806 KAR 17:150 - Health benefit plan rate filing requirements

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RELATES TO: KRS 304.1-050, 304.3-270, 304.4-010, 304.17A-005, 304.17A-095, 304.17A-0952, 304.17A-0954, 304.17A-750, 304.17A-764, 304.17A-834, 304.17B-021, 304.17B-023(3)

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. KRS 304.17A-095(7) authorizes the commissioner to promulgate an administrative regulation to obtain relevant information for health benefit plan rate filings and establish the format of the filing. This administrative regulation establishes the format and procedure for the submission of a health benefit plan rate filing.

Section 1. Definitions.

(1) "Base premium rate" is defined by KRS 304.17A-005(3).

(2) "Class of business" means all or a distinct grouping of small employers or individuals as shown on the records of the small employer or individual insurance carrier.

(3) "Commissioner" is defined by KRS 304.1-050(1).

(4) "Date of filing" means the date the department confirms that the appropriate filing fee and all information required by this administrative regulation have been received by the department.

(5) "Department" is defined by KRS 304.1-050(2).

(6) "Duration" means a policy year of twelve (12) months, measured from the date of issuance of a policy, with each succeeding twelve (12) month period being a new duration.

(7) "Employer-organized association" is defined by 304.17A-005(12).

(8) "FFS" means a fee for service product type.

(9) "Health benefit plan" is defined by KRS 304.17A-005(22).

(10) "Health benefit plan region" or "geographic region" means each one (1) of the eight (8) allowable rating regions for health benefit plans identified in HIPMC-R33, Health Benefit Plan Regions.

(11) "HMO" means a health maintenance organization product type.

(12) "Index rate" is defined by KRS 304.17A-005(27).

(13) "Large group" is defined by KRS 304.17A-005(32).

(14) "Material change" means any change to a rate filing, except that a change in value of an existing rate factor other than trend is not be considered a material change.

(15) "POS" means a point of service product type.

(16) "PPO" means a preferred provider organization product type.

(17) "Small group" is defined by KRS 304.17A-005(45).

(18) "Target loss ratio" means a loss ratio that an insurer files, that projects and guarantees a loss ratio on an annual basis.

Section 2. Scope.

(1) A health benefit plan rate filing to which the standards of KRS 304.17A-095 apply, shall include the information required by Sections 3 through 10 of this administrative regulation.

(2) The period of time that the commissioner shall have to approve or disapprove a filing shall not begin until the date of filing.

(3) An insurer shall not market or use the proposed rates until the date of filing.

(4) A filing and fee shall not be found as received until the department confirms that:

(a) Information required by Sections 3 through 10 of this administrative regulation has been received; and

(b) The appropriate fee, as established in Section 3(2)(b) of this administrative regulation, has been paid.

Section 3. Health Benefit Plan Rate Filing Procedures.

(1) A health benefit plan rate filing shall be submitted electronically through the System For Electronic Rate and Form Filing (SERFF) for a:

(a) New rate filing; or

(b) Material change to a previously approved rate filing.

(2) The following shall be included and properly completed in a health benefit plan rate filing submission:

(a) Form HIPMC-R32, the Health Benefit Rate Filing Information Form;

(b) The following filing fee or the domiciliary state fee, whichever is greater:

1. $100 for an original or new filing; or

2. Fifty (50) dollars for an amendment to a filing;

(d) Signed actuarial memorandum prepared in accordance with Sections 6 and 7 of this administrative regulation; and

(e) Except for large groups, Certification Form HIPMC-R34.

(3) A copy of all material shall be submitted electronically to the Kentucky Attorney General's Office by the insurer at the same time as the submission to the department and shall include:

(a) An amendment;

(b) An update; or

(4) An electronic copy of all correspondence with the department or other state agency concerning a filing shall be submitted to the department..

Section 4. Filing Format.

(1) A separate health benefit plan rate filing shall be submitted for each market segment as follows:

(a) Individual;

(b) Small group;

(d) Large group;

(e) Except as otherwise authorized pursuant to KRS 304.17A-0954(1), each employer-organized association; and

(f) Self-insured employer organized association.

(2) A large group rate filing may include each product type offered as follows:

(a) FFS;

(b) PPO;

(d) HMO.

Section 5. Employer-organized Association Rate Filings for Fully Insured and Self Insured.

(1)

(a) An employer-organized association rate filing shall include the name of each employer-organized association that generated the rating experience contained in the filing; and

(b) If more than one (1) employer-organized association is named in the filing as identified in paragraph (a) of this subsection and each employer-organized association provides the insurer with written permission to have rates based on experience other than its own, the insurer:

1. May have the experience of all employer-organized associations named in the filing combined for rate determination; and

2. Shall include proposed rates for the combination of associations in one (1) filing.

(2) Each employer-organized association rate filing shall contain documentation demonstrating that the entity is an employer-organized association pursuant to KRS 304.17A-005(12).

