House Bill 0397e1
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
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.
12
13 Be It Enacted by the Legislature of the State of Florida:
14
15 Section 1. Subsections (1), (3), (6), (7), and (8) of
16 section 627.410, Florida Statutes, are amended to read:
17 627.410 Filing, approval of forms.--
18 (1) No basic insurance policy or annuity contract
19 form, or application form where written application is
20 required and is to be made a part of the policy or contract,
21 or group certificates issued under a master contract delivered
22 in this state, or printed rider or endorsement form or form of
23 renewal certificate, shall be delivered or issued for delivery
24 in this state, unless the form has been filed with the
25 department at its offices in Tallahassee by or in behalf of
26 the insurer which proposes to use such form and has been
27 approved by the department. This provision does not apply to
28 surety bonds or to policies, riders, endorsements, or forms of
29 unique character which are designed for and used with relation
30 to insurance upon a particular subject (other than as to
31 individual or small group health insurance), or which relate
1
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 to the manner of distribution of benefits or to the
2 reservation of rights and benefits under life or health
3 insurance policies and are used at the request of the
4 individual policyholder, contract holder, or
5 certificateholder. As to group insurance policies effectuated
6 and delivered outside this state but covering persons resident
7 in this state, the group certificates to be delivered or
8 issued for delivery in this state shall be filed with the
9 department for information purposes only.
10 (3) The department may, as specified in s. 627.411(1)
11 for cause, withdraw a previous approval. No insurer shall
12 issue or use any form disapproved by the department, or as to
13 which the department has withdrawn approval, after the
14 effective date of the order of the department.
15 (6)(a) An insurer shall not deliver or issue for
16 delivery or renew in this state any health insurance policy
17 form until it has filed with the department a copy of every
18 applicable rating manual, rating schedule, change in rating
19 manual, and change in rating schedule; if rating manuals and
20 rating schedules are not applicable, the insurer must file
21 with the department applicable premium rates and any change in
22 applicable premium rates. This provision does not apply to
23 rating manuals, rating schedules, changes in rating manuals or
24 schedules, or if rating manuals or schedules are not
25 applicable, to premium rates or changes in such rates,
26 relating to policies, riders, endorsements, or forms of unique
27 character which are designed for and used with relation to
28 insurance upon a particular subject or to benefits under group
29 health insurance policies insuring 51 or more persons and are
30 used at the request of the individual policyholder, contract
31 holder, or certificateholder.
2
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 (b) The department may establish by rule, for each
2 type of health insurance form, procedures to be used in
3 ascertaining that a form meets the standards in this section
4 and in s. 627.411(2) for new rate filings and rate revisions
5 in accordance with generally accepted standards of actuarial
6 practice the reasonableness of benefits in relation to premium
7 rates and may, by rule, exempt from any requirement of
8 paragraph (a) any health insurance policy form or type thereof
9 (as specified in such rule) to which form or type such
10 requirements may not be practically applied or to which form
11 or type the application of such requirements is not desirable
12 or necessary for the protection of the public. With respect to
13 any health insurance policy form or type thereof which is
14 exempted by rule from any requirement of paragraph (a),
15 premium rates filed pursuant to ss. 627.640 and 627.662 shall
16 be for informational purposes.
17 (c) Every filing made pursuant to this subsection
18 shall be made within the same time period provided in, and
19 shall be deemed to be approved under the same conditions as
20 those provided in, subsection (2).
21 (d) Every filing made pursuant to this subsection,
22 except disability income policies and accidental death
23 policies, shall be prohibited from applying the following
24 rating practices:
25 1. Select and ultimate premium schedules.
26 2. Premium class definitions which classify insured
27 based on year of issue or duration since issue.
28 3. Attained age premium structures on policy forms
29 under which more than 50 percent of the policies are issued to
30 persons age 65 or over.
