. The plan savings attributable to the plan design changes is estimated at $172 million and is reflected in this premium action.

Reductions in Renewal Requests /Retrospective Premium Payments (RETROS)

Reductions of approximately $129.1 million from the carriers’ original baseline renewal requests were made as a result of discussions between the insurers, the Department and Mellon, our benefit consulting firm. A significant portion of this reduction is due to the retro agreements, which are integral to this rate action. Under a retro agreement, the plan pays the insurance companies based on what the plan thinks the ultimate cost will be. The insurance company accepts the payment rate with the condition that if costs are greater than the premium earned from the payment rate, additional premium (the retro) will be paid to the insurance company. The retro payment, if needed, will be made from available dividend or future premium charges, if necessary. Of course, using plan year 2004 dividend to meet any plan year 2005 retro obligation will reduce the dividend amount available to offset future premium obligations. In sum, the retros amount to approximately $300.4 million and, according to Mellon, are considered a prudent premium development strategy for 2005. Both the Department of Civil Service and Mellon do not expect that any material retro payment will be necessary.

Specific Carrier Premium Changes and Factors

Empire Blue Cross and Blue Shield (hospital) - A 12.7% premium increase results from an 13.6% going forward trend, 2% margin load, plan design savings projected at $13.5 million and a breakeven 2004 premium level.

UnitedHealthcare (major medical) - An overall 8.4% increase in the aggregate premium for the UnitedHealthcare medical component of the Empire Plan is the net result of a trend factor of 10.7%, 3% margin, plan design savings projected at $20.7 million and a 2004 premium level generating a projected 4.1% dividend.

Group Health Incorporated (mental health and substance abuse) - A 2.8% premium decrease is the blended combination of a 4.5% trend, 3.5% margin load, plan design savings projected at $200,000 and a 2004 premium level generating a projected 8.6% dividend.

Cigna (prescription drugs) - A 2.6% premium increase is the result of a 17.6% underwriting trend, 3.0% margin, plan design savings projected at $137.6 million and a 2004 premium level generating a projected 4.2% dividend.

Medicare Premium

The Health Care Financing Administration has announced an increase of $11.60 in the monthly Medicare Part B premium. Accordingly, the calendar year 2005 Medicare premium will be $78.20 per month.

Retiree Deductions

Retiree pension deductions for health insurance will change in the checks issued by the retirement systems at the end of December 2004. As you know, with the New York Benefits and Eligibility and Accounting System (NYBEAS), the December 2004 deduction will pay for January 2005 coverage.

Participating Agency Administrative Charge

The 2005 annual administrative per enrollee charge will decrease 13.27% from $22.957 to $19.911. This annual charge equates to a monthly per enrollee charge for 2005 of $1.659. This decrease is the blended result of an increase in PA enrollment, a carry-forward deficit and an increase in the administrative costs allocable to PA's. The agency fee portion of the administrative charge has been eliminated.

The administrative cost charge, which is less than .3% of premium, will be shown separately on your premium bill. Please send one check each month for the combined amount made payable to the “New York State Employees’ Health Insurance Pending Account.” Please note that the administrative charge must be borne entirely by the agency and may not be passed on to active employees, retirees or other enrollees.

If you have any questions about this rate change, please contact our Operations Unit at (518) 457-2364.

November 16, 2004

Dear Chief Executive Officer:

Attached are the Plan Year 2005 rates for the New York State Health Insurance Program (NYSHIP).

The net Five-Tier Mediprime rates for the Core Plus Enhancement option have, in the aggregate, increased 7.4%, which we consider to be a very favorable rate action. The factors contributing to this rate action are outlined in the attached memorandum.

Also included in the memorandum is the Administrative Charge rate for 2005.

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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