RELATES TO:
KRS
304.14-120,
304.14-130,
304.17-380,
304.17A-005(22)
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110(1) authorizes the
Commissioner of Insurance to promulgate administrative regulations necessary
for or as an aid to the effectuation of any provision of the Kentucky Insurance
Code as defined in
KRS
304.1-010. This administrative regulation
establishes additional filing procedures for health insurance rates.
Section 1. Definitions.
(1) "Accumulated value" means the amount of
which a sum of money would have increased as of the valuation date, if invested
at a specific date in the past, subject to the investment earnings attributable
to the policies.
(2) Insurer is
defined by
KRS
304.1-040.
(3) "Loss ratio" means the ratio of the sum
of incurred losses divided by the earned premiums.
(4) "Present value" means the amount of money
needed as of the valuation date to produce, when accumulated at interest, a
specified amount on a specific future date. The "present value of future
benefits" and "present value of future premiums" are the sums of those values
that take into account not only the interest assumption, but the assumed
persistency and mortality of the business.
(5) "Qualified actuary" means a member of the
American Academy of Actuaries, a fellow or associate of the Society of
Actuaries, the Institute of Actuaries, the Faculty of Actuaries, the Casualty
Actuarial Society, or a fellow or member of the Conference of Actuaries in
Public Practice that is compliant with continuing professional development in
the area of health insurance.
Section
2. Scope. This administrative regulation shall apply to individual
health insurance products and Medicare supplement plans. This administrative
regulation shall not apply to health benefit plans as defined by
KRS
304.17A-005(22).
Section 3. Classification of Policies. For
the purposes of this administrative regulation, policies are classified by type
of benefit, renewal clause, and average annual premium.
(1) Types of benefits recognized are:
(a) Medical expense, including hospital
indemnity policies, as well as hospital, surgical, major medical, cancer,
critical illness, or any other policies providing insurance against the
expenses resulting from accident or sickness, as well as indemnity or lump sum
benefits payable upon a medical event or diagnosis;
(b) Medicare supplement policies;
and
(c) Loss of income.
(2) Categories of renewal clause
are as follows:
OR |
Optionally renewable: renewal of individual
policies is at the option of the insurer. |
CR |
Conditionally renewable: renewal can be
declined by the insurer only for a stated reason other than deterioration of
health. |
GR |
Guaranteed renewable: renewal cannot be
declined by the insurer for any reason, but the insurer can revise rates on a
class basis. |
NC |
Noncancellable: renewal cannot be declined
nor can rates be revised by the insurer. |
(3)
Recognized categories by average annual premium per policy are:
(a) Less than $250 ;
(b) A minimum of at least $250 but less than
$500 ; and
(c) $500 or
more.
Section
4. Filing of Rates. Every policy, rider, or endorsement form
affecting benefits that are submitted for approval shall be accompanied by a
rate filing unless the rider or endorsement form does not directly or
indirectly produce a change in the benefit level. Any subsequent addition to or
change in rates applicable to the policy, rider, or endorsement shall also be
filed.
(1) The following items shall be
included in individual health insurance rate filing submissions for rates on a
new product:
(a) Policy form, application,
endorsements, HIPMC-F1 incorporated by reference in
806 KAR
14:007, and filing fee.
(b) Rate sheet.
(c) Actuarial memorandum including:
1. A brief description of the type of policy,
benefits, renewability, general marketing method, and issue age
limits.
2. A brief description of
how rates were determined, including the general description and source of each
assumption used. If assumptions are materially different from the insurer's
experience on similar policies, the reasons for their choice shall be
explained. Margins, both implicit and explicit, shall be estimated. For
expenses, show those that are percent of premium, dollars per policy and
dollars per unit of benefit, separately, by policy year.
3. Estimated average annual premium per
policy.
4. Anticipated loss ratio,
including a brief description of how it was calculated, and a projection of
year-by-year expected loss ratios.
