New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter XIV - Individual And Small Group Health Insurance
Part 363 - Unprofessional Conduct
Section 363.5 - Risk Adjustment

Universal Citation: 11 NY Comp Codes Rules and Regs ยง 363.5

Current through Register Vol. 46, No. 39, September 25, 2024

(a) Pursuant to Insurance Law section 4235(n)(1) and (2), the superintendent, in consultation with the chair, has determined that the family leave benefits provided by issuers shall be subject to a risk adjustment mechanism for calendar year 2018.

(b) The superintendent, in consultation with the chair, may determine each year thereafter whether the family leave benefits coverage provided by issuers in subsequent years shall be subject to a risk adjustment mechanism. In making such determination, the superintendent shall consider whether a risk adjustment mechanism facilitates a fair and efficient market for family leave benefits coverage. Such determination shall be made on or before June 30 prior to the calendar year in which the determination is applicable or as soon as practicable thereafter.

(c) For each year that the superintendent determines that a risk adjustment mechanism is applicable, this section establishes the process that shall be used by the superintendent to equalize the per member per month claim amounts among issuers by group size in order to protect issuers from disproportionate adverse risks in accordance with Insurance Law section 4235(n)(3).

(d) Except as determined by the superintendent in accordance with section 363.2(c) of this Part, every issuer shall be required to participate in the family leave benefits risk adjustment mechanism established by this section.

(e) Self-funded employers shall not be subject to the risk adjustment mechanism established by this section.

(f) Administration of the risk adjustment mechanism. The risk adjustment mechanism established by this section shall be administered directly by the superintendent in consultation with the chair. However, the superintendent, in consultation with the chair, may employ a third party vendor to administer the risk adjustment mechanism.

(g) Risk adjustment equalization process.

(1) The risk adjustment mechanism established by this section shall utilize target loss ratios and shall equalize issuers' loss ratios across three separate group sizes. Group size shall be determined as of the date of policy issuance and, in subsequent years, as of the date of renewal. The three group sizes are as follows:
(i) Small Group: an employer with one to 49 employees;

(ii) Medium Group: an employer with 50 to 499 employees; and

(iii) Large Group: an employer with 500 or more employees.

(2) Where the family leave benefits coverage is provided in a policy issued to a trustee of a fund established or participated in by two or more employers (a multiple employer trust) in accordance with Insurance Law section 4235(c)(1)(D), the issuer shall use the total number of employees covered under the policy when reporting the information required by this section. The total number of employees covered under the policy issued to the multiple employer trust shall be used to determine group size in accordance with paragraph (1) of this subdivision.

(3) Every issuer shall separately calculate its loss ratio for family leave benefits for each group size referenced in paragraph (1) of this subdivision for the previous calendar year. For each group size, the loss ratio shall be calculated as of December 31 of such year using the following formula: total dollar amount of family leave incurred claims in the previous calendar year for all policies in the group size divided by the total dollar amount of earned premium in the previous calendar year for family leave benefits for all policies in the group size.

(4) All calculations required by this subdivision shall be performed annually for the previous calendar year and submitted to the superintendent by March 31.

(5) A single risk adjustment pool shall be established by the superintendent for each group size referenced in paragraph (1) of this subdivision. For each calendar year, the superintendent shall administer the risk adjustment mechanism in the following manner if the superintendent finds that using target loss ratios and the single risk adjustment pool mechanism set forth in this paragraph facilitate a fair and efficient market for family leave benefits coverage.
(i) The initial target loss ratios for small groups, medium groups and large groups are as follows:
(a) 67 percent for small groups;

(b) 73 percent for medium groups; and

(c) 80 percent for large groups.

The superintendent may modify the initial target loss ratios for any year to promote a fair and efficient market for family leave benefits coverage.

(ii) Using the data collected from all issuers for the previous calendar year, the superintendent shall calculate the statewide target loss ratio using the following formula: the total dollar amount of earned premium in the previous calendar year for small groups multiplied by the initial target loss ratio as specified in clause (a) of subparagraph (i) of this paragraph, added to the total dollar amount of earned premium in the previous calendar year for medium groups multiplied by the initial target loss ratio as specified in clause (b) of subparagraph (i) of this paragraph, added to the total dollar amount of earned premium in the previous calendar year for large groups multiplied by the initial target loss ratio as specified in clause (c) of subparagraph (i) of this paragraph, divided by the total dollar amount of earned premium in the previous calendar year for all three group sizes.

(iii) Using the data collected from all issuers for the previous calendar year, the superintendent shall calculate the statewide actual loss ratio using the following formula: the total dollar amount of family leave incurred claims in the previous calendar year for all policies in all three group sizes divided by the total dollar amount of earned premium in the previous calendar year for family leave benefits for all policies in all three group sizes.

(iv) Using the loss ratios from subparagraphs (i), (ii) and (iii) of this paragraph, the final target loss ratios for small groups, medium groups and large groups shall be determined as follows:
(a) If the statewide target loss ratio equals the statewide actual loss ratio rounded to the nearest whole percent for the calendar year, then the final target loss ratios for small groups, medium groups and large groups shall be the initial target loss ratios referenced in subparagraph (i) of this paragraph.

(b) Subject to clause (a) of this subparagraph, if the statewide average target loss ratio is not equal to the statewide actual loss ratio for the calendar year, then the final target loss ratios for small groups, medium groups and large groups shall be calculated as follows:
(1) for small groups: the statewide actual loss ratio multiplied by the initial target loss ratio as specified in clause (a) of subdivision (i) of this paragraph divided by the statewide target loss ratio;

(2) for medium groups: the statewide actual loss ratio multiplied by the initial target loss ratio as specified in clause (b) of subparagraph (i) of this paragraph divided by the statewide target loss ratio; and

(3) for large groups: the statewide actual loss ratio multiplied by the initial target loss ratio as specified in clause (c) of subparagraph (i) of this paragraph divided by the statewide target loss ratio.