(3) An insurer proposing to begin marketing a health benefit plan to an employer-organized association, shall file a rate filing, including appropriate formulas and rate factors within the limitations outlined in KRS 304.17A-0954. The filing shall include:

(a) Factors for all plans to be offered; and

(b) A detailed description of the methodology for incorporating the actual experience of an employer-organized association in determining rates for that association.

(4) If the insurer receives written permission from an employer-organized association regarding combining experience with other employer-organized associations, the insurer shall submit a copy of the permission to the commissioner with the rate filing. The permission shall include the following:

(a) A statement giving the insurer permission to rate the employer-organized association on experience other than the experience of the employer-organized association ;

(b) Name, address, and telephone number of the employer-organized association giving permission to the insurer;

(d) Month, day, and year that permission is given to the insurer; and

(e) Number of eligible association members.

Section 6. Actuarial Memorandum.

(1) The actuarial memorandum for each rate filing shall be prepared in accordance with the most recent edition of the following located at http://www.actuarialstandardsboard.org/standards-of-practice/:

(a) Actuarial Standard of Practice No. 8, Regulatory Filings for Health Benefits, Accident and Health Insurance, and Entities Providing Health Benefits, Actuarial Standards Board;

(b) Actuarial Standard of Practice No. 26, Compliance with Statutory and Regulatory Requirements for the Actuarial Certification of Small Employer Health Benefit Plans, Actuarial Standards Board; and

(2) The actuarial memorandum for a rate filing, other than a large group rate filing, shall include the following:

(a) Qualifications of the signing actuary;

(b) A statement identifying the date that the proposed rates shall be used;

1. The claim cost development, that shall include an explanation of the following:

a. Methodology;

b. Assumptions including the following:

(i) Trend, including supporting analysis, that supports the trend level selected;

(ii) Benefit change;

(iii) Utilization or cost-per-service change;

(iv) Demographic change;

(v) Change in medical management;

(vi) Change in provider contracts; and

(vii) Any other assumption used by the actuary in the claim cost development; and

c. Experience by month, including exposures or members, earned premium, paid claims, incurred claims, and incurred loss ratio, for the past three (3) years for this product, or for a similar product if the filing is for a new product;

a. Development and printout of the following shall be shown by age, gender, and tier combination using the lowest industry factor and the lowest area factor, and separately using the highest industry factor and highest area factor:

(i) Base premium rates;

(ii) Index rates; and

(iii) Corresponding highest premium rates;

b. If the filing contains more than one (1) product type, a development and printout as identified and described in clause a of this subparagraph for each product type separately.

c. If the filing contains proposed rates for more than one (1) class of business, a development and printout as identified and described in clauses a. and b. of this subparagraph for each class of business separately;

3. Factors used for each case characteristic, including age, gender, industry or occupation, and geographic region, with a separate summary of the maximum factor and the minimum factor for each case characteristic.

a. A health benefit plan region other than the eight (8) identified in HIPMC-R33, Health Benefit Plan Regions, shall not be used for a geographic region factor adjustment; and

b. Any healthy lifestyle discount factor, if applicable, shall be included and an explanation of the determination of that factor, and the condition for when that factor is applicable;

4. The anticipated pricing loss ratio, including a detailed justification of load factors, including percentages allocated for the:

a. Administrative expense assumption, including an explanation of:

(i) Any change from the factor used for an existing rate ; and

(ii) How these costs are allocated among each benefit plan design, including demonstrative documentation as an exhibit;

b. Commission assumption, including an explanation for any change from the factor used for an existing rate ;

c. Federal, state, and local government tax assumptions, including an explanation for a change from the factor used for an existing rate ;

d. Investment income assumption, including an explanation for any change from the factor used for an existing rate ;

e. Profit and contingency assumption, including an explanation for a change from the factor used for an existing rate ;

f. Assessments pursuant to KRS 304.17B-021; and

g. Other identified load factors;

(d) A detailed explanation, including an example of the following:

1. The method for determining a small group composite rate;

2. The conditions under which a small group composite rate is recalculated; and

3. The group size that is eligible for a composite rate calculation;

(e) Each health benefit plan description and the applicable benefit factor adjustment, or other methods of calculating rates for a different benefit plan if the method is not multiplicative, for each benefit plan applicable to the filing;

