Accident and health insurance statutory conversion coverage.

July 1, 1986 SUBJECT: INSURANCE Circular Letter No. 9 TO: ALL INSURERS, OTHER THAN ARTICLE 43 CORPORATIONS, LICENSED TO WRITE ACCIDENT AND HEALTH INSURANCE SUBJECT: ACCIDENT AND HEALTH INSURANCE STATUTORY CONVERSION COVERAGE Chapter 268 of the Laws of 1985, which amended Section 3221 of the New York Insurance Law, takes effect. July 1, 1986 and mandates new benefit levels for basic hospital and surgical and major medical conversion policies and/or certificates. To assist insurers in their compliance with the amended law, this Circular Letter sets forth premium rates for the new benefit levels and guidelines for their implementation. In general, guidelines for policy form approval, benefit design and overinsurance standards remain in effect as set forth in Circular Letter No. 20 (1982). Please note, however, that Chapter 367 of the Laws of 1984 recodified the Insurance Law so that statutory Sections 162 and 221, mentioned in Circular Letter No. 20 (1982), have been renumbered as Sections 3221 and 4235 respectively. In addition, Chapter 869 of the Laws of 1984 amended the Insurance Law to permit, at the insurer's option, the offering of conversion coverage through a group policy and certificate mechanism. A sample major medical claim illustration is attached as Appendix A to this Circular Letter. This illustration reflects the new benefit levels as enacted under Chapter 268. However, the claim administration procedures outlined in this illustration remain consistent with those in Circular Letter No. 20 (1982). Rates deemed reasonable for the new Plans required by Chapter 268 of the Laws of 1985 are listed in Appendix B. Graduations and other rate structures not listed will be considered for approval by the Department, provided the bases for such variations are consistent with the promulgated rates. Premium rates for policies issued in accordance with previously enacted conversion statutes will not be changed at this time. New premium rates will be considered for adoption in 1987 if justified by credible experience submitted by the industry. Rates for ages 60 and over represent 120% of the net premium referred to in Section 3221(f). These rates are fixed until July 1, 1991. The rates for under age 60 are likewise intended to be sufficient until July 1, 1991 unless credible experience indicates otherwise. As was required by Circular Letter No. 20 (1982), carriers are expected to maintain their group conversion experience separately for each Plan of coverage (i.e. for each of the three basic Plans and for each of the three major medical premium levels). In collecting this experience, incurred claims should be separated into paid and reserve components. It should be noted that as with previously promulgated Plans the premium rates are not intended to be self-supporting. Premium rates set forth in this Circular Letter contemplate coverage of [ILLEGIBLE WORD]rmal out-patient services as covered expenses. Very truly yours, [SIGNATURE] JAMES P. CORCORAN Superintendent of Insurance Appendix A Sample Major Medical Claim The sample claim chosen for illustration contains the following charges: Amount 1. Room and Board $ 440 per day for 10 days $ 4,400.00 2. Miscellaneous $ 3,900.00 3. Surgical Procedure $ 6,200.00 I. Major Medical Without Basic Coverage Since the statute allows limits to the amount payable under Surgical and Room and Board, rather than limits on Covered Expenses, an equivalent amount of covered charges must be deduced. In both cases, "equivalent covered charges" equals the payment divided by 0.8. The calculations resulting from this interpretation are: Charges Covered Expenses R & B $ 4,400.00 $ 