SF 2293

1st Engrossment - 84th Legislature (2005 - 2006) Posted on 12/15/2009 12:00am

A bill for an act
relating to insurance; regulating the filing and use of individual health insurance
policy forms; establishing a minimum loss ratio guarantee; amending Minnesota
Statutes 2004, sections 62A.02, by adding a subdivision; 62A.021, subdivision 1;
62A.65, subdivision 3.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2004, section 62A.02, is amended by adding a
subdivision to read:

new text begin Subd. 3a. new text end

new text begin Individual policy rates file and use; minimum lifetime loss ratio
guarantee. new text end

new text begin (a) Notwithstanding subdivisions 2, 3, 4a, 5a, and 6, individual premium
rates may be used upon filing with the department of an individual policy form if the
filing is accompanied by the individual policy form filing and a minimum lifetime loss
ratio guarantee. Insurers may use the filing procedure specified in this subdivision only if
the affected individual policy forms disclose the benefit of a minimum lifetime loss ratio
guarantee. Insurers may amend individual policy forms to provide for a minimum lifetime
loss ratio guarantee. If an insurer elects to use the filing procedure in this subdivision for
an individual policy rate, the insurer shall not use a filing of premium rates that does not
provide a minimum lifetime loss ratio guarantee for that individual policy rate.
new text end

new text begin (b) The minimum lifetime loss ratio guarantee must be in writing and must contain
at least the following:
new text end

new text begin (1) an actuarial memorandum specifying the expected loss ratio that complies with
the standards as set forth in this subdivision;
new text end

new text begin (2) a statement certifying that all rates, fees, dues, and other charges are not
excessive, inadequate, or unfairly discriminatory;
new text end

new text begin (3) detailed experience information concerning the policy forms;
new text end

new text begin (4) a step-by-step description of the process used to develop the minimum lifetime
loss ratio, including demonstration with supporting data;
new text end

new text begin (5) guarantee of specific minimum lifetime loss ratio that must be greater than or
equal to 65 percent for policies issued to individuals or for certificates issued to members
of an association that does not offer coverage to small employers, taking into consideration
adjustments for duration;
new text end

new text begin (6) a guarantee that the actual Minnesota loss ratio for the calendar year in which the
new rates take effect, and for each year thereafter until new rates are filed, will meet or
exceed the minimum lifetime loss ratio standards referred to in clause (5), adjusted for
duration;
new text end

new text begin (7) a guarantee that the actual Minnesota lifetime loss ratio shall meet or exceed the
minimum lifetime loss ratio standards referred to in clause (5); and
new text end

new text begin (8) if the annual earned premium volume in Minnesota under the particular policy
form is less than $2,500,000, the minimum lifetime loss ratio guarantee must be based
partially on the Minnesota earned premium and other credible factors as specified by
the commissioner.
new text end

new text begin (c) The actual Minnesota minimum loss ratio results for each year at issue must be
independently audited at the insurer's expense, and the audit report must be filed with the
commissioner not later than 120 days after the end of the year at issue.
new text end

new text begin (d) The insurer shall refund premiums in the amount necessary to bring the actual
loss ratio up to the guaranteed minimum lifetime loss ratio. For the purpose of this
paragraph, loss ratio and guaranteed minimum lifetime loss ratio are the expected
aggregate loss ratio of all approved individual policy forms that provide for a minimum
lifetime loss ratio guarantee.
new text end

new text begin (e) A Minnesota policyholder affected by the guaranteed minimum lifetime loss
ratio shall receive a portion of the premium refund relative to the premium paid by the
policyholder. The refund must be made to all Minnesota policyholders insured under the
applicable policy form during the year at issue if the refund would equal $10 or more per
policy. The refund must include statutory interest from July 1 of the year at issue until
the date of payment. Payment must be made not later than 180 days after the end of the
year at issue.
new text end

new text begin (f) Premium refunds of less than $10 per insured must be credited to the
policyholder's account.
new text end

new text begin (g) Subdivisions 2 and 3 do not apply if premium rates are filed with the department
and accompanied by a minimum lifetime loss ratio guarantee that meets the requirements
of this subdivision. Such filings are deemed approved. When determining a loss ratio for
the purposes of a minimum lifetime loss ratio guarantee, the insurer shall divide the total
of the claims incurred, plus preferred provider organization expenses, case management,
and utilization review expenses, plus reinsurance premiums less reinsurance recoveries by
the premiums earned less state and local taxes less other assessments. The insurer shall
identify any assessment allocated.
new text end

new text begin (h) The policy form filing of an insurer using the filing procedure with a minimum
lifetime loss ratio guarantee must disclose to the enrollee, member, or subscriber an
explanation of the minimum lifetime loss ratio guarantee, and the actual loss ratio, and any
adjustments for duration.
new text end

new text begin (i) The insurer who elects to use the filing procedure with a minimum lifetime loss
ratio guarantee shall notify all policyholders of the refund calculation, the result of the
refund calculation, the percentage of premium on an aggregate basis to be refunded, if
any, any amount of the refund attributed to the payment of interests, and an explanation
of amounts less than $10.
new text end

Sec. 2.

