Current through Register Vol. 56, No. 24, December 18, 2024
(a) For both the
entire past and future periods for which revised or existing rates are computed
to provide coverage, Medicare supplement policy forms or certificate forms
shall be expected to return to policyholders and certificateholders, in the
form of aggregate benefits under the policy or certificate calculated on the
basis of paid claims experience (or paid health care expenses for coverage
provided by a health maintenance organization on a service rather than
reimbursement basis) and written premiums for such period, and with adjustment
for interest to reflect the timing of payments:
1. At least 75 percent of the aggregate
amount of premiums or subscription charges collected in the case of group
policies and policies issued as conversions from group policies.
2. At least 65 percent of the aggregate
amount of premiums or subscription charges collected in the case of individual
policies.
(b) Each
carrier shall include with the initial submission of rates for a new Medicare
supplement policy an actuarial memorandum that includes the following:
1. The number of years for which the policy
is expected to be delivered or issued for delivery in this State, and the
number of policies expected to be delivered or issued for delivery for each
form in each such year;
2. The
anticipated loss ratio calculated over the life of the policy form, with
separate disclosures of the present value of future paid benefits and the
present value of future paid or written premiums utilized in the calculation of
the anticipated loss ratio, where any statutorily required additional actuarial
active life reserve is neither reflected in the future benefits nor the future
premiums in the calculation;
3. The
future benefits on both a paid and incurred basis and the future premiums on
both a written and earned basis for each of the years recognized in the
calculation of the anticipated loss ratio, where neither the future benefits
nor the future premiums include, or are adjusted for, any statutorily required
additional actuarial active life reserve;
4. The expected incurred/earned loss ratio
for each of the years recognized in the calculation of the anticipated loss
ratio, wherein:
i. The expected incurred
claims shall equal expected paid claims adjusted for changes in the expected
claim liabilities and claim reserves and in any expected statutorily required
additional actuarial active life reserve for each such year; and
ii. The expected earned premiums shall equal
premiums expected to be received adjusted for any changes in expected advance
premiums and in expected unearned premium reserves for each such year, but
changes in any expected statutorily required additional actuarial active life
reserves shall not be included in the adjustment of premiums expected to be
received;
5. The
realistic assumptions used in the calculation of the loss ratios for each
benefit provision wherein the premiums are determined separately including the
following:
i. The annual claim costs
(ultimate) by attained age and sex;
ii. The select and/or antiselect morbidity
factors by policy duration (year) by issue age and sex;
iii. The lapse and mortality rates, or total
termination rates, by policy duration by issue age and sex, and any skewing of
those rates occurring within a policy year resulting from modal premium
payments;
iv. The secular trend
factors by policy duration by issue age and sex, which secular trend factors,
when used in the calculation of the anticipated loss ratio, shall not be
applied for a period greater than the number of years for which trending is
reflected in the calculation of premiums;
v. The interest rates by policy duration,
which rates shall equal an insurer's recent, current and future expected new
investment return rates (after investment expenses, but before Federal income
taxes);
vi. Expenses by policy
duration, including commission, override and bonus rates, other marketing
expense rates, other maintenance expenses rates, any new-market expense rates,
other acquisition expense rates, and the explicit profit margin or risk charge,
provided on a per policy issue, per policy in force, per dollar of claim, per
dollar of premium, and any other applicable bases;
vii. The distribution of expected policy
issues by policy and rider benefits by issue age and sex;
viii. The percentage of policies expected to
be issued with extra premiums for any physical, mental or medical conditions
which result in substandard morbidity; and
ix. A summary statement of the underwriting
standards (for example: short form medical and risk questionnaire, long form
medical and risk questionnaire, medical examination), the marketing
distribution system, and the market for the policy form (that is, the
segment(s) of the general public to which the form will be marketed: middle
income based on predetermined ZIP code selections for example);
6. A certification signed by an
actuary, who must be a member of the American Academy of Actuaries, stating
that the assumptions are appropriate to the policy form, reasonably represent
the expected experience for the policy form and fully disclose the basis of the
calculation of the anticipated loss ratio.
(c) Every carrier shall submit its rates
annually for filing by the Commissioner. A filing for the revision of rates
pursuant to (d) below shall satisfy this filing requirement. An annual rate
filing shall specify an effective date for use of the rates, which date shall
be after the date the filing is made but no later than six months following
such date. The filing shall constitute compliance with the annual rate filing
requirement for one year from the effective date for the use of the rates
specified in the filing. Each subsequent annual rate filing shall specify an
effective date for the use of the rates that is on or before one year from the
effective date specified in the previous filing. Supporting documentation, as
described below, shall be submitted with the annual rate filing. The supporting
documentation shall use reasonable assumptions and shall demonstrate that the
anticipated and aggregate loss ratios are at least as great as the originally
anticipated loss ratio. The demonstration shall provide the following
information and assumptions for each policy form used, and shall do so on a New
Jersey basis and, if required by (g) below, on a national basis as well.
