November 2, 1999
 

Anne M. Klingen
Public Services Law Librarian
University of Mississippi Law Library
314 Deer Run North
Oxford, MS 38655-8482

Dear Ms. Klingen:

Your letter to the Department of Insurance regarding the AHS State Network and other matters
was referred to me for reply. The State and School Employees Health Insurance Management
Board administers the State and School Employees' Life and Health Insurance Plan. The
Department of Finance and Administration, Office of Insurance, provides administrative support
to the Board and day-to-day management of the Plan.

The primary issue in your letter related to the AHS State Network. Instead of continuing the
competitive bid process for provider networks and offering several different networks to Plan
members, the Health Insurance Management Board issued a Request for Proposals for a Direct
Contracting Administrator to establish a single provider network for the Plan. Advanced Health
Systems, Inc. (AHS), a subsidiary of Blue Cross Blue Shield of Mississippi' was selected by the
Board for this contract. In response to your concern about how long they have been in business,
Blue Cross Blue Shield of Mississippi has been in business for over 50 years, and AHS has
been operating since 1984.

As noted in the Health Plan Update to which you referred, employees do not need to make a
benefit option selection for 2000 since there will be only one network. AHS does not provide
insurance coverage; the State and School Employees' Health Insurance Plan is self-insured by
the State. Therefore, there is no selection that employees need to make regarding their health
insurance coverage for 2000.

AHS sent all physicians in the state applications and contracts for the AHS State Network in
July. They later sent out another application packet and contract to all physicians who did not
respond to the first mailing. All physicians have been offered the same contract terms, which are
essentially the same as those for the Key Network in 1999, the largest network in the Plan.

Although individual physicians can choose to participate, apparently physicians belonging to
the North Mississippi Physicians Association have declined to participate in the Network as a group. AHS has met with individual physicians and their staff in the area, and also met with the Board of the Association to discuss the matter. AHS will continue to make every effort to recruit these providers into the Network, but ultimately it is the individual physician's decision as to whether or not to participate.
 

You asked about the probability of the State offering an insurance plan option that allows state
employees better coverage and lower deductibles with the employees paying a portion of the
cost in monthly deductibles. State law requires that the State pay 100% of the active employee's
premium. The Health Insurance Management Board has previously requested legislation to allow
employees to pay a higher premium for additional benefits, but the legislation did not pass.
In response to your question about the Health Insurance Management Board getting input from
representatives of state employees, the Board receives advice and recommendations from the
State and School Employees Health Insurance Advisory Council. Benefit and structural changes
in the Plan are discussed with the Advisory Council, and their advice and recommendations are
taken to the Health Insurance Management Board. The Board also accepts input from individual
Plan members who provide written recommendations.

Many of the changes that you see occurring in the State Health Insurance Plan are due to the
State's efforts at containing the ever-increasing costs that threaten the affordability of the Plan.
The change in co-payments for prescription drugs is a good example. The cost per member for
prescription drugs has more than doubled since early 1997 when the co-payments were initially
established. There are several reasons for this escalation in costs: accelerated approvals of new
and very expensive drugs, increased utilization of prescriptions drugs, and some increase in the
costs of existing drugs. If cost-sharing requirements are not raised accordingly, premiums must
be increased or benefits reduced.

Since the State Health Insurance Plan is self-funded, the only money available to pay claims
comes from premiums. Most of the premium revenue is derived from the State, which pays 100% of the premium for active employees. Employees and retirees also pay premiums for dependent and retiree coverage. When the cost of paying claims increases, the Health Insurance
Management Board can take one of three actions: raise premiums, lower benefits, or take an
action that is a combination of one of the first two. The following table illustrates the amount
collected in premiums and the amount paid in claims for the past three fiscal years (in millions of dollars):

                                                    FY 1997             FY 1998              FY 1999
Premiums                                     240.1                 270.4                     293.1.
Claims                                         261.2                  288.5                    311.0
Gain (Loss) Prior to Expenses     (21.1)                 (18.1)                   (17.9)
 

The Health Insurance Management Board has had to raise premiums for all classes and also
reduce benefits (in the form of increased deductibles and co-insurance) in order to keep the Plan
financially solvent during these periods of rising claims costs. Not to take such action would be
irresponsible on their part and would lead to the Plan's inability to pay claims at some point.

In regard to your questions about the co-payments for diabetic supplies and insulin, when the
pharmacy co-payment system was established in 1997, the Plan applied the generic co-payment
to certain quantities of insulin and diabetic supplies, as opposed to covering these under the
medical plan, applying the brand co-pay, or not covering supplies (since most disposable
supplies are not covered items). This structure was used because it is to everybody's benefit
for persons with diabetes to have access to insulin and associated supplies. When the generic
co-payment amount increases from $5 to $8, the co-payment for insulin and diabetic supplies
will increase accordingly.

Insulin and diabetic supplies are not priced based on "days supply," but upon quantity. The
reference to "100 units" for disposable needles and syringes means 100 needles or syringes not
each syringe or needle. The quantities have not changed; only the co-payment is changing from
$5 to $8.

Your final question related to coverage of physician sponsored weight. diet and exercise
management programs. There are no plans to add coverage for these programs in the near future.
While there are many studies that support the health benefits of weight loss, there is very little
evidence of the efficacy of these programs in achieving long-term weight loss.

As noted in your September issue of Health Plan Update, there will be a limited preventive
wellness benefit available January 1, 2000, as well as coverage of cardiac rehabilitation
services. Cardiac rehabilitation services frequently have a weight management component.
I hope that this information adequately addresses your questions regarding the State and School
Employees' Health Insurance Plan. As always, we welcome your input and suggestions.

Sincerely,

Therese Hanna
State Insurance Administrator