(a)Minimum aggregate loss ratio standard. A Medicare
supplement individual or group policy form may [shall]
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 [a health maintenance organization] 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 percent [75%]
of the aggregate amount of premiums earned in the case of group policies;
or
(2)at least 65 percent [65%]
of the aggregate amount of premiums earned in the case of individual
policies.
(b)HMO [Health maintenance organization]
loss ratio standard. An HMO [A health maintenance
organization] loss ratio, where coverage is provided on a service
rather than reimbursement basis, must [shall]
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 [a
health maintenance organization shall] 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 [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 [which] have been in force
for three years or more, as of December 31st of the most recent year,
must [shall] be equal to or greater than:
(1)at least 75 percent [75%]
in the case of group policies; and
(2)at least 65 percent [65%]
in the case of individual policies.
(d)Filing of rates and rating schedules. All filings
of rates and rating schedules must [shall] 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 [shall] 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 [prior to] 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 [shall] be combined. But [However,]
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 [so] combined, a rate revision request
must [shall] not differentiate between the experience
of the individual forms. Where significant inconsistencies between
rate levels exist among [between] forms providing
similar benefits, some deviation in rate revision must [shall
] be allowed to reduce the significant inconsistencies.
(1)Each Medicare supplement policy or certificate
form must [shall] be accompanied, on [
upon] submission for approval, by an actuarial memorandum. The
[Such] memorandum must [shall]
be prepared and signed by a qualified actuary in accordance with generally
accepted actuarial principles and practices, and must [shall
] 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 percent [65%] (for
individual coverage) or at least 75 percent [75%]
(for group coverage), which [certification] 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
[of time over] 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 [shall] also provide an actuarial
memorandum, prepared by a qualified actuary[,] in accordance
with generally accepted actuarial principles and practices, which must
[memorandum shall] contain the following information
: [in the following subparagraphs.]
(A)the [The] form number addressed
by the actuarial memorandum; [shall be included.]
(B)a [A] brief description of
benefits provided; [shall be included.]
(C)a [A] schedule of rates before
and after the rate change; [shall be included.]
(D)a [A] statement of the reason
and basis for the rate change; [shall be included.]
(E)a [A] demonstration and certification
by the qualified actuary [shall be included] 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 [This] rate change and
demonstration must [shall] 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 [The] rate change and
demonstration must [shall] 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 [The] rate change
and demonstration must [shall] 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 [For] policies or certificates
in force less than three years, a demonstration [shall be included]
to show that the third-year loss ratio is expected to be equal to[,]
or greater than[,] the applicable percentage; and[
.]
(G)a [A] certification by the
qualified actuary that the resulting premiums are reasonable in relation
to the benefits provided [shall be included].
(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 percent) must [(100%) shall]
be given to the experience. If fewer than 500 policies are in force,
then no credibility (0 percent) must [(0%) shall]
be given to the experience. The principle of linear interpolation must
[shall] be used for in force [in-force]
numbers between 500 and 2,000. For group policy forms, the reference
in this paragraph to the number of in force [in-force]
policies means the number of in force [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 [such] 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 [
prior to] March 1, 1992, the expected claims in relation to
premiums must [shall] meet:
(A)the originally filed [originally-filed
] anticipated loss ratio when combined with the actual experience
since inception;
(B)a loss ratio of at least 65 percent [65%
] when combined with actual experience beginning with June 1,
1996, to date; and
(C)a loss ratio of at least 65 percent [65%
] over the entire future period for which the rates are computed
to provide coverage.
(e)Annual filing of premium rates required. Every
issuer of Medicare supplement policies and certificates issued before
or after March 1, 1992, in this state must [shall
] file annually its rates, rating schedule, and supporting documentation,
including ratios of incurred losses to earned premiums, for
the most recent calendar year broken down by calendar year of issue
or by policy duration, for purposes of demonstrating that the issuer
is in compliance with the loss ratio standards[,] and for
approval by the department [Department] in accordance
with the filing requirements of this section and the requirements
of §3.3323 of this title (relating to Increases to Premium Rates).
The supporting documentation must [shall] also
demonstrate, in accordance with actuarial standards of
practice using reasonable assumptions, that the appropriate
loss ratio standards can be expected to be met over the entire period
for which rates are computed. The [Such] demonstration
must [shall] exclude active life reserves. An expected
third-year loss ratio that [which] is greater
than or equal to the applicable percentage must [shall]
be demonstrated for policies or certificates in force less than three
years. The annual filing requirements in this subsection must [
shall] be as follows:
(1)the NAIC Medicare supplement experience exhibit, which
summarizes the experience of each individual form with business in
force in Texas;
(2)the NAIC Medicare supplement experience exhibit, which
summarizes the experience of each group form with business in force
in Texas;
(3)rates and rating schedules for each form with business
in force in Texas;
(4)a certification by the qualified actuary that the
policies or certificates in force less than three years are anticipated
to produce a third-year loss ratio that [which]
is greater than or equal to the applicable loss ratio percentage;
and
(5)a certification by the qualified actuary that the
expected losses in relation to premiums over the entire period for
which the policy is rated comply with the required minimum aggregate
loss ratio standard.
