N.J. Admin. Code § 11:4-23.11

Current through Register Vol. 56, No. 8, April 15, 2024

Section 11:4-23.11 - Loss ratio standards, annual filing of premium rates and refund or credit calculation

(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 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 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 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, 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.

N.J. Admin. Code § 11:4-23.11

Amended by R.1991 d.345, effective 7/1/1991.
See: 23 N.J.R. 1264(a), 23 N.J.R. 2014(a).
Section recodified from 23.7.
Added "and policies issued as conversions from group policies" in (a)1.
Substituted old text with new text in (b).
Added (b)1, 2; (c); (d); (e).
Amended by R.1993 d.26, effective 1/4/1993.
See: 24 N.J.R. 12(a), 25 N.J.R. 141(a).
Rule on required disclosure provisions recodified to 23.14; rule on loss ratio standards recodified from 23.8; standards for refunds and credit added.
Amended by R.1996 d.295, effective 7/1/1996.
See: 28 N.J.R. 1647(a), 28 N.J.R. 3462(a).
Amended by R.2004 d.246, effective 7/6/2004.
See: 35 N.J.R. 2562(a), 36 N.J.R. 3292(a).
Rewrote the section.
Amended by R.2008 d.3, effective 1/7/2008.
See: 39 N.J.R. 3709(a), 40 N.J.R. 184(a).
In the introductory paragraph of (d), inserted "in accordance with N.J.A.C. 11:4-23", inserted the second sentence and, in the third sentence, inserted "submitted to and" and "by the Commissioner".