5. Anticipated loss ratio presumed reasonable
according to Section 5 of this administrative regulation.
6. If subparagraph 4 of this paragraph is
less than subparagraph 5 of this paragraph, supporting documentation for the
use of the proposed premium rates shall be filed.
7. An actuarial report signed by a qualified
actuary as to whether or not, to the best of the actuary's knowledge and
judgment, the rate submission is in compliance with the applicable laws and
administrative regulations of the state, the Actuarial Standards of Practice
available at
http://www.actuarialstandardsboard.org/standards-of-practice/,
and that the premiums are:
a. Reasonable in
relation to the benefits;
b.
Adequate;
c. Not excessive;
and
d. Not unfairly discriminatory
.
8. A comparison of the
rates with those of any similar policies currently or recently issued by the
insurer.
(d) A statement
as to the status of the filing in the insurer's home state, and a statement as
to any variations in rates or loss ratio assumptions required by or used in
other states.
(2) The
following items shall be included in individual health insurance rate filing
submissions for rate increases on an existing product:
(a) New rate sheet, HIPMC-F1 incorporated by
reference in
806 KAR
14:007, and filing fee.
(b) Actuarial memorandum including:
1. A brief description of the type of policy,
benefits, renewability, general marketing method, issue age limits, the first
and last year the policy form was issued, and the anticipated loss ratio of its
original rates.
2. The scope and
reason for rate revision including a statement of whether the revision applies
only to new business, only to in-force business, or to both, and outline of all
past rate increases on this form.
3. The estimated average annual premium per
policy, before and after rate increase and a comparison of proposed rate scale
with current rate scale.
4. Past
experience, the statistical credibility of the experience data and any other
available data the insurer may wish to provide. If policy reserves are other
than net level reserves based on the rate assumptions underlying the existing
rates, an estimate of the effect of using the reserves shall be
provided.
5. A brief description of
how revised rates were determined, including the general description and source
of each assumption used. For expenses, include percent of premium, dollars per
policy, dollars per unit of benefit as separate items, and the unamortized
initial expenses to be recovered from future premiums shall be shown.
6. The anticipated future loss ratio
described in Section 5(2)(a) of this administrative regulation and a
description of how it was calculated.
7. The anticipated loss ratio that combines
cumulative and future experience described in Section 5(2)(b) of this
administrative regulation, and a description of how it was
calculated.
8. Anticipated loss
ratio presumed reasonable according to Section 5 of this administrative
regulation.
9. If subparagraphs 6
or 7 of this paragraph is less than subparagraph 8 of this paragraph,
supporting documentation for the use of the premium rates.
10. An actuarial report signed by a qualified
actuary as to whether or not, to the best of the actuary's knowledge and
judgment, the rate submission is in compliance with the applicable laws and
administrative regulations of the state, the Actuarial Standards of Practice
available at
http://www.actuarialstandardsboard.org/standards-of-practice/,
and that the premiums are:
a. Reasonable in
relation to benefits;
b.
Adequate;
c. Not excessive;
and
d. Not unfairly discriminatory
.
11. The number of
policies in force in Kentucky and approximate annual premiums.
(c) A statement as to the status
of the filing in the insurer's home state, and a statement as to any variations
in rates or ratio assumptions required by or used in other states.
Section 5.
Reasonableness of Benefits in Relation to Premiums.
(1) New forms.
(a) With respect to a new form other than a
Medicare supplement form under which the average annual premium, as defined in
the table below is expected to be at least $500, benefits shall be found as
reasonable in relation to premiums provided the anticipated loss ratio is at
least as great as shown in the following table:
Type of Coverage |
Renewal
Clause |
OR |
CR |
GR |
NC |
Medical Expense |
60% |
55% |
55%
|
50% |
Loss of Income and Other |
60% |
55%
|
50% |
45% |
(b) For
a policy form, including riders and endorsements, under which the expected
average annual premium per policy is $250 or more but less than $500, subtract
five (5) percentage points from the numbers in the table above, or less than
$250, subtract ten (10) percentage points.
