DIVISION OF INSURANCE
Small Employer Health Benefits Program
Small Employer Purchasing Alliances
Proposed New Rules: N.J.A.C. 11:21-9.4 and 21
Proposed Amendments: N.J.A.C. 11:21-7A, 9 and Appendix, Exhibit GG
Authorized by: Holly C. Bakke, Acting Commissioner, Department of Banking and Insurance.
Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17B:27A-17 et seq. and 17B:27A-25.9.
Calendar Reference: See Summary below for explanation of exception to calendar requirement.
Proposal Number: PRN 2002-135.
Submit comments by May 31, 2002 to:
Karen Garfing, Assistant Commissioner
Department of Banking and Insurance
20 West State Street
PO Box 325
Trenton, NJ 08625-0325
FAX: (609) 292-0896
The agency proposal follows:
P.L. 2001, c. 225, codified as N.J.S.A. 17B:27A-25.1 et seq. ("the Act"), which was approved August 24, 2001 and is effective February 25, 2002, amends and supplements the Small Employer Health Benefits Law ("SEH Act") (P.L. 1992, c. 162, codified at N.J.S.A. 17B:27A-17 et seq.). The Act permits small employers (that is, employers that employ between two and 50 employees) to take advantage of the economies of scale in the delivery of health benefits currently available to large employer groups by establishing purchasing alliances comprised of groups of small employers for the purpose of obtaining reduced premiums for health benefits coverage for their employees. The Act enables these small employer purchasing alliances, with the voluntary participation of insurance carriers, to negotiate reduced premiums for the standard health benefits plans developed under the SEH Act, while maintaining the protections afforded under that law (for example, guaranteed access to health benefits coverage for employees; guaranteed renewability of health plans regardless of the health status of employees or their dependents; prohibitions against the use of certain rating factors such as health status, prior claims history, industry or occupation; and quantitative limitations on the use of age, gender and territory as rating factors).
The Department is proposing new rules at N.J.A.C. 11:21-21 that implement the Act by establishing standards and procedures for the formation and operation of small employer purchasing alliances. The Department is also proposing amendments to its SEH loss ratio reports rules at N.J.A.C. 11:21-7A, and its SEH informational rate filing requirements rules at N.J.A.C. 11:21-9, to include provisions applicable to small employer purchasing alliances. Specifically, the proposal includes the following:
N.J.A.C. 11:21-21.1 sets forth the purpose and scope of the new rules at subchapter 21 regarding the formation and operation of small employer purchasing alliances.
N.J.A.C. 11:21-21.2 includes definitions of terms used in the new subchapter.
N.J.A.C. 11:21-21.3 establishes filing requirements for newly formed purchasing alliances.
N.J.A.C. 11:21-21.4 sets forth eligibility requirements for newly formed purchasing alliances. This proposed section also prohibits purchasing alliances from questioning employers or employees about their health care claims experience or costs. For example, the alliances may not ask an employer if any employees had claims or costs in excess of a specific amount, or if the group as a whole had claims or costs in excess of a specific amount.
N.J.A.C. 11:21-21.5 includes requirements for small employers that are terminating their membership in a purchasing alliance.
N.J.A.C. 11:21-21.6 sets forth the criteria for violations of P.L. 2001, c. 225, as well as the penalties for such violations.
N.J.A.C. 11:21-7A.2 is being amended by including a definition of "small employer purchasing alliance."
N.J.A.C. 11:21-7A.3 is being amended to include language regarding purchasing alliances in the section addressing the filing of annual loss ratio reports.
N.J.A.C. 11:21-7A.5 is being amended to include requirements regarding the distribution of dividends and credits for health benefits plans issued to small employers that are members of purchasing alliances.
Exhibit GG of the Appendix to N.J.A.C. 11:21, which is the loss ratio report form required to be filed with the Department for small employer standard health benefits plans, is being amended to include purchasing alliance plans.
N.J.A.C. 11:21-9.3 is being amended to make a technical correction. Currently, N.J.A.C. 11:21-9.3(a)3iv(5) refers to "(a)2ii above." That reference should be to "(a)2i above."
A new N.J.A.C. 11:21-9.4 is being proposed, which sets forth informational rate filing requirements for small employer purchasing alliances. Existing N.J.A.C. 11:21-9.4 is being recodified as N.J.A.C. 11:21-9.5, and a new subsection (f) is being proposed to set forth the criteria for the Commissioner to disapprove a purchasing alliance rate reduction.