31
3
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 (e) Except as provided in subparagraph 1., an insurer
2 shall continue to make available for purchase any individual
3 policy form issued on or after October 1, 1993. A policy form
4 shall not be considered to be available for purchase unless
5 the insurer has actively offered it for sale in the previous
6 12 months.
7 1. An insurer may discontinue the availability of an
8 individual a policy form if the insurer provides to the
9 department in writing its decision at least 30 days prior to
10 discontinuing the availability of the form of the policy or
11 certificate. After receipt of the notice by the department,
12 the insurer shall no longer offer for sale the policy form or
13 certificate form in this state.
14 2. An insurer that discontinues the availability of a
15 policy form pursuant to subparagraph 1. shall not file for
16 approval a new policy form providing similar benefits as the
17 discontinued form for a period of 5 years after the insurer
18 provides notice to the department of the discontinuance. The
19 period of discontinuance may be reduced if the department
20 determines that a shorter period is appropriate.
21 2.3. The experience of an individual accident and
22 health insurance all policy form that is no longer being
23 marketed in this state, except for policies rated pursuant to
24 a loss ratio guarantee under subsection (8), shall be combined
25 with the experience of at least one other individual accident
26 and health insurance policy form providing similar benefits,
27 as determined by the insurer, which is still being marketed in
28 the state by the same insurer, unless the insurer has no other
29 policy form forms providing similar benefits shall be combined
30 for all rating purposes. For purposes of this section, a form
31
4
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 is considered active if the form has been marketed in this
2 state in the past 6 months.
3 (7)(a) Each insurer subject to the requirements of
4 subsection (6) shall make an annual filing with the department
5 no later than 12 months after its previous filing,
6 establishing compliance with the standards in s. 627.411(2)
7 for each insurance policy form, excluding noncancelable policy
8 forms. For guaranteed renewable medical indemnity, long term
9 care, loss of income, and disability income policy forms, the
10 filing shall be biennial and made no later than 24 months
11 after its previous filing demonstrating the reasonableness of
12 benefits in relation to premium rates. The department, after
13 receiving a request to be exempted from the provisions of this
14 section, may, for good cause due to insignificant numbers of
15 policies in force or insignificant premium volume, exempt a
16 company, by line of coverage, from filing rates or rate
17 certification as required by this section.
18 (b) The filing required by this subsection shall be
19 satisfied by one of the following methods:
20 1. A rate filing prepared by an actuary which contains
21 documentation establishing demonstrating the reasonableness of
22 benefits in relation to premiums charged in accordance with
23 the applicable rating laws and rules promulgated by the
24 department. For premium rate changes, benefits shall be deemed
25 reasonable in relation to premium charged if both of the
26 following loss ratios meet or exceed the standards established
27 in s. 627.411(2).
28 a. The anticipated loss ratio over the entire future
29 period for which the revised rates are computed to provide
30 coverage; and
31
5
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 b. The lifetime anticipated loss ratio derived by
2 dividing the amount determined under sub-sub-subparagraph (I)
3 by the amount determined under sub-sub-subparagraph (II):
4 (I) The sum of the accumulated benefits from the
5 original effective date of the form to the effective date of
6 the revision, and the present value of future benefits.
7 (II) The sum of the accumulated premiums from the
8 original effective date of the form to the effective date of
9 the revision, and the present value of future premiums, which
10 present values shall be taken over the entire period for which
11 the revised rates are computed to provide coverage and which
12 accumulated benefits and premiums shall include an explicit
13 estimate of actual benefits and premiums from the last date an
14 accounting has been made to the effective date of the
15 revision.
