69O-191.055. Actuarial Memorandum and Definitions

(1)(a) In order for a rate filing to be reviewed properly by the Office, the actuarial memorandum required by subparagraph 69O-191.054(2)(a)2., F.A.C., shall contain the items listed in subsection (2), below, for a new product filing, a rate revision or justification of existing rates.

(b)1. Pricing assumptions shall reflect assumptions based on sound actuarial principles reflecting actual anticipated experience. Pricing assumptions shall be based on the HMO experience to the degree credible.

2. All such items shall be adequately justified by supporting data. In reviewing these assumptions, the Office will use, as an initial point of reference, comparisons of the assumptions with those from similar products of the same HMO, similar products of other HMO’s and independent studies.

3. New forms shall include a rate and benefit comparison to other similar forms of the HMO. The HMO shall demonstrate that the premium rate schedules represent an actuarially sound relationship between the forms and between benefit options within forms.

4. Rate revision filings shall clearly list and justify all rating factors and methods proposed to be changed.

(c) All filings reviewed under rules 69O-191.054 through 69O-191.055, F.A.C., shall be reviewed in accordance with sound actuarial principles and, except where the context plainly does not involve an actuarial determination, all adverbs in these rules such as “properly” and “appropriately” shall be construed in light of those principles.

(2) Note that the numbers preceding the item names refer to the descriptions in subsection (3), below.

(a) Item 1. Scope and Purpose of Filing.

(b) Item 2. Description of Benefits.

(c) Item 3. Morbidity.

(d) Item 4. Retention.

(e) Item 5. Rate Classes.

(f) Item 6. Area Factors.

(g) Item 7. Premium Modalization Rules.

(h) Item 8. Trend Assumption – Medical and Insurance.

(i) Item 9. Minimum Required Loss Ratio for the Form.

(j) Item 10. Anticipated Loss Ratio for the Form.

(k) Item 11. Experience on the Contract Form.

(l) Item 12. History of Rate Adjustments.

(m) Item 13. Number of Subscribers.

(n) Item 14. Proposed Effective Date.

(o) Item 15. Actuarial Certification.

(3) Descriptions.

(a) For new filings, for rate revisions, and for justification of existing rates, the assumptions presented shall be those that are appropriate at the time of the filing.

(b) The descriptions, by item number, of the terms listed above in subsection (2), follow:

1. Scope and Purpose of Filing: This section shall specify whether this is a new filing, a rate revision, or a rate justification, the reason for the revision shall be stated.

2. Description of Benefits: This section shall include a brief description of the benefits provided by the policy, including a schedule of benefits and applicable co-payments.

3. Morbidity: This section shall describe the morbidity basis for the form, including the source or sources used. Any substantive adjustments from either the source or earlier assumptions shall be explained. For new plans or forms, a PMPM (per member per month) development shall be provided. Utilization or claim cost assumption differences from other plans or prior filings shall be explained and justified.

4. Retention: This section shall include a brief description of any expense assumptions used. Components of expenses include, where applicable for the type of contract, per contract and percentage of premium expense for acquisition, maintenance, commissions, contingency, and risk margins. These must be provided separately for each contract year. This section shall provide the reason and basis for any differences in retention between groups issued coverage under the same form.

5. Rate Classes: This section shall state all the attributes upon which the rates vary. Rate classifications may include but not necessarily be limited to age, sex, subscriber type (single, couple or family), industry, effective date, charges or discounts for group size, riders, co-payments, limitations on benefits, retention and any rate guarantees for extended period. This section shall indicate the issue age range of the form.

6. Area Factors: This section shall include a brief description for any area factors used, and an explanation and justification of any changes since the last filing. The area factors and definitions must also be displayed, including a definition of which counties are included in each area. Area factors shall reflect the relative cost differences between the areas.

7. Premium Modalization Rules: This section shall display the modalization factors and fees as applicable. For premium modes other than monthly, the level of the fees and factors shall be adequately justified by supporting data.