(f) Detailed discussion of the manner in which the projected amount of net assessments and payments under KRS 304.17B-021 and 304.17B-023(3) are to be used in establishing the proposed rates in the filing as required by KRS 304.17A-095;

(g) Information regarding how fees are paid to providers as follows:

1. Justification of fees paid to providers in relation to the rate requested, including any assumption used regarding provider discounts in the rate filing; and

2. Average discount to providers during experience period and average discount for physician payments, hospital payments, laboratory payments, pharmacy payments, mental health payments, and other payments for the rate filing period;

(h) If a trend rate is used, include the time period to which the trend applies, not to exceed twelve (12) months, and the applicable annual trend rate and the periodicity of the factor;

(i) Explanation of the anticipated effect of the requested rates on the current policyholders, subscribers, or enrollees;

(j) Information regarding each class of business, which shall include:

1. Identification of each class of business;

2. Justification of each separate class of business; and

3. A demonstration that each index rate for the class of business with the highest index rates is within ten (10) percent of the corresponding index rate from the class of business with the lowest index rates; and

(k) Prospective certification of the following, which shall be filed as an attachment to the actuarial memorandum for a rate filing other than a large group filing, and signed by the qualified actuary who prepared and signed the actuarial memorandum:

1. That the information is prepared in accordance with American Academy of Actuaries Actuarial Standard of Practice No. 26, Compliance with Statutory and Regulatory Requirements for the Actuarial Certification of Small Employer Health Benefit Plans, applicable to the following markets:

a. Individual;

b. Association; and

c. Small group; and

2. That the proposed rates meet the requirements of KRS 304.17A-0952 or 304.17A-0954, as applicable.

Section 7. Large Group Rate Filings. The actuarial memorandum for a large group rate filing shall include the following information:

(1) The information identified in Section 6(2)(a), (b), (c)1, 4, (f), (g), (h), (i) and (j) of this administrative regulation;

(2) Development of rating basis, including each adjustment for the following:

(a) Age;

(b) Gender;

(d) Benefit plan;

(e) Industry;

(f) Healthy lifestyle; and

(g) Any other adjustment included in the development;

(3) A formula for new and renewal business, including a definition of each term used in the formula;

(4) Credibility criteria used in conjunction with experience rating;

(5) Detailed explanation of a change in the manual rating formula or experience rating formula;

(6) Detailed explanation of a change in factors that would be used in a formula;

(7) Any periodic trend rate applied in the formula;

(8) The composite effect of a change in formula and formula factors; and

(9) Detailed explanation of any trend assumption used in experience rating.

Section 8. Guaranteed Loss Ratio Filing for New Products or Products without Credible Experience.

(1) A filing accompanied by a guaranteed loss ratio statement shall meet all requirements of KRS 304.17A-095(6).

(2) Individual, small group, and employer-organized association market filings shall meet the following requirements regarding guaranteed loss ratios by duration:

(a) The guaranteed loss ratio for the first duration shall not be less than sixty (60) percent of the guaranteed lifetime loss ratio specified in the policy.

1. Expected loss ratios may vary by month within the first duration; and

2. The average of the loss ratios for all months shall be equal to the guaranteed loss ratio for the first duration;

(b) The guaranteed loss ratio for a specific duration shall not be less than the guaranteed loss ratio for the previous duration;

(c) The guaranteed loss ratio for the third duration shall not be less than the guaranteed lifetime loss ratio identified in the policy;

(d) The average of the first six (6) guaranteed loss ratios by duration shall not be less than the guaranteed lifetime loss ratio identified in the policy;

(e) The guaranteed lifetime loss ratio shall not be less than that identified in KRS 304.17A-095(6)(a)5; and

(f) The guaranteed loss ratios by duration shall be guaranteed for any policy issued under the policy form and shall be identified in the policy.

(3) A refund shall be calculated pursuant to the following formula:

(a) Refundable premium for any year shall be the sum of the current year's refundable premium for each duration. Each duration's refundable premium shall be calculated by subtracting the three (3) items in subparagraphs 1, 2, and 3 of this paragraph from the current year's earned premium by duration and multiplying the result by the ratio of earned premium by duration and earned premium by duration minus the items identified in subparagraphs 1 and 2 of this paragraph and minus any premium related expenses identified in subparagraph 3 of this paragraph:

1. State and local premium taxes allocated to that duration;

2. Assessments pursuant to KRS 304.17B-021 allocated to that duration; and

3. The sum of incurred claims, preferred provider organization expenses, case management and utilization review expenses, and reinsurance premiums, minus reinsurance recoveries, allocated to that duration, divided by the guaranteed loss ratio in the policy, for that duration;

(b) If the annual earned premium is less than $2,500,000, the minimum refund shall be calculated by refundable premium multiplied by the annual earned premium, divided by $2,500,000;

(c) If the annual earned premium is equal to or greater than $2,500,000, the minimum refund shall be the refundable premium;

(d) The refund to be paid to a policyholder pursuant to KRS 304.17A-095(6)(d) shall be calculated by dividing the earned premium for that policyholder by the total earned premium for the year, and multiplying that percentage of the aggregate refund of the policy form by the aggregate refund; and

(e) The amount of the refund shall include the computation of interest in accordance with KRS 304.17A-095(6)(d) in determining whether payment shall be made to the policyholder or to the Kentucky State Treasurer.

