June 23, 1982

SUBJECT: INSURANCE

CIRCULAR Letter No. 20

TO: ALL INSURERS, OTHER THAN ARTICLE IX-C CORPORATIONS, LICENSED TO WRITE ACCIDENT AND HEALTH INSURANCE

SUBJECT: ACCIDENT AND HEALTH INSURANCE CONVERSION POLICIES

Chapter 438, Laws of 1981, which amended Section 162, New York Insurance Law, takes effect July 1, 1982, and mandates new benefit levels for basic hospital and surgical and major medical conversion policies.

To assist insurers in their compliance with the amended law, this Circular Letter sets forth guidelines to be followed by insurers for conversion policies. These guidelines relate to (1) Policy Form Approval and Benefit Design, (2) Overinsurance Standards, and (3) Premium Rates for the new benefit levels. Guidelines for premium rates applicable to policies under the 1975 benefit levels are also set forth.

1. Policy Form Approval and Benefit Design

a) The minimum standards for a major medical conversion policy are set forth in subsections 5 and 8 of Section 162, and Sections 52.7, 52.54(a) and all other applicable requirements of Department Regulation 62.

b) Insurers may design their major medical policy to follow the major medical expense benefit, exclusion, restriction and limitation provisions set forth in Appendices A and B of Circular Letter No. 18 (1975), as modified by Circular Letter No. 10 (1976), so long as such provisions are not less favorable than, and are consistent with, the Insurance Law, Regulation 62, and other Department requirements. For insurers choosing to follow Appendix A of Circular Letter No. 18 (1975), please note: 1) The policy should not include a deductible provision which would permit charges to be included in the deductible which were incurred in a period prior to a 90-day period in the preceding year; 2) The Benefit Period provision cannot be followed verbatim. In particular, the sentence in the Benefit Period provision indicating that the benefit period will terminate at the end of the calendar year in which was incurred the first covered expense in excess of the deductible is inappropriate for an "all cause" policy that permits a "90-day roll-over" from the preceding calendar year.

c) At the insurer's option, it may elect to offer either or both of the major medical plans described in Section 162.8.

d) Previously-approved hospital and surgical and major medical conversion policies can continue to be used on or after July 1, 1982, if they comply with subsections 5, 7 and 8 of Section 162, and Sections 52.7, 52.54(a) and all other applicable requirements of Department Regulation 62.

e) Where an applicant for a conversion policy is entitled to basic coverage and major medical coverage, the insurer may elect to issue separate policies or a single policy, at its option. If, however, the insurer elects to issue separate conversion policies, and if its major medical policy contains a surgical schedule, the surgical schedules of the two policies must be the same and may vary only as to the applicable statutory maximums.

f) If a person insured under a New York group major medical policy applies for conversion when a resident of another state, the insurer must offer conversion to a major medical coverage if the applicant's state of residence has a major medical conversion law. Otherwise, the insurer must offer conversion to its most liberal hospital and surgical plan then being offered for conversions in that state.

g) The conversion privilege required by Chapter 438, Laws of 1981, should be made available under group policies issued to all policyholders recognized under Section 221.2 of the Insurance Law, except a policy-holder defined in paragraph 2(e).

h) Insurers must offer to group major medical convertees one of the statutory major medical plans and, in addition, may voluntarily offer other conversion plans approved by the Superintendent.

i) The surgical schedule to be included in conversion policies may be either the Society of Actuaries schedule published in TSA Volume X, at the maximum stated in the law, or the Regulation 62 schedule, at 1.9 times the statutory maximum.

j) If the policy includes an optional provision for reducing benefits during the first two years of the policy, it must also provide for an appropriate adjustment of premium.

k) Except for increased benefits and premiums, the basic hospital and surgical coverage in Section 162.7, does not differ from that required by previous law.

l) The major medical coverage described in Section 162.8, differs substantially in both benefits and application, from previously required coverage. A sample major medical claim illustration is attached as Appendix A to this Circular Letter. The claim administration procedures outlined in that illustration represent the Department's interpretation of the benefit description contained in the law. It should be noted that:

1) The room and board benefit is to be the lesser of 80% of the hospital's most common semi-private room and board charge or $ 115, in addition to the amount provided under any basic coverage. For example, if the room and board charge was $ 250, the maximum payment for Plan III basic and major medical coverage combined would be $ 230;

2) For surgical coverage under major medical, assuming that the Regulation 62 schedule is used, the maximum covered medical expense is $ 4,750, reflecting a payment of $ 3,800 at 80%, in turn reflecting the use of the 1.9 factor referred to in paragraph (i) above;