As the Department has provided a 60-day comment period on this notice of proposal, this notice is excepted from the rulemaking calendar requirement pursuant to N.J.A.C. 1:30-3.3(a)5.
The proposed new rules and amendments will have a favorable social impact on small employers that currently provide health benefits coverage to their employees, and who join purchasing alliances, because they may now contract for health benefits plans at reduced rates. Small employers who previously may not have provided any health coverage to their employees will likewise be favorably impacted because they may now decide to do so at lower rates. Employees of these small employers will benefit because they may now either obtain health coverage that they never were provided in the past, or that may have been more costly. Carriers who contract with purchasing alliances may be favorably impacted because their sales volume for standard small employer health benefits plans may increase.
The proposed new rules and amendments will have a favorable economic impact on small employers who become members of purchasing alliances in that the alliance will be able to negotiate with carriers for lower rates for its members on standard health benefits plans. Employees of small employers may likewise benefit by paying reduced premiums for their health coverage. Carriers may be favorably impacted because they may sell more health benefits plans to small employer purchasing alliances than they would have sold otherwise to small employers.
Federal Standards Statement
A Federal standards analysis is not required because these proposed new rules and amendments are not subject to any Federal standards or requirements.
These proposed new rules and amendments may result in the generation of jobs if the small employers that are becoming members of a purchasing alliance determine that a need exists for additional employees who will be responsible for managing the small employer alliances.
Agriculture Industry Impact
These proposed new rules and amendments have no impact on the agriculture industry.
Regulatory Flexibility Analysis
These proposed new rules and amendments may apply to some small employer purchasing alliances or carriers that constitute "small businesses" as that term is defined in the Regulatory Flexibility Act at N.J.S.A. 52:14B-16 et seq. The amendments and new rules require newly formed purchasing alliances to file with the Department certain information concerning the formation and operation of the alliance. The amendments and new rules additionally require carriers to file with the Department certain rating, loss ratio and dividend information specific to purchasing alliances. While it is unlikely that either affected purchasing alliances or carriers will need to seek outside professional services in order to comply with these requirements, they will be required to bear the costs related to compliance. Nevertheless, the reporting standards and procedures contained in these new rules and amendments must be applied consistently to all purchasing alliances and carriers that have contracted for standard small employer health benefits plans, and no exemption can be made for small businesses.
Smart Growth Impact
The proposed amendments and new rules have no impact on the achievement of
smart growth and implementation of the State Development and Redevelopment plan.
Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):
SUBCHAPTER 7A. LOSS RATIO REPORTS; DIVIDENDS AND CREDITS
The following terms, when used in this subchapter, shall have the following meanings:
. . .
"Small employer purchasing alliance," "purchasing alliance" or "alliance" means a small employer purchasing alliance as established pursuant to N.J.S.A. 17B:27A-25.3.
. . .
11:21-7A.3 Filing of loss ratio reports
(a) Each carrier having the five standard health benefits plan policy forms, open or closed nonstandard health benefits plan policy forms or HMO plans in force at any time during the preceding calendar year shall file with the Department an annual loss ratio report on the form appearing as Exhibit GG in the Appendix to this chapter, incorporated herein by reference. The annual loss ratio report, beginning with 1997 data reported in 1998, shall:
1. Aggregate standard health benefit plans, other than alliance plans, including all standard and nonstandard riders and endorsements thereto;
2. Aggregate open nonstandard health benefits plans, including all riders and endorements thereto; [and]
3. Aggregate closed nonstandard health benefits plans, including all riders and endorsements thereto[.] ; and
4. Aggregate alliance health benefits plans, including all riders and endorsements thereto.
(b) - (c) (No change.)
11:21-7A.5 Dividend or credit plan
(a) If the preceding calendar year loss ratio for any of the classifications listed in N.J.A.C. 11:21-7A.3(a) is less than 75 percent, the carrier shall include within the loss ratio report a plan to be approved by the Department for the distribution of all dividends and credits against future premiums for all policyholders with that classification in the preceding calendar year in an amount sufficient to assure that the claims in the preceding calendar year plus the amount of the dividends and credits shall equal 75 percent of the premiums for that classification in the preceding calendar year.
1. (No change.)
2. Carriers that issue health benefits plans to small employers that are members of purchasing alliances shall specify in the plan for distribution of dividends and credits that dividends and credits for such health benefits plans shall be paid or credited, as applicable, to the small employers covered under the health benefits plans, not the trust, association or other multiple employer arrangement.
(b) The experience for all non-alliance standard health benefits plans shall be combined for dividend purposes.
