New York State seal

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.