DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCE
Small Employer Health Benefits Program
Informational Rate Filing Requirements Pursuant to the Small Employer Health Benefits Program
Proposed New Rule with Amendment: N.J.A.C. 11:21-9.6
Proposed Recodification: N.J.A.C. 11:21-9
Proposed Amendments: N.J.A.C. 11:21-9.2 and 9.3
Authorized By: Donald Bryan, Acting Commissioner, Department of Banking and Insurance
Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17B:27A-25f and g.
Calendar Reference: See Summary below for explanation of exception to calendar requirement.
Proposal Number: PRN 2002-75
Submit comments by April 20, 2002 to:
Karen Garfing, Assistant Commissioner
Department of Banking and Insurance
20 West State Street
P.O. Box 325
Trenton, NJ 08625-0325
(FAX) (609) 292-0896
The agency proposal follows:
N.J.S.A. 17B:27A-25f requires carriers to submit an informational rate filing with the Commissioner prior to issuing or renewing policies, or changing rates, in the Small Employer Health (SEH) market in New Jersey. N.J.A.C. 11:21-9.1 establishes rules for such filings. The proposed amendments provide numerous refinements to these rules on informational SEH rate filings. First, they require that carriers utilize a reduced rate or rating factor when the primary coverage of an employee or spouse is Medicare due to age or disability and that carriers establish the reasonableness of the reduced rate or rating factor. Second, they provide procedures for carriers to use in reporting and correcting errors in SEH rate quotations and calculations. These procedures include the honoring of rates lower than those filed for a limited period, prompt notification and refunding of overcharges and reporting of errors and refunds to the Department. Third, they require carriers to provide a summary of the overall changes in rate levels in an SEH informational rate filing. Finally, they provide minimum requirements with respect to the population that may be utilized in calculating the age and gender factors that are used in rate calculations for prospective and renewing small employer groups.
In the SEH market, carriers are currently permitted, but not required, to offer a reduced rate with respect to an employee or spouse who is enrolled in Medicare and for whom Medicare is the primary payer of health benefits. Such an employee or spouse will be expected to generate lower health claim costs because Medicare will pay health claims first and only the balance of the unpaid claims will be submitted to the small employer’s health carrier for payment. Fairness requires a reasonable rating relationship between offered benefits and the rate charged. If Medicare is primary, then the rate filing should include a rate reduction because Medicare will always pay benefits before the SEH carrier and the SEH carrier’s liability for benefits will be reduced.
SEH carriers have made errors in calculating rates quoted or charged to policyholders. Small employers file complaints with the Department of Banking and Insurance ("Department") when SEH carriers make errors that result in premium increases. Such errors occur when the policyholder is quoted or charged a different rate from the rates contained in the informational rate filing.
The proposed new rule on inaccurate rate quotations and calculations provides a mechanism for carriers to correct inaccurate rate quotations and calculations while protecting the small employer who relied on the inaccurate quotation or charge in making a decision regarding the purchase of health insurance. The proposed new rule requires the carrier to notify the small employer of the error within 30 days of its discovery. If the error is in the small employer’s favor, that is, the error results in an undercharge, the carrier must continue to charge the erroneous rate for 60 days after notice of the error is received by the small employer. Since the error correction will result in an increase in premium with the existing carrier, this period provides the small employer with sufficient time to attempt to procure alternate health coverage. If the error was in favor of the carrier, that is, the error results in an overcharge, the carrier must mail a refund or post a credit to the affected small employer within 30 days of its discovery of the error and immediately begin billing the correct rate. The carrier must also certify to the Department of Banking and Insurance if an undercharge or overcharge error affects 50 or more small employers. Such reports will enhance the Department’s ability to respond to small employer inquiries about rate changes and to evaluate the small employer carriers in the quoting of their filed rates.
Typically, a rate filing demonstrates a change in previously filed rates, regardless of whether rates are filed for approval or informationally. Currently, in the SEH market, it is the rates, not the changes, which must be filed. The amendment will require all carriers to include the change in rate levels in their SEH informational rate filings as well as the rates.
Currently, SEH carriers are required to provide the Department with a rate manual that identifies the population used to develop the age and gender factors that are used in the calculation of the rate quotation and rate charged. The Department is concerned with whether the carrier uses the population actually enrolled or the population proposed for enrollment to determine the age and gender factors. The proposed amendments expand and clarify the requirements with respect to the use of the actual or proposed enrollment population. The amendments also require an actuarial certification of the methodology used to determine the age and gender adjustments.