(c) The experience for all alliance health benefits plans shall be combined for dividend purposes. The experience for alliance health benefits plans shall not be combined with the experience for non-alliance standard health benefits plans, or the experience of open or closed non-standard health benefits plans, for dividend purposes.
Recodify existing (c) - (g) as (d) - (h) (No change in text.)
SUBCHAPTER 9. INFORMATIONAL RATE FILING REQUIREMENTS PURSUANT TO THE SMALL EMPLOYER HEALTH BENEFITS PROGRAM
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 benefits 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:
1. - 2. (No change.)
3. A detailed actuarial memorandum setting forth the assumptions and methods used in the development of the rates, which shall include:
i. - iii. (No change.)
iv. A certification signed by a member of the American Academy of Actuaries attesting as follows:
(1) - (4) (No change.)
(5) That rates to be charged to any group do not vary based on any classification factor other than those permitted in [(a)2ii] (a)2i above; and
(6) (No change.)
v. (No change.)
(b) – (d) (No change.)
. . .
11:21-9.4 Purchasing alliances
(a) All carriers providing discounts to small employer purchasing alliances shall file an informational rate filing with the Commissioner prior to the date of providing such discounts, which shall include the following data:
1. A statement that the discount is based on reductions in anticipated expenses and profit margins and not on favorable claims experience;
2. Information regarding the discounts, including:
i. The small employer rate filings ("reference filing") pursuant to N.J.A.C. 11:21-9.3 to which the discounts apply;
ii. Eligibility requirements that a small employer group must satisfy, including participation requirements or cost-sharing requirements;
iii. The amount of the discounts expressed as a percentage of the non-alliance premium for the same coverage and small employer group. If the same discount is not offered to all purchasing alliances, the criteria for the variation in the discount, which shall not include any of the factors set forth at N.J.A.C. 11:21-21.4(a);
iv. The contract issue or renewal period to which the discounts apply, the time period for which the discount is guaranteed, and any conditions for maintaining the discount; and
v. A statement that the same discount is available to all members of the purchasing alliance;
3. Information regarding the application of the discount to a particular group, including:
i. A written description in plain language of the method by which the discounted rate is obtained from the reference rate; and
ii. A detailed example calculation, in the proposal format used by the carrier, of the application of the discount to the example calculation found in the reference filing, showing all the steps necessary to develop the discounted premium from the undiscounted premium, and demonstrating the adjustment, if any, to achieve the required 200 percent maximum ratio between the premiums for the highest rated group and the lowest rated group in the State;
4. An actuarial memorandum setting forth the assumptions used in the development of the discount, which shall include:
i. The anticipated claim cost for the purchasing alliances;
ii. A demonstration that the discount is based on the anticipated expenses (including marketing and claims administration expenses) and profit margins, identifying those differences from the anticipated expenses and profit margins in the reference filing that are the only bases for the purchasing alliance discount;
iii. A statement whether or not the policyholder shall or may receive policyholder dividends, other than the dividends required by N.J.S.A. 17B:27A-25(g)(2). If such dividends are payable, the carrier shall also submit the following:
(1) The detailed assumptions and practices for determining and distributing such dividends; and
(2) A demonstration that such dividends are not in violation of 4iv(4), 4iv(5) or 4iv(6) below, as appropriate; and
iv. A certification signed by a member of the American Academy of Actuaries attesting to the following:
(1) That the filing is accurate and complete, and complies with the provisions of this subchapter;
(2) The issue period for which the discount is applicable;
(3) The anticipated incurred loss ratio for each plan offered to purchasing alliances, which shall not be less than 75 percent of the premium;
(4) That the rating methodology, taking into account both discounted and undiscounted rates, shall not provide rates for the highest group in the State that are greater than 200 percent of the rates (for an individual and each family status) produced for the lowest rated group in this State for each plan and option;
(5) That the rates to be charged to any group do not vary based on a classification factor other than those permitted in N.J.S.A. 11:21-9.3(a)2i;
(6) That discounted rates do not result in rates that vary between groups based upon a health status-related factor; and
(7) That the anticipated incurred loss ratio in (a)4iv (3) above exceeds the anticipated incurred loss ratio for the reference filing by an amount that reflects the expense and profit savings attributed to the purchasing alliance.
(b) A single filing shall be made, even if multiple purchasing alliances are covered. The addition of purchasing alliances or other changes shall require submission of an amendment or modification to the rate filing within 30 days of such change.
11:21-[9.4] 9.5 Informational filing procedures
(a) - (e) (No change.)
