Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17B:27A-25f and g.

Proposal Number: PRN 2002-75

Submit comments by April 20, 2002 to:

Karen Garfing, Assistant Commissioner

Department of Banking and Insurance

Regulatory Affairs

20 West State Street

PO 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.

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.

The proposed new rule and amendments have no impact on the agriculture industry.

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]):

11:21-9.2 Definitions

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.

…

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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:

1. A plan schedule for each of the standard health benefits plans and nonstandard health benefits plans offered, outlining.

1. The basic premium rate or rating factors applicable for each option including [the difference when Medicare is primary or secondary, which must be based on actual employee or spouse Medicare coverage status] reduced premium rates or rating factors where Medicare is primary for an employee or spouse based on the actual Medicare coverage status of the employee or spouse; and

1. A rate manual containing :

1. [A specification of the rule, which must be invariable, stating if the issue rate is based on the issue enrollment or the proposal rate.] An explanation of the methodology used to determine the age and gender factors used in calculating new issue and renewal rates. The methodology shall satisfy the following requirements:

1. A detailed actuarial memorandum setting forth the assumptions and methods used in the development of the rate, which shall include:

1. The assumptions underlying the reduced premium rates or rating factors where Medicare is primary for the employee or spouse based on the actual Medicare coverage status of the employee or spouse;

1. A summary of the overall change in rate levels, including:

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.

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