3) The $ 2,000 "cap", including deductible and other out of pocket covered medical expenses, must be met by applying the individual room and board and surgical limitations described above. In other words, a maximum of (20% x $ 143.75) per day for Room and Board could be applied toward the $ 2,000 limit. For surgical expenses, the amount applied toward the $ 2,000 limit would be the 20% complement of the actual claim payment as described in Appendix A.

m) As stated under previous circular letters, both all cause and each cause major medical plans may be used, with suitable premium adjustments if the all cause plan is used.

n) For the first time, specific recognition in the premium structure for major medical is required for an underlying service type hospital coverage (e.g. Blue Cross) with benefits of 21 days or more. Because of the significantly lower premium, and the importance of maintaining such underlying coverage, insurers may develop an optional policy form, which excludes hospital benefits during the first 21 days of any hospitalization if such underlying coverage is not kept in force. Prominent notice of the nature of the policy and the hospital benefit exclusion must be given on the face of the policy and on each premium notice.

2. Overinsurance Standards

The amended Section 162 contemplates that each insurer may file with the Superintendent its standards for determining overinsurance or duplication of benefits. Standards no less favorable to insureds than the standards in Appendix C are acceptable and any insurer electing to use them should so state in their submission letter. Attention is called to the restrictions set forth in Section 162.5(e), which limits the insurer's right to request information concerning other insurance coverage to the period of the first two years of the policy. An insurer may non-renew the conversion policy for overinsurance only during this two year period and can do so only on the basis of standards of overinsurance on file with the Superintendent.

3. Premium Rates

Rates deemed reasonable for statutory plans are listed in Appendix B. Non-maternity rates in the Appendix were derived as percentages of previously promulgated rates, rather than from first principles. 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. Carriers should note that, depending on the level of underlying coverage, there are now three premium levels for major medical benefits. Attained age premiums are provided as an alternative to level premiums, rather than the previously required preliminary term rates.

Rates for ages 60 and over represent 120% of the net premium referred to in Section 162.6. These rates are fixed until July 1, 1987. The rates for under age 60 are likewise intended to be sufficient until July 1, 1987, however, such rates may be changed earlier if industry-wide experience deviates substantially from the experience projected by the Department.

Carriers will be expected to maintain their group conversion experience separately for each Plan of coverage. For major medical coverage, the experience should be maintained separately for each of the three major medical premium levels. It should be noted, that the premium rates for conversion policies are not intended to be self-supporting.

Premiums set forth in this Circular Letter contemplate coverage of normal out-patient services as covered expenses.

[SIGNATURE]

ALBERT B. LEWIS

Superintendent of Insurance

Appendix A

Sample Major Medical Claim

The sample claim chosen for illustration contains the following charges:

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:

n1 $ 1,437.50 = ($ 115/day) x (10 days)/.8, assuming the hospital's semi-private rate is at least $ 115.

n2 $ 4,687.50 - Minimum of:

a. $ 5,000.00 (charges)

b. $ 4,750.00 - ($ 2,000 Society of Actuaries scheduled amount, assuming a "maximum" procedure) x (1.9, to convert to Reg. 62 schedule)/.8

c. $ 4 587.50 - (75% of $ 5,000 assumed as Reasonable and Customary)/.8

Payment before considering cut-of-pocket limit (o.o.p.) is

($ 8,625.00 - $ 500.00) x .8 = $ 6,500.00

Amount o.o.p. = (covered expenses) - (payment)

$ 8,625.00 - $ 6,500.00

= $ 2,125.00

Therefore, an additional $ 125 is payable, for a total claim payment of $ 6,625.00

II. Major Medical With Basic Plan III Coverage:

n3 ($ 1,500 SOA schedule) x 1.9 - $ 2,850

B. Major Medical:

Since the basic payment is $ 5,100, more than $ 500, the basic payment becomes the deductible.

n4 Assuming the hospital's most common semi-private rate is at least $ 115.00

Amount o.o.p.:

($ 1,437.50 + 1,400.00 + 2,150.00)- $ 3,990.00 = $ 997.50

Therefore, total payment is still $ 3,990.00 under the major medical coverage.

PLAN: I

Increase maternity premiums 13% for Regulation 62 surgical schedule.

PLAN: II

Increase maternity premiums 12% for Regulation 62 surgical schedule.

PLAN: III

Increase maternity premiums 13% for Regulation 62 surgical schedule.

PLAN: Major Medical Supplementing No Basic Plan or Plans I or II

Increase non-maternity premiums 8% for all cause plan. Reduce non-maternity premiums 10% if coverage for private duty nursing, in-hospital psychiatric care, and out-of-hospital drugs are not provided; and there is an inside limit on in-hospital physicians fees.

Increase maternity premiums 12% for Regulation 62 surgical schedule.

