CERTIFYING MINIMUM LOSS RATIO (“MLR”) COMPLIANCE FOR A PLAN WITH VARIABLE BENEFIT OPTIONS; COMPLIANC

STATE OF NEW MEXICO OFFICE OF SUPERINTENDENT OF INSURANCE SUPERINTENDENT OF INSURANCE Russell Toal DEPUTY SUPERINTENDENT Jennifer A. Catechis Main Office: 1120 Paseo de Peralta, Room 428, Santa Fe, NM 87501 Satellite Office: 6200 Uptown Blvd NE, Suite 400, Albuquerque, NM 87110 Main Phone: (505) 827-4601 | Satellite Phone: (505) 322-2186 | Toll Free: (855) 4 - ASK - OSI www.osi.state.nm.us BULLETIN 2021-011 July 8, 2021 TO: EVERY INSURER WHO INTENDS TO OFFER AN EXCEPTED BENEFITS PLAN SUBJECT TO RULE 13.10.34 NMAC RE: CERTIFYING MINIMUM LOSS RATIO (“MLR”) COMPLIANCE FOR A PLAN WITH VARIABLE BENEFIT OPTIONS; COMPLIANCE EXTENSION; OVERINSURANCE; OTHER FIXED INDEMNITY The New Mexico Office of Superintendent of Insurance (“OSI”) has been asked to approve numerous excepted benefit plans that do not comply with Rule 13.10.34 NMAC. This bulletin identifies the frequently encountered benefit design and compliance errors. Because it may not be possible for filers to modify proposed filings, or correct previous filings, consistent with the new rules and this guidance by the current compliance deadline, the OSI plans to revise the Rule to allow issuers to continue marketing previously approved excepted benefit forms until October 1, 2022. Variable MLR: Rule 13.10.34.18(D) NMAC provides that a subject excepted benefits plan “shall not include variable options for plan scope or benefit levels unless each possible combination of benefits under the plan form meets the MLR requirements specified in this rule.” Rule 13.10.34.15(C) NMAC prohibits the sale of an excepted benefits plan unless the Superintendent approves the rates. Because Rule 13.10.34.18(D) NMAC requires each benefit combination available under a variable plan to meet the specified MLR requirements, each possible benefit combination must be described and supported in the rate portion of the filing so that it can be actuarially evaluated. One of the critical variables in the MLR calculation is average premium. Variable plans should have variable rates or premiums. That is, the rate for different combinations of benefit types and levels B U L L E T I N 2 0 2 1 - 0 1 1 P a g e | 2 Main Office: 1120 Paseo de Peralta, Room 428, Santa Fe, NM 87501 Satellite Office: 6200 Uptown Blvd NE, Suite 400, Albuquerque, NM 87110 Main Phone: (505) 827-4601 | Satellite Phone: (505) 322-2186 | Toll Free: (855) 4 - ASK - OSI www.osi.state.nm.us should differ based on rating or risk factors other than purchaser demographics. If rates do not vary depending on the selected benefit types and levels, the rates may impermissibly result in cross-subsidization, which is both discriminatory and unreasonable. In any such case, the rates could not be approved by OSI. When premium varies depending on the benefit combination selected by an insured, the average premium for that benefit combination must be used in the MLR calculation. It is not appropriate or authorized to use average premium for the plan as a whole considering all benefit combinations. To ensure that filed rates for a variable plan comply with 13.10.34 NMAC, the filer must provide an actuarial memorandum certifying and demonstrating (1) that rates for demographically equivalent persons vary depending on the selection of benefit types and levels, and (2) that, in the application of sound actuarial principals, the proposed rates for each possible benefit combination offered under the plan have been evaluated and meet MLR requirements. A rate filing must reflect the anticipated average annualized premium for each combination of benefits based on distribution of business by all significant criteria having a price difference, such as age, gender, tobacco, and dependent status. For new products, the variable MLR rate filing must include an exhibit showing anticipated loss ratios that demonstrate the minimum loss ratio standard will be met within three years of product launch based on credible experience data sources. See NMAC §13.10.34.15(G)(3). A filer is not required to file actuary work papers to support the certification. However, the Superintendent reserves the right to request such papers if the Superintendent determines that the papers are necessary to evaluate a rate filing. Some filers have asserted that Rule 13.10.34.15 NMAC requires MLR compliance to be determined solely by reference to average premium for a form. That is correct only if rate variations result solely from