Senate Bill 1060c1
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Florida Senate - 2000 CS for SB 1060
By the Committee on Banking and Insurance; and Senators King,
Holzendorf and Horne
311-2105-00
1 A bill to be entitled
2 An act relating to health insurance; amending
3 s. 627.410, F.S.; modifying rate filing
4 requirements for approval of health insurance
5 policy forms by the Department of Insurance;
6 amending s. 627.411, F.S.; providing guidelines
7 for determining when benefits are considered
8 reasonable in relation to the premium charged
9 for purposes of disapproval of health insurance
10 policy forms by the department; providing an
11 effective date.
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13 Be It Enacted by the Legislature of the State of Florida:
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15 Section 1. Subsections (1), (3), (6), (7), and
16 paragraph (a) of subsection (8) of section 627.410, Florida
17 Statutes, are amended to read:
18 627.410 Filing, approval of forms.--
19 (1) No basic insurance policy or annuity contract
20 form, or application form where written application is
21 required and is to be made a part of the policy or contract,
22 or group certificates issued under a master contract delivered
23 in this state, or printed rider or endorsement form or form of
24 renewal certificate, shall be delivered or issued for delivery
25 in this state, unless the form has been filed with the
26 department at its offices in Tallahassee by or in behalf of
27 the insurer which proposes to use such form and has been
28 approved by the department. This provision does not apply to
29 surety bonds or to policies, riders, endorsements, or forms of
30 unique character which are designed for and used with relation
31 to insurance upon a particular subject (other than as to
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1 individual or small group health insurance), or which relate
2 to the manner of distribution of benefits or to the
3 reservation of rights and benefits under life or health
4 insurance policies and are used at the request of the
5 individual policyholder, contract holder, or
6 certificateholder. As to group insurance policies effectuated
7 and delivered outside this state but covering persons resident
8 in this state, the group certificates to be delivered or
9 issued for delivery in this state shall be filed with the
10 department for information purposes only.
11 (3) The department may, as specified in s. 627.411(1)
12 for cause, withdraw a previous approval. No insurer shall
13 issue or use any form disapproved by the department, or as to
14 which the department has withdrawn approval, after the
15 effective date of the order of the department.
16 (6)(a) An insurer shall not deliver or issue for
17 delivery or renew in this state any health insurance policy
18 form until it has filed with the department a copy of every
19 applicable rating manual, rating schedule, change in rating
20 manual, and change in rating schedule; if rating manuals and
21 rating schedules are not applicable, the insurer must file
22 with the department applicable premium rates and any change in
23 applicable premium rates. This paragraph does not apply to
24 rating manuals, rating schedules, changes in rating manuals or
25 schedules, or, if rating manuals or schedules are not
26 applicable, to premium rates or changes in such rates relating
27 to policies, riders, endorsements, or forms of unique
28 character which are designed for and used with relation to
29 insurance upon a particular subject or to benefits under group
30 health insurance policies insuring 51 or more persons and used
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1 at the request of the individual policyholder, contract
2 holder, or certificateholder.
3 (b) The department may establish by rule, for each
4 type of health insurance form, procedures to be used in
5 ascertaining that a form meets the standards in this section
6 and s. 627.411(2) for new rate filings and rate revisions in
7 accordance with generally accepted standards of actuarial
8 practice the reasonableness of benefits in relation to premium
9 rates and may, by rule, exempt from any requirement of
10 paragraph (a) any health insurance policy form or type thereof
11 (as specified in such rule) to which form or type such
12 requirements may not be practically applied or to which form
13 or type the application of such requirements is not desirable
14 or necessary for the protection of the public. With respect to
15 any health insurance policy form or type thereof which is
16 exempted by rule from any requirement of paragraph (a),
17 premium rates filed pursuant to ss. 627.640 and 627.662 shall
18 be for informational purposes.
19 (c) Every filing made pursuant to this subsection
20 shall be made within the same time period provided in, and
21 shall be deemed to be approved under the same conditions as
22 those provided in, subsection (2).
23 (d) Every filing made pursuant to this subsection,
24 except disability income policies and accidental death
25 policies, shall be prohibited from applying the following
26 rating practices:
27 1. Select and ultimate premium schedules.
28 2. Premium class definitions which classify insured
29 based on year of issue or duration since issue.
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1 3. Attained age premium structures on policy forms
2 under which more than 50 percent of the policies are issued to
3 persons age 65 or over.