2,250.00 n1 Misc. 3,900.00 3,900.00 Surg. 6,200.00 5,812.50 n2 $ 14,500.00 $ 11,962.50 Payment before considering out-of-pocket limit (o.o.p.) is ($ 11,962.50 - $ 500.00) x .8 = $ 9,170.00 Amount o.o.p. = (covered expenses) - (payment) = $ 11,962.50 - $ 9,170.00 = $ 2,792.50 Therefore, an additional $ 792.50 is payable, for a total claim payment of $ 9,962.50. II. Major Medical With Basic Plan III Coverage: A. Plan III pays: Payment 1. R & B of $ 180 x 10 $ 1,800.00 2. Miscellaneous 1,800.00 3. Surgical 3,610.00 n3 Total $ 7,210.00 B. Major Medical: Since the basic payment is $ 7,210, which exceeds $ 500, the basic payment becomes the deductible. Covered Charges Payment 1. Room and Board: The minimum of: a. ($ 440-$ 180) x 10 = $ 2,600.00 b. $ 180 x 10/.8 = $ 2,250.00 $ 1,800.00 n4 c. (hospital's semi-private rate) x 10/.8 2. Misc.: ($ 3,900-$ 1,800) = $ 2,100.00 1,680.00 3. Surg.: The minimum of: a. ($ 6,200-$ 3,610) = $ 2,590.00 2,072.00 b. $ 2,500 x 1.9/.8 = $ 5,937.50 c. (75% of R & C)/.8 = $ 5,812.50 $ 5,552.00 Amount o.o.p.: ($ 2,250.00 + $ 2,100.00 + $ 2,590.00) - $ 5,552.00 = $ 1,388.00 Therefore, total payment is still $ 5,552.00 under the major medical [ILLEGIBLE WORD]verage. n1 $ 2,250.00 = ($ 180/day) x (10 days)/.8, assuming the hospital's semi-private rate is at least $ 180. n2 $ 5,812.50 = Minimum of: a. $ 6,200.00 (charges) b. $ 5,937.50 = ($ 2,500 Society of Actuaries scheduled amount, assuming a "maximum" procedure) x (1.9, to convert to Reg. 62 schedule)/.8 c. $ 5,812.50 = (75% of $ 6,200 assumed as Reasonable and Customary)/.8 n3 ($ 1,900 SOA schedule) x 1.9 =$ 3,610 n4 Assuming the hospital's most common semi-private rate is at least $ 180.00 APPENDIX B Table of Contents Table of Contents Revised Gross Annual Premiums for Forms Under the Law On or After July 1, 1986: Basic Plan I B-2 Basic Plan II B-3 Basic Plan III B-4 Major Medical Plan Supplementing No Basic Plan or Basic Plans I or II B-5 Major Medical Plan Supplementing Basic Plan III or Better B-6 Major Medical Plan Supplementing a Hospital Service Plan B-7 Assumptions for Maternity Premiums for Group Conversion Policies B-8 B-2 GROSS ANNUAL PREMIUMS FOR FORMS UNDER THE LAW ON OR AFTER JULY 1, 1986 BASIC PLAN: I ATTAINED AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Unmarried Inception Immediate Inception Immediate Basis Basis Basis Basis (as increment (as increment in 1st year) in 1st year) < 25 169 248 240 60 50 13 25-29 169 268 240 60 46 11 30-34 175 314 150 38 30 8 35-39 205 350 41 10 12 3 40-44 251 413 6 2 3 1 45-49 301 426 0 0 0 0 50-54 360 423 0 0 0 0 55-59 393 383 0 0 0 0 60-64 456 387 0 0 0 0 [ILLEGIBLE MALE RATE FEMALE RATE WORDS]UE AGE Non- Maternity Maternity Married Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual < 25 182 278 213 60 13 25-29 185 307 168 60 13 30-34 215 350 85 38 8 35-39 251 387 21 10 2 40-44 301 420 2 2 0 45-49 350 426 0 0 0 50-54 410 426 0 0 0 55-59 433 397 0 0 0 60-64 456 387 0 0 0 [ILLEGIBLEWORDS]UE AGE FEMALE RATE Maternity Unmarried Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual < 25 43 13 3 25-29 33 11 3 30-34 19 8 2 35-39 7 3 1 40-44 1 1 0 45-49 0 0 0 50-54 0 0 0 55-59 0 0 0 60-64 0 0 0 Non-Maternity Maternity Inception Immediate Basis Basis (as increment) 1st yr. Level Only OR Annual CHILDREN (one or more) 225 11 3 1 Increase maternity premiums 9% for Regulation 62 surgical schedule. BASIC PLAN: II ATTAINED AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Unmarried Inception Immediate Inception Immediate Basis Basis Basis Basis (as increment (as increment in 1st year) in 1st year) < 25 271 390 414 103 86 22 25-29 271 430 414 103 79 20 30-34 288 512 259 65 52 13 35-39 341 569 71 18 21 5 40-44 417 674 10 3 5 1 45-49 