New York State seal

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

p class="tright"$ 550

$ 6,600

 

12

Monthly

p class="tright"$ 850

$ 10,200

 

13

Quarterly

p class="tright"$ 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