DEPARTMENT OF REGULATORY AGENCIES
Division of Insurance
3 CCR 702-4
LIFE, ACCIDENT AND HEALTH
Emergency Regulation 13-E-11
CONCERNING PREMIUM RATE SETTING FOR GRANDFATHERED INDIVIDUAL, SMALL GROUP, LARGE GROUP HEALTH BENEFIT PLANS AND STUDENT HEALTH COVERAGE
Section 1 Authority
Section 2 Scope and Purpose
Section 3 Applicability
Section 4 Definitions
Section 5 Requirements to Maintain Grandfathered Status and Recordkeeping
Section 6 General Rate Filing Requirements
Section 7 Actuarial Memorandum
Section 8 Premium Rate Setting for Small Group Health Benefit Plans
Section 9 Use of Composite Rates for Small Group Health Benefit Plans
Section 10 Rate Filings and Actuarial Certifications for Small Group Health Benefit Plans
Section 11 Additional Rate Filing Requirements by Line of Business
Section 12 Prohibited Rating Factors
Section 13 Incorporated Materials
Section 14 Severability
Section 15 Enforcement
Section 16 Effective Date
Section 17 History
Section 1 Authority
This emergency regulation is promulgated and adopted by the Commissioner of Insurance under the authority of §§ 10-1-109(1), 10-16-107 and 10-16-109, C.R.S. (2012).
Section 2 Scope and Purpose
The purpose of this regulation is to establish and implement rules for setting premiums for grandfathered individual, small group and large group plans. Article 16, as it existed prior to the effective date of HB 13-1266, applies to grandfathered health benefit plans, unless grandfathered health benefit plans are specifically addressed in Article 16 as amended by House Bill 13-1266. The Division of Insurance (Division) finds, pursuant to § 24-4-103(6)(a), C.R.S., that immediate adoption of this regulation is imperatively necessary to ensure carrier compliance with recent changes to Colorado law concerning health benefit plan rating, to ensure that health insurance rates are not excessive, inadequate, or unfairly discriminatory, and to ensure that rating requirements are captured adequately in light of recent changes to Colorado insurance regulations due to the enactment HB 13-1266. Therefore, compliance with the requirements of § 24-4-103, C.R.S., would be contrary to the public interest.
Section 3 Applicability
This regulation shall apply to all carriers that have grandfathered individual, small group, large group health benefit plans, and/or student health insurance plans, in the State of Colorado. This regulation concerns grandfathered individual, small and large group health benefit plans, to include student health coverage.
Section 4 Definitions
A. “Administrative ratio” means, for purposes of this regulation, the ratio of actual total administrative expenses, not including policyholder dividends, to the value of the actual earned premiums, not reduced by policyholder dividends, over the specified period, which is typically a calendar year.
B. “Benefits ratio” shall have the same meaning as found at § 10-16-102(5.3), C.R.S. (2012). Note: active life reserves do not represent claim payments, but provide for timing differences. Benefits ratio calculations must be displayed without the inclusion of active life reserves.
C. “Carrier” shall have the same meaning as found at § 10-16-102(8), C.R.S. (2012).
D. “Covered lives” means, for purposes of this regulation, the number of members, subscribers and dependents.
E. “Dividends” means, for purposes of this regulation, both policyholder and stockholder dividends.
F. “Excessive rates” means, for purposes of this regulation, rates that are likely to produce a long run profit that is unreasonably high for the insurance provided or if the rates include a provision for expenses that is unreasonably high in relation to the services rendered. In determining if the rate is excessive, the Commissioner may consider profits, dividends, annual rate reports, annual financial statements, subrogation funds credited, investment income or losses, unearned premium reserve, reserve for losses, surpluses, executive salaries, expected benefits ratios, and any other appropriate actuarial factors as determined by accepted actuarial standards of practice. The Commissioner may require the submission of whatever relevant information the Commissioner deems necessary in determining whether to approve or disapprove a rate filing.
G. “Filed rate” means the index rate as adjusted for plan design and the case characteristics of age, geographic location, and family size only. The “filed rate” does not include the index rate as further adjusted for any other case characteristic (See Section 7(A) of this regulation).