The proposed amendments to N.J.A.C. 11:21-9.2 add definitions for the terms "effective date" and "list bill."
The proposed amendment to N.J.A.C. 11:21-9.3(a)1v requires carriers to use reduced rates or rating factors when Medicare is the primary coverage for an employee or spouse.
The proposed amendment to N.J.A.C. 11:21-9.3(a)2iv requires SEH carriers to include in their rating manuals an explanation of the methodology used to determine the age and gender factors used in calculating new issue and renewal rates and states the requirements for that methodology.
N.J.A.C. 11:21-9.3(a)3v is added to require a summary of changes in rate levels in a carrier’s informational SEH rate filing.
N.J.A.C. 11:21-9.3(a)3vi(7) is added to require an actuarial certification concerning the methodology for calculating age and gender adjustments.
N.J.A.C. 11:21-9.6 is proposed to provide procedures to be followed by carriers to correct erroneous rate quotations or rate calculations, including notice to the small employers and continuation of premium errors favorable to the small employers for at least 60 days. This section also obligates carriers to certify to the Department if an undercharge or overcharge error affects 50 or more small employers and to provide the Department with certification as to the timing, amount and list of recipients of all credits and refunds. N.J.A.C. 11:21-9.6 is renumbered N.J.A.C. 11:21-9.7 and is changed to comply with the administrative rules requiring penalty provisions to reflect the statute where the penalties may be found.
This rule proposal provides for a comment period of 60 days, and therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.
The Department believes that the proposed new rule and amendments will have a positive social impact on small employers. Small employers with employees or spouses of employees for whom Medicare is primary will be charged reduced rates, which appropriately reflect that Medicare is the primary payer of health claims for such persons and that the SEH carriers pay only on a secondary basis. Moreover, the amendments and new rule provide small employers with sufficient time to respond to corrections of rate quotations and rate calculation errors that result in undercharges, and enable them to receive the benefit of prompt correction of rate quotation and rate calculation errors that result in overcharges. Small employers are also benefited because the proposed amendment and new rule prohibit small employer carriers from trying to recoup undercharges retroactively. In addition, the reporting requirements for rate quotation and rate calculation errors will allow the Department to ascertain any patterns or problem areas and thereby enhance the Department’s ability to review, on an informational basis, rates in the SEH market.
A requirement that a reduced rate or rating factor be used where Medicare is primary for an employee or spouse will have a positive economic impact on small employers who have employees and spouses for whom Medicare is the primary payer of health insurance claims and on the covered employees, to the extent that they contribute to the health insurance premium. However, small employers who are of sufficient size so that Medicare is secondary, and their employees to the extent that they contribute to the health insurance premium, may experience an adverse economic impact. The Department believes this increase in cost is justified because of the different obligations of small employer carriers in situations where Medicare is primary as opposed to where Medicare is secondary. Further, there will be some impact on carriers from the requirement that erroneously calculated quotations or rates that result in undercharges may not be retroactively recouped and must continue to be charged for a period of sixty days after the small employer receives notice of the error. The Department believes that any negative impact will be outweighed by the protections afforded the small employer by providing sufficient time to procure other coverage if the corrected rates prove to be too high for the small employer to pay. Lastly, the Department believes that any negative impact from the requirement to report errors in the rate quotations and calculations that affect 50 or more small employer groups or to provide the Department with a certification as to the timing, amount and names of all policyholders receiving refunds and credits will be minimal and will be offset by the positive impact afforded the consumers and the future prevention of such errors.
Federal Standards Statement
A Federal standards analysis is not required because this proposed new rule and amendments are not subject to any Federal standards or requirements.
The Department does not anticipate that these proposed new rule and amendments will result in any loss of jobs. The rule and amendments make certain changes to standards and procedures for carriers. Therefore, the Department believes that carriers may have to supplement existing staff that currently performs these functions. The Department invites commenters to submit any data or studies concerning the jobs impact of the proposed amendments and new rule together with their written comments on other aspects of this proposal.
Agriculture Industry Impact
The proposed new rule and amendments have no impact on the agriculture industry.
Regulatory Flexibility Analysis
The proposed new rule and amendments may apply to some carriers that constitute "small businesses" as that term is defined by the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq., although the Department notes that SEH carriers generally do not fall into this category. While the Department does not believe any carrier will have to obtain or increase professional services in order to comply with the proposed amendments and new rule, the amendments and new rule do impose new or different reporting, recordkeeping or other compliance requirements on those entities that may be small businesses.