(v) Every small group issuer with a loss ratio that is lower than the final target loss ratio for small groups shall be required to make a payment into the risk adjustment pool in the amount specified by the superintendent.
(a) The amount of the payment into the risk adjustment pool shall be the amount necessary to raise the issuer's reported loss ratio to the final target loss ratio for small groups by adjusting incurred claims.

(b) By July 1, the superintendent shall send a billing invoice to each such small group issuer required to make a payment into the risk adjustment pool.

(c) Each small group issuer shall submit its payment to the superintendent by July 31.

(d) Payments remitted by an issuer after July 31 shall include the amount due plus compound interest at the rate of one percent per month, or portion thereof, beyond the date the payment was due.

(vi) Every small group issuer with a loss ratio that is higher than the final target loss ratio for small groups shall collect a distribution from the risk adjustment pool in the amount specified by the superintendent.
(a) The amount of the distribution from the risk adjustment pool shall be the amount necessary to lower the small group issuer's reported loss ratio to the final target loss ratio for small groups by adjusting incurred claims.

(b) By July 1, the superintendent shall send notification to each small group issuer of the amount that it will collect as a distribution from the risk adjustment pool.

(c) The superintendent shall make the distribution to each small group issuer by August 31 or as soon as practicable thereafter.

(vii) Every medium group issuer with a loss ratio that is lower than the final target loss ratio for medium groups shall be required to make a payment into the risk adjustment pool in the amount specified by the superintendent.
(a) The amount of the payment into the risk adjustment pool shall be the amount necessary to raise the issuer's reported loss ratio to the final target loss ratio for medium groups by adjusting incurred claims.

(b) By July 1, the superintendent shall send a billing invoice to each such medium group issuer required to make a payment into the risk adjustment pool.

(c) Each medium group issuer shall submit its payment to the superintendent by July 31.

(d) Payments remitted by an issuer after July 31 shall include the amount due plus compound interest at the rate of one percent per month, or portion thereof, beyond the date the payment was due.

(viii) Every medium group issuer with a loss ratio that is higher than the final target loss ratio for medium groups shall collect a distribution from the risk adjustment pool in the amount specified by the superintendent.
(a) The amount of the distribution from the risk adjustment pool shall be the amount necessary to lower the medium group issuer's reported loss ratio to the final target loss ratio for medium groups by adjusting incurred claims.

(b) By July 1, the superintendent shall send notification to each medium group issuer of the amount that it will collect as a distribution from the risk adjustment pool.

(c) The superintendent shall make the distribution to each medium group issuer by August 31 or as soon as practicable thereafter.

(ix) Every large group issuer with a loss ratio that is lower than the final target loss ratio for large groups shall be required to make a payment into the risk adjustment pool in the amount specified by the superintendent.
(a) The amount of the payment into the risk adjustment pool shall be the amount necessary to raise the issuer's reported loss ratio to the final target loss ratio for large groups by adjusting incurred claims.

(b) By July 1, the superintendent shall send a billing invoice to each such large group issuer required to make a payment into the risk adjustment pool.

(c) Each large group issuer shall submit its payment to the superintendent by July 31.

(d) Payments remitted by an issuer after July 31 shall include the amount due plus compound interest at the rate of one percent per month, or portion thereof, beyond the date the payment was due.

(x) Every large group issuer with a loss ratio that is higher than the final target loss ratio for large groups shall collect a distribution from the risk adjustment pool in the amount specified by the superintendent.
(a) The amount of the distribution from the risk adjustment pool shall be the amount necessary to lower the large group issuer's reported loss ratio to the final target loss ratio for large groups by adjusting incurred claims.

(b) By July 1, the superintendent shall send notification to each large group issuer of the amount that it will collect as a distribution from the risk adjustment pool.

(c) The superintendent shall make the distribution to each large group issuer by August 31 or as soon as practicable thereafter.

(xi) If the payments received by the superintendent are less than the amounts payable, then the amount paid to each issuer shall be reduced by an amount calculated from the applicable pool as follows: the amount due to the issuer multiplied by the unpaid risk adjustment pool payments, divided by the total risk adjustment pool payments that should have been made.

(xii) The superintendent shall have the discretion to limit the payments from or the distributions to the state insurance fund of this State pursuant to this paragraph if the superintendent finds that such limitation facilitates a fair and efficient market for family leave benefits coverage.

(h) Audit mechanism.

(1) The superintendent may audit issuers each calendar year. In the event audits necessitate post-billing adjustments, the adjustments shall be charged or credited in the next year's risk adjustment payment or distribution. Additional payments due from any issuer whose conduct caused it to underpay, or refunds due back from any issuer whose conduct caused it to be overpaid shall include compound interest at the rate of one percent per month, or portion thereof, from the original due date or payment date. Any audit conducted pursuant to this section may include a review of the accuracy of the data reported and an issuer's claim management system.

(2) If the superintendent finds that any issuer has failed to accurately report data or failed to properly manage claims, then the superintendent may estimate the dollar amount of the impact that the errant data report or deficient claims management practice had on the amounts the issuer and all other issuers paid to or received from a risk adjustment pool. The superintendent may require an adjustment to be made by the issuer to the following year's risk adjustment payment or distribution to reflect the dollar amount of the impact of the issuer's conduct as estimated by the superintendent.

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