Clarification of Regulation 482-1-116 – Ala. Small Employer Allocation Program

[LOGO] ROBERT BENTLEY GOVERNOR JIM L. RIDLING COMMISSIONER STATE OF ALABAMA DEPARTMENT OF INSURANCE 201 MONROE STREET, SUITE 502 POST OFFICE BOX 303351 MONTGOMERY, ALABAMA 36130-3351 TELEPHONE: (334) 269-3550 FACSIMILE: (334) 241-4192 INTERNET: www.aldoi.gov DEPUTY COMMISSIONER CHARLES M. ANGELL CHIEF EXAMINER RICHARD L. FORD STATE FIRE MARSHAL EDWARD S. PAULK GENERAL COUNSEL REYN NORMAN # BULLETIN NO. 2014-01 TO: Insurers Writing Small Group Health Insurance in Alabama FROM: Jim L. Ridling Commissioner of Insurance JLR DATE: April 17, 2014 RE: Clarification of Regulation 482-1-116 Alabama Small Employer Allocation Program EFFECTIVE: Immediate Regulation 482-1-116 provides requirements for carriers offering small group insurance in Alabama. Beginning in 2014 certain rating rules have been implemented by the United States Department of Health and Human Services. Guidance is being provided to companies on two issues that arise due to this dual regulation. # Age Brackets Ala. Code Section 27-52-21 (a) states the Commissioner of Insurance shall establish conditions consistent with federal regulation and patterned after NAIC models to implement the Alabama Small Allocation Program. Regulation 482-1-116-.05 (a) (2) adopts language from an earlier NAIC model that says age brackets smaller than five-year increments may not be used. This five-year age bracket limitation is being waived for those carriers that wish to use single age brackets as required by federal rules. # Family Composite Premiums Regulation 482-1-116 allows for the use of family composite premiums in the small group market. The use of family composite premiums has been well established in the market place. The use of family composite premiums reduces EQUAL OPPORTUNITY EMPLOYER Bulletin 2014-01 April 17, 2014 Page 2 of 4 administrative burdens for both carriers and small group employers and further it reduces premium instability for employers and employees. Two approved methods are described in and authorized by this bulletin, Method A and Method B. A carrier may use either method, or may file for approval of an alternative method to provide family composite premiums. Alternatively, a carrier may choose to not provide family composite premiums, instead using the filed member level rates, summing the premiums for all members in a small group. Method A is defined as a two tiered approach whereby each adult is charged one premium and each child under age 21 (up to three per family unit) is charged a second premium. The Adult premium is determined by summing the rates for each adult in the group and dividing the sum by the number of adults in the group. The Child premium is the rate for 0-20 age band. These two premiums shall not change due to any change in enrollment until the next renewal date. This calculation is illustrated in the example at the end of this bulletin. Method B is defined as a four tiered approach whereby each employee without dependents is charged one premium, each employee with any number of adult dependents is charged a second premium, each employee with any number of child dependents, all under age 21, is charged a third premium, and each employee with both adult and child dependents is charged a fourth premium. The Employee only premium is determined by summing the rates for each employee and dividing by the number of employees in the group. The Employee plus Adult dependent premium is determined by adding to the Employee only premium the result of the sum of all adult dependent rates divided by the number of employees having an adult dependent. The Employee plus Children dependent premium is determined by adding to the Employee only premium the result of the rate for the 0 to 20 age band times the quotient of the number of children under age 21, (counting only three in a family with more than three children under 21), divided by the number of employees with child dependents. The Employee plus Adult dependent and Children dependent premium is determined by summing the two quantities, a) Employee plus Adult dependent premium and b) Employee plus Children dependent premium, and then subtracting the Employee only premium. These calculations are also illustrated in the example at the end of this bulletin. ## Limitations and Requirements If a carrier uses a family composite method for a product in a market, the carrier must offer the method to all employers within the market for that product. The tiered composite premiums shall not change due to any change in enrollment until the Bulletin 2014-01 April 17, 2014 Page 3 of 4 next renewal date. If all tiers are not represented by the initial census of employees, any such tier not represented shall be established at the beginning of the policy year using a process the carrier shall have filed with the Department. If a carrier is using tobacco adjustment factors, they shall not be incorporated into the composite premiums, but rather shall be applied to each individual employee's tier as appropriate. # Questions concerning this bulletin may be directed to: Steven Ostlund 334-240-4424 steven.ostlund@insurance.alabama.gov # Example Composite Premium Calculations This small group is composed of twenty employees, of whom five have no dependents, five have only adult dependents, five have only children dependents, and five have both adult dependents and children dependents. Columns 7, 8, and 9 of the table provide the premium to be billed to a group with this census under the three methods. Column 7 is derived as the sum of columns 4, 5, and 6 for each employee. Column 8 is derived by summing the adult average premium for each adult in a family plus the children premium (160) for each child up to three in the family. The adult average premium is equal to the totals of columns 4 and 5 divided by the total number of adults in column 1, ((9,184 + 4,460) / 34 = 401). Column 9 is derived by summing the average employee premium plus the average adult dependent premium for each adult dependent in a family plus the average children premium if children are present. The average employee premium is the total of column 4 divided by the number of employees, (9,180 / 20 = 459). The average adult dependent premium is the total of column 5 divided by the number of employees that have an adult dependent, (4,460 / 10 = 446). The average children premium is the total of column 6 divided by the number of employees that have children, (2,560 / 10 = 256). Bulletin 2014-01 April 17, 2014 Page 4 of 4 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Employee | Number of Adults | Number of Children | Employee Premiums | Adult Dependent Premiums | Children Dependent Premiums | Member Level Premiums | Method A Composite Premiums | Method B Composite Premiums | | A | 1 | 0 | 276 | | | 276 | 401 | 459 | | B | 1 | 0 | 508 | | | 508 | 401 | 459 | | C | 1 | 0 | 765 | | | 765 | 401 | 459 | | D | 1 | 0 | 420 | | | 420 | 401 | 459 | | E | 1 | 0 | 577 | | | 577 | 401 | 459 | | F | 2 | 0 | 315 | 276 | | 591 | 802 | 905 | | G | 2 | 0 | 441 | 252 | | 693 | 802 | 905 | | H | 2 | 0 | 545 | 497 | | 1042 | 802 | 905 | | I | 3 | 0 | 495 | 705 | | 1200 | 1,204 | 905 | | J | 2 | 0 | 356 | 276 | | 632 | 802 | 905 | | K | 1 | 1 | 302 | | 160 | 462 | 561 | 715 | | L | 1 | 1 | 404 | | 160 | 564 | 561 | 715 | | M | 1 | 1 | 454 | | 160 | 614 | 561 | 715 | | N | 1 | 7 | 553 | | 480 | 1033 | 881 | 715 | | O | 1 | 2 | 451 | | 320 | 771 | 721 | 715 | | P | 2 | 1 | 398 | 288 | 160 | 846 | 962 | 1,161 | | Q | 3 | 1 | 649 | 601 | 160 | 1410 | 1,364 | 1,161 | | R | 2 | 6 | 447 | 340 | 480 | 1267 | 1,282 | 1,161 | | S | 4 | 2 | 461 | 941 | 320 | 1722 | 1,925 | 1,161 | | T | 2 | 1 | 363 | 284 | 160 | 807 | 962 | 1,161 | | TOTAL | 34 | 23 | 9,180 | 4,460 | 2,560 | 16,200 | 16,200 | 16,200 | Total of column 8 is not equal to the sum of the individual premiums due to rounding. JLR/JFM/bc