16
17 Interest shall be used in the calculation of these accumulated
18 benefits and premiums and present values in the calculation of
19 the loss ratio. For purposes of sub-sub-subparagraph (I), the
20 present value of benefits may, at the insurer's option,
21 include recognition of the policy reserve as a benefit
22 (addition), or the present value of premiums may, at the
23 insurer's option, include recognition of the policy reserve as
24 a deduction. Anticipated loss ratios lower than those
25 indicated in sub-sub-subparagraphs (I) and (II) shall require
26 justification based on special circumstances that may be
27 applicable, including, but not limited to: accident only,
28 short-term nonrenewable, specified peril, and other special
29 risks; marketing methods; giving due consideration to
30 acquistion and administration costs and premium mode;
31 extraordinary expenses; high risk of claims fluctuation
6
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 because of low loss frequency or the catastrophic or
2 experimental nature of the coverage; product features, such as
3 long elimination periods, high deductibles, and high maximum
4 limits; and the industrial or debit method of distribution.
5 2. If no rate change is proposed, a filing which
6 consists of a certification by an actuary that benefits are
7 reasonable in relation to premiums currently charged in
8 accordance with the loss ratio standards established in this
9 section and s. 627.411(2) applicable laws and rules
10 promulgated by the department.
11 3. For premium rate changes for group policy forms,
12 benefits shall be deemed reasonable in relation to premium
13 charged if the anticipated loss ratio over the entire future
14 period for which the revised rates are computed to provide
15 coverage meets or exceeds the standards established in s.
16 627.411(2).
17 4. An insurer may combine the experience of similar
18 policy forms in the required filing.
19 (c) As used in this section, the term "actuary" means
20 an individual who is a member of the Society of Actuaries or
21 the American Academy of Actuaries. If an insurer does not
22 employ or otherwise retain the services of an actuary, the
23 insurer's certification shall be prepared by insurer personnel
24 or consultants with a minimum of 5 years' experience in
25 insurance ratemaking and. The chief executive officer of the
26 insurer shall review and sign the certification indicating his
27 or her agreement with its conclusions.
28 (d) If at the time a filing is required under this
29 section an insurer is in the process of completing a rate
30 review, the insurer may apply to the department for an
31 extension of up to an additional 30 days in which to make the
7
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 filing. The request for extension must be received by the
2 department in its offices in Tallahassee no later than the
3 date the filing is due.
4 (e) If an insurer fails to meet the filing
5 requirements of this subsection and does not submit the filing
6 within 60 days following the date the filing is due, the
7 department may, in addition to any other penalty authorized by
8 law, order the insurer to discontinue the issuance of policies
9 for which the required filing was not made, until such time as
10 the department determines that the required filing is properly
11 submitted.
12 (8)(a) For the purposes of subsections (6) and (7) and
13 s. 627.411, benefits of an individual accident and health
14 insurance policy form, including Medicare supplement policies
15 as defined in s. 627.672, when authorized by rules adopted by
16 the department, and excluding long-term care insurance
17 policies as defined in s. 627.9404, and other policy forms
18 under which more than 50 percent of the policies are issued to
19 individuals age 65 and over, are deemed to comply with the
20 provisions cited in this section to be reasonable in relation
21 to premium rates if the rates are filed pursuant to a loss
22 ratio guarantee and both the initial rates and the durational
23 and lifetime loss ratios have been approved by the department,
24 and such benefits shall continue to be deemed reasonable for
25 renewal rates while the insurer complies with such guarantee,
26 provided the currently expected lifetime loss ratio is not
27 more than 5 percent less than the filed lifetime loss ratio as
28 certified to by an actuary. The department shall have the
29 right to bring an administrative action should it deem that
30 the lifetime loss ratio will not be met. For Medicare
31 supplement filings, the department may withdraw a previously
8
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 approved filing which was made pursuant to a loss ratio
2 guarantee if it determines that the filing is not in
3 compliance with ss. 627.671-627.675 or the currently expected
4 lifetime loss ratio is less than the filed lifetime loss ratio
5 as certified by an actuary in the initial guaranteed loss
6 ratio filing. If this section conflicts with ss.
7 627.671-627.675, ss. 627.671-627.675 shall control.