Minnesota Statutes 2004, section 62A.021, subdivision 1, is amended to read:

Subdivision 1.

Loss ratio standards.

(a) Notwithstanding section 62A.02,
subdivision 3, relating to loss ratios, new text begin and except as otherwise authorized by section
62A.02, subdivision 3a, for individual policies or certificates, new text end health care policies or
certificates shall not be delivered or issued for delivery to an individual or to a small
employer as defined in section 62L.02, unless the policies or certificates can be expected,
as estimated for the entire period for which rates are computed to provide coverage, to
return to Minnesota policyholders and certificate holders in the form of aggregate benefits
not including anticipated refunds or credits, provided under the policies or certificates, (1)
at least 75 percent of the aggregate amount of premiums earned in the case of policies
issued in the small employer market, as defined in section 62L.02, subdivision 27,
calculated on an aggregate basis; and (2) at least 65 percent of the aggregate amount
of premiums earned in the case of each policy form or certificate form issued in the
individual market; 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 according
to accepted actuarial principles and practices. Assessments by the reinsurance association
created in chapter 62L and all types of taxes, surcharges, or assessments created by Laws
1992, chapter 549, or created on or after April 23, 1992, are included in the calculation of
incurred claims experience or incurred health care expenses. The applicable percentage
for policies and certificates issued in the small employer market, as defined in section
62L.02, increases by one percentage point on July 1 of each year, beginning on July 1,
1994, until an 82 percent loss ratio is reached on July 1, 2000. The applicable percentage
for policy forms and certificate forms issued in the individual market increases by one
percentage point on July 1 of each year, beginning on July 1, 1994, until a 72 percent loss
ratio is reached on July 1, 2000. A health carrier that enters a market after July 1, 1993,
does not start at the beginning of the phase-in schedule and must instead comply with the
loss ratio requirements applicable to other health carriers in that market for each time
period. Premiums earned and claims incurred in markets other than the small employer
and individual markets are not relevant for purposes of this section.

(b) All filings of rates and rating schedules shall demonstrate that actual expected
claims in relation to premiums comply with the requirements of 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, and aggregate loss ratio from inception of the policy form or certificate form
shall equal or exceed the appropriate loss ratio standards.

(c) A health carrier that issues health care policies and certificates to individuals
or to small employers, as defined in section 62L.02, in this state shall file annually its
rates, rating schedule, and supporting documentation including ratios of incurred losses
to earned premiums by policy form or certificate form duration for approval by the
commissioner according to 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.
The demonstration shall exclude active life reserves. If the data submitted does not
confirm that the health carrier has satisfied the loss ratio requirements of this section,
the commissioner shall notify the health carrier in writing of the deficiency. The health
carrier shall have 30 days from the date of the commissioner's notice to file amended rates
that comply with this section. If the health carrier fails to file amended rates within the
prescribed time, the commissioner shall order that the health carrier's filed rates for the
nonconforming policy form or certificate form be reduced to an amount that would have
resulted in a loss ratio that complied with this section had it been in effect for the reporting
period of the supplement. The health carrier's failure to file amended rates within the
specified time or the issuance of the commissioner's order amending the rates does not
preclude the health carrier from filing an amendment of its rates at a later time. The
commissioner shall annually make the submitted data available to the public at a cost not
to exceed the cost of copying. The data must be compiled in a form useful for consumers
who wish to compare premium charges and loss ratios.

(d) Each sale of a policy or certificate that does not comply with the loss ratio
requirements of this section is an unfair or deceptive act or practice in the business of
insurance and is subject to the penalties in sections 72A.17 to 72A.32.

(e)(1) For purposes of this section, health care policies issued as a result of
solicitations of individuals through the mail or mass media advertising, including both
print and broadcast advertising, shall be treated as individual policies.

(2) For purposes of this section, (i) "health care policy" or "health care certificate"
is a health plan as defined in section 62A.011; and (ii) "health carrier" has the meaning
given in section 62A.011 and includes all health carriers delivering or issuing for delivery
health care policies or certificates in this state or offering these policies or certificates
to residents of this state.

(f) The loss ratio phase-in as described in paragraph (a) does not apply to individual
policies and small employer policies issued by a health plan company that is assessed less
than three percent of the total annual amount assessed by the Minnesota Comprehensive
Health Association. These policies must meet a 68 percent loss ratio for individual
policies, a 71 percent loss ratio for small employer policies with fewer than ten employees,
and a 75 percent loss ratio for all other small employer policies.