8. Trend Assumptions: This section must describe the trend assumptions used in pricing. These assumptions must be appropriate for the specific HMO, product design, benefit configuration, and time period. Any and all factors affecting the projection of future claims must be presented. In no case will trend be approved for rating periods in excess of one year. The trend assumptions shall be presented under two categories: Medical and Insurance.

a. Medical Trend is the combined effect of medical provider price increases, utilization changes, medical cost shifting, and new medical procedures and technology.

b. Insurance Trend is the combined effect of underwriting wearoff, antiselection resulting from rate increases and discontinuance of new sales. Medical Trend must be determined or assumed before insurance trend can be determined.

c. In determining medical trend, the HMO shall use credible data and make appropriate adjustments to claims data to isolate the effects of medical trend only. This shall not include the effects of underwriting wearoff, aging, changes to claim costs due to changes in demographics, contract coverages, geographic distribution, or reinsurance.

d. An HMO without fully credible data may, at its option, use an annual medical trend assumption not to exceed the values in subsection 69O-149.003(7), F.A.C., for the medical trend assumption without providing explicit trend justification.

9. Minimum Required Loss Ratio for the Form: This section shall provide the loss ratio standard for the form as approved in the original or subsequent filing for the form.

10. Anticipated Loss Ratio for the Form:

a. This section shall provide the anticipated loss ratio for the form.

b. For individual contracts, this section shall also include the proposed, if applicable, and the currently approved durational loss ratio tables, i.e., the table of percentages of expected claims divided by expected premiums by contract duration, for the form. For new filings or requests to change the durational table, the actuary shall explain and justify the underwriting impact and the resulting durational loss ratio pattern. Applying pricing persistency and interest assumptions, the durational loss ratio table shall develop the loss ratio standard for the form.

c. The anticipated loss ratio may not be reduced from the loss ratio in the prior approved filing without approval. The target loss ratio for an individual or group policy form may be increased through a justification of the proposed change. The target loss ratio for an individual or group policy form may be reduced upon demonstration and justification of an increase in administrative costs, but may not be reduced to less than the minimum required standard for the policy form in Rule 69O-149.005, F.A.C. The proposed decrease due to administrative costs cannot be more than 0.5% per year.

11. Experience on the Contract Form.

a. Past Experience: This section shall display the actual experience on the form. Experience from inception-to-date (or the last three years for group coverages) shall be displayed. For each calendar year, and for individual contracts each contract year, the following information shall be displayed:

(I) Calendar Year;

(II) Earned premium;

(III) Paid claims, including capitation;

(IV) Paid loss ratio (=III/II);

(V) Change in claim liability and reserve, updating as actual runoff develops;

(VI) Incurred claims (=III+V);

(VII) Incurred loss ratio (=VI/II);

(VIII) Expected claims;

(IX) Expected loss ratio (=VIII/II);

(X) Actual to expected ratio (=VI/VIII or =VII/IX).

b. Future periods:

(I) This section shall be the basis and demonstration that the proposed rate change is in compliance with the standards of this rule.

(II) This section shall provide the anticipated experience over the rating period, and shall provide the method, formulas and assumptions used in determining the projected values from the experience period used.

(III) The experience period shall be the most current available 12-month period. The experience period data used shall be the earned premium restated to the current manual rate basis for the entire experience period, i.e., removing the impact of adjustments to the actual earned premium due to the impact of rate limits, experience rating or retention differences from the target loss ratio and indifferent of the anniversary dates of the underlying contracts. The HMO shall also provide the actual experience over the rating period.

(IV) The HMO shall indicate how the experience period data has been adjusted for large nonrecurring claims, reinsurance recoveries, coordination of benefits and subrogation, benefit changes or other actuarial consideration that affect the determination of anticipated claims.

(V) Alternatively, the HMO may choose to develop the proposed rate without the use of premiums by basing its analysis on projected claim PMPM divided by the target loss ratio.

12. History of Rate Adjustments: This section shall list the approval dates and average percentage rate adjustments in Florida by county or rating region, from inception.

13. Number of Subscribers: This section shall report the number of Florida subscribers who will be affected by the proposed rate revision.

14. Proposed Effective Date: This section shall state the proposed effective date and method of the proposed rate revision implementation. Rate changes may occur only on contract renewal.

