| (a) Minimum aggregate loss ratio standard. A Medicare
supplement individual or group policy form may not be delivered or
issued for delivery unless the individual or group policy form can
be expected, as estimated for the entire period for which rates are
computed to provide coverage, to return to policyholders and certificate
holders in the form of aggregated benefits (not including anticipated
refunds or credits) provided under the individual policy form or group
policy form, on the basis of incurred claims experience or incurred
health care expenses where coverage is provided by an HMO on a service,
rather than reimbursement, basis and earned premiums for the applicable
period, not including any changes in additional reserves and in accordance
with generally accepted actuarial principles and practices:
(1) at least 75% of the aggregate amount of premiums
earned in the case of group policies; or
(2) at least 65% of the aggregate amount of premiums
earned in the case of individual policies.
(b) HMO loss ratio standard. An HMO loss ratio, where
coverage is provided on a service rather than reimbursement basis,
must be calculated on the basis of incurred claims experience or incurred
health care expenses and earned premiums for the period and in accordance
with accepted actuarial principles and practices. Incurred health
care expenses where coverage is provided by an HMO may not include:
(1) home office and overhead costs;
(2) advertising costs;
(3) commissions and other acquisition costs;
(4) taxes;
(5) capital costs;
(6) administrative costs; and
(7) claims processing costs.
(c) Calendar-year experience loss ratio standard. For
the most recent calendar year, the ratio of incurred losses to earned
premiums for all policies or certificates that have been in force
for three years or more, as of December 31st of the most recent year,
must be equal to or greater than:
(1) at least 75% in the case of group policies; and
(2) at least 65% in the case of individual policies.
(d) Filing of rates and rating schedules. All filings
of rates and rating schedules must demonstrate that expected claims
in relation to premiums comply with the requirements of this section
when combined with actual experience to date. Filings of rate revisions
must also demonstrate that the anticipated loss ratio over the entire
future period for which the revised rates are computed to provide
coverage can be expected to meet the appropriate loss ratio standards.
For individual or group policies issued before March 1, 1992, the
provisions of paragraph (3) of this subsection must be met with respect
to expected claims in relation to premiums. For purposes of submitting
a rate filing under this section, policy forms, whether for open or
closed blocks of business, providing for similar benefits must be
combined. But for purposes of the required combination set out in
this section, issuers may distinguish between policy forms providing
for similar benefits for individuals 65 years of age or over and policy
forms providing for similar benefits for individuals under age 65.
Once policy forms have been combined, they remain so for all rating
purposes. When forms have been combined, a rate revision request must
not differentiate between the experience of the individual forms.
Where significant inconsistencies between rate levels exist among
forms providing similar benefits, some deviation in rate revision
must be allowed to reduce the significant inconsistencies.
(1) Each Medicare supplement policy or certificate
form must be accompanied, on submission for approval, by an actuarial
memorandum. The memorandum must be prepared and signed by a qualified
actuary in accordance with generally accepted actuarial principles
and practices, and must contain the information listed in the following
subparagraphs:
(A) the form number that the actuarial memorandum addresses;
(B) a brief description of benefits provided;
(C) a schedule of rates to be used;
(D) a complete explanation of the rating process, including
assumptions, claims data, methodology, and formulae used in developing
the gross premium rates;
(E) a statement of what experience base will be used
in future rate adjustments;
(F) a certification that the anticipated aggregate
loss ratio is at least 65% (for individual coverage) or at least 75%
(for group coverage), which should include a statement of the period
over which the aggregate loss ratio is expected to be realized;
(G) a table of anticipated loss ratio experience for
representative issue ages for each year from issue over the period
during which the aggregate loss ratio is to be realized; and
(H) a certification that the premiums are reasonable
in relation to the benefits provided.
(2) Subsequent rate adjustment filings, except for
those rates filed solely due to a change in the Part A calendar year
deductible, must also provide an actuarial memorandum, prepared by
a qualified actuary in accordance with generally accepted actuarial
principles and practices, which must contain the following information:
(A) the form number addressed by the actuarial memorandum;
(B) a brief description of benefits provided;
(C) a schedule of rates before and after the rate change;
(D) a statement of the reason and basis for the rate
change;
(E) a demonstration and certification by the qualified
actuary to show that the past plus future expected experience after
the rate change, will result in an aggregate loss ratio equal to,
or greater than, the required minimum aggregate loss ratio;
(i) this rate change and demonstration must be based
on the experience of the named form in Texas only, if that experience
is fully credible, as set out in paragraph (3) of this subsection;
(ii) this rate change and demonstration must be based
on experience of the named form nationwide, with credibility factors
as set out in paragraph (3) of this subsection applied, if the named
form is used nationwide and the Texas experience is not fully credible;
(iii) this rate change and demonstration must be based
on experience of the named form in Texas only, with credibility factors
as set out in paragraph (3) of this subsection applied, if the named
form is used in Texas only and the Texas experience is not fully credible;
(F) for policies or certificates in force less than
three years, a demonstration to show that the third-year loss ratio
is expected to be equal to or greater than the applicable percentage;
and
(G) a certification by the qualified actuary that the
resulting premiums are reasonable in relation to the benefits provided.
(3) For purposes of this subsection, if a group or
individual policy form has 2,000 or more policies in force, then full
credibility (100%) must be given to the experience. If fewer than
500 policies are in force, then no credibility (0%) must be given
to the experience. The principle of linear interpolation must be used
for in force numbers between 500 and 2,000. For group policy forms,
the reference in this paragraph to the number of in force policies
means the number of in force certificates under group policies. For
purposes of this section, "in force" means either the average number
of policies in force for the experience period used to support the
need for a rate revision, or the number of policies in force as of
the ending date of the experience period used to support the need
for a rate revision. Once an issuer makes a decision as to which definition
it will apply to a particular policy form, the decision is irrevocable.
An issuer may submit specific alternate credibility standards to the
department for consideration. In order for an alternate standard of
credibility to be acceptable for application, the issuer must demonstrate
that the standards are based on sound actuarial principles, and that
the resulting loss ratios are in substantial compliance with the requirements
of subsections (a), (b), and (c) of this section.
(4) For individual policies issued before March 1,
1992, the expected claims in relation to premiums must meet:
(A) the originally filed anticipated loss ratio when
combined with the actual experience since inception;
(B) a loss ratio of at least 65% when combined with
actual experience beginning with June 1, 1996, to date; and
(C) a loss ratio of at least 65% over the entire future
period for which the rates are computed to provide coverage.
Cont'd... |