 

PLAN: Major Medical Supplementing Basic Plan III or Better

Increase non-maternity premiums 8% for all cause plan. Reduce non-maternity premiums if coverage for private duty nursing, in-hospital psychiatric care, and out-of-hospital drugs are not provided; and there is an inside limit on in-hospital physicians fees.

Increase maternity premiums 4% for Regulation 62 surgical schedules.

PLAN: I

Level

Increase maternity premiums 10% for Regulation 62 surgical schedule.

 

PLAN: II

Increase maternity premiums 10% for Regulation 62 surgical schedule.

PLAN: III

Increase maternity premiums 13% for Regulation 62 surgical schedule.

PLAN: Major Medical Supplementing No Basic Plan or Basic Plans I or II

Increase non-maternity premiums 8% for all cause plan. Reduce non-maternity premiums 10% if coverage for private duty nursing, in-hospital psychiatric care, and out-of-hospital drugs not provided; and there is an inside limit on in-hospital physicians fees.

Increase maternity premiums 17% for Regulation 62 surgical schedule.

PLAN: Major Medical Supplementing Basic Plan III or Better

Increase non-maternity premiums 8% for all cause plan. Reduce non-maternity premiums 10% if coverage for private duty nursing, in-hospital psychiatric care, and out-of-hospital drugs are not provided; and there is an inside limit on in-hospital physicians fees.

Decrease maternity premiums by 16% for Regulation 62 surgical schedule.

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)

Reduce non-maternity premiums 102 if coverage for private duty nursing, in-hospital psychiatric care, and out-of-hospital drugs are not provided; and there is an inside limit on the hospital physicians fees.

Increase maternity premiums 29% for Regulation 62 surgical schedule.

Assumptions for

Maternity, Premiums for Group Conversion Policies

1. Birth frequencies: 1980 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 base plans and a 15% increase was assumed in the first year maternity claim costs for the major medical plan.

4. Average hospital stay for normal delivery: 3.6 days.

5. Average hospital miscellaneous charge as of 1/1/83 for normal delivery: $ 750.

6. Average cost for normal delivery (excluding fees for pre-natal and postnatal cure) as of 1/1/83: $ 800. Average cost for physician's services for prenatal and postnatal care as of 1/1/83: $ 500.

7. 75% loss ratio.

 

Appendix C

Standards for Overinsurance Involving Converted Policies Issued Under Section 162, N.Y. Ins. Law

Definitions. As used in these standards:

1. "health care coverage" means coverage for charges made or services provided for hospital, surgical or medical care, treatment, services or supplies.

2. "converted policy" means any policy or contract issued on exercise of any conversion privilege which has been approved by the applicable governmental agency which regulates insurance as complying with a statute mandating such a privilege to convert terminating health care coverage.

3. "duplicating plan" means any one or more of the following plans which pays benefits or provides services for health care coverage: any other hospital, surgical or medical expense insurance policy, any hospital or medical service subscriber contract, any medical practice or other prepayment plan any other voluntary plan or program whether insured or uninsured, or any other plan or program established to comply with any federal or state law (except Medicaid).

4. "overinsured" means, with respect to any person, that his or her health care coverage under the converted policy and all duplicating plans would be more than the applicable maximum set forth below:

(a) As to hospital room and board expense coverage, $ 10 a day in excess of the average cost of semiprivate accommodations in the area where that person lives;

(b) As to surgical expense coverage, the usual and customary charges made for surgical procedures in the area where that person lives; and

(c) As to major medical expense coverage, another major medical policy other than one providing high deductible catastrophic coverage.

Overinsurance will be determined separately for hospital expense, surgical expense and major medical expense coverage.

Issue Standard. An Insurer may refuse to cover under a converted policy any person or persons who, if so covered at the date of conversion, would be overinsured.

Renewal Standard. An Insurer may refuse to renew an in-force converted policy if . any person or persons covered by it is overinsured, would be overinsured, subject to the following conditions:

1. The Insurer must give the Insured written notice at least 31 days in advance of a renewal date that the Insured may elect, prior to that renewal date, (a) to have such person or persons eliminated from the converted policy's coverage or (b) to have the converted policy terminated or (c) to have the total coverage reduced below the overinsurance standards. If the Insured elects elimination or reduction of benefits, this election or reduction must be evidenced by a rider signed by the Insured and by an appropriate adjustment in premium for the converted policy.

2. The elimination, termination or reduction of coverage will take effect after notice to the Insured and on the first renewal date after such notice in accordance with the provisions of the policy.

3. After the converted policy has been in force for two years, the Insurer can refuse to renew coverage only if: (a) each person whose coverage is to be non-renewed is eligible for Medicare coverage or (b) the governmental agency which regulates insurance in the jurisdiction where the Insured resided on the date of issuance of the converted policy has given advance approval to the non-renewal.