8 (b) The renewal premium rates shall be deemed to be
9 approved upon filing with the department if the filing is
10 accompanied by the most current approved loss ratio guarantee.
11 The loss ratio guarantee shall be in writing, shall be signed
12 by an officer of the insurer, and shall contain at least:
13 1. A recitation of the anticipated lifetime and
14 durational target loss ratios contained in the actuarial
15 memorandum filed with the policy form when it was originally
16 approved. The durational target loss ratios shall be
17 calculated for 1-year experience periods. If statutory
18 changes have rendered any portion of such actuarial memorandum
19 obsolete, the loss ratio guarantee shall also include an
20 amendment to the actuarial memorandum reflecting current law
21 and containing new lifetime and durational loss ratio targets.
22 2. A guarantee that the applicable loss ratios for the
23 experience period in which the new rates will take effect, and
24 for each experience period thereafter until new rates are
25 filed, will meet the loss ratios referred to in subparagraph
26 1.
27 3. A guarantee that the applicable loss ratio results
28 for the experience period will be independently audited at the
29 insurer's expense. The audit shall be performed in the second
30 calendar quarter of the year following the end of the
31 experience period, and the audited results shall be reported
9
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 to the department no later than the end of such quarter. The
2 department shall establish by rule the minimum information
3 reasonably necessary to be included in the report. The audit
4 shall be done in accordance with accepted accounting and
5 actuarial principles.
6 4. A guarantee that affected policyholders in this
7 state shall be issued a proportional refund, based on the
8 premium earned, of the amount necessary to bring the
9 applicable experience period loss ratio up to the durational
10 target loss ratio referred to in subparagraph 1. The refund
11 shall be made to all policyholders in this state who are
12 insured under the applicable policy form as of the last day of
13 the experience period, except that no refund need be made to a
14 policyholder in an amount less than $10. Refunds less than $10
15 shall be aggregated and paid pro rata to the policyholders
16 receiving refunds. The refund shall include interest at the
17 then-current variable loan interest rate for life insurance
18 policies established by the National Association of Insurance
19 Commissioners, from the end of the experience period until the
20 date of payment. Payments shall be made during the third
21 calendar quarter of the year following the experience period
22 for which a refund is determined to be due. However, no
23 refunds shall be made until 60 days after the filing of the
24 audit report in order that the department has adequate time to
25 review the report.
26 5. A guarantee that if the applicable loss ratio
27 exceeds the durational target loss ratio for that experience
28 period by more than 20 percent, provided there are at least
29 2,000 policyholders on the form nationwide or, if not, then
30 accumulated each calendar year until 2,000 policyholder years
31 is reached, the insurer, if directed by the department, shall
10
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 withdraw the policy form for the purposes of issuing new
2 policies.
3 (c) As used in this subsection:
4 1. "Loss ratio" means the ratio of incurred claims to
5 earned premium.
6 2. "Applicable loss ratio" means the loss ratio
7 attributable solely to this state if there are 2,000 or more
8 policyholders in the state. If there are 500 or more
9 policyholders in this state but less than 2,000, it is the
10 linear interpolation of the nationwide loss ratio and the loss
11 ratio for this state. If there are less than 500
12 policyholders in this state, it is the nationwide loss ratio.
13 3. "Experience period" means the period, ordinarily a
14 calendar year, for which a loss ratio guarantee is calculated.
15 Section 2. Section 627.411, Florida Statutes, is
16 amended to read:
17 627.411 Grounds for Disapproval of forms.--
18 (1) The department shall disapprove any insurance
19 policy form that must be filed under s. 627.410, or withdraw
20 any previous approval thereof, only if the form:
21 (a) Is in any respect in violation of, or does not
22 comply with, this code.
23 (b) Contains or incorporates by reference, where such
24 incorporation is otherwise permissible, any inconsistent,
25 ambiguous, or misleading clauses, or exceptions and conditions
26 which deceptively affect the risk purported to be assumed in
27 the general coverage of the contract.
