02-031 C.M.R. ch. 940, § 7 - Individual Rate Filings Subject to Pure Loss Ratio Standards

Current through 2022-14, April 6, 2022

A. Applicability: This section applies to all individual policies except (a) rate filings for individual health plans subject to the ACA rating requirements and (b) rate filings for which the carrier has elected the guaranteed loss ratio option pursuant to Subsection 8(H) and rate review is not required pursuant to the ACA. For purposes of this section, the group policies specified in Paragraphs 6(A)(3) and (4) are treated as individual policies.
B. Minimum pure loss ratios for individual policies
1. This subsection does not apply to rates for individual policies issued on or after December 1, 1993 and subject to Title 24-A M.R.S.A. §2736-C.
2. Definitions:For the purposes of this subsection, the following definitions apply:
a. Average Annual Premium Per Policy, $X:The average annual premium per individual policy or group certificate shall include all charges for riders and endorsements and shall be estimated by the carrier based on an anticipated distribution of business by all significant criteria having a price difference, such as age, sex, amount, dependent status, rider frequency, etc., but assuming an annual mode for all policies (i.e., the fractional premium loading shall not affect the average annual premium or anticipated pure loss ratio calculation).

The value of X shall be determined for each calendar year of issue. It is calculated based on the pricing assumptions applicable to that calendar year of issue.

b. Consumer Price Index Factor, I:The factor, I, is used to adjust the test for low and high average premiums to account for inflation. It is indexed to a value of 1.00 for 2010 and is defined as:

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where:

(i) (N-1) is the calendar year immediately preceding the calendar year (N) in which the rate filing is submitted in the state;
(ii) CPI-U is the consumer price index for all urban consumers, for all items, and for all regions of the U.S. combined, with 1982-84=100, as determined by the U.S. Department of Labor, Bureau of Labor Statistics; and
(iii) The CPI-U for any year (N-1) is taken as the value for September. For 2009, this value was 215.969, setting the value of I equal to 1 for 2010.
c. Renewal Clauses

OR - Optionally Renewable: Renewal is at the option of the insurance company.

CR - Conditionally Renewable:Renewal can be declined by class, by geographic area or for stated reasons other than deterioration of health.

GR - Guaranteed Renewable:Renewal cannot be declined by the insurance company for any reason, at least until the age of 65 or until eligibility for Medicare, but the insurance company can revise rates on a class basis.

NC - Non-Cancelable:Renewal cannot be declined, at least until the age of 65 or until eligibility for Medicare, nor can rates be revised by the insurance company.

NR- Nonrenewable: This includes short-term nonrenewable policies with a maximum duration of one year and no contractual renewal provision.

3. With respect to a form under which the average annual premium, $X, is expected to be at least as large as I × $550 but not more than I × $3,300, the filing must demonstrate that the anticipated pure loss ratio is at least as great as shown in the following table:

Type of Coverage

Renewal Clause

OR

CR

GR

NR

NC

Medical Expense

60%

55%

55%

50%

50%

Loss of Income and Other

60%

55%

50%

45%

45%

4. Low Average Premium Forms: For a policy form under which the expected average annual premium, $X, is less than I ×$550, the appropriate ratio from the table in paragraph 1 may be adjusted downward by the following formula:

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where: R is the table ratio;

R' is the resulting guideline ratio;

I is the consumer price index factor as defined in §7(B)(2)(b) above; and

X is the average annual premium defined in §7(B)(2)(a) above up to a maximum of I ×$550.

In no event, however, shall R' be less than 45%.

5. High Average Premium Forms: For a policy form under which the expected average annual premium, $X, is greater than I × $3,300, the appropriate ratio from the table above must be adjusted upward by the following formula:

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where: R is the table ratio

R' is the resulting guideline ratio

I is the consumer price index factor as defined in §7(B)(2)(b) above

X is an average annual premium as defined in §7(B)(2)(a) above exceeding I×$3,300

In no event, however, shall R' exceed 65%.

C. Rate Revisions
1. If the form is no longer actively marketed, a statement must be included as to whether a similar form is actively marketed and, if so, a discussion of equity between the two forms, including a comparison of the benefits and premium rates, must also be included. Except as provided in Sections 8 and 9, rates for individual policy forms for closed blocks should not significantly exceed rates for an open block unless the difference is justified by differences in benefits or other conditions, or unless the fact that renewal rates would exceed new business rates was disclosed at issue. The Superintendent may approve exceptions to this requirement if the enrollees are permitted to change to the new form and the Superintendent determines that the change would be in the best interest of the enrollees.
2. Combination of Forms: When a block of business in force under a form no longer being sold has declined to a size such that the number of actual claims nationally in a twelve month period is less than two hundred, then the business under such form must be combined with other blocks of business in the same class, which are on a consistent rate basis, for rating and monitoring purposes. The Superintendent may approve exceptions to this requirement if the enrollees are permitted to change to a new form and the Superintendent determines that the change would be in the best interest of the enrollees.
3. Filings of revised premiums must demonstrate that both the following loss ratios meet minimum standards as set forth in Subsection B of this Section, in Title 24-A M.R.S.A. §2736-C(5), or in Title 24-A M.R.S.A. §2808-B(2-B)(A), whichever is applicable:
a. An anticipated pure loss ratio calculated over the future lifetime of the form;
b. An anticipated pure loss ratio derived by dividing (i) by (ii) where
(i) is the sum of the accumulated benefits from the original effective date of the form to the effective date of the revision, and the present value of future benefits, and
(ii) is the sum of the accumulated premiums from the original effective date of the form to the effective date of the revision, and the present value of future premiums.

The Superintendent may accept alternative demonstrations where appropriate, particularly for small blocks with no credible experience.

Notes

02-031 C.M.R. ch. 940, § 7

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