RD387 - Report on the Impact of Renewal Cost on Employee and Employer Premiums – October 23, 2018

Executive Summary:

This report is submitted as required by Chapter 2, Item 81, G of the 2018 Virginia Acts of Assembly, Special Session I, which states:

The Department of Human Resource Management shall report to the Governor and Chairmen of the House Appropriations and Senate Finance Committees, by October 15 of each year, on the renewal cost of the state employee health insurance program premiums that will go into effect on July 1 of the following year. This report shall include the impact of the renewal cost on employee and employer premiums and a valuation of liabilities as required by Other Post-Employment Benefits reporting standards.

Summaries of Rating Projections


The following information summarizes the renewal cost of the state employee premiums for Fiscal Year (FY) 2020 that will go into effect on July 1, 2019, and the key drivers of FY 2020 projections compared to the FY 2019 rates. The information package complies with all of prior actuarial methods / procedures endorsed and approved by the APA audit report of October 2011.

The three charts shown in this report provide summaries of rate projections for FY 2019 through FY 2021 and these include:

• Recast FY 2019 Projection
• FY 2020 Projection
• FY 2021 Projection

Each chart includes three scenarios (A, B, and C). Scenario A represents the most aggressive projection, Scenario B the most likely projection, and Scenario C the most conservative projection. It is important to note that each scenario represents a reasonable actuarial outcome. Historically, this range has been utilized in final budget setting based on the Commonwealth’s fiscal priorities and internal assessment of the risk to be assumed for the applicable budget cycle.

Each chart shows the baseline rates under the three scenarios. Separate tables at the end of the document provide the underlying claim trend assumptions based on the Incurred But Not Paid (IBNP) valuation completed mid-September and Aon’s current outlook for future trends. [Note, the IBNP liability represents the claims for services that have been rendered but for which the providers have not yet been paid. This liability is added to the incurred claims paid through June 30th in order to have a complete year of claims from which to start the rate projections in subsequent periods.]

• Projected Cost per Contract Unit is synonymous with actuarial rate or per contract unit per month (PCUPM.) (For these projections, PCUPM represents a per-employee equivalent unit cost and serves as the actuarial baseline for cost projections in the requested three FY iterations). The assumptions inherent in the contract unit measure take into account the relative cost of each dependent class (spouse or child) relative to an employee. The per-employee or contract unit equivalent is the “base" level of exposure for rating purposes. This method was approved by the Auditor of Public Accounts (APA) actuarial methods audit report of October 2011.

• The COVA Care Basic plan is shown because it is the basis for employer contributions. This chart shows rate projections and percentage increases or decreases from each fiscal year’s premium rates per contract unit.

• Claim trend analysis inherent in Aon’s future trend outlook includes detailed claim patterns to forecast future inflationary impact. The latter includes: price inflation; utilization rates of health care providers; government (Medicare/ACA) cost shifting; plan changes; and, other current factors influencing health provider cost. Historical claim experience for the Commonwealth is also considered when establishing the estimated trends.

o The updated trend analysis is based on review of the most recent 36 months of claims and Aon forward looking trends.

o The trend tables for Fiscal Years 2019-2020 and 2020-2021 are shown in the “Trend Tables" section of this document. Overall Scenario B health plan trend is +6.7% and +6.8% respectively for these years.