28 (c) Has any title, heading, or other indication of its
29 provisions which is misleading.
30
31
11
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 (d) Is printed or otherwise reproduced in such manner
2 as to render any material provision of the form substantially
3 illegible.
4 (e)1. Is for health insurance, and provides benefits
5 which are unreasonable in relation to the premium charged as
6 specified in s. 627.411(2); or,
7 2. Contains provisions that constitute unfair
8 discrimination pursuant to s. 626.9541(1)(g), which are unfair
9 or inequitable or contrary to the public policy of this state
10 or that which encourage misrepresentation or which apply
11 rating practices which result in premium escalations that are
12 not viable for the policyholder market or result in unfair
13 discrimination in sales practices.
14 (f) Excludes coverage for human immunodeficiency virus
15 infection or acquired immune deficiency syndrome or contains
16 limitations in the benefits payable, or in the terms or
17 conditions of such contract, for human immunodeficiency virus
18 infection or acquired immune deficiency syndrome which are
19 different than those which apply to any other sickness or
20 medical condition.
21 (2) In determining whether the Benefits are deemed
22 reasonable in relation to the premium charged if premium rates
23 are neither excessive nor inadequate as specified in this
24 subsection., the department, in accordance with reasonable
25 actuarial techniques, shall consider:
26 (a) Past loss experience and prospective loss
27 experience within and without this state.
28 (b) Allocation of expenses.
29 (c) Risk and contingency margins, along with
30 justification of such margins.
31 (d) Acquisition costs.
12
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 (a) Premium rates are not excessive if the insurer
2 demonstrates, in accordance with generally accepted standards
3 of actuarial practice, satisfaction of the following minimum
4 anticipated loss ratios and the original loss ratio for the
5 form established by the company, except that the original loss
6 ratio may be reduced upon a filing and an approval that a
7 reduction to the loss ratio is necessary to cover actual
8 increased expenses of the company:
9 1. Loss ratio table, individual policies for the line
10 of business indicated.
11 a. Medical expenses.
12
13 Renewal clause Loss ratio
14
15 Noncancelable 55 percent
16 Nonrenewable 60 percent
17 Guaranteed renewable 65 percent
18 All others 70 percent
19
20 b. Medical indemnity, loss of income.
21
22 Renewal clause Loss ratio
23
24 Noncancelable 50 percent
25 Nonrenewable 55 percent
26 Guaranteed renewable 60 percent
27 All others 65 percent
28
29 2. Loss ratio table, group policies.
30 a. Group medical expense.
31
13
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1
2 Group size Loss ratio
3
4 Fewer than 51 certificates 65 percent
5 51 through 500 certificates 70 percent
6 All others 75 percent
7
8 b. Group medical indemnity or any group policy with an
9 average annual premium per certificate of less than $1,000.
10
11 Group size Loss ratio
12
13 Fewer than 51 certificates 57.5 percent
14 51 through 500 certificates 62.5 percent
15 All others 67.5 percent
16
17 3. Group conversion insurance, other than
18 long-term-care insurance and Medicare supplement insurance,
19 issued on either a group or an individual basis, shall have a
20 loss ratio of not less than 120 percent, subject to the limits
21 described in s. 627.6675.
22 4. The lifetime loss ratios in subparagraphs 1. and 2.
23 may be adjusted in accordance with the following formula:
24
25 R' = (A - 25I) R/A
26
27 Where:
28 R = the loss ratio from subparagraphs 1. and 2.
29 A = the average annualized premium per individual
30 policy or per group certificate.
31 I = (CPI-U, year N-1)/103.9.
14
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 R' = the adjusted loss ratio.