4 (e) Except as provided in subparagraph 1., an insurer
5 shall continue to make available for purchase any individual
6 policy form issued on or after October 1, 1993. A policy form
7 shall not be considered to be available for purchase unless
8 the insurer has actively offered it for sale in the previous
9 12 months.
10 1. An insurer may discontinue the availability of an
11 individual a policy form if the insurer provides to the
12 department in writing its decision at least 30 days prior to
13 discontinuing the availability of the form of the policy or
14 certificate. After receipt of the notice by the department,
15 the insurer shall no longer offer for sale the policy form or
16 certificate form in this state.
17 2. An insurer that discontinues the availability of a
18 policy form pursuant to subparagraph 1. shall not file for
19 approval a new policy form providing similar benefits as the
20 discontinued form for a period of 5 years after the insurer
21 provides notice to the department of the discontinuance. The
22 period of discontinuance may be reduced if the department
23 determines that a shorter period is appropriate.
24 2.3. The experience of an individual accident and
25 health insurance all policy form that is no longer being
26 marketed in this state, except for policies rated pursuant to
27 a loss ratio guarantee under subsection (8), shall be combined
28 with the experience of at least one other individual accident
29 and health insurance policy form providing similar benefits,
30 as determined by the insurer, which is still being marketed in
31 the state by the same insurer, unless the insurer has no other
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1 policy form forms providing similar benefits shall be combined
2 for all rating purposes. For purposes of this section, a form
3 is considered active if the form has been marketed in this
4 state in the past 6 months.
5 (7)(a) Each insurer subject to the requirements of
6 subsection (6) shall make an annual filing with the department
7 no later than 12 months after its previous filing,
8 establishing compliance with the standards in s. 627.411(2)
9 for each insurance policy form, excluding noncancelable policy
10 forms. For guaranteed renewable medical indemnity, loss of
11 income, and disability income policy forms, the filing shall
12 be biennial and made no later than 24 months after its
13 previous filing demonstrating the reasonableness of benefits
14 in relation to premium rates. The department, after receiving
15 a request to be exempted from the provisions of this section,
16 may, for good cause due to insignificant numbers of policies
17 in force or insignificant premium volume, exempt a company, by
18 line of coverage, from filing rates or rate certification as
19 required by this section.
20 (b) The filing required by this subsection shall be
21 satisfied by one of the following methods:
22 1. A rate filing prepared by an actuary which contains
23 documentation establishing demonstrating the reasonableness of
24 benefits in relation to premiums charged in accordance with
25 the applicable rating laws and rules promulgated by the
26 department. For premium rate changes, benefits shall be deemed
27 reasonable in relation to premium charged if both of the
28 following loss ratios meet or exceed the standards established
29 in s. 627.411(2).
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1 a. The anticipated loss ratio over the entire future
2 period for which the revised rates are computed to provide
3 coverage; and
4 b. The lifetime anticipated loss ratio derived by
5 dividing the amount determined under sub-sub-subparagraph (I)
6 by the amount determined under sub-sub-subparagraph (II):
7 (I) The sum of the accumulated benefits from the
8 original effective date of the form to the effective date of
9 the revision, and the present value of future benefits.
10 (II) The sum of the accumulated premiums from the
11 original effective date of the form to the effective date of
12 the revision, and the present value of future premiums, which
13 present values shall be taken over the entire period for which
14 the revised rates are computed to provide coverage and which
15 accumulated benefits and premiums shall include an explicit
16 estimate of actual benefits and premiums from the last date an
17 accounting has been made to the effective date of the
18 revision.
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20 Interest shall be used in the calculation of these accumulated
21 benefits and premiums and present values in the calculation of
22 the loss ratio. For purposes of sub-sub-subparagraph (I), the
23 present value of benefits may, at the insurer's option,
24 include recognition of the policy reserve as a benefit
25 (addition), or the present value of premiums may, at the
26 insurer's option, include recognition of the policy reserve as
27 a deduction. Anticipated loss ratios lower than those
28 indicated in sub-sub-subparagraphs (I) and (II) shall require
29 justification based on special circumstances that may be
30 applicable, including, but not limited to: accident only,
31 short-term nonrenewable, specified peril, and other special
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1 risks; marketing methods; giving due consideration to
2 acquisition and administration costs and premium mode;
3 extraordinary expenses; high risk of claims fluctuation
4 because of low loss frequency or the catastrophic or
5 experimental nature of the coverage; product features, such as
6 long elimination periods, high deductibles, and high maximum
7 limits; and the industrial or debit method of distribution.
