OAR 836-052-0145: Loss Ratio Standards and Refund or Credit of Premium

(1) The following provisions of this section establish loss ratio standards: (a) A Medicare supplement policy form or certificate form shall 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 provide coverage, to return the applicable percentage specified in this section to the policyholder and certificate holder in the form of aggregate benefits, not including anticipated refunds or credits, provided under the policy form or certificate form: (A) At least 75 percent of the aggregate amount of premiums earned, in the case of group policies; or (B) At least 65 percent of the aggregate amount of premiums earned, in the case of individual policies. (b) A percentage under subsection (a) of this subsection shall be 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 earned premiums for the period and in accordance with accepted actuarial principles and practices. Incurred health care expenses where coverage is provided by a health maintenance organization shall not include: (A) Home office and overhead costs; (B) Advertising costs; (C) Commissions and other acquisition costs; (D) Taxes; (E) Capital costs; (F) Administrative costs; and (G) Claims processing costs. (c) All filings of rates and rating schedules shall demonstrate that expected claims in relation to premiums comply with the requirements of this rule 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; (d) For purposes of applying section (1)(a) of this rule and section (3)(c) of OAR 836-052-0151 only, 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; (e) For policies issued prior to September 1, 1993, 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 section (1)(a)(A) and (B) of this rule when combined with actual experience beginning with April 28, 1996, to date; and (C) The appropriate loss ratio requirement from section (1)(a)(A) and (B) of this rule over the entire future period for which the rates are computed to provide coverage. (2) The following provisions of this section apply to refund and credit calculations: (a) 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 Exhibit 1 to this rule for each type in a standard Medicare supplement benefit plan; (b) 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; (c) For the purpose of this rule, policies or certificates issued prior to September 1, 1993, 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. (d) 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 negligible level. The refund must 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. (3) An issuer of Medicare supplement policies and certificates issued before, on or after July 1, 1992, in this state 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 that is greater than or equal to the applicable percentage shall be demonstrated for policies or certificates 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 policies or certificates in this state shall file with the Director for approval, in accordance with the applicable filing procedures of this state the following: (a)(A) Appropriate premium adjustments necessary to produce loss ratios as anticipated for the current premium for the applicable policies or certificates. Supporting documents necessary to justify the adjustment shall accompany the filing. (B) An issuer shall make premium adjustments necessary to produce an expected loss ratio under the policy or certificate to conform to minimum loss ratio standards for Medicare supplement policies and to be 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 the Medicare supplement policies or certificates. No premium adjustment that would modify the loss ratio experience under the policy other than the adjustments described herein shall be made with respect to a policy at any time other than upon its renewal date or anniversary date. Except as provided in OAR 836-052-0138, an insurer may not increase the rates for a Medicare supplement policy or certificate issued in this state more than once in a 12-month period. If an issuer intends to exercise the right to adjust a premium for age attainment under 836-052-0138, and such adjustment results in more than one increase in a 12-month period, the issuer must provide written disclosure to the consumer prior to the issuance of the policy or certificate. The limitation on premium adjustments under this paragraph does not apply to a premium adjustment that results from a change in the policy or premium payment terms requested by an insured including but not limited to changes in the method of payment such as discontinuing payment by a preauthorized electronic funds transfer. (C) If an issuer fails to make premium adjustments acceptable to the Director, the Director may order premium adjustments, refunds or premium credits that the Director considers necessary to achieve the loss ratio required by this rule. (b) Any appropriate riders, endorsements or policy forms needed to accomplish the Medicare supplement policy or certificate modifications necessary to eliminate benefit duplications with Medicare. The riders, endorsements or policy forms shall provide a clear description of the Medicare supplement benefits provided by the policy or certificate. (4) For purposes of this rule, experience of insureds who qualify for Medicare by reason of disability shall be combined with experience of insureds who qualify for Medicare by reason of age. (5) 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, on or after July 1, 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 may be made without consideration of any refund or credit for the reporting period. Public notice of the hearing shall be furnished as the Director determines to be appropriate. [ED. NOTE: Exhibits referenced are available from the agency.]