Information on a national basis shall not be adjusted to reflect the
difference, if any, between New Jersey rate levels and national rate levels.
1. For each prior calendar year, or portion
of a prior calendar year, in which the policy form has been sold, the carrier
shall provide actual or estimated values of paid claims; paid or written
premiums (specify which); incurred claims; earned premiums; and months exposed,
and shall indicate whether the values provided are actual or estimated values.
Estimated values may only be used for periods within three months of the date
of the filing except for estimates of incurred claims and earned premiums. If
the carrier uses duration-specific trend in projecting future claims or
premiums, the data shall be subdivided by year of issue or duration. If the
carrier does not use duration-specific trend in projecting future claims or
premiums, the data may be subdivided by year of issue or duration at the option
of the carrier.
2. For each future
calendar year, or portion of a future calendar year, in which existing or newly
issued policies of the policy form are expected to be in force in this State,
provide the projected values of paid claims; paid or written premiums
(specify); incurred claims; earned premiums; and months exposed using the
assumptions specified at (c)5 below.
i. The
numbers of years may be truncated if truncation will not impact compliance with
loss ratio standards.
3.
For each of the years or periods in (c)1 and 2 above, the carrier shall provide
the paid/paid loss or paid/written loss ratio, and the incurred/earned loss
ratio. Neither the future benefits nor the future premiums may include, or may
be adjusted for, any statutorily required additional actuarial active life
reserves.
4. The carrier shall
provide the aggregate paid loss ratio calculated over the life of the policy
form, and the anticipated loss ratio calculated over the future life of the
policy form. The carrier shall indicate the following components of the
calculation: accumulated value of past paid claims (with interest); sum of past
paid claims (without interest); accumulated value of past paid or written
premiums (with interest); sum of past paid or written premiums (without
interest); present value of future paid claims (with interest); sum of future
paid claims (without interest); present value of future paid or written
premiums (with interest); and sum of future paid or written premiums (without
interest).
5. The carrier shall use
reasonable assumptions in calculating the anticipated loss ratio, and shall
specify the components used, including:
i.
Months exposed by year and, at the option of the carrier, duration (or year of
issue);
ii. Paid claims per month
exposed, including the impact, if any, of selection, duration (or year of
issue), age and gender;
iii. Paid
or written premium per month exposed, including the impact, if any, of
selection, duration (or year of issue), age and gender;
iv. Total termination rates by duration (or
year of issue), age and gender, including the impact of mode of premium
payment, for the year for which the filing is effective;
v. New business to be issued, by age and
gender, for the year for which the filing is effective;
vi. Trend factors in paid claims, by duration
(or year of issue), age and gender, which trend factors shall only reflect the
impact of aging and wear-off of selection after the year for which the filing
is effective;
vii. A persistency
assumption of 100 percent for years after the year for which the filing is
effective, unless the carrier has withdrawn from the market pursuant to
N.J.A.C. 11:4-23.1 3; and
viii. The interest rates to be used in
accumulating or discounting paid premiums and claims, which rates shall equal
the carrier's recent, current and future expected new investment return rates
after investment expenses but before Federal income taxes.
6. The carrier shall submit the originally
anticipated loss ratio for the form, the date of the initial rate filing,
pursuant to (b) above, in which the originally anticipated loss ratio is given,
the date of Department approval of the initial rate filing, and the effective
date of the initial rate filing.
7.
The carrier shall submit a certification signed by an actuary who is a member
of the American Academy of Actuaries, stating that:
i. The assumptions used in the rate filing
comply with this rule, are appropriate to the policy form, reasonably represent
expected experience to the extent specified by this rule, and substantiate the
calculation of the anticipated and aggregate loss ratios; and
ii. The anticipated and aggregate loss
ratios, calculated according to the requirements of
N.J.A.C. 11:4-23.1 1(c), exceed the
originally anticipated loss ratio.
(d) Carriers shall submit revised rates for
filing by the Commissioner in accordance with N.J.A.C. 11:4-23. For any
submission of revised rates which implement a rate increase exceeding seven
percent, a concurrent submission shall be made with the Department of the
Public Advocate, Division of Rate Counsel, pursuant to the procedures specified
in N.J.A.C. 11:4-23.1 3(c). No carrier shall
implement any rate revision until such rate revision has been submitted to and
filed by the Commissioner. The same supporting documentation required by (c)
above shall be submitted with the revised rates. Paid or written premiums and
earned premiums as described by (c)2 above, and present value of future paid or
written premiums and the sum of future paid or written premiums as described in
(c)4 above shall be submitted both with, and without, the requested rate
revision. The supporting documentation shall use reasonable assumptions. The
supporting documentation shall demonstrate that the anticipated loss ratio over
the entire future period for which the revised rates are computed to provide
coverage and the aggregate loss ratio are at least as great as the originally
anticipated loss ratio. The demonstration shall provide the required
information and assumptions for each policy form, and shall provide them on a
New Jersey basis and, if required by (g) below, shall also provide them on a
national basis. Premiums on a national basis shall not be adjusted to reflect
the difference, if any, between New Jersey rate levels and national rate
levels.
