Current through Reg. 50, No. 13; March 28, 2025
(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;
(3) commissions and other acquisition
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.
(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 perform the refund or credit calculation
consistent with the instructions contained in Figure: 28 TAC §
3.3307(f) of
this section. Issuers must retain documentation supporting the calculations
required by this subsection for a period of five years and provide the
calculations and supporting documentation to the Commissioner on request and in
the manner prescribed by the Commissioner.
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.