8 2. If no rate change is proposed, a filing which
9 consists of a certification by an actuary that benefits are
10 reasonable in relation to premiums currently charged in
11 accordance with the loss ratio standards established in this
12 section and s. 627.411(2) applicable laws and rules
13 promulgated by the department.
14 3. For premium rate changes for group policy forms,
15 benefits shall be deemed reasonable in relation to premium
16 charged if the anticipated loss ratio over the entire future
17 period for which the revised rates are computed to provide
18 coverage meets or exceeds the standards established in s.
19 627.411(2).
20 4. An insurer may combine the experience of similar
21 policy forms in the required filing.
22 (c) As used in this section, the term "actuary" means
23 an individual who is a member of the Society of Actuaries or
24 the American Academy of Actuaries. If an insurer does not
25 employ or otherwise retain the services of an actuary, the
26 insurer's certification shall be prepared by insurer personnel
27 or consultants with a minimum of 5 years' experience in
28 insurance ratemaking and. The chief executive officer of the
29 insurer shall review and sign the certification indicating his
30 or her agreement with its conclusions.
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1 (d) If at the time a filing is required under this
2 section an insurer is in the process of completing a rate
3 review, the insurer may apply to the department for an
4 extension of up to an additional 30 days in which to make the
5 filing. The request for extension must be received by the
6 department in its offices in Tallahassee no later than the
7 date the filing is due.
8 (e) If an insurer fails to meet the filing
9 requirements of this subsection and does not submit the filing
10 within 60 days following the date the filing is due, the
11 department may, in addition to any other penalty authorized by
12 law, order the insurer to discontinue the issuance of policies
13 for which the required filing was not made, until such time as
14 the department determines that the required filing is properly
15 submitted.
16 (8)(a) For the purposes of subsections (6) and (7) and
17 s. 627.411, benefits of an individual accident and health
18 insurance policy form, including Medicare supplement policies
19 as defined in s. 627.672, when authorized by rules adopted by
20 the department, and excluding long-term care insurance
21 policies as defined in s. 627.9404, and other policy forms
22 under which more than 50 percent of the policies are issued to
23 individuals age 65 and over, are deemed to comply with the
24 provisions cited in this section to be reasonable in relation
25 to premium rates if the rates are filed pursuant to a loss
26 ratio guarantee and both the initial rates and the durational
27 and lifetime loss ratios have been approved by the department,
28 and such benefits shall continue to be deemed reasonable for
29 renewal rates while the insurer complies with such guarantee,
30 provided the currently expected lifetime loss ratio is not
31 more than 5 percent less than the filed lifetime loss ratio as
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1 certified to by an actuary. The department shall have the
2 right to bring an administrative action should it deem that
3 the lifetime loss ratio will not be met. For Medicare
4 supplement filings, the department may withdraw a previously
5 approved filing which was made pursuant to a loss ratio
6 guarantee if it determines that the filing is not in
7 compliance with ss. 627.671-627.675 or the currently expected
8 lifetime loss ratio is less than the filed lifetime loss ratio
9 as certified by an actuary in the initial guaranteed loss
10 ratio filing. If this section conflicts with ss.
11 627.671-627.675, ss. 627.671-627.675 shall control.
12 Section 2. Section 627.411, Florida Statutes, is
13 amended to read:
14 627.411 Grounds for Disapproval of forms.--
15 (1) The department shall disapprove any insurance
16 policy form that must be filed under s. 627.410, or withdraw
17 any previous approval thereof, only if the form:
18 (a) Is in any respect in violation of, or does not
19 comply with, this code.
20 (b) Contains or incorporates by reference, where such
21 incorporation is otherwise permissible, any inconsistent,
22 ambiguous, or misleading clauses, or exceptions and conditions
23 which deceptively affect the risk purported to be assumed in
24 the general coverage of the contract.
25 (c) Has any title, heading, or other indication of its
26 provisions which is misleading.
27 (d) Is printed or otherwise reproduced in such manner
28 as to render any material provision of the form substantially
29 illegible.
