Md. Code Regs. 31.10.06.11

Current through Register Vol. 51, No. 22, November 1, 2024

Section 31.10.06.11 - Loss Ratio Standards and Refund or Credit of Premium

A. Loss Ratio Standards.

(1) An issuer may not deliver or issue for delivery a Medicare supplement policy form or certificate in this State unless the policy form or certificate 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 aggregate benefits, not including anticipated refunds or credits, provided under the policy form or certificate form:

(a) At least 75 percent of the aggregate amount of premiums earned in the case of group policies; or

(b) At least 65 percent of the aggregate amount of premiums earned in the case of individual policies.

(2) The aggregate benefits as determined in accordance with §A(1)(a) and (b) of this regulation shall be calculated on the basis of incurred claims experience, or incurred health care expenses when coverage is provided by a health maintenance organization on a service rather than reimbursement basis.

(3) Earned premiums for the period for which rates are computed shall be calculated in accordance with accepted actuarial principles and practices.

(4) Incurred health care expenses where coverage is provided by a health maintenance organization may not include:

(a) Home office and overhead costs;

(b) Advertising costs;

(c) Commissions and other acquisition costs;

(d) Taxes;

(e) Capital costs;

(f) Administrative costs; or

(g) Claims processing costs.

(5) All filings of rates and rating schedules shall demonstrate that expected claims in relation to premiums comply with the requirements of this regulation when combined with actual experience to date. Filings of rate revisions 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.

(6) For purposes of applying §A(1) of this regulation and Regulation .04C(3) of this chapter only, policies issued as a result of solicitations of individuals through the mails or by mass media advertising, including both print and broadcast advertising, shall be considered to be individual policies.

(7) For policies issued before July 1, 1992, expected claims in relation to premiums shall meet the:

(a) Originally filed anticipated loss ratio when combined with the actual experience since inception;

(b) Appropriate loss ratio requirement from §A(1)(a) and (b) of this regulation when combined with actual experience beginning with April 1, 1996, to date; and

(c) Appropriate loss ratio requirement from §A(1)(a) and (b) of this regulation over the entire future period for which the rates are computed to provide coverage.

B. Refund or Credit Calculation.

(1) An issuer shall collect and file with the Commissioner by May 31 of each year the data contained in the reporting form in Regulation .19 of this chapter for each type of standard Medicare supplement benefit plan.

(2) 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 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 shall be excluded.

(3) For purposes of this section, for policies or certificates issued before July 1, 1992, the issuer 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 April 1, 1996. The first report shall be due by May 31, 1998.

(4) A refund or credit 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 shall include interest from the end of the calendar year to the date of the refund or credit at a rate specified by the federal Secretary of Health and Human Services, but may not be less than the average rate of interest for 13-week Treasury notes. A refund or credit against premiums due shall be made by September 30 following the experience year upon which the refund or credit is based.

C. Annual Filing of Premium Rates.

(1) An issuer of Medicare supplement policies and certificates issued before or after the effective date of these regulations in this State shall file annually its rates, rating schedule, and supporting documentation including ratios of incurred losses to earned premiums by policy duration for approval by the Commissioner in accordance with the filing requirements and procedures required by the Commissioner. The supporting documentation 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 demonstration shall exclude active life reserves. An expected third year loss ratio which is greater than or equal to the applicable percentage shall be demonstrated for policies or certificates in force less than 3 years.

(2) As soon as practicable, but before the effective date of enhancements in Medicare benefits, every issuer of Medicare supplement policies or certificates in this State shall file with the Commissioner in accordance with the applicable filing procedures of this State:

(a) Appropriate premium adjustments necessary to produce loss ratios as anticipated for the current premium for the applicable policies or certificates; and

(b) Supporting documents as necessary to justify the adjustment which shall accompany the filing.

(3) An issuer shall make the premium adjustments which are necessary to produce an expected loss ratio under the policy or certificate to conform with minimum loss ratio standards for Medicare supplement policies in compliance with §A(1)(a) and (b) of this regulation 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 issuer for the Medicare supplement policies or certificates.

(4) A premium adjustment which would modify the loss ratio experience under the policy other than the adjustments described in §C(3) of this regulation may not be made with respect to a policy at any time other than upon its renewal date or anniversary date.

(5) If an issuer fails to make premium adjustments acceptable to the Commissioner, the Commissioner may order premium adjustments, refunds, or premium credits considered necessary to achieve the loss ratio required by this regulation.

(6) Before the effective date of changes in Medicare benefits, every issuer of Medicare supplement policies or certificates in this State shall file with the Commissioner for approval appropriate riders, endorsements, or policy forms needed to accomplish the Medicare supplement policy or certificate modifications necessary to eliminate benefit duplications with Medicare. The riders, endorsements, or policy forms shall provide a clear description of the Medicare supplement benefits provided by the policy or certificate.

D. Public Hearings. The Commissioner may conduct a public hearing to gather information concerning a request by an issuer for an increase in a rate for a policy form or certificate form issued before or after the effective date of these regulations if the experience of the form for the previous reporting period is not in compliance with the applicable loss ratio standard. The determination of compliance is made without consideration of any refund or credit for the reporting period. Public notice of the hearing shall be furnished in a manner considered appropriate by the Commissioner.

Md. Code Regs. 31.10.06.11

Regulations .11 adopted as an emergency provision effective July 14, 1992 (19:16 Md. R. 1466); adopted permanently effective August 3, 1992 (19:15 Md. R. 1389)