RD555 - Report on the Impact of Renewal Cost on Employee and Employer Premiums for FY 2021

Executive Summary:

This report is submitted as required by Chapter 854, Item 81, G of the 2019 Virginia Acts of Assembly, 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 was prepared by Aon, the company that provides the state employee health program’s actuarial services, and reviewed by the Department of Human Resource Management. It summarizes the renewal cost of the state employee premiums for fiscal year 2021 that will go into effect on July 1, 2020, and the key drivers of FY2021 projections compared to the FY 2020 rates.

The three charts shown in this report provide summaries of rate projections for FY 2020 through FY 2022 and these include:

• Recast FY 2020 Projection
• FY 2021 Projection
• FY 2022 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 Incorrect but not Reported (IBNR) valuation completed mid-September and Aon’s current outlook for future trends.

• Projected Cost per Contract Unit is synonymous with actuarial rate or per contract unit per month (PCUPM.) (For these projections, it represents a per-employee equivalent unit cost and serves as the actuarial baseline for cost projections in the requested three Fiscal Year (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.

• 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/Affordable Care Act (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 2020-2021 and 2021-2022 are shown in the “Trend Tables" section of this document. Overall Scenario B health plan trend is +6.6% and +6.7% respectively for these years.