506 711 0 0 0 0 50-54 612 701 0 0 0 0 55-59 668 641 0 0 0 0 60-64 784 648 0 0 0 0 ISSUE AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual <25 294 446 367 103 23 25-29 304 503 290 103 23 30-34 350 572 147 65 14 35-39 420 635 37 18 4 40-44 499 698 4 3 1 45-49 588 707 0 0 0 50-54 691 711 0 0 0 55-59 731 661 0 0 0 60-64 784 648 0 0 0 ISSUE AGE FEMALE RATE Maternity Unmarried Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual <25 74 22 5 25-29 57 20 4 30-34 32 13 3 35-39 12 5 1 40-44 2 1 0 45-49 0 0 0 50-54 0 0 0 55-59 0 0 0 60-64 0 0 0 Non-Maternity Maternity Inception Immediate Basis Basis (as increment) 1st yr. Level Only OR Annual CHILDREN (one or more) 337 18 5 1 Increase maternity premiums 8% for Regulation 62 surgical schedule. BASIC PLAN: III ATTAINED AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Unmarried Inception Immediate Inception Immediate Basis Basis Basis Basis (as increment (as increment in 1st year) in 1st year) < 25 370 526 542 136 113 28 25-29 370 582 542 136 103 26 30-34 397 707 340 85 69 17 35-39 469 784 93 23 28 7 40-44 582 936 14 3 7 2 45-49 704 982 0 0 0 0 50-54 863 979 0 0 0 0 55-59 952 899 0 0 0 0 60-64 1137 906 0 0 0 0 ISSUE AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual < 25 403 602 481 136 30 25-29 420 688 380 136 30 30-34 486 784 193 85 19 35-39 585 876 48 23 5 40-44 701 965 5 3 1 45-49 836 985 0 0 0 50-54 988 995 0 0 0 55-59 1051 926 0 0 0 60-64 1137 906 0 0 0 ISSUE AGE FEMALE RATE Maternity Unmarried Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual < 25 97 28 6 25-29 75 26 6 30-34 42 17 4 35-39 15 7 2 40-44 3 2 0 45-49 0 0 0 50-54 0 0 0 55-59 0 0 0 60-64 0 0 0 Non-Maternity Maternity Inception Immediate Basis Basis (as increment) 1st yr. Level Only OR Annual CHILDREN (one or more) 440 24 6 1 Increase maternity premiums 10% for Regulation 62 surgical schedule. B-5 PLAN: Major Medical Supplementing No Basic Plan or Basic Plans I or II ATTAINED AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Unmarried Inception Immediate Inception Immediate Basis Basis Basis Basis (as increment (as increment in 1st year) in 1st year) < 25 602 782 538 81 112 17 25-29 642 1042 538 81 102 15 30-34 778 1276 337 51 68 10 35-39 1021 1554 92 14 27 4 40-44 1156 1773 14 2 7 1 45-49 1429 2104 0 0 0 0 50-54 1720 2249 0 0 0 0 55-59 2368 2461 0 0 0 0 60-64 2524 2524 0 0 0 0 ISSUE AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual < 25 678 999 477 81 18 25-29 784 1250 377 81 18 30-34 969 1497 191 51 11 35-39 1184 1822 48 14 3 40-44 1399 1988 5 2 0 45-49 1698 2218 0 0 0 50-54 2058 2361 0 0 0 55-59 2433 2487 0 0 0 60-64 2524 2524 0 0 0 ISSUE AGE FEMALE RATE Maternity Unmarried Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual < 25 96 17 4 25-29 74 15 3 30-34 42 10 2 35-39 15 4 1 40-44 3 1 0 45-49 0 0 0 50-54 0 0 0 55-59 0 0 0 60-64 0 0 0 Non-Maternity Maternity Inception Immediate Basis Basis (as increment) 1st yr. Level Only OR Annual CHILDREN (one or more) 422 24 4 1 Increase non-maternity premiums 8% for all-cause plan. Reduce non-maternity premiums 6% if coverage for private-duty nursing and in-hospital psychiatric care is not provided, and j there is an inside limit on in-hospital physicians fees. Increase maternity premiums 13% for Regulation 62 surgical schedule. B-6 PLAN: Major Medical Supplementing Basic Plan III or Better ATTAINED AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Unmarried Inception Immediate Inception Immediate Basis Basis Basis Basis (as (as increment increment in 1st year) in 1st year) < 25 398 564 340 51 71 11 25-29 425 714 340 51 65 10 30-34 545 911 213 32 43 6 [ILLEGIBLE 716 1050 58 9 17 3 WORDS]-39 [ILLEGIBLE 760 1200 9 1 4 1 WORDS]-44 [ILLEGIBLE 850 1375 0 0 0 0 WORDS]-49 [ILLEGIBLE 999 1524 0 0 0 0 WORDS]-54 [ILLEGIBLE 1440 1708 0 0 0 0 WORDS]-59 [ILLEGIBLE 1465 1772 0 0 0 0 WORDS]-64 ISSUE AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual [ILLEGIBLE WORDS]25 453 700 301 51 11 [ILLEGIBLE WORDS]-29 532 864 238 51 11 [ILLEGIBLE WORDS]-34 660 1033 120 32 7 [ILLEGIBLE WORDS]-39 779 1179 30 9 2 [ILLEGIBLE WORDS]-44 865 1333 3 1 0 [ILLEGIBLE WORDS]-49 1004 1487 0 0 0 50-54 1218 1623 0 0 0 55-59 1450 1735 0 0 0 60-64 1465 1772 0 0 0 ISSUE AGE FEMALE RATE Maternity Unmarried Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual [ILLEGIBLE WORDS]25 61 11 2 [ILLEGIBLE WORDS]-29 47 10 2 [ILLEGIBLE WORDS]-34 27 6 1 [ILLEGIBLE WORDS]-39 9 3 1 [ILLEGIBLE WORDS]-44 2 1 0 [ILLEGIBLE WORDS]-49 0 0 0 50-54 0 0 0 55-59 0 0 0 60-64 0 0 0 Non-Maternity Maternity Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual CHILDREN (one or more) 287 15 2 1 Increase non-maternity premiums 8% for all-cause plan. Reduce non-maternity prem[ILLEGIBLE WORDS] if coverage for private-duty nursing and in-hospital psychiatric care is not provided, an if there is an inside limit on in-hospital physicians fees. Decrease maternity premiums 12% for Regulation 62 surgical schedule. B-7 PLAN: Major Medical Supplementing a Hospital Service Plan Covering 21 Days or More (An additional 8% has been included in the non-maternity premiums for this all-cause plan) ATTAINED AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Unmarried Inception Immediate Inception Immediate Basis Basis Basis Basis (as increment (as increment in 1st year) in 1st year) < 25 267 375 241 36 50 8 25-29 285 481 241 36 46 7 30-34 365 599 151 23 31 5 35-39 480 717 41 6 12 2 40-44 497 835 6 1 3 0 45-49 569 921 0 0 0 0 50-54 669 1021 0 0 0 0 55-59 939 1124 0 0 0 0 60-64 1003 1151 0 0 0 0 ISSUE AGE MALE RATE FEMALE RATE Non- Maternity Maternity Married Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual < 25 303 468 214 36 8 25-29 355 580 169 36 8 30-34 440 695 86 23 5 35-39 518 806 21 6 1 40-44 573 906 2 1 0 45-49 670 992 0 0 0 50-54 810 1075 0 0 0 55-59 966 1135 0 0 0 60-64 1003 1151 0 0 0 ISSUE AGE FEMALE RATE Maternity Unmarried Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual < 25 43 8 [ILLEGIBLE WORDS] 25-29 33 7 [ILLEGIBLE WORDS] 30-34 19 5 1 35-39 7 2 0 40-44 1 0 0 45-49 0 0 0 50-54 0 0 0 55-59 0 0 0 60-64 0 0 0 Non-Maternity Maternity Inception Immediate Basis Basis (as increment) 1st yr. Level only OR Annual CHILDREN (one or more) 197 12 2 1 Reduce non-maternity premiums 8% for per-cause plan. Reduce non-maternity premiums 6% i coverage for private-duty nursing and in-hospital psychiatric care is not provided, and if there is an inside limit on in-hospital physicians fees. Increase maternity premiums 28% for Regulation 62 surgical schedule. Assumptions for Maternity Premiums For Group Conversion Policies 1. Birth frequencies: 1983 live birth rate per female in New York State excluding New York City. 2. Unmarried frequencies were increased 10% to cover situations where actual marital status is unknown or where it changes from unmarried to married. 3. No anti-selection was assumed except in the first year for immediate maternity coverage. A 25% increase was assumed in the first-year maternity claim costs for the basic plans and a 15% increase was assumed in the first-year maternity claim costs for the major medical plans. 4. Average hospital stay for normal delivery: 3.6 days. 5. Average hospital miscellaneous charge as of 1/1/90 for normal delivery: $ 1,450. 6. Average cost for normal delivery (excluding fees for prenatal and postnatal care) as of 1/1/90: $ 1,050. Average cost for physician's services for prenatal and postnatal care as of 1/1/90: $ 650. 7. 75% loss ratio.