1. For policies issued prior to
January 4, 1993, expected claims in relation to premiums shall meet:
i. The originally filed loss ratio when
combined with the actual experience since inception;
ii. The appropriate loss ratio requirement
from (a)1 and 2 above when combined with actual experience beginning with July
1, 1996 to date; and
iii. The
appropriate loss ratio requirement from (a)1 and 2 above over the entire future
period for which the rates are computed to provide coverage.
2. In meeting the tests in (d)1i,
ii and iii above and for purposes of attaining credibility, an insurer may
combine experience under policy forms which provide substantially similar
coverage subject to the approval of the Commissioner. Once a combined form is
adopted, the insurer may not separate the experience except with the approval
of the Commissioner. The Commissioner shall permit pooling in plans having less
than 10,000 employee/policyholder months on an annual basis.
3. Prior to the effective date of
enhancements in Medicare benefits, carriers shall:
i. Submit for filing appropriate premium
adjustments required to produce loss ratios commensurate with the loss ratios
anticipated for the current premium for the applicable policies or
certificates, with accompanying documentation sufficient to justify the
adjustment, in the opinion of the Commissioner; and
ii. Make premium adjustments to produce an
expected loss ratio under the policy or certificate to conform to minimum loss
ratio standards of (a) above, and which are expected to result in a loss ratio
at least as great as that originally anticipated in the rates used to produce
current premiums by the carrier for the policies and certificates. No premium
adjustment which would modify the loss ratio experience under the policy, other
than the adjustments described herein, shall be made at any time other than
upon the policy renewal or anniversary date.
4. Every carrier shall submit for filing by
the Commissioner a rate reduction whenever the expected aggregate loss ratio
reported for a policy or certificate is less than the anticipated loss ratio
for that policy or certificate, and the requirements of (c) above may not be
met.
5. When a rate adjustment is
requested pursuant to a change in the policy or certificate necessary to
eliminate benefit duplication with Medicare, the submission for a rate change
shall include any riders, endorsements, policy and certificate forms needed to
accomplish the Medicare supplement coverage modification necessary to eliminate
benefit duplications with Medicare. The forms shall result in a clear
description of the Medicare supplement benefits provided by the
policy.
6. If a carrier does not
make premium adjustments acceptable to the Commissioner, the Commissioner may
order premium adjustments, refunds or premium credits deemed necessary to
achieve the appropriate loss ratio.
(e) Carriers shall submit for filing with the
Commissioner annually on or before May 31 reports in accordance with the
applicable reporting form contained in the Appendix to subchapters 16 and 23 of
this chapter, Exhibit F, completed for each type in a standard Medicare
supplement benefit plan.
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), a refund or
credit calculation shall be required.
i. The
refund calculation shall be done on a Statewide basis for each type in a
standard Medicare supplement benefit plan.
ii. For purposes of the refund or credit
calculation, experience on policies issued within the reporting year shall be
excluded.
iii. For purposes of this
section, for policies or certificates issued prior to January 4, 1993, the
carrier shall make the refund or credit calculation separately for all
individual policies (including all group policies subject to an individual loss
ratio standard when issued) combined and all other group policies combined for
experience after May 31, 1996. The first report shall be due by May 31,
1998.
2. A refund or
credit shall be made by carriers whenever the benchmark loss ratio exceeds the
adjusted experience loss ratio, and the amount to be refunded or credited
exceeds a de minimis level.
i. A refund or
credit against premiums due shall be made no later than September 30 following
the experience year upon which the refund or credit is based.
ii. The refunds and credits shall include
interest accruing from the end of the calendar year to the date of the refund
or credit at a rate specified by the Secretary of the United States Department
of Health and Human Services, which in no event shall be less than the average
rate of interest for 13-week Treasury notes.
(f) The Commissioner may conduct a public
hearing, in his or her discretion, to gather information regarding a request by
a carrier for an increase in a rate for a policy or certificate form, if the
experience of the form for the previous reporting period is not in compliance
with the applicable loss ratio standard of (a) above. The determination of
compliance shall be made without consideration of any refund or credit for such
reporting period. Public notices of the hearing shall be in accordance with the
Administrative Procedures Act,
N.J.S.A. 52:14B-1 et seq.
(g) For purposes of complying with (c) and
(d) above, premiums, claims, and months exposed shall refer to premiums and
claims for insured residents of this State under a specific policy form.
However, if the total past and future exposed months for the form is less than
12,000, the anticipated and aggregate loss ratios shall be calculated on both a
national experience and State experience basis. A weighted average of loss
ratios shall then be calculated for purposes of comparison to the originally
anticipated loss ratio. The weighting factor "w" to be applied to the loss
ratio based on State experience shall be the square root of the ratio of "a"
(the total past and future exposed months) to 12,000, and the weighting factor
applied to the national experience shall be 1-w.