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1 (e)1. Is for health insurance, and provides benefits
2 that which are unreasonable in relation to the premium charged
3 as specified in s. 627.411(2); or,
4 2. Contains provisions that constitute unfair
5 discrimination pursuant to s. 626.9541(1)(g) which are unfair
6 or inequitable as contrary to the public policy of this state
7 or which encourages misrepresentation or which apply rating
8 practices which result in premium escalations that are not
9 viable for the policyholder market or result in unfair
10 discrimination in sales practices.
11 (f) Excludes coverage for human immunodeficiency virus
12 infection or acquired immune deficiency syndrome or contains
13 limitations in the benefits payable, or in the terms or
14 conditions of such contract, for human immunodeficiency virus
15 infection or acquired immune deficiency syndrome which are
16 different than those which apply to any other sickness or
17 medical condition.
18 (2) In determining whether the Benefits are deemed
19 reasonable in relation to the premium charged if premium rates
20 are neither excessive nor inadequate as specified in this
21 subsection., the department, in accordance with reasonable
22 actuarial techniques, shall consider:
23 (a) Past loss experience and prospective loss
24 experience within and without this state.
25 (b) Allocation of expenses.
26 (c) Risk and contingency margins, along with
27 justification of such margins.
28 (d) Acquisition costs.
29 (a) Premium rates are not excessive if the insurer
30 demonstrates, in accordance with generally accepted standards
31 of actuarial practice, satisfaction of the following minimum
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1 anticipated loss ratios, and the original loss ratio for the
2 form established by the company, except that the original loss
3 ratio may be reduced upon filing and approval that a reduction
4 to the loss ratio is necessary to cover actual increased
5 expenses of the company:
6 1. Loss ratio table, individual policies for the line
7 of business indicated.
8 a. Medical expenses.
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10 Renewal clause Loss ratio
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12 Noncancelable 55 percent
13 Nonrenewable 60 percent
14 Guaranteed renewable 65 percent
15 All others 70 percent
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17 b. Medical indemnity, loss of income.
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19 Renewal clause Loss ratio
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21 Noncancelable 50 percent
22 Nonrenewable 55 percent
23 Guaranteed renewable 60 percent
24 All others 65 percent
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26 2. Loss ratio table, group policies.
27 a. Group medical expense.
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30 Group size Loss ratio
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1 Fewer than 51 certificates 65 percent
2 51 through 500 certificates 70 percent
3 All others 75 percent
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5 b. Group medical indemnity or any group policy with an
6 average annual premium per certificate of less than $1,000.
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8 Group size Loss ratio
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10 Fewer than 51 certificates 57.5 percent
11 51 through 500 certificates 62.5 percent
12 All others 67.5 percent
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14 3. Group conversion insurance, other than
15 long-term-care insurance and Medicare supplement insurance,
16 issued on either a group or an individual basis, shall have a
17 loss ratio of not less than 120 percent, subject to the limits
18 described in s. 627.6675.
19 4. The lifetime loss ratios in subparagraphs 1. and 2.
20 may be adjusted in accordance with the following formula:
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22 R' = (A - 25I) R/A
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24 Where:
25 R = the loss ratio from subparagraphs 1. and 2.
26 A = the average annualized premium per individual
27 policy or per group certificate.
28 I = (CPI-U, year N-1)/103.9.
29 R' = the adjusted loss ratio.
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1 R' cannot be more than 10 percentage points less than R nor
2 less than 50 percent, except that R' cannot be less than 45
3 percent as to accident-only noncancellable policies. The CPI-U
4 is the consumer price index for all urban consumers, for all
5 items, and for all regions of the United States combined, as
6 determined by the United States Department of Labor, Bureau of
7 Labor Statistics, as of September of each year. Year N-1 is
8 the calendar year immediately preceding the calendar year N in
9 which the rate filing is submitted in this state.
10 5. Blanket insurance is exempt from the loss ratios
11 described in subparagraphs 1.-3. The minimum loss ratio for
12 blanket insurance is 65 percent.
13 6. Medicare supplement and long-term-care insurance
14 are exempt from the loss ratios described in subparagraphs
15 1.-3. The minimum loss ratios for Medicare supplement
16 insurance must be established in accordance with s. 627.6745.
