Section 3.28.468. 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 __________ 
     TYPE1 __________________ SMSBP2 ______________ 
     For the State of ______________ Company Name ______________ 
     NAIC Group Code ________ NAIC Company Code ____ 
     Address ______________ Person Completing Exhibit ____________ 
     Title ________________ Telephone Number ____________ 
                                                 (a)                (b)
   Line                                    Earned Premium3   Incurred Claims4
         1.Current Year's Experience
             a. Total (all policy years)
             b. Current year's issues5
             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 __________ 
     TYPE1 __________________ SMSBP2 ______________ 
     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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Authorities

21.06.090;21.42.130;21.96.060;01.05.031;21.89.060;44.62.125

Notes

Reference

3 AAC 28.430
3 AAC 28.470
3 AAC 28.472

Authority

AS 21.06.090 AS 21.42.130 AS 21.96.060 Editor's note: Before Register 150, July 1999, the substance of 3 AAC 28.468 appeared as 3 AAC 28.460. In 2010 the revisor of statutes, acting under AS 01.05.031, renumbered former AS 21.89.060 as AS 21.96.060. As of Register 196 (January 2011), the regulations attorney made a conforming technical revision under AS 44.62.125(b)(6), to the authority citation that follows 3 AAC 28.468, so that the citation to former AS 21.89.060 now refers to the renumbered statute, AS 21.96.060.

History

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

References

3.28.468;3.28.460