(4) An audit shall be conducted in accordance with KRS 304.17A-095(6)(b), which shall include the following:

(a) Guaranteed lifetime loss ratio;

(b) Guaranteed loss ratios by duration;

(c) Analysis of prior year estimated items, including uncollected premiums and unpaid claim liabilities, and description of method of allocation by duration;

(d) Earned premium by duration and description of method of allocation by duration;

(e) State premium tax by duration and description of method of allocation by duration;

(f) Local premium tax by duration and description of method of allocation by duration;

(g) Assessments by duration and description of the method of allocation by duration;

(h) Incurred claims by duration and description of method of allocation by duration;

(i) Preferred provider organization expenses and description of method of allocation by duration;

(j) Case management and utilization review expenses and description of method of allocation by duration;

(k) Reinsurance premiums less reinsurance recoveries and description of method of allocation by duration;

(l) A description of reinsurance and identity of reinsurer;

(m) A statement that incurred claims do not include administrative expenses, late payment charges, punitive damages, legal fees, or any other related administration expenses;

(n) A statement that incurred claims have been reduced for the full amount of all provider discounts, rebates, coordination of benefits savings, subrogation savings, and any other savings;

(o) A statement of refund checks not being issued before approval of the audit;

(p) Calculation of minimum refundable premium, actual refunded premium, and refund carryover;

(q) Calculation of percent of earned premium that shall be refunded;

(r) Method used to calculate a policyholder's actual refund;

(s) Historical experience for the policy form since inception;

(t) Auditor's certification; and

(u) Actuarial certification.

(5) An initial rate filing shall be a formal filing, and a subsequent rate filing may be submitted by actuarial certification.

Section 9. Minimum Guaranteed Loss Ratio Requirements for an Amended Policy Form or a Previously Filed Minimum Guaranteed Loss Ratio.

(1) If amending a policy form or a previously filed minimum guaranteed loss ratio, a filing accompanied by a guaranteed loss ratio statement shall meet the requirements of KRS 304.17A-095(6).

(2) An insurer shall provide a minimum guaranteed loss ratio statement each time rates are amended for a policy form or if amending a previously filed minimum guaranteed loss ratio. The statement shall identify amounts by which rates are amended and include an actuarial certification verifying that rates continue to meet the requirements of the minimum guaranteed loss ratio most recently filed with the department.

(3) The initial rate filing and subsequent statements shall include an actuarial certification, which includes information to demonstrate meeting the requirements of KRS 304.17A-0952 and Section 6 of this administrative regulation.

(4)

(a) The currently approved loss ratio on file with the department under a prior approval process or a minimum guaranteed loss ratio shall be found as a reasonable loss ratio for any amended policy forms or amended minimum guaranteed loss ratios; and

(b) Rate filings requesting a change in the previously approved loss ratio shall require documented evidence to demonstrate increased administrative cost or other evidence that the insurer would not be able to achieve previously approved profitability targets.

(5) If experience is filed by duration pursuant to Section 8(2) of this administrative regulation, a refund shall be calculated in accordance with Section 8(3) of this administrative regulation.

(6) If experience is filed by utilizing a target loss ratio and the actual achieved loss ratio is less than the target loss ratio, a refundable premium shall be determined as follows:

(a) Refundable premium shall be equal to the annual earned premium multiplied by the percentage by which the target loss ratio exceeds the actual achieved loss ratio;

(b)

1. If the annual earned premium is equal to or greater than $2,500,000, the minimum re-fundable premium shall be equal to the refundable premium as established in paragraph (a) of this subsection; or

2. If the annual earned premium is less than $2,500,000, the:

a. Minimum refundable premium shall be equal to the refundable premium multiplied by the ratio of the annual earned premium divided by $2,500,000;

b. Refund carryover shall be equal to any amount by which the refundable premium exceeds the minimum refundable premium; and

c. Refundable premium in the subsequent year shall be the sum of the refund carryover plus the calculated refundable premium for the subsequent year;

(c) The refund to be paid to a policyholder pursuant to KRS 304.17A-095(6)(d) shall be calculated by dividing the earned premium for that policyholder by the total earned premium for the year, and multiplying that percentage of the aggregate refund of the policy form by the aggregate refund; and

(d) The amount of the refund shall include the computation of interest in accordance with KRS 304.17A-095(6)(d) in determining whether payment shall be made to the policyholder or to the Kentucky State Treasurer.

