Chapter 501 of the Laws of 1992 Calculating Average Demographic Factors.

February 10, 1993 SUBJECT: INSURANCE Circular Letter No. 3 (1993) TO: ALL INSURERS, INCLUDING ARTICLE 43 CORPORATIONS AND HMOS LICENSED TO WRITE ACCIDENT AND HEALTH INSURANCE IN NEW YORK STATE SUBJECT: CHAPTER 501 OF THE LAWS OF 1992 -- CALCULATING AVERAGE DEMOGRAPHIC FACTORS Regulation No. 146 establishes demographic pools (11 NYCRR 361.3). Insurance policies included in the pools are defined in 11 NYCRR 361.2 (j), (k), (m) and (o). Each carrier which has any pooled insurance policies in force is required to calculate and transmit quarterly to the pool administrator the average demographic factor for each pooled insurance policy form in each pool area in which the carrier has pooled policies in force. The first such calculations are to be performed as of April 1, 1993. (11 NYCRR 361.3(g)). Instructions for these calculations are stated in 11 NYCRR 361.3(c). The purpose of this circular letter is to provide examples of the calculations for an individual health insurance policy form and for a small group health insurance policy form. The examples are attached. Very truly yours, [SIGNATURE] SALVATORE R. CURIALE Superintendent of Insurance Example 1 -- INDIVIDUAL HEALTH INSURANCE POLICY FORM (NOT MEDICARE SUPPLEMENT), IN POOL AREA A Data: Four policies of this form are in force in Pool Area A, as follows: Community Policy/ Subscriber/ Single(S) Premium Community Rated Contract Contractholder/ or Payment Rated Annualized Number Policyholder Sex Age Family(F) Mode Premium Premium 1 John A. M 27 F Monthly $ 300 $ 3,600 2 Mary B. F 54 S Quarterly $ 325 $ 1,300 3 Frank C. M 45 F Annual $ 3,400 $ 3,400 4 Joan D. F 35 F Monthly $ 300 $ 3.600 $ 11,900 CALCULATION OF DEMOGRAPHIC FACTOR Step (1) -- For policy/contract # 1, assign the appropriate age/sex factors from Regulation 146. Policy/Contract Family Claim Premium Number Unit Factor Factor 1 John A. 2.10 2.80 Step (2) -- Add the claim and premium factors for all family units covered by the policy/contract. (N.B. Since this is an individual health insurance policy, it covers only one family unit -- that of John A.) Policy/Contract Total Claim Total Premium Number Factor Factor 1 2.10 2.80 Step (3) -- Divide the total claim factor by the total premium factor to obtain the average factor for that policy/contract. Average Factor for Policy # 1 = 2.10/2.80 = 0.75 Step (4) -- Multiply the average factor by the annualized premium for the policy/contract. 0.75 x 3600 = 2700 Step (5) -- Repeat the calculations in steps 1-4 for each policy/contract in force, and sum the results of Step 4 for all policies/contracts. Average Factor Policy/ Total Total x Contract Claim Premium Claim Premium Average Annualized Annualized Number Factor Factor Factor Factor Factor Premium Premium 1 2.10 2.80 2.10 2.80 0.750 $ 3,600 $ 2,700 2 1.60 1.14 1.60 1.14 1.404 $ 1,300 $ 1,825 3 2.70 2.80 2.70 2.80 0.964 $ 3,400 $ 3,278 4 2.60 2.80 2.60 2.80 0.929 $ 3,600 $ 3,344 TOTAL $ 11,900 $ 11,147 Step (6) -- Divide the sum from Step (5) by the total annualized premium for all policies/contracts in force to yield the average demographic factor. Average demographic factor for this policy form in Pool Area A = $ 11,147/$ 11,900 = .937 EXAMPLE 2 -- SMALL GROUP HEALTH INSURANCE POLICY FORM IN POOL AREA A Data: Three policies of this form are in force in Pool Area A, as follows: Policy/ Subscriber/ Single (S) Contract Contractholder/ or Number Certificateholder Sex Age Family (F) 11 Alan A. M 60 S 11 Bertha B. F 25 F 11 Clara C. F 37 S 12 David D. M 22 S 12 Earl E. M 25 F 12 Frieda F. F 25 S 12 George G. M 45 F 13 Harriet H. F 62 F 13 Irene I. F 27 S Community Policy/ Community Rated Contract Premium Payment Rated Annualized Number Mode Premium Premium 11 Monthly $ 550 $ 6,600 12 Monthly $ 850 $ 10,200 13 Quarterly $ 1,250 $ 5,000 $ 21,800 CALCULATION OF DEMOGRAPHIC FACTORS Step (1) -- For policy/contract # 11, assign the appropriate age/sex factors from Regulation 146. Policy/ Contract Family Claim Premium Number Unit Factor Factor 11 Alan A. 2.36 1.14 11 Bertha B. 2.10 2.80 11 Clara C. 1.21 1.14 Step (2) -- Add the claim and premium factors for all family units covered by the policy/contract. Policy/Contract Total Claim Total Premium Number Factor Factor 11 5.67 5.08 Step (3) -- Divide the total claim factor by the total premium factor to obtain the average for that policy/contract. Average Factor for policy No. 11 = 5.67/5.08 = 1.116 Step (4) -- Multiply the average factor by the annualized premium for the policy/contract. 1.116 x $ 6,600 = $ 7,366 Step (5) -- Repeat the calculations in steps (1) - (4) for each policy/contract in force, and sum the results of step 4 for all policies/contracts. Policy/ Total Total Contract Claim Premium Claim Premium Number Factor Factor Factor Factor 11 Alan A. 2.36 1.14 Bertha B. 2.10 2.80 Clara C. 1.21 1.14 5.67 5.08 12 David D. 0.54 1.14 Earl E. 2.10 2.80 Frieda F. 1.06 1.14 George G. 2.70 2.80 6.40 7.88 13 Harriet H. 4.20 2.80 Irene I. 1.06 1.14 5.26 3.94 TOTAL Average Policy/ Factor x Contract Average Annualized Annualized Number Factor Premium Premium 11 Alan A. Bertha B. Clara C. 1.116 $ 6,600 $ 7,366 12 David D. Earl E. Frieda F. George G. 0.812 $ 10,200 $ 8,282 13 Harriet H. Irene I. 1.335 $ 5.000 $ 6.675 TOTAL $ 21,800 $ 22,323 Step (6) -- Divide the sum from step (5) by the total annualized premium for all policies/contracts in force to yield the average demographic factor. Average demographic factor for this policy form in Pool Area A = $ 22,323/21,800 = 1.024