DEPARTMENT OF REGULATORY AGENCIES
Division of Insurance
3 CCR 702-4
Life, accident and health
Proposed Amended Regulation 4-2-11
RATE FILING AND ANNUAL REPORT SUBMISSIONS HEALTH INSURANCE
Section 1	Authority
Section 2	Background Scope and Purpose
Section 3	Applicability and Scope
Section 5	General Rate Filing Requirements
Section 6	Actuarial Memorandum
Section 7	Additional Rate Filing Requirement by Line of Business
Section 11	Effective Date
Section 12	History
Section 1	Authority
This regulation is promulgated pursuant to the authority of §§ 10-1-109, 10-3-1110, 10‑16‑107(1), 10-16-107(1.5), and 10-16-109, C.R.S.
Section 2	Background Scope and Purpose
The purpose of this regulation is to ensure that health insurance rates are not excessive, inadequate or unfairly discriminatory, by establishing the requirements for rate filings and to require an annual rate report. This regulation provides a listing of the items required to be included in this Annual Rate Report.
Section 3	Applicability and Scope
This regulation applies to all companies operating in the State of Colorado, as defined in Section 4. This regulation concerns all health insurance rate filings, including, but not limited to, comprehensive health insurance, long term care, supplemental health, limited benefit health, prepaid dental, limited service licensed provider networks, disability, and Health Maintenance Organization (HMO) coverages.
Section 5	General Rate Filing Requirements
Failure to supply the information required in Sections 5, 6 and 7 of this Regulation will render the filing incomplete.  Incomplete filings are not reviewed for substantive content.  All filings that are not returned on or before the 15th business day after receipt will be considered complete.  Filings may be reviewed for substantive content, and if reviewed, any deficiency will be identified and communicated to the filing company on or before the 30th business day after receipt.  Correction of any deficiency, including deficiencies identified after the 30th business day, will be required on a prospective basis, and no penalty will be applied for a non-willful violation identified in this manner.  Nothing in this Regulation shall render a rate filing subject to prior approval by the Division of Insurance that is not otherwise subject to prior approval as provided by statute.

A.	General Requirements
1.	Required Submissions:
a.	All companies must submit rate filings whenever the rates charged new or renewal policyholders or certificateholders differ from the rates on file with the Division of Insurance.  Included in this requirement are changes due to periodic recalculation of experience, change in rate calculation methodology, or change(s) in the trend or other rating assumptions.  A company may file changes to the base rates or the index rate, for small group rate filings, due solely to trend for a maximum of one year.  The continued use of a trend or any other continuing assumption is required to be verified at least annually for continued appropriateness.
b.	All companies must submit a rate filing on at least an annual basis to support the continued use of rating variables which change on a predetermined basis, such as trend, durational factors, or the Index Rate for small group business, for continued appropriateness.  These rate filings must contain detailed support as to why the assumptions continue to be appropriate.    
c.	All companies must submit a rate filing within 60 days after Division of Insurance approval of the assumption of a block of business.  This rate filing should provide detailed support for the rating factors the assuming company proposes to use, even if the rating factors are not changing.  The new filing must demonstrate that the rating assumptions continue to be appropriate.   
bd.	A separate rate filing is required for each major line of business. Rate filings should not be combined with form filings.  Each type requires a separate filing.
ce.	Where a company complies with the loss ratio guarantee requirements of § 10-16-107(1.5), C.R.S., the rate will not be considered excessive.  However, such rates are still subject to the statutory requirement that rates shall not be inadequate or unfairly discriminatory, and are subject to review by the Commissioner on these grounds.  Companies filing loss ratio guarantees are therefore subject to this regulation in all respects.
Section 6	Actuarial Memorandum
The rate filing must contain an actuarial memorandum, either signed by, or prepared under the supervision of, a qualified actuary, containing, at a minimum, the following sections:
G.	Relation of Benefits to Premium: The memorandum must adequately support the reasonableness of the relationship of the projected benefits to projected earned premiums for the rating period.  This relationship will be presumed to be reasonable if the company complies with any one of the following methods:  
1.	Medicare Supplement and Long Term Care Policies: See Section 7 (D) and (E) of this regulation.  Use of the minimum required loss ratio: Colorado statutes require minimum acceptable loss ratios for Medicare supplement and long- term care products only.  These loss ratio requirements, and other rating requirements, can be found in Colorado Insurance Regulations 4-3-1 and 4-4-1. The minimum required loss ratios will be evaluated in conjunction with the expected loss ratios as part of the determination of the acceptability of a rate change request.