(f)Refund or credit calculation. An issuer must
use the online reporting form found on the department's website at
www.tdi.texas.gov and electronically submit the data required by this
section, which is [shall collect and file with the commissioner
by May 31 of each year the data] contained in Figure: 28
TAC §3.3307(f) of [the "Medicare Supplement Refund
Calculation Form," published as Figure 1 to] this section.
Issuers must submit the report to the department no later than May
31 of each year.[, for each type in a standard Medicare
supplement benefit plan. This form is published by the Texas Department
of Insurance and copies of this form are available from the Life/Health
Group, Mail Code 106-1A of the Texas Department of Insurance, P.O.
Box 149104, Austin, Texas 78714-9104.]
Attached Graphic
(1)If, on the basis of the experience as
reported, the benchmark ratio since inception (ratio 1)
exceeds the adjusted experience ratio since inception (ratio 3), then
a refund or credit calculation is required. The refund calculation must
[shall] be done on a statewide basis for each type
in a standard Medicare supplement benefit plan. For purposes of the
refund or credit calculation, experience on policies issued within
the reporting year must [shall] be excluded.
(2)A refund or credit will [shall]
be made only when the benchmark loss ratio exceeds the adjusted experience
loss ratio and the amount to be refunded or credited exceeds a de
minimis level. The refund must [shall] include
interest from the end of the calendar year to the date of the refund
or credit at a rate specified by the Secretary [secretary
of health and human services], but in no event may [
shall] it be less than the average rate of interest for 13-week
treasury notes. A refund or credit against premiums due must [
shall] be made by September 30 following the experience year on
[upon] which the refund or credit is based.
(3)For an individual or group policy or certificate
issued before [prior to] March 1, 1992, the
issuer, for purposes of complying with this subsection, must [
shall] make the refund or credit calculation separately for
all individual policies combined and all group policies combined for
experience after June 1, 1996.
[Figure: 28 TAC §3.3307(f)(3)]
(g)Premium adjustments to conform with minimum standards
for loss ratios. As soon as practicable, but before [prior
to] the effective date of enhancements to Medicare benefits,
every issuer of Medicare supplement insurance policies, contracts,
or coverage in this state must [shall] file
with the commissioner, in accordance with the applicable filing procedures
of this state, the items required in paragraphs (1) and (2) of this
subsection.
(1)Issuers must file the appropriate [Appropriate
] premium adjustments necessary to produce loss ratios as anticipated
for the current premium for the applicable policies or contracts [shall
be filed]. Documents necessary to justify the adjustment must [
shall] accompany the filing.
(A)Every issuer of Medicare supplement insurance or
benefits to a resident of this state under [pursuant
to the] Insurance Code Chapter 1652 must[, Article
3.74 shall] make premium adjustments:
(i)necessary to produce [product]
an expected loss ratio under the policy or contract that [
as] will conform with the minimum loss ratio standards for Medicare
supplement policies; and
(ii)expected to result in a loss ratio at least as
great as that originally anticipated in the rates used to produce
current premium by the issuer for the Medicare supplement insurance
policies or contracts.
(B)No premium adjustment that [which]
would modify the loss ratio experience under the policy, other than
the adjustments described in this subsection, should be made with
respect to a policy at any time other than on [upon]
its renewal date or anniversary date.
(C)If an issuer fails to make premium adjustments that
are acceptable to the commissioner, the commissioner may order
premium adjustments, refunds, or premium credits deemed necessary
to achieve the loss ratio required by this section.
(2)Any appropriate riders, endorsements, or policy
forms needed to accomplish the Medicare supplement insurance modifications
necessary to eliminate benefit duplications with Medicare must [
shall] be filed. The riders, endorsements, or policy forms must
[shall] provide a clear description of the Medicare
supplement benefits provided by the policy or contract.
(h)Maintenance of data. Incurred claims and earned
premium experience must [shall] be maintained
for each policy form with business in force in Texas, by calendar
year of issue, and must [shall] be made available
to the department [Texas Department of Insurance].
The agency certifies that legal counsel has reviewed
the proposal and found it to be within the state agency's legal authority
to adopt.
Filed with the Office
of the Secretary of State on December 6, 2017
TRD-201704987 Norma Garcia
General Counsel
Texas Department of
Insurance
Earliest possible date of adoption: January 21, 2018
For further information, please call: (512) 676-6584
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