demographic variations of the purchasers. See Rule 13.10.34.15(E)(4). When rate variation results from both purchaser demographics and variable benefit selection (and associated risk factors), MLR compliance must be determined under the more specific requirements of Rule 13.10.34.18(D). The Superintendent recognizes that it may be administratively burdensome for some filers to perform the required actuarial analysis. Nevertheless, the Superintendent is charged with ensuring that rates are non-discriminatory and reasonable. The required MLR calculations ensure B U L L E T I N 2 0 2 1 - 0 1 1 P a g e | 3 Main Office: 1120 Paseo de Peralta, Room 428, Santa Fe, NM 87501 Satellite Office: 6200 Uptown Blvd NE, Suite 400, Albuquerque, NM 87110 Main Phone: (505) 827-4601 | Satellite Phone: (505) 322-2186 | Toll Free: (855) 4 - ASK - OSI www.osi.state.nm.us that no policyholder pays a premium that subsidizes the risk of any other policyholder, and that coverage benefits are reasonable in relation to the premium. Specified Disease Over-insurance: Rule 13.10.34.13(F) provides that “[n]o carrier shall sell a covered person more than four individual specified disease plans, and no two plans shall provide benefits for the same disease.” As used in this rule, the term “individual” refers to the covered specified disease, not to the nature of the plan, i.e., individual as opposed to group coverage. This rule was intended to ensure that no individual could be insured for more than four specified diseases under one or more policies issued by a single carrier. That limitation, in turn, was intended to prevent an individual from confusing the benefits available under a specified disease plan with those available under major medical coverage. The limitation also was designed to prevent the substitution of a broad array of specified disease coverages, combining that coverage with accident-only and hospital indemnity plans, for major medical coverage. Thus, to clarify, a specified disease plan, or any combination of specified disease plans purchased from the same carrier, may not provide coverage for more than four specified diseases. Pursuant to Rule 13.10.34.13(A), a specified disease plan must provide benefits for the diagnosis and treatment of a specifically named disease or diseases that are life threatening in nature and could cause a person to incur substantial financial out of pocket expenses. This rule allows a specified disease plan to condition coverage on a triggering diagnosis. This rule does not allow coverage to be triggered based on the type of treatment. For example, a specified disease plan can condition coverage on a diagnosis of “renal failure”. However, the plan may not condition coverage on “renal transplant” or, more generally, “organ transplant”. This ensures that such a plan will not directly, or by implication, violate the over-insurance rule by providing a benefit for a treatment associated with more than one type of disease. Other Fixed Indemnity: Rule 13.10.34.12 NMAC governs “other fixed indemnity” benefits connected to specified disease and hospital indemnity plans. The rules allow a maximum of five (5) such benefits, and each such benefit must be one of the types identified in Rule 13.10.34.12(D). The rules generally prohibit a specified disease or hospital indemnity plan from including multiple, and often unlimited, benefits that are triggered based on the type of treatment that the policyholder receives to care for a covered specified disease. This limitation ensures that a fixed indemnity specified B U L L E T I N 2 0 2 1 - 0 1 1 P a g e | 4 Main Office: 1120 Paseo de Peralta, Room 428, Santa Fe, NM 87501 Satellite Office: 6200 Uptown Blvd NE, Suite 400, Albuquerque, NM 87110 Main Phone: (505) 827-4601 | Satellite Phone: (505) 322-2186 | Toll Free: (855) 4 - ASK - OSI www.osi.state.nm.us disease or hospital plan is not a “treatment” plan that could be confused with a medical plan providing comprehensive coverage. A plan may offer a selection of other fixed indemnity benefits, but the number of selections must be limited to five. If a plan offers five or fewer other fixed indemnity benefits, and the policyholder cannot pick and choose among the offered benefits, the other benefits need not be provided in a separate rider. If you have questions regarding this Bulletin, please contact Todd Baran at todd.baran@state.nm.us. Thank you for your cooperation. ISSUED this 8th day of July, 2021. ______________________________ RUSSELL TOAL Superintendent of Insurance