3. 2.	 Justification of the Retention Percentage: The Actuarial Memorandum for all other rate filings must list and adequately support each specific component of the retention percentage (1 minus the target loss ratio).  Each of these specific components must be expressed as a percentage of the total premium charged, and These components should sum to the total company retention percentage.  Each component should be expressed as the average assumption used in pricing.  Ranges for each assumption and flat dollar amounts are not permitted.  The load for profit/contingencies should reflect the target load, and not the expected results or operating margin.  The Division will evaluate each component for reasonableness and consistency with other similar rate filings.  Any change in these components from the previous rate filing must be adequately supported.  It should be noted that broad groupings of these components are not permitted.   The memorandum must clearly describe the amount of the fixed and/or variable expense provision and how this provision is to be accounted for in the final rate. The memorandum must include either a statement that the expense provision has been adjusted to appropriately reflect Colorado requirements and reflects the operating methods of the company and any Colorado-specific anticipated expenses, or a statement indicating that this provision reflects an average of expenses in all markets in which the company conducts its business. However, if the company qualifies as a home or regional home office under Colorado Insurance Regulation 2-1-2 and  §10-3-209 (1)(b)(I)(B), C.R.S., the expense provision must accurately reflect all Colorado-specific expenses.
2. 3.	Loss Ratio Guidelines: The product is priced using one of the following methods.  Please note that these relationships are considered “safe harbor” relationships.  The Division uses these percentages as guidelines for the acceptability of the Company’s target loss ratio.  Rates may be alternatively justified using parts 3, or 4, of this Subsection.
a.	All rate filings justifying the relationship of benefits to premium using one of these guidelines must list the components of the retention percentage, as defined in Subsection G(2) of this section.  The Division will evaluate these components for reasonableness.  Policy forms priced at, or above, these loss ratios may be unacceptable, if one or more of the retention components is not supported.  
cb 	For the following types of business, if the company prices the product at or above any of the following minimum anticipated loss ratios.
Comprehensive Major Medical (Individual)	65%
Comprehensive Major Medical (Small Group)	70%
Comprehensive Major Medical (Large Group)	75%
Specified or Dread Disease	60%
Disability Income	60%
Dental/Vision	60%
	Stop Loss					60%
bc.	For conversion products, if the anticipated loss ratio is at least 125%.  
ad.	For individual products issued to HIPAA eligible individuals, if the premiums for these products are, at most, two times the premiums for the underlying, underwritten product.
4.	Lifetime Loss Ratio: If the rate change request is based on a lifetime loss ratio, the filing should identify the loss ratio and how the loss ratio for the projection period was determined.  Supporting data should be provided on a calendar year basis.  If credible data is not available, the filing must identify and justify the use of appropriate collateral data.  
H.	Lifetime Loss Ratio.  The memorandum must state whether or not the product was priced initially using a lifetime loss ratio standard.  If the product was priced using a lifetime loss ratio standard, then any subsequent rate change request must be based on the same lifetime loss ratio standard with consideration given to the variance in the expected loss ratios over the duration of the policy.  The rate filing must include the expected loss ratio, as originally priced,  for each policy duration.  The rate filing must also include a chart showing actual and expected loss ratios for both the experience and rating periods.  For each year of the experience period the chart must show the actual and expected loss ratios, and the ratio of these two loss ratios.  For each year of the rating period, the chart must show the projected and expected loss ratios, and the ratio of these two loss ratios.  It is expected that the company is pricing these products to achieve a loss ratio greater than or equal to the expected loss ratio for the rating period, unless there has been a material change in assumptions which would justify a deviation from this expectation.  These changes must be identified and clearly supported in the rate filing.    
H.I.	Provision for Profit and Contingencies: The memorandum must identify the amount or percentage of the provision for profit and contingencies, and how this provision is included in the final rate.  If material, investment income from unearned premium reserves, reserves from incurred losses, and reserves from incurred but not reported losses must be considered in the ratemaking process.  Detailed support must be provided for any proposed load in excess of 7% after tax.  
I.J.	Complete Explanation as to How the Proposed Rates were Determined: Description of the Calculation of the Increase: The memorandum must contain a section with a complete explanation description as to how the proposed rates were determined requested increase was calculated, including all underlying rating assumptions, with detailed support for each assumption.  The Division may return a rate filing if adequate support for each rating assumption is not provided.  This explanation description may be on an aggregate expected loss basis or as a per-member-per-month (PMPM) basis, but must completely explain describe how the proposed rates were determined. increase was determined.  The memorandum must adequately support all material assumptions and methodologies used to develop the expected losses or pure premiums.
J.K.	Trend:  This section must describe the trend assumptions used in pricing.  These assumptions must each be separately discussed, adequately supported, and also be appropriate for the specific line of business, product design, benefit configuration, and time period.  Any and all factors affecting the projection of future claims must be presented and adequately supported.  The trend assumptions shall be, if practical, separately quantified into two categories, medical and insurance, as defined below:
1.	Medical trend is the combined effect of medical provider price increases, utilization changes, medical cost shifting, and new medical procedures and technology.
2.	Insurance trend is the combined effect of underwriting wearoff, deductible leveraging, and antiselection resulting from rate increases and discontinuance of new sales.  Note: medical trend must be determined or assumed before insurance trend can be determined.  Underwriting wearoff means the gradual increase from initial low expected claims that result from underwriting selection to higher expected claims for later (ultimate) durations.  Underwriting wearoff does not apply to guaranteed issue products.
