Section 2008.80  Loss Ratio Standards and Refund or Credit of Premium

a)         Loss Ratio Standards.

1)         A Medicare supplement policy form or certificate form shall not be delivered or issued for delivery unless the policy form or certificate form:

A)        Can be expected, as estimated for the entire period for which rates are computed to provide coverage, to return to policyholders and certificateholders in the form of aggregate benefits (not including anticipated refunds or credits) provided under the policy form or certificate form:

i)         At least 75% of the aggregate amount of premiums earned in the case of group policies; or

ii)        At least 65% of the aggregate amount of premiums earned in the case of individual policies.

B)        Is calculated on the basis of incurred claims experience or incurred health care expenses, where coverage is provided by a health maintenance organization on a service rather than reimbursement basis, and on the basis of earned premiums for the period, in accordance with accepted actuarial principles and practices.  Incurred health care expenses where coverage is provided by a health maintenance organization shall not include:

i)          Home office and overhead cost;

ii)         Advertising costs;

iii)        Commissions and other acquisition costs;

iv)        Taxes;

v)         Capital costs;

vi)        Administrative costs; and

vii)       Claims processing costs.

2)         All filings of rates and rating schedules shall be made in compliance with 50 Ill. Adm. Code 916 and shall demonstrate that expected claims in relation to premiums comply with the requirements of this Section when combined with actual experience to date.  Filings of rate revisions shall also demonstrate that the anticipated loss ratio over the entire future period for which the revised rates are computed to provide coverage can be expected to meet the appropriate loss ratio standards.

3)         For purposes of applying subsection (a) and Section 2008.81(d)(2), policies issued as a result of solicitations of individuals through the mails or by mass media advertising (including both print and broadcast advertising) shall be deemed to be individual policies.

4)         For policies issued prior to April 28, 1996, expected claims in relation to premiums shall meet:

A)        The originally filed anticipated loss ratio when combined with the actual experience since inception;

B)        The appropriate loss ratio requirement from subsections (a)(1)(A) and (B) when combined with actual experience beginning April 28, 1996 to date; and

C)        The appropriate loss ratio requirement from subsections (a)(1)(A) and (B) over the entire future period for which the rates are computed to provide coverage.

b)         Refund or Credit Calculation

1)         An issuer shall collect and file with the Director by May 31 of each year the data contained in Appendix S for each type in a standard Medicare supplement benefit plan.

2)         If, on the basis of the experience as reported, the benchmark ratio since inception (ratio 1) exceeds the adjusted experience ratio since inception (ratio 3), then a refund or credit calculation is required.  The refund calculation shall be done on a statewide basis for each type in a standard Medicare supplement benefit plan.  For purposes of the refund or credit calculation, experience on policies issued within the reporting year shall be excluded.

3)         For the purposes of this Section, on policies or certificates issued prior to November 5, 1991, the issuer shall make the refund or credit calculation separately for all individual policies (including all group policies subject to an individual loss ratio standard when issued) combined and all other group policies combined for experience after April 28, 1996.  The first such report shall be due by May 31, 1998.

4)         A refund or credit shall be made only when the benchmark loss ratio exceeds the adjusted experience loss ratio and the amount to be refunded or credited exceeds a de minimis level.  The refund shall include interest from the end of the calendar year to the date of the refund or credit at a rate specified by the Secretary of Health and Human Services, but in no event shall it be less than the average rate of interest for 13-week Treasury notes.  A refund or credit against premiums due shall be made by September 30 following the experience year upon which the refund or credit is based.

c)         Annual Filing of Premium Rates

An issuer of Medicare supplement policies and certificates issued in this State before or after the effective date of this Part shall file annually its rates, rating schedule and supporting documentation including ratios of incurred losses to earned premiums by policy duration for approval by the Director in accordance with the filing requirements and procedures prescribed by the Director.  The supporting documentation shall also demonstrate, in accordance with actuarial standards of practice using reasonable assumptions, that the appropriate loss ratio standards can be expected to be met over the entire period for which rates are computed.  The demonstration shall exclude active life reserves.  An expected third-year loss ratio which is greater than or equal to the applicable percentage shall be demonstrated for policies or certificates in force less than 3 years.

d)         As soon as practicable, but prior to the effective date of revisions in Medicare benefits, every issuer of Medicare supplement policies or certificates in this State shall file with the Department:

1)         Appropriate premium adjustments necessary to produce loss ratios as anticipated for the current premium for the applicable policies or certificates.  The supporting documents necessary to justify the adjustment shall accompany the filing.

2)         An issuer shall make such premium adjustments as are necessary to produce an expected loss ratio under the applicable policy or certificate as will conform with minimum loss ratio standards for Medicare supplement policies and which are expected to result in a loss ratio at least as great as that originally anticipated in the rates used to produce current premiums by the issuer for such Medicare supplement policies or certificates.  No premium adjustment that would modify the loss ratio experience under the policy other than the adjustments described in this subsection (d)(2) shall be made with respect to a policy at any time other than upon its renewal date or anniversary date.

3)         If an issuer fails to make premium adjustments acceptable to the Director, the Director may order premium adjustments, refunds or premium credits deemed necessary to achieve the loss ratio required by this Section.

4)         Any appropriate riders, endorsements or policy forms needed to accomplish the Medicare supplement policy or certificate modifications necessary to eliminate benefit duplications with Medicare.  These riders, endorsements or policy forms shall provide a clear description of the Medicare supplement benefits provided by the policy or certificate.

e)         Public Hearings

The Director may conduct a public hearing to gather information concerning a request by an issuer for an increase in a rate for a policy form or certificate form issued before or after the effective date of this Part if the experience of the form for the previous reporting period is not in compliance with the applicable loss ratio standard.  The determination of compliance is made without consideration of any refund or credit for the reporting period.

(Source:  Amended at 42 Ill. Reg. 21625, effective November 26, 2018)