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