17 Benefits under long-term-care insurance policies shall be
18 deemed reasonable in relation to premiums provided that the
19 expected loss ratio is at least 60 percent, calculated in a
20 manner that provides for adequate reserving of the
21 long-term-care insurance risk. In evaluating the expected loss
22 ratio, due consideration shall be given to: statistical
23 credibility of incurred claims experience and earned premiums;
24 the period for which rates are computed to provide coverage;
25 experienced and projected trends; the concentration of
26 experience within early policy duration; expected claim
27 fluctuations; experience refunds, adjustments, or dividends;
28 renewability features; all appropriate expense factors;
29 interest; the experimental nature of the coverage; policy
30 reserves; the mix of business by risk classification; and
31 product features such as long elimination periods, high
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1 deductibles, and high maximum limits. Additionally, except to
2 the extent of any conflict with this code, the department
3 shall adopt rules to implement this subsection, and such rules
4 shall include the factors specified in section 17A of the
5 Long-Term Care Model Regulations, as approved by the National
6 Association of Insurance Commissioners in July 1998.
7 7. The anticipated future loss ratio shall be
8 calculated as the present value of anticipated future benefits
9 divided by the present value of future premiums, calculated
10 over the entire period for which the revised rates are
11 computed to provide coverage.
12 8. The lifetime loss ratio shall be calculated as the
13 sum of:
14 a. The accumulated benefits from the original
15 effective date of the form to the effective date of the
16 revision.
17 b. The present value of anticipated future benefits
18 divided by the sum of the accumulated premiums from the
19 original effective date of the form to the effective date of
20 the revision.
21 c. The present value of anticipated future premiums,
22 with future values calculated over the entire period for which
23 the revised rates are computed to provide coverage.
24 9. Interest shall be used in the calculation of
25 accumulated and present values of benefits and premiums.
26 10. The minimum loss ratio for individual contracts
27 and group certificate forms issued, delivered, or issued for
28 delivery in this state prior to June 1, 1994, which were
29 approved by the department prior to February 1, 1994, shall be
30 the loss ratio and loss ratio adjustment formula that was in
31 effect at the time the form was approved.
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1 11. Anticipated loss ratios lower than those required
2 in subparagraph (a)1. or subparagraph (a)2. shall require
3 justification based upon special circumstances that may be
4 applicable, including, but not limited to:
5 a. Accident-only, short-term nonrenewable, specified
6 peril, and other special risks.
7 b. Marketing methods; giving due consideration to
8 acquisition and administration costs and premium mode;
9 extraordinary expenses; high risks of claims fluctuation
10 because of low loss frequency or the catastrophic or
11 experimental nature of the coverage; product features, such as
12 long elimination periods, high deductibles, and high maximum
13 limits; and the industrial or debit method of distribution.
14 (b) Premium rates are not inadequate if the insurer
15 demonstrates, in accordance with generally accepted standards
16 of actuarial practice, that the sum of premium income and
17 investment income, minus the sum of benefit payments,
18 expenses, taxes, and contingency margins, is greater than
19 zero.
20 Section 3. This act shall take effect July 1, 2000.
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1 STATEMENT OF SUBSTANTIAL CHANGES CONTAINED IN
COMMITTEE SUBSTITUTE FOR
2 Senate Bill 1060
3
4 Reinserts current law which states that Medicare supplement
policies are not subject to the loss ratio guaranty provisions
5 unless the department approves it by rule. (The bill applies
the loss ratio guaranty provisions to Medicare supplement
6 policies.)
7 Reinserts current law for the loss ratio guarantee provisions
which state that if an insurer has less than 500 policyholders
8 in the state, the insurer must use its nationwide loss ratio.
Deletes the provisions of the bill which provided, instead,
9 that if the insurer has less than 2,000 policyholder years
nationwide, the experience must be accumulated until the end
10 of the calendar year in which 2,000 policyholder years are
obtained.
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Requires that if an insurer is making a rate increase that
12 reduces the original loss ratio established by the company,
the insurer must demonstrate that such reduction is necessary
13 to cover actual increased expenses of the company.
14 The bill authorizes the department to establish procedures for
establishing that a health insurance policy form meets the
15 requirements of s. 627.411(2). The committee substitute adds
that the form must also meet the requirements of s. 627.410
16 which includes other rating requirements related to pooling,
annual rate certifications, and loss ratio calculations.
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Deletes the bill's exemption of long-term care policies from
18 the prohibition against using attained age premium structures.
19 Specifies that guaranteed renewable medical indemnity policies
are subject to a biannual, rather than annual, rate
20 certification (rather than applying this to guaranteed
renewable, and medical indemnity policies.)
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Specifies that the department must adopt rules to implement
22 subsection 627.411(2),F.S.
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