§ 89.780. Loss ratio standards and refund or credit of premium.
(a) Loss ratio standards.
(1) A Medicare Supplement policy form or certificate form may not be delivered or issued for delivery unless the policy form or certificate form can be expected, as estimated for the entire period for which rates are computed to return to policyholders and certificateholders in the form of aggregate benefits, a percentage of the aggregate amount of premiums earned as listed in this paragraph. The amount returned to policyholders and certificateholders shall be calculated on the basis of incurred claims experience or incurred health care expenses when coverage is provided by a health maintenance organization on a service rather than reimbursement basis, and on earned premiums for the period. The calculation shall be made in accordance with accepted actuarial principles and practices. This does not include anticipated refunds or credits provided under the policy form or certificate form. The amount returned as benefits shall be equal to:
(i) At least 75% of the aggregate amount of premiums earned in the case of group policies.
(ii) At least 65% of the aggregate amount of premiums earned in the case of individual policies.
(2) Incurred health care expenses where coverage is provided by a health maintenance organization shall not include:
(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.
(3) Filings of rates and rating schedules shall demonstrate that expected claims in relation to premiums comply with 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.
(4) For policies issued prior to July 30, 1992, expected claims in relation to premiums shall meet the following:
(i) The originally filed anticipated loss ratio when combined with the actual experience since inception.
(ii) The appropriate loss ratio requirement from paragraph (1) when combined with actual experience beginning with May 11, 1996, to date.
(iii) The appropriate loss ratio requirement from paragraph (1) over the entire future period for which the rates are computed to provide coverage.
(b) Refund or credit calculation.
(1) An issuer shall collect data for each standard Medicare supplement benefit plan and file the data with the Commissioner on or by May 31 of each year using an applicable Refund Calculation Form, as prescribed by the Department.
(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, for policies or certificates issued prior to July 30, 1992, the issuer shall make the refund or credit calculation separately for all individual policies combined and all other group policies combined for experience after May 11, 1996. The first report is 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. This 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 it may not 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 before, on or after July 30, 1992, in this Commonwealth 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 Commissioner in accordance with the filing requirements and procedures prescribed by the Commissioner. 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. That demonstration shall exclude active life reserves. An expected 3rd-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. As soon as practicable, but prior to the effective date of enhancements in Medicare benefits, every issuer of Medicare polices or certificates in this Commonwealth shall file with the Commissioner, in accordance with the applicable filing procedures of the Commonwealth:
(1) Appropriate premium adjustments necessary to produce loss ratios as anticipated for the current premium for the applicable policies or certificates. Supporting documents as necessary to justify the adjustment shall accompany the filing.
(i) An issuer shall make premium adjustments as necessary to produce an expected loss ratio under the policy or certificate that will conform with minimum loss ratio standards for the Medicare supplement policies, and that will result in an expected loss ratio at least as great as that originally anticipated by the issuer for that policy or certificate. A premium adjustment which would modify the loss ratio experience under the policy other than the adjustments described in this section may not be made with respect to a policy at any time other than upon its renewal date or anniversary date.
(ii) If an issuer fails to make premium adjustments acceptable to the Commissioner, the Commissioner may order premium adjustments, refunds or premium credits deemed necessary to achieve the loss ratio required by this section.
(2) 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.
(d) Public hearings. The Commissioner 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, on or after July 30, 1992, 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 Commissioner.
Authority The provisions of this § 89.780 amended under the Omnibus Budget Reconciliation Act (OBRA 90) of November 15, 1990, P. L. 101—508; sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and sections 356 and 616 of The Insurance Company Law of 1921 (40 P. S. § § 477b and 751).
Source The provisions of this § 89.780 adopted July 24, 1992, effective July 25, 1992, 22 Pa.B. 3841; amended September 2, 1994, effective November 2, 1994, 24 Pa.B. 4467; amended May 10, 1996, effective May 11, 1996, 26 Pa.B. 2196; amended January 8, 1999, effective January 9, 1999, 29 Pa.B. 172; amended May 6, 2005, effective May 7, 2005, 35 Pa.B. 2729. Immediately preceding text appears at serial pages (266439) and (252235) to (252237).
Cross References This section cited in 31 Pa. Code § 89.771 (relating to applicability and scope); 31 Pa. Code § 87.773 (relating to policy definitions and terms); and 31 Pa. Code § 89.781 (relating to filing and approval of policies and certificates and premium rates).
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