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(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 percent of the aggregate amount of
premiums earned in the case of group policies; or
(2)at least 65 percent 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 percent in the case of group policies;
and
(2)at least 65 percent 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 percent (for individual coverage) or at
least 75 percent (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 percent) must be given to the experience. If fewer
than 500 policies are in force, then no credibility (0 percent) 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 percent when combined
with actual experience beginning with June 1, 1996, to date; and
(C)a loss ratio of at least 65 percent 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 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 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 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 demonstration must exclude active
life reserves. An expected third-year loss ratio that is greater than
or equal to the applicable percentage must be demonstrated for policies
or certificates in force less than three years. The annual filing
requirements in this subsection must 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 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 contained in Figure: 28 TAC §3.3307(f) of this section. Issuers
must submit the report to the department no later than May 31 of each
year.
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 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 be excluded.
(2)A refund or credit will 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 include interest from the end of the calendar year to the date
of the refund or credit at a rate specified by the Secretary, but
in no event may it be less than the average rate of interest for 13-week
treasury notes. A refund or credit against premiums due must be made
by September 30 following the experience year on which the refund
or credit is based.
(3)For an individual or group policy or certificate
issued before March 1, 1992, the issuer, for purposes of complying
with this subsection, must make the refund or credit calculation separately
for all individual policies combined and all group policies combined
for experience after June 1, 1996.
(g)Premium adjustments to conform with minimum standards
for loss ratios. As soon as practicable, but before the effective
date of enhancements to Medicare benefits, every issuer of Medicare
supplement insurance policies, contracts, or coverage in this state
must 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 premium adjustments
necessary to produce loss ratios as anticipated for the current premium
for the applicable policies or contracts. Documents necessary to justify
the adjustment must accompany the filing.
(A)Every issuer of Medicare supplement insurance or
benefits to a resident of this state under Insurance Code Chapter
1652 must make premium adjustments:
(i)necessary to produce an expected loss ratio under
the policy or contract that 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 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 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 be
filed. The riders, endorsements, or policy forms must 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 be maintained for each policy form with business
in force in Texas, by calendar year of issue, and must be made available
to the department.
The agency certifies that legal counsel has reviewed
the adoption and found it to be a valid exercise of the agency's legal
authority.
Filed with the Office
of the Secretary of State on May 24, 2018
TRD-201802338 Norma Garcia
General Counsel
Texas Department of Insurance
Effective date: June 13, 2018
Proposal publication date: December 22, 2017
For further information, please call: (512) 676-6584
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