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:

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:

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:

B. Major Medical:

Since the basic payment is $ 7,210, which exceeds $ 500, the basic payment becomes the deductible.

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

B-2

GROSS ANNUAL PREMIUMS FOR FORMS UNDER THE LAW ON OR AFTER JULY 1, 1986

BASIC PLAN: I

Increase maternity premiums 9% for Regulation 62 surgical schedule.

Increase maternity premiums 8% for Regulation 62 surgical schedule.

Increase maternity premiums 10% for Regulation 62 surgical schedule.

B-5

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 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)

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.