Department of Civil Service

New York State Health Insurance Program: United HealthCare: Calculation of Risk Charge Costs

In the New York State Health Insurance Program, the Department of Civil Service administers health insurance programs for active and retired State, local government and school district employees and their dependents. The primary such program is the Empire Plan, which provides services costing about $4 billion a year.

A private contractor, United HealthCare, pays medical service providers for certain of the services provided under the Empire Plan, and the Department of Civil Service reimburses United HealthCare for these payments. In addition, the Department pays United HealthCare an administrative fee and a fee for its insurance risk. We examined the method used by United HealthCare in charging the State for its insurance risk. We found that the method was not consistent with the method that was used by the other three insurance carriers in the Empire Plan, and this inconsistency resulted in higher payments by the State. Specifically, the other three insurance carriers base their risk fees on the medical and administrative expenses that are actually incurred during the year; however, United HealthCare bases its risk fee on its estimate of the year’s medical and administrative expenses, and these estimates are always higher than the actual expenses.

We determined that, if United HealthCare’s risk fee had been based on actual expenses during the four years covered by our audit, the State would have saved a total of $3.9 million during this period. We recommended that the fee be based on actual expenses.

For a complete copy of Report 2007-S-134 click here.
For a copy of the 90-day response click here.