(c) The average annual premium per policy
shall be computed by the insurer based on an anticipated distribution of
business by all applicable criteria having a price difference, such as age,
sex, amount, dependent status rider frequency, etc., except assuming an annual
mode for all policies (i.e., the fractional premium loading shall not affect
the average annual premium or anticipated loss ratio calculation).
(d) The loss ratio for a Medicare supplement
policy shall be as provided in
806
KAR 17:570, regardless of renewal clause or average
premium.
(2) Rate
revisions. Except as provided in subsection (3) of this Section, with respect
to filings of rate revisions for a previously approved form, benefits shall be
determined reasonable in relation to premiums if both of the following loss
ratios meet the standards for new forms as established in subsection (1) of
this Section and the loss ratio described in paragraph (b) of this subsection
meets or exceeds the initial filed expected loss ratio.
(a) The anticipated loss ratio over the
entire future period for which the revised rates are computed to provide
coverage;
(b) The anticipated loss
ratio derived by dividing "A" by "B" where:
1.
a. "A"
is the sum of the accumulated value of the benefits, from the original
effective date of the form or the effective date of this administrative
regulation, whichever is later, to the effective date of the revision, and the
present value of future benefits; and
b. "B" is the sum of the accumulated value of
the premiums from the original effective date of the form or the effective date
of the administrative regulation, whichever is later, to the effective date of
the revision, and the present value of future premiums.
2. The present values shall be taken over the
entire period that the revised rates are computed to provide coverage, and the
values shall be calculated from the last date that accounting has been made to
the effective date of the revision.
(3) Anticipated loss ratios other than those
indicated in subsection (1) or (2) of this section shall require justification
based on the special circumstances that may be applicable.
(a) Coverages for which a lower loss ratio
may receive special consideration are as follows:
1. Accident only;
2. Short term nonrenewable, e.g., airline
trip, student accident;
3.
Specified peril, e.g., common carrier; and
4. Other special risks.
(b) Factors for which lower loss ratios may
receive special consideration are as follows:
1. Marketing methods, giving due
consideration to acquisition and administration costs and to premium
mode;
2. Extraordinary
expenses;
3. High risk of claim
fluctuation because of the low loss frequency or the catastrophic, or
experimental nature of the coverage;
4. Product features such as long elimination
periods, high deductibles and high maximum limits;
5. The industrial or debit method of
distribution; and
6. Forms issued
prior to the effective date of these guidelines.
(c) Insurers shall review their experience
periodically and file rate revisions, as appropriate, in a timely manner to
avoid the necessity of later filing of unacceptable large rate increases. For
rate increases of more than thirty (30) percent, insurers may be requested to
implement the increase over two (2) or more years.
(d) An example of factors for which higher
loss ratios may be required:
1. A form on
which all initial expenses have been amortized.
2. A form on which rates have been increased
to at least double their original level.
3. A form on which insurers have not filed
rate increases in a timely manner pursuant to subsection 3(c) of this
section.
(e) When rates
are submitted for new forms, the Department may require subsequent filings to
demonstrate that the loss ratio required by subsection (1)(a) of this section
is being met.
Section
6. Miscellaneous Considerations.
(1) Additional data that may be included in
the support of rate filings includes data such as the substitution of actual
claim run-offs for claim reserves and liabilities, in order to avoid the
problems of short-term developments, accident-year loss ratios supporting
trends, the operation of any experience funds or stabilization reserves, and
the adjustment of premiums to an annual mode basis.
(2) All additional data shall be reconciled,
as appropriate, to the required data, and any missing data explained.
Section 7. Severability. If any
provision of this administrative regulation or the application thereof to any
person or circumstance is for any reason held to be invalid, the remainder of
this administrative regulation and the application of the provision to other
persons or circumstances shall not be affected thereby.