a) Loss Ratio Standards.
1) A Medicare supplement policy form or
certificate form shall not be delivered or issued for delivery unless the
policy form or certificate form:
A) Can be
expected, as estimated for the entire period for which rates are computed to
provide coverage, to return to policyholders and certificateholders in the form
of aggregate benefits (not including anticipated refunds or credits) provided
under the policy form or certificate form:
i)
At least 75% of the aggregate amount of premiums earned in the case of group
policies; or
ii) At least 65% of
the aggregate amount of premiums earned in the case of individual
policies.
B) Is
calculated on the basis of incurred claims experience or incurred health care
expenses, where coverage is provided by a health maintenance organization on a
service rather than reimbursement basis, and on the basis of earned premiums
for the period, in accordance with accepted actuarial principles and practices.
Incurred health care expenses where coverage is provided by a health
maintenance organization shall not include:
i) Home office and overhead cost;
ii) Advertising costs;
iii) Commissions and other acquisition
costs;
iv) Taxes;
v) Capital costs;
vi) Administrative costs; and
vii) Claims processing costs.
2) All filings of rates
and rating schedules shall be made in compliance with 50 Ill. Adm. Code
916 and
shall demonstrate that expected claims in relation to premiums 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 subsection (a) and Section
2008.81(d)(2),
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 deemed to be individual policies.
4) For policies issued prior to April 28,
1996, expected claims in relation to premiums shall meet:
A) The originally filed anticipated loss
ratio when combined with the actual experience since inception;
B) The appropriate loss ratio requirement
from subsections (a)(1)(A) and (B) when combined with actual experience
beginning April 28, 1996 to date; and
C) The appropriate loss ratio requirement
from subsections (a)(1)(A) and (B) 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
Director by May 31 of each year the data contained in Appendix S for each type
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 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 the
purposes of this Section, on policies or certificates issued prior to November
5, 1991, 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 28, 1996. The first such 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 Secretary
of Health and Human Services, but in no event shall it 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
An issuer of Medicare supplement policies and certificates
issued in this State before or after the effective date of this Part 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 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 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.
d) As soon as
practicable, but prior to the effective date of revisions in Medicare benefits,
every issuer of Medicare supplement policies or certificates in this State
shall file with the Department:
1) Appropriate
premium adjustments necessary to produce loss ratios as anticipated for the
current premium for the applicable policies or certificates. The supporting
documents necessary to justify the adjustment shall accompany the
filing.
2) An issuer shall make
such premium adjustments as are necessary to produce an expected loss ratio
under the applicable policy or certificate as will conform with minimum loss
ratio standards for Medicare supplement policies 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 such Medicare
supplement policies or certificates. No premium adjustment that would modify
the loss ratio experience under the policy other than the adjustments described
in this subsection (d)(2) shall be made with respect to a policy at any time
other than upon its renewal date or anniversary date.
3) If an issuer fails to make premium
adjustments acceptable to the Director, the Director may order premium
adjustments, refunds or premium credits deemed necessary to achieve the loss
ratio required by this Section.
4)
Any appropriate riders, endorsements or policy forms needed to accomplish the
Medicare supplement policy or certificate modifications necessary to eliminate
benefit duplications with Medicare. These riders, endorsements or policy forms
shall provide a clear description of the Medicare supplement benefits provided
by the policy or certificate.
e) Public Hearings
The Director 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
this Part 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.