All carriers in the SEH market are required to file informational rate filings and these proposed amendments and new rule create and clarify minimum standards for those filings, as described in the Summary above, while adding additional protections for small employers. Expense costs are discussed in the Economic Impact above. There is no basis for the differential treatment of small businesses because the consumers, the small employers, must be afforded protection whether they are dealing with a large or small carrier. Accordingly, there can be no difference in requirements for small carriers in the SEH market.
Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):
Words and terms, when used in this subchapter, shall have the meanings as defined at N.J.S.A. 17B:27A-17 or N.J.A.C. 11:21-1.2 unless defined below or the context clearly indicates otherwise.
"Effective date" means the date on which coverage begins for the policyholder.
. . .
"List bill" or "list billing" means a bill or billing which has a rate for each covered employee that may differ from employee to employee based upon each employee’s age, gender and coverage tier (for example, family).
. . .
11:21-9.3 Informational rate filing requirements for small employer health
benefits plans issued or renewed after December 31, 1993
(a) All carriers issuing policies, contracts or certificates under health benefit plans to small employers, including any standard or nonstandard rider option, prior to issuing any policy, contract or certificate under such plan, shall file with the Commissioner an informational rate filing which shall include the following data:
i–iv. (No change.)
vi. (No change.)
i-iii. (No change)
(A) in the case of a new issue or renewal, the population actually enrolled on the effective date or the renewal date;
(B) in the case of a new issue or renewal, the entire population of the group eligible to be covered at the time of preparation of the proposed rate; or
(C) in the case of a renewal, the population actually covered at the time of preparation of a proposed rate.
(8) Carriers that use the method in (a)2iv(1)(A) above but that do not use list billing, can change the rate based on a change in the age and gender characteristics of the covered population during any rate guarantee period. The use of this adjustment must be disclosed in the explanation of the methodology.
(9) Carriers that use the method in (a)2iv(1)(A) above cannot change the rate based on changes in the age and gender characteristics of the covered population during any rate guarantee period.
i-ii. (No change.)
[iii]iv. A statement whether or not the policyholder will or may receive policyholder dividends other than the dividends required by N.J.S.A. 17B:27A-25g(2). If such dividends are payable, the carrier shall also submit the following:
(1) - (2) (No change)
(2) The average percentage change, for each standard and nonstandard plan, between the rates contained in the rate filing and the rates contained in the immediately prior rate filing;
(3) The maximum percentage and dollar change in rates per employee, for each standard and nonstandard plan, for any age, gender, or geographical location combination, between the rates contained in the rate filing and the rates that were in effect one year prior to the effective date of the rate filing;
[iv.]vi. A certification signed by a member of the American Academy of Actuaries attesting as follows:
(1) – (6) (No change)
(7) The methodology for calculating age and gender adjustments, and the explanation of that methodology in the actuarial memorandum, complies with (a)2iv, above and is a sufficient explanation of the methodology for reflecting age and gender in rates; and
[v.] vii. A certification that the actuarial memorandum contains confidential and proprietary information, if it is the actuary’s belief that it does.
(b) – (d) (No change.)
11:21-9.6 Errors in rate quotations and rate calculation
(a) Any carrier that quotes, bills or collects a premium to or from a small employer that is less than the rate shown in the carrier’s informational SEH rate filing in effect at the time the premium is billed or collected shall:
1. Provide written notice to the small employer of the error as soon as possible but no later than 30 days after discovery of the error.
2. Be prohibited from charging, collecting, offsetting or otherwise recouping the amount of the undercharges; and
3. Continue to charge the erroneous rate for a period of at least 60 days from the date the written notice of the error is received by the small employer.
(b) Any carrier that quotes, bills or collects a premium to or from a small employer that is more than the rate shown in the carrier’s informational SEH rate filing in effect at the time the premium is billed or collected shall:
1. Immediately cease charging the incorrect rate and charge the correct rate;
2. Provide written notice to the small employer of the error as soon as possible but no later than 30 days after discovery of the error; and
3. Send the small employer a refund or post a premium credit within 30 days after discovery of the error for the full amount of all overcharges.
(c) If more than 50 small employer groups were undercharged or overcharged as a result of the error, a carrier shall provide the Department at the address listed at N.J.A.C. 11:21-9.4(a) with a certification describing the nature and scope of the error, including a list of all small employers affected and a sample copy of the notice to all small employers.
11:21-[9.6] 9.7 Penalties
Failure to comply with the provisions of this subchapter may result in the imposition of fines or other penalties provided by [law, including suspension or revocation of a carrier’s authority to do business in the State of New Jersey]. N.J.S.A. 17B:27A-43.