15. Actuarial Certification: A signed certification by a qualified actuary that to the best of the actuary’s knowledge and judgment:

a. The rates are neither inadequate nor excessive nor unfairly discriminatory,

b. The rates are appropriate for the classes of risks for which they have been computed,

c. The entire rate filing is in compliance with the applicable laws of the State of Florida and with the rules of the Office of Insurance Regulation, and complies with Actuarial Standard of Practice No. 8, “Regulatory Filings for Rates and Financial Projections for Health Plans,” as adopted by the Actuarial Standards Board, January, 1989, and Actuarial Standard of Practice No. 16 “Actuarial Practice concerning Health Maintenance Organizations and Other Managed-Care Health Plans,” as adopted by the Actuarial Standards Board, July, 1990, which standards are hereby adopted and incorporated by reference. A copy of the standard may be obtained from the Bureau of Life & Health Forms and Rates, Division of Insurer Services, Office of Insurance Regulation, Larson Building, Tallahassee, FL 32399-0328.

d. If the actuary is unable to provide such an opinion, a detailed explanation and reason for any qualification shall be provided as part of the certification.

e. In providing the actuarial opinion and certification, the actuary shall consider actuarial standards of practice and the qualification standards for prescribed statements of actuarial opinion.

(4) Definitions.

(a) Actual to expected ratio:

1. This is the ratio of actual incurred claims divided by expected claims. This is equivalent to the actual loss ratio divided by the expected loss ratio.

2. For projected periods, the actual to expected ratio is the ratio of the projected claims divided by the expected claims.

(b) Anticipated loss ratio: The present value of future benefits divided by the present value of future premiums computed over the entire future lifetime of the contract form. For group insurance, this is over the rating period and alternatively referred to as “target loss ratio.”

(c) Credible Data:

1. If a contract form has 2,000 or more subscribers in force, then full (100%) credibility is given to the experience; if fewer than 500 subscribers are in force, then zero (0%) credibility is given. Linear interpolation is used for in force amounts between 500 and 2,000.

2. For group contract forms, the numbers in this definition refer to group subscribers.

3. Medical trend shall be used for the non-credible portion of the analysis.

(d) Earned premiums: The portion of the total premium paid which is attributable to the period of coverage elapsed. This includes all modal loadings, fees, or charges that are required to be paid for coverage under a contract.

(e) Expected claims:

1. The actual earned premium, or for projected periods the projected premium, times the applicable contract durational loss ratio from the approved durational loss ratio table which was in effect for the time period covered by the premiums. For group contract, the durational loss ratio is the target loss ratio.

2. For group policies, this reflects the aggregation of the actual target loss ratio for the group; i.e., reflecting actual different retention loads by group, and not the assumed aggregate target loss ratio for the form.

(f) Expected loss ratio: This is the ratio of expected claims divided by earned premium.

(g) Group HMO Contract Form: This means any insurance provided by a group master contract issued to any entity.

(h) Group Size: For Group HMO Contract Forms, the group size is the average number of subscribers per employer.

(i) Incurred claims: Incurred claims are claims occurring within a fixed period, whether or not paid during the same period, under the terms of the contract form.

1. Claims include scheduled benefit payments, capitation payments, reimbursement benefit payments, or services provided by a provider or through a provider network for medical, dental, vision, disability, and similar health benefits.

2. Claims do not include state assessments, taxes, HMO expenses, or any expense incurred by the HMO for the cost of adjusting and settling a claim, including the review, qualification, oversight, management or monitoring of a claim or incentives or compensation to providers for other than the provision of health care services.

3. An HMO may, at its discretion, include costs that are demonstrated to reduce claims, such as a fraud intervention program or case management costs, which are identified in each filing, and are demonstrated to reduce claims costs and do not result in increasing the experience period loss ratio by more than 5 percent.

(j) New Policy Form: This means a policy form that is proposed for approval to the Office and has no contracts issued or in force.

(k) Policy Form: This means either a single policy form or any collection of policy forms that have been combined for rating purposes. A collection once combined continues to be combined.

(l) Premium Schedule: This is the collection of rates to be charged, and encompasses base rates and any modifying factors.

(m) Rate Revision: This is any change to be the premium schedule being charged.

(n) Renewal: This is the date 12 months after the original effective date of the contract and each subsequent anniversary period. This does not prevent a group contract purchaser from requesting a specific rating period or change the anniversary date of the contract.

(o) Qualified Actuary: A Qualified Actuary is one who is a member of the Society of Actuaries or the American Academy of Actuaries and who is experienced in the development of rating methodologies for HMO’s.

Rulemaking Authority 641.31, 641.36 FS. Law Implemented 641.22(2), 641.31(2), (3) FS. History–New 10-8-96, Amended 4-20-98, 8-15-02, 1-19-03, Formerly 4-191.055, Amended 1-3-21.