H. “File and use” is a filing procedure that requires rates and rating data to be filed with the Division of Insurance (Division) concurrent with or prior to distribution, release to producers, collection of premium, advertising, or any other use of the rates. Under no circumstance shall the carrier provide insurance coverage under the rates until on or after the proposed implementation date. Carriers may bill members but not require the member remit premium prior to the proposed implementation date of the rate change.
I. “Filing date” means, for purposes of this regulation, the date that the rate filing is received at the Division.
J. “Grandfathered plan” means, for purposes of this regulation, a health benefit plan provided to an individual, employer, or other group by a carrier on or before March 23, 2010, for as long as it maintains that status in accordance with federal law, and includes an extension of coverage under an individual or employer health benefit plan that existed before March 23, 2010, to a dependent of an individual enrolled in the plan or to a new employee and his or her dependents who enroll in the employer health benefit plan.
K. “Health benefit plan” shall have the same meaning as found at § 10-16-102(21), C.R.S. (2012).
L. “Implementation date” means, for purposes of this regulation, the date that the filed or approved rates can be charged to an individual or group.
M. “Inadequate rates” means, for purposes of this regulation, rates that are clearly insufficient to sustain projected losses and expenses, or if the use of such rates, if continued, will tend to create a monopoly in the marketplace. In determining if the rate is inadequate, the Commissioner may consider profits, dividends, annual rate reports, annual financial statements, subrogation funds credited, investment income or losses, unearned premium reserve, reserve for losses, surpluses, executive salaries, expected benefits ratios, and any other appropriate actuarial factors as determined by accepted actuarial standards of practice. The Commissioner may require the submission of whatever relevant information the Commissioner deems necessary in determining whether to approve or disapprove a rate filing.
N. “Lifetime loss ratio” means, for the purposes of this regulation:
1. A ratio equal to:
a. The sum of the accumulated value of policy benefits from the inception of the policy form(s) to the end of the experience period and the present value of expected policy benefits over the entire future period for which the proposed rates are expected to provide coverage; divided by:
b. The sum of the accumulated value of earned premiums from the inception of the policy form(s) to the end of the experience period and the present value of expected earned premium over the entire future period for which the proposed rates are expected to provide coverage.
2. The lifetime loss ratio should be calculated on an incurred basis as the ratio of accumulated and expected future incurred losses to accumulated and expected future earned premiums. Note: active life reserves do not represent claim payments, but provide for timing differences. Benefits or loss ratio calculations must be displayed without the inclusion of active life reserves.
3. An appropriate rate of interest should be used in calculating the accumulated values and the present values of incurred losses and earned premiums.
4. Any policy form or forms for which the benefits ratio in any policy duration is expected to differ more than 10% from the lifetime loss ratio shall be assumed to have been priced on a “lifetime loss ratio standard”, for purposes of this regulation.
O. "Metropolitan statistical area (MSA)" is a relatively freestanding area of the state determined by one or more large population nuclei, together with adjacent communities, that have a high degree of economic and social integration with the nuclei. Each MSA is not closely associated with another MSA. An MSA is a statistical standard developed for use by the Federal Office of Management and Budget, following a set of officially published standards, including, but not limited to, the acceptable underlying population base.
P. “On-rate-level premium” is the premium that would have been generated if the present rates had been in effect during the entire period under consideration.
Q. “Plan” means the specific benefits and cost-sharing provisions available to a covered person.
R. “Premium” means, for purposes of this regulation, the amount of money paid by the insured member, subscriber, or policyholder as a condition of receiving health care coverage. The premium paid normally reflects such factors as the carrier’s expectation of the insured’s future claim costs and the insured’s share of the carrier’s claims settlement, operational and administrative expenses, and the carrier’s cost of capital. This amount is net of any adjustments, discounts, allowances or other inducements permitted by the health care coverage contract.
S. “Primary metropolitan statistical area (PMSA)” is a possible subcategory of an MSA, which has a million or more persons living in that MSA. The PMSA consists of a large urbanized county or cluster of counties that demonstrate very strong internal economic and social links, in addition to close ties, to other portions of the larger area. Each PMSA is also determined by the Federal Office of Management and Budget following a set of officially published standards, including, but not limited to, the acceptable underlying population base.