(f) The Commissioner may disapprove a purchasing alliance rate reduction if it results in rates that are excessive, inadequate or unfairly discriminatory.
1. Rates will be considered excessive if they are projected to give rise to a loss ratio that is less than the loss ratio for the reference rate filing, increased by an amount that reflects the savings giving rise to the discount.
2. Rates will be considered inadequate if they result in a subsidization of the alliance business by the non-alliance business.
3. Rates will be considered unfairly discriminatory if they are based on a health status-related factor of the group or any individual eligible for coverage in the group.
SUBCHAPTER 21. SMALL EMPLOYER PURCHASING ALLIANCES
11:21-21.1 Purpose and scope
(a) This subchapter implements P.L. 2001, c. 225 by establishing rules for the formation and operation of small employer purchasing alliances.
(b) This subchapter shall apply to eligible groups of small employers as defined in P.L. 1992, c.162 (N.J.S.A. 17B:27A-17.)
The following words and terms, as used in this subchapter, shall have the following meanings unless the context clearly indicates otherwise:
"Commissioner" means the Commissioner of the New Jersey Department of Banking and Insurance.
"Small employer purchasing alliance," "purchasing alliance" or "alliance" means a small employer purchasing alliance as established pursuant to N.J.S.A. 17B:27A-25.3.
11:21-21.3 Filings requirements
(a) Within 30 days of formation, a small employer purchasing alliance shall file the following with the Commissioner:
1. A certification of an officer or director of the purchasing alliance, which shall include:
i. The name of the purchasing alliance:
ii. The name of the purchasing alliance;
iii. The names of the purchasing alliance;
iv. The New Jersey mailing address at which communications for the purchasing alliance are to be received;
v. The toll free telephone number for prospective members to use to contract the purchasing alliance;
vi. The eligibility requirements for membership in the purchasing alliance;
vii. The fees charged to members of the purchasing alliance; and
viii. A description of the SHE standard plans, and any optional benefit riders, for which the purchasing alliance negotiates or intends to negotiate premiums for its members;
2. A copy of the certificate of incorporation, if any, of the purchasing alliance;
3. A copy of the certificate of incorporation, if any, of the purchasing alliance;
4. A description of the eligible small employers that constitute the purchasing alliance, including their common or similar type of trade or business; the common trade association, professional association or other associations; or common geographic area;
5. A copy of the bylaws of the purchasing alliance, which shall include:
i. The procedures for the organization and administration of the purchasing alliance; and
ii. The procedures for the qualification and admission of additional members of the purchasing alliance; and
6. Information about the procedures a small employer should follow to join the purchasing alliance, including a contact person, address, telephone number, and eligibility requirements for membership.
(b) Filings shall be submitted to:
N.J. Department of Banking and Insurance
Att: SHE Rate Filings
20 West State Street
P.O. Box 325
Trenton, NJ 08625-0325
(c) A current listing of the membership of the purchasing alliance as required buy(a)1ii above shall be filed with the Commissioner quarterly. Any other change in the information specified in (a) above shall be filed with the Commissioner within 30 days of the change.
11:21-21.4 Eligibility requirements
(a) No purchasing alliance shall use as a basis for exclusion from membership in the alliance any of the following characteristics of any small employer group as a whole, or any person eligible for coverage in that group:
1. Health status;
2. Medical condition, including both physical and mental illness;
3. Claims experience;
4. Receipt of health care;
5. Medical history;
6. Genetic information;
7. Evidence of insurability, including conditions arising our of acts of domestic violence;
8. Partial or total disability;
9. Group size;
11. Gender; or
12. Any other health status-related factor.
(b) A purchasing alliance shall not inquire as to the insured or uninsured health care claims experience or cost of any employers or employee.
11:21-21.5 Termination of membership in a purchasing alliance
(a) An employer may discontinue purchasing coverage as a member of a purchasing alliance at any time.
(b) A purchasing alliance may include a requirement in its bylaws or joint contract that employers provide no more than 30 days notice of discontinuance to the alliance.
11:21-21.6 Violations and penalties
(a) Failure to comply with any of the requirements of this subchapter shall be a violation of P.L. 2001, c. 225 (N.J.S.A. 17B:27A-25.1 et seq). If the Commissioner, after notice and a hearing pursuant to the Administrative Procedure Act, N.J.S.A. 52:14b-1 et seq., finds that such a violation exists, the premium reduction permitted by N.J.S.A. 17B:27A-25 shall not be applied, and the undiscounted applicable SEH rate shall be applied retroactive to the effective date of the discount.