Title 3 . Commerce, Community, and Economic Development

Chapter 28 . Miscellaneous

Section 468. Loss ratio standards; refund or credit of premium

3 AAC 28.468. Loss ratio standards; refund or credit of premium

(a) A medicare supplement policy form or certificate form may not be delivered or issued for delivery in this state unless the policy or certificate form can be expected, as estimated for the entire period for which rates are computed to provide coverage, to return to policyholders and certificate holders in the form of aggregate benefits, not including anticipated refunds or credits, provided under the policy or certificate form of a percentage 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 earned premiums for the period, and in accordance with accepted actuarial principles and practices, that is

(1) at least 75 percent of the aggregate amount of premiums earned in the case of group policies; or

(2) at least 65 percent of the aggregate amount of premiums earned in the case of individual policies.

(b) Filings of rates and rating schedules must 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 must also demonstrate that the anticipated loss ratio over the entire future period for which the revised rates are computed to provide coverage are expected to meet the appropriate loss ratio standards.

(c) For purposes of applying (a) of this section and 3 AAC 28.472(d) only, a policy issued as a result of a solicitation of individuals through the mail or by mass media advertising, including both print and broadcast advertising, will be considered by the director to be an individual policy.

(d) For policies issued before July 1, 1992, expected claims in relation to premiums must meet the following requirements:

(1) the originally filed anticipated loss ratio when combined with the actual experience since inception;

(2) the appropriate loss ratio requirement from (a) of this section when combined with actual experience beginning with July 12, 1996 to date; and

(3) the appropriate loss ratio requirement from (a) of this section over the entire future period for which the rates are computed to provide coverage.

(e) An issuer shall collect and file with the director by May 31 of each year the data contained in the applicable reporting form contained in Appendix A in this section for each type in a standard medicare supplement benefit plan.

(f) 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 must 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 must be excluded.

(g) For purposes of this section, for policies or certificates issued before July 1, 1992 and for experience after July 12, 1996, the issuer shall make the refund or credit calculation separately for the aggregate of all policies that are subject to an individual loss ratio standard when issued; and the aggregate of all other policies.

(h) A refund or credit must be made only when the benchmark loss ratio exceeds the adjusted experience loss ratio and the amount to be refunded or credited exceeds $1. The refund may 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 may it be less than the average rate of interest for 13-week notes issued by the United States Treasury. A refund or credit against premiums due must be made by September 30 following the experience year upon which the refund or credit is based.

(i) For purposes of applying (a) of this section, incurred health care expenses when coverage is provided by a health maintenance organization do not include

(1) home office and overhead costs;

(2) advertising costs;

(3) commissions and other acquisition costs;

(4) taxes;

(5) capital costs;

(6) administrative costs; or

(7) claims processing costs.

Appendix A

MEDICARE SUPPLEMENT REFUND CALCULATION FORM

FOR CALENDAR YEAR __________

TYPE 1 __________________ SMSBP 2 ______________ For the State of ______________ Company Name ______________ NAIC Group Code ________ NAIC Company Code ____ Address ______________ Person Completing Exhibit ____________ Title ________________ Telephone Number ____________

(a) (b) Line Incurred Claims 4 1.Current Year's Experience a. Total (all policy years) b. Current year's issues 5 c. Net (for reporting purposes = 1a - 1b) 2.Past Years' Experience (all policy years) 3.Total Experience (Net Current Year + Past Year)

4.Refunds Last Year (Excluding Interest) 5.Previous Since Inception (Excluding Interest) 6.Refunds Since Inception (Excluding Interest) 7.Benchmark Ratio Since Inception ( see worksheet for Ratio 1 ) 8.Experienced Ratio Since Inception (Ratio 2) Total Actual Incurred Claims (line 3, col. b) Total Earned Prem. (line 3, col. a) - Refunds Since Inception (line 6) 9.Life Years Exposed Since Inception If the Experienced Ratio is less than the Benchmark Ratio, and there are more than 500 life years exposure, then proceed to calculation of refund. 10.Tolerance Permitted (obtained from credibility table

Medicare Supplement Credibility Table

Life Years Exposed Since Inception Tolerance .......... .......... 10,000 + 0.0% 5,000 - 9,999 5.0% 2,500 - 4,999 7.5% 1,000 - 2,499 10.0% 500 - 999 15.0% If less than 500, no credibility.

MEDICARE SUPPLEMENT REFUND CALCULATION FORM

FOR CALENDAR YEAR __________

TYPE 1 __________________ SMSBP 2 ______________ For the State of ______________ Company Name ______________ NAIC Group Code ________ NAIC Company Code ____ Address ______________ Person Completing Exhibit ____________ Title ________________ Telephone Number ____________

11. Adjustment to Incurred Claims for Credibility Ratio 3 = Ratio 2 + Tolerance

If Ratio 3 is more than Benchmark Ratio (Ratio 1), a refund or credit to premium is not required.

If Ratio 3 is less than the Benchmark Ratio, then proceed.

12. Adjusted Incurred Claims [Total Earned Premiums (line 3, col. a) - Refunds Since Inception (line 6)] x Ratio 3 (line 11) 13. Refund = Total Earned Premiums (line 3, col. a) - Refunds Since Inception (line 6) - [Adjusted Incurred Claims (line 12)/Benchmark Ratio (Ratio 1)]

If the amount on line 13 is less than .005 times the annualized premium in force as of December 31 of the reporting year, then no refund is made. Otherwise, the amount on line 13 is to be refunded or credited, and a description of the refund or credit against premiums to be used must be attached to this form.

I certify that the above information and calculations are true and accurate to the best of my knowledge and belief.

_________________________________________________________ Signature _________________________________________________________ Name - Please Type _________________________________________________________ Title - Please Type _________________________________________________________ Date

__________________

1 Individual, Group, Individual Medicare Select, or Group Medicare Select Only.

2 "SMSBP" = Standardized Medicare Supplement Benefit Plan - Use "P" for prestandardized plans.

3 Includes Modal Loadings and Fees Charged.

4 Excludes Active Life Reserves.

5 This is to be used as "Issue Year Earned Premium" for Year 1 of next year's "Worksheet for Calculation of Benchmark Ratios."

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History: Eff. 4/21/99, Register 150; am 9/4/2005, Register 175

Authority: AS 21.06.090

AS 21.42.130

AS 21.89.060

Editor's note: Before Register 150, July 1999, the substance of 3 AAC 28.468 appeared as 3 AAC 28.460.