T. “Prior approval” is a filing procedure that requires a rate change to be affirmatively approved by the Commissioner prior to distribution, release to agents, collections of premium, or any other use of the rate. Under no circumstances shall the carrier provide insurance coverage under the rates until on or after the proposed implementation date specified in the rate filing. After the rate filing has been approved by the Commissioner, carriers may bill members but not require the member remit premium prior to the proposed implementation date of the rate change.
U. “Product(s)” are the services covered as a package under a policy form by a carrier, which may have several cost-sharing options and riders as options.
V. "Qualified actuary" means an actuary who meets the requirements of Colorado Insurance Regulation 1-1-1.
W. “Rate” means, for purposes of this regulation, the amount of money a carrier charges as a condition of providing health care coverage. The rate charged normally reflects such factors as the carrier’s expectation of the insured’s future claim costs, and the insured’s share of the carrier’s claim settlement, operational and administrative expenses, and cost of capital. This amount is net of any adjustments, discounts, allowances or other inducements permitted by the health care coverage contract.
X. “Rate filing” means, for purposes of this regulation, a filing that contains all of the items required in this regulation, and
1. For individual products, the proposed base rates and all rating factors, the underlying rating assumptions, and support for changes in these rates, factors and assumptions; and;
2. For group products, the underlying rating factors and assumptions, and support for changes in these factors and assumptions.
Y. “Rate increase” shall have the same meaning as defined in § 10-16-102(36.5), C.R.S. (2012).
Z. “Rating period” shall have the same meaning as defined in § 10-16-102(38), C.R.S. (2012).
AA. “Renewed" means, for the purposes of this regulation, a health benefit plan renewed upon the occurrence of the earliest of: the annual anniversary date of issue; or the date on which premium rates can be or are changed according to the terms of the plan; or the date on which benefits can be or are changed according to the terms of the plan. If the health benefit plan specifically allows for a change in premiums or benefits due to changes in state or federal requirements and a change in the health benefit plan premiums or benefits that is solely due to changes in state or federal requirements is not considered a renewal in the health care coverage contract, then such a change will not be considered a renewal for the purposes of this regulation.
AB. “Retention” means, for the purposes of this regulation, the sum of all non-claim expenses including investment income from unearned premium reserves, contract or policy reserves, reserves from incurred losses, and reserves from incurred but not reported losses as percentage of total premium (or 100% minus the lifetime loss ratio, for products priced on a lifetime loss ratio standard).
AC. “SERFF” means, for the purposes of this regulation, System for Electronic Rate and Form Filings.
AD. “Student health insurance coverage” means, for the purpose of this regulation, a type of individual health insurance coverage that is provided pursuant to a written agreement between an institution of higher education that does not make health insurance coverage available other than in connection with enrollment as a student, or as a dependent of a student, in the institution of higher education, or does not condition eligibility for health insurance coverage on any health-status-related factor related to a student or a dependent of a student.
AE. “Trend” or “trending” means any procedure for projecting losses to the average date of loss, or of projecting premium or exposures to the average date of writing.
AF. “Trend factors” means, for purposes of this regulation, rates or rating factors which vary over time or due to the duration that the insured has been covered under the policy or certificate, and that reflect any of the components of medical or insurance trend assumptions used in pricing. Medical trend includes changes in unit costs of medical services or procedures, medical provider price changes, changes in utilization (other than due to advancing age), medical cost shifting, and new medical procedures and technology. Insurance trend includes the effect of underwriting wear-off, deductible leveraging, and anti-selection resulting from rate increases and discontinuance of new sales. Underwriting wear-off means the gradual increase from initial low expected claims that result from underwriting selection to higher expected claims for later (ultimate) durations. Underwriting wear-off does not apply to guaranteed issue products. Trend factors include inflation factors, and durational.
AG. “Unfairly discriminatory rates” means, for purposes of this regulation, charging different rates for the same benefits provided to individuals, or groups, with like expectations of loss; or if after allowing for practical limitations, differences in rates fail to reflect equitably the differences in expected losses and expenses. A rate is not unfairly discriminatory solely if different premiums result for policyholders with like loss exposures but different expenses, or like expenses but different loss exposures, so long as the rate reflects the differences with reasonable accuracy.