Section 1358.14 Of Article 3.5. Additional Requirements For Medicare Supplement Contracts From California Health And Safety Code >> Division 2. >> Chapter 2.2. >> Article 3.5.
1358.14
. (a) (1) (A) With respect to loss ratio standards, a
Medicare supplement contract shall not be advertised, solicited, or
issued for delivery unless the contract can be expected, as estimated
for the entire period for which prepaid or periodic charges are
computed to provide coverage, to return to subscribers and enrollees
in the form of aggregate benefits under the contract, not including
anticipated refunds or credits provided under the contract, at least
75 percent of the aggregate amount of charges earned in the case of
group contracts, or at least 65 percent of the aggregate amount of
charges earned in the case of individual contracts, on the basis of
incurred claims or costs of health care services experience and
earned prepaid or periodic charges for that period and in accordance
with accepted actuarial principles and practices.
(B) Loss ratio standards shall be calculated on the basis of
incurred health care expenses where coverage is provided by a health
care service plan on a service rather than reimbursement basis, and
earned prepaid or periodic charges shall be calculated for the period
and in accordance with accepted actuarial principles and practices.
Incurred health care expenses where coverage is provided by a health
care service plan shall not include any of the following:
(i) Home office and overhead costs.
(ii) Advertising costs.
(iii) Commissions and other acquisition costs.
(iv) Taxes.
(v) Capital costs.
(vi) Administrative costs.
(vii) Claims processing costs.
(2) All filings of rates and rating schedules shall demonstrate
that expected claims in relation to prepaid or periodic charges
comply with the requirements of this section 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.
(3) For purposes of applying paragraph (1) of subdivision (a) and
paragraph (3) of subdivision (d) of Section 1358.15 only, contracts
issued as a result of solicitations of individuals through the mail
or by mass media advertising, including both print and broadcast
advertising, shall be deemed to be individual contracts.
(b) (1) With respect to refund or credit calculations, an issuer
shall collect and file with the director by May 31 of each year the
data contained in the applicable reporting form required by the
director (NAIC Appendix A) for each type of coverage in a 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 of contract offered by the issuer. For purposes of the
refund or credit calculation, experience on contracts issued within
the reporting year shall be excluded.
(3) For the purposes of this section, with respect to contracts
advertised, solicited, or issued for delivery prior to January 1,
2001, the issuer shall make the refund or credit calculation
separately for all individual contracts, including all group
contracts subject to an individual loss ratio standard when issued,
combined and all other group contracts combined for experience after
January 1, 2001. The first report pursuant to paragraph (1) shall be
due by May 31, 2003.
(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 ten dollars ($10). 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 secretary, but in no
event shall it be less than the average rate of interest for 13-week
Treasury notes. A refund or credit against prepaid or periodic
charges due shall be made by September 30 following the experience
year upon which the refund or credit is based.
(c) An issuer of Medicare supplement contracts shall file annually
its prepaid or periodic charges and supporting documentation
including ratios of incurred losses to earned prepaid or periodic
charges by contract duration for approval by the director in
accordance with the filing requirements and procedures prescribed by
the director. 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 charges are computed. The
demonstration shall exclude active life reserves. An expected
third-year loss ratio that is greater than or equal to the applicable
percentage shall be demonstrated for contracts in force less than
three years.
As soon as practicable, but prior to the effective date of
enhancements in Medicare benefits, every issuer of Medicare
supplement contracts shall file with the director, in accordance with
applicable filing procedures, all of the following:
(1) (A) Appropriate prepaid or periodic charge adjustments
necessary to produce loss ratios as anticipated for the current
charge for the applicable contracts. The supporting documents
necessary to justify the adjustment shall accompany the filing.
(B) An issuer shall make prepaid or periodic charge adjustments
necessary to produce an expected loss ratio under the contract to
conform to minimum loss ratio standards for Medicare supplement
contracts and that are expected to result in a loss ratio at least as
great as that originally anticipated in the rates used to produce
current charges by the issuer for the Medicare supplement contracts.
No charge adjustment that would modify the loss ratio experience
under the contract other than the adjustments described in this
section shall be made with respect to a contract at any time other
than upon its renewal date or anniversary date.
(C) If an issuer fails to make prepaid or periodic charge
adjustments acceptable to the director, the director may order charge
adjustments, refunds, or credits deemed necessary to achieve the
loss ratio required by this section.
(2) Any appropriate contract amendments needed to accomplish the
Medicare supplement contract modifications necessary to eliminate
benefit duplications with Medicare. The contract amendments shall
provide a clear description of the Medicare supplement benefits
provided by the contract.
(d) (1) The director may conduct a public hearing to gather
information concerning a request by an issuer for an increase in a
rate for a contract form issued before or after the effective date of
January 1, 2001, 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 deemed
appropriate by the director.
(2) The director may conduct a public hearing to gather
information if the experience of the form filed under paragraph (1)
of subdivision (b) 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 deemed appropriate by the
director.