(g) Notwithstanding paragraphs (a) and (f), the loss ratio shall be 60 percent for a
health plan as defined in section 62A.011, offered by an insurance company licensed under
chapter 60A that is assessed less than ten percent of the total annual amount assessed
by the Minnesota Comprehensive Health Association. For purposes of the percentage
calculation of the association's assessments, an insurance company's assessments include
those of its affiliates.

(h) The commissioners of commerce and health shall each annually issue a
public report listing, by health plan company, the actual loss ratios experienced in the
individual and small employer markets in this state by the health plan companies that the
commissioners respectively regulate. The commissioners shall coordinate release of these
reports so as to release them as a joint report or as separate reports issued the same day.
The report or reports shall be released no later than June 1 for loss ratios experienced for
the preceding calendar year. Health plan companies shall provide to the commissioners
any information requested by the commissioners for purposes of this paragraph.

Sec. 3.

Minnesota Statutes 2004, section 62A.65, subdivision 3, is amended to read:

Subd. 3.

Premium rate restrictions.

No individual health plan may be offered,
sold, issued, or renewed to a Minnesota resident unless the premium rate charged is
determined in accordance with the following requirements:

(a) Premium rates must be no more than 25 percent above and no more than 25
percent below the index rate charged to individuals for the same or similar coverage,
adjusted pro rata for rating periods of less than one year. The premium variations
permitted by this paragraph must be based only upon health status, claims experience,
and occupation. For purposes of this paragraph, health status includes refraining from
tobacco use or other actuarially valid lifestyle factors associated with good health,
provided that the lifestyle factor and its effect upon premium rates have been determined
by the commissioner to be actuarially valid and have been approved by the commissioner.
Variations permitted under this paragraph must not be based upon age or applied
differently at different ages. This paragraph does not prohibit use of a constant percentage
adjustment for factors permitted to be used under this paragraph.

(b) Premium rates may vary based upon the ages of covered persons only as
provided in this paragraph. In addition to the variation permitted under paragraph (a),
each health carrier may use an additional premium variation based upon age of up to
plus or minus 50 percent of the index rate.

(c) A health carrier may request approval by the commissioner to establish no
more than three geographic regions and to establish separate index rates for each region,
provided that the index rates do not vary between any two regions by more than 20
percent. Health carriers that do not do business in the Minneapolis/St. Paul metropolitan
area may request approval for no more than two geographic regions, and clauses (2) and
(3) do not apply to approval of requests made by those health carriers. The commissioner
may grant approval if the following conditions are met:

(1) the geographic regions must be applied uniformly by the health carrier;

(2) one geographic region must be based on the Minneapolis/St. Paul metropolitan
area;

(3) for each geographic region that is rural, the index rate for that region must not
exceed the index rate for the Minneapolis/St. Paul metropolitan area; and

(4) the health carrier provides actuarial justification acceptable to the commissioner
for the proposed geographic variations in index rates, establishing that the variations are
based upon differences in the cost to the health carrier of providing coverage.

(d) Health carriers may use rate cells and must file with the commissioner the rate
cells they use. Rate cells must be based upon the number of adults or children covered
under the policy and may reflect the availability of Medicare coverage. The rates for
different rate cells must not in any way reflect generalized differences in expected costs
between principal insureds and their spouses.

(e) In developing its index rates and premiums for a health plan, a health carrier shall
take into account only the following factors:

(1) actuarially valid differences in rating factors permitted under paragraphs (a)
and (b); and

(2) actuarially valid geographic variations if approved by the commissioner as
provided in paragraph (c).

(f) All premium variations must be justified in initial rate filings and upon request of
the commissioner in rate revision filings. All rate variations are subject to approval by
the commissioner.

(g) The loss ratio must comply with the section 62A.021 requirements for individual
health plans.

(h) The rates must not be approved, unless the commissioner has determined that the
rates are reasonable. In determining reasonableness, the commissioner shall consider the
growth rates applied under section 62J.04, subdivision 1, paragraph (b), to the calendar
year or years that the proposed premium rate would be in effect, actuarially valid changes
in risks associated with the enrollee populations, and actuarially valid changes as a result
of statutory changes in Laws 1992, chapter 549.

new text begin (i) An insurer may, as part of a minimum lifetime loss ratio guarantee filing under
section 62A.02, subdivision 3a, include a rating practices guarantee as provided in this
paragraph. The rating practices guarantee must be in writing and must guarantee that
the policy form will be offered, sold, issued, and renewed only with premium rates and
premium rating practices that comply with subdivisions 2, 3, 4, and 5. The rating practices
guarantee must be accompanied by an actuarial memorandum that demonstrates that the
premium rates and premium rating system used in connection with the policy form will
satisfy the guarantee. The guarantee must guarantee refunds of any excess premiums to
policyholders charged premiums that exceed those permitted under subdivision 2, 3, 4,
or 5. An insurer that complies with this paragraph in connection with a policy form is
exempt from the requirement of prior approval by the commissioner under paragraphs
(c), (f), and (h).
new text end