2
3 R' cannot be more than 10 percentage points less than R nor
4 less than 50 percent, except that R' cannot be less than 45
5 percent as to accident only noncancellable policies. The CPI-U
6 is the consumer price index for all urban consumers, for all
7 items and for all regions of the United States combined, as
8 determined by the United States Department of Labor, Bureau of
9 Labor Statistics as of September of each year. Year N-1 is
10 the calendar year immediately preceding the calendar year N in
11 which the rate filing is submitted in this state.
12 5. Blanket insurance is exempt from the loss ratios
13 described in subparagraphs 1.-3. The minimum loss ratio for
14 blanket insurance is 65 percent.
15 6. Medicare supplement and long-term-care insurance
16 are exempt from the loss ratios described in subparagraphs
17 1.-3. The minimum loss ratios for Medicare supplement
18 insurance must be established in accordance with s. 627.6745.
19 Benefits under long-term care insurance policies shall be
20 deemed reasonable in relation to premiums provided the
21 expected loss ratio is at least 60 percent, calculated in a
22 manner which provides for adequate reserving of the long-term
23 care insurance risk. In evaluating the expected loss ratio,
24 due consideration shall be given to: statistical credibility
25 of incurred claims experience and earned premiums; the period
26 for which rates are computed to provide coverage; experienced
27 and projected trends; the concentration of experience within
28 early policy duration; expected claim fluctuations; experience
29 refunds, adjustments, or dividends; renewability features; all
30 appropriate expense factors; interest; the experimental nature
31 of the coverage; policy reserves; the mix of business by risk
15
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 classification; and product features such as long elimination
2 periods, high deductibles, and high maximum limits.
3 Additionally, except to the extent of any conflict with this
4 code. The department shall adopt rules to implement this
5 subsection, and such rules shall include the factors specified
6 in section 17A of the Long-Term Care Model Regulations, as
7 approved by the National Association of Insurance
8 Commissioners in July 1998.
9 7. The anticipated future loss ratio shall be
10 calculated as the present value of anticipated future benefits
11 divided by the present value of future premiums, calculated
12 over the entire period for which the revised rates are
13 computed to provide coverage.
14 8. The lifetime loss ratio shall be calculated as the
15 sum of:
16 a. The accumulated benefits from the original
17 effective date of the form to the effective date of the
18 revision.
19 b. The present value of anticipated future benefits
20 divided by the sum of the accumulated premiums from the
21 original effective date of the form to the effective date of
22 the revision.
23 c. The present value of anticipated future premiums,
24 with future values calculated over the entire period for which
25 the revised rates are computed to provide coverage.
26 9. Interest shall be used in the calculation of
27 accumulated and present values of benefits and premiums.
28 10. The minimum loss ratio for individual contracts
29 and group certificate forms issued, delivered, or issued for
30 delivery in this state prior to June 1, 1994, that were
31 approved by the department prior to February 1, 1994, shall be
16
CODING: Words stricken are deletions; words underlined are additions.
CS/HB 397, First Engrossed/ntc
1 the loss ratio and loss ratio adjustment formula that was in
2 effect at the time the form was approved.
3 11. Anticipated loss ratios lower than those required
4 in subparagraph (a)1. or subparagraph (a)2. shall require
5 justification based upon special circumstances that may be
6 applicable, including, but not limited to:
7 a. Accident only, short-term nonrenewable, specified
8 peril, and other special risks.
9 b. Marketing methods; giving due consideration to
10 acquisition and administration costs and premium mode;
11 extraordinary expenses; high risks of claims fluctuation
12 because of low loss frequency or the catastrophic or
13 experimental nature of the coverage; product features, such as
14 long elimination periods, high deductibles, and high maximum
15 limits; and the industrial or debit method of distribution.
16 (b) Premium rates are not inadequate if the insurer
17 demonstrates, in accordance with generally accepted standards
18 of actuarial practice, that the sum of premium income and
19 investment income, minus the sum of benefit payments,
20 expenses, taxes, and contingency margins is greater than zero.
21 Section 3. This act shall take effect July 1, 2000.
22
23
24
25
26
27
28
29
30
31
17