(7) If experience is filed by duration, an audit shall be conducted in accordance with Section 8(4) of this administrative regulation.

(8) If experience is filed by target loss ratio, an audit shall be conducted in accordance with KRS 304.17A-095(6)(b), which shall include the following:

(a) Guaranteed lifetime loss ratio;

(b) Actual loss ratio;

(d) Earned premium;

(e) State premium tax;

(f) Local premium tax;

(g) Assessments;

(h) Incurred claims;

(i) Preferred provider organization expenses;

(j) Case management and utilization review expenses;

(k) Reinsurance premiums less reinsurance recoveries;

(l) A description of reinsurance and identity of reinsurer;

(m) A statement that incurred claims do not include administrative expenses, late payment charges, punitive damages, legal fees, or any other related administration expenses;

(n) A statement that incurred claims have been reduced for the full amount of all provider discounts, rebates, coordination of benefits savings, subrogation savings, and any other savings;

(o) A statement of refund checks not being issued before approval of the audit;

(p) Calculation of minimum refundable premium, actual refunded premium, and refund carryover;

(q) Calculation of percent of earned premium that is to be refunded;

(r) Method used to calculate a policyholder's actual refund;

(s) Historical experience for the policy form since inception;

(t) An auditor's certification; and

(u) An actuarial certification.

(9) An initial rate filing shall be a formal filing, and a subsequent rate filing may be by actuarial certification.

(10) An initial rate filing shall be required for insurers electing to file under a minimum guaranteed loss ratio pursuant to KRS 304.17A-095(6).

Section 10. Amendments to Previously Approved Rate Filings.

(1) For any change that is not a material change, an insurer shall submit an amendment to a rate filing previously approved by the department, which shall include the following:

(a) Identification of the rate file number assigned and stated in the Order of Approval received by the insurer from the department for the previously approved rate filing;

(b) Date of approval of the previously approved rate filing;

(d) A fifty (50) dollar filing fee;

(e) A copy of a properly completed HIPMC-F1 form, Face Sheet and Verification Form that is incorporated by reference in 806 KAR 14:007; and

(f) A copy of a properly-completed HIPMC-R32 form, Health Benefit Plan Rate Filing Information Form.

(2) Each amendment filing shall contain documentation to demonstrate the necessity of the amendment, which shall include the following:

(a) An itemized list of the information to be amended and the reason for the amendment;

(b) A statement identifying the impact of the amendment in relation to benefits and costs on current and future policyholders; and

(3) One (1) copy of the amendment filing and written material relating to the filing shall be submitted to the Kentucky Attorney General's department by the insurer at the same time as the submission to the department.

(4) The amendment to a previously approved rate filing shall not be found as received until the department confirms that the information and fifty (50) dollar filing fee required under this section have been received.

(5) Within sixty (60) days of date of filing, the department shall notify the insurer in writing of the acceptance or rejection of the amendment.

Section 11. Material Incorporated by Reference:

(1) The following material is incorporated by reference:

(a) Actuarial Standard of Practice No. 8, "Regulatory Filings for Health Benefits, Accident, and Health Insurance, and Entities Providing Health Benefits", 03/2014, Actuarial Standards Board;

(b) Actuarial Standard of Practice No. 26, "Compliance with Statutory and Regulatory Requirements for the Actuarial Certification of Small Employer Health Benefit Plans", 05/2011, Actuarial Standards Board;

(d) HIPMC-R32 Form, "Health Benefit Plan Rate Filing Information Form", 04/2021;

(e) HIPMC-R33, "Health Benefit Plan Regions", 04/2021;

(f) HIPMC-R34, "Certification Form", 04/2021.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department of Insurance internet Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

Notes

806 KAR 17:150

25 Ky.R. 718; 1049; eff. 11-20-1998; 28 Ky.R. 151; eff. 9-10-2001; 29 Ky.R. 1368; 1799; eff. 1-16-2003; 32 Ky.R. 158; 512; eff. 11-22-2005; 34 Ky.R. 1804; 2095; eff. 4-4-2008; Crt eff. 2-26-2020; 47 Ky.R. 2736; 48 Ky.R. 1159; eff. 1/4/2022.

STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-095(7)

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