K.L.	Credibility:  The Colorado standard for fully credible data is 2,000 life years and 2,000 claims a year.  Both standards must be met within a maximum of three years, if the proposed rates are based on change is related to claims experience. 
1.	The memorandum must discuss the credibility of the Colorado data with the proposed rates requested rate change based upon as much Colorado data as possible.  The memorandum must also identify and discuss the source, applicability and use of collateral data used to support partially credible Colorado data.  The use of collateral data is only acceptable if the Colorado data does not meet the full credibility standard.  The formula for determining the amount of credibility to assign to the data is SQRT{(#life years or claims)/full credibility standard}.   The full credibility standard is defined above.  
2.	The memorandum should also discuss how and if the aggregated data meets the Colorado credibility requirement.  Any filing, which bases its conclusions on partially credible data, should include a discussion as to how the rate change request rating methodology was modified for the partially credible data.
L.M.	Data Requirements: The memorandum must, at a minimum, include earned premium and loss experience data, submitted on a Colorado-only basis for at least 3 years, if available, and on a national, regional or other appropriate basis, if the Colorado data is not fully credible, or provide an acceptable reason(s) as to why this data was not provided.  Rates changes must be supported by the most recent data available, with as much weight as possible placed upon the Colorado experience.  If the Colorado experience is not fully credible, the data may be supplemented with national data, or other relevant data.  The filing should clearly discuss the reliance upon non-Colorado data, and the credibility of the Colorado data.  The experience period must include consecutive data no older than six months prior to the date of the filing, or a clear and acceptable reason as to why such data was not included.  The loss data must be on an incurred basis, including both the accrued and unaccrued portions of the liability and reserve (e.g., case, bulk and IBNR reserves) as of the valuation date.  Premiums and/or exposure data must be stated on both an actual and on-rate-level basis.  Capitation payments should be considered as claim or loss payments.
M.N.	Side-by-Side Comparison: Each memorandum must include a “side-by-side comparison” identifying the any proposed change(s) in rates.  This comparison should include three columns: the first containing the current rate, rating factor, or rating variable; the second containing the proposed rate, rating factor, or rating variable; and the third containing the percentage increase or decrease of each proposed change(s).  If the proposed rating factor(s) are new, the memorandum must specifically so state, and provide detailed support for each of the factors.
N.O.	Loss Ratio Projections: The memorandum must contain a section projecting the loss ratio, over the rating period, both with and without the requested rate change.  For long tail lines, such as long term care and long term disability, the projections should include a timeframe as to when the target loss ratio will be achieved.
O.P.	Other Factors: The memorandum must clearly display all other rating factors and definitions, including the area factors, age factors, gender factors, etc., and support for each of these factors in a new rate filing and support for changes to any of these factors in renewal rate filings.  In addition, the Division expects each company to review each of these rating factors at least every five years and provide detailed support for the continued use of each of these factors in a rate filing.  
Section 7	Additional Rate Filing Requirement by Line of Business
The following subsections set forth the requirements by separate lines of business, which must be complied with in addition to the above general requirements:
C.	Large Group Major Medical: Large group major medical health care coverage contracts are considered to be a negotiated agreement between a sophisticated purchaser and seller.  Certain rating variables may vary due to the final results of each negotiation.  Each large group rate filing must contain the ranges for these negotiated rating variables, an explanation of the method used to apply these rating variables, and a discussion of the need for the filed ranges.  A new rate filing is required whenever a rating variable or a range for a rating variable changes.  Each filing should also contain an example of how the large group health rates are calculated.  A company may issue rate quotes using the rating factors contained in the filing concurrent with the submission of the filing to the Division of Insurance.  While the final rate charged the large group may differ from the initial quote, all rating variables must be on file with the Division of Insurance.
Although it is not necessary to submit a separate rate filing for each large group policy issued, each company must retain detailed records for each large group policy issued.  At a minimum, such records shall include: any data, statistics, rates, rating plans, rating systems, and underwriting rules used in underwriting and issuing such policies, experience data on each group insured, including, but not limited to, written premiums at a manual rate, paid losses, outstanding losses, loss adjustment expenses, underwriting expenses, and underwriting profits.  All rating factors used in determining the final rate should be identified in the detail material and lie within the range identified in the rate filing on file with the Division of Insurance.  The company shall make all such information available for review by the Commissioner upon request.  All such requests will be made at least three (3) business days prior to the date of review.
The rates for subgroups must be determined in an actuarially sound manner using credible data.  The methodology for determining these rates must be on file with the Division of Insurance and any changes in the methodology must be filed with the Division.  
Section 11	Effective date
This regulation is amended effective for all rate filings submitted to the Colorado Division of Insurance on or after December 1, 2005 2007.
Section 12	History
Regulation 4-2-11, effective November 1, 1992.
Regulation Repealed and Re-promulgated, effective February 1, 1999.
Regulation amended for rate filings submitted on or after effective January 1, 2001.
Regulation amended for rate filings submitted on or after effective December 1, 2005.
Regulation amended effective December 1, 2007.