Laws, Rules & Decisions Chapter 420

02 DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION

031 BUREAU OF INSURANCE

Chapter 420

NURSING HOME CARE INSURANCE AND LONG-TERM CARE INSURANCE

Section 1. Purpose

The purpose of this rule is to set forth ongoing requirements applicable to nursing home and long term care insurance policies issued prior to October 1, 2004.

(Drafting Note: Maine Insurance Rule Chapter 425 establishes rating standards and requirements applicable to long-term care insurance policies issued on and after October 1, 2004.)

Section 2. Authority

This rule is promulgated pursuant to the authority vested in the Superintendent of Insurance under Title 24-A M.R.S.A. Sections 212, 5052, 5053 and 5078.

Section 3. Applicability and scope

This rule shall apply to all Nursing Home Care and Long-Term Care insurance policies as defined in Title 24-A M.R.S.A. Section 5051 and 5071 issued prior to October 1, 2004. It does not apply to any rate filing that is subject to Sections 9, 10, or 20 of Rule 425.
The provisions of this rule do not apply to certain long-term care insurance policies issued prior to October 1, 1990 to employer, labor union, and association groups or to individuals pursuant to group conversion privileges.
(Drafting Note: See 24-A M.R.S.A. § 5051 for specifics.)
The provisions of this rule do not apply to a group nursing home care or long-term care insurance policy offered to a resident of Maine under a group policy issued in another state.

Section 4. Rating standards prior to May 1, 2008

Prior to May 1, 2008, benefits under long-term care and nursing home care insurance policies shall be deemed reasonable in relation to premiums provided the expected loss ratio is at least 60 percent, calculated in a manner which provides for adequate reserving of the long-term care insurance risk. In evaluating the expected loss ratio, due consideration shall be given to all relevant factors, including:

(1) Statistical credibility of incurred claims experience and earned premiums;

(2) The period for which rates are computed to provide coverage;

(3) Experienced and projected trends;

(4) Concentration of experience within early policy duration;

(5) Expected claim fluctuation;

(6) Experience refunds, adjustments or dividends;

(7) Renewability features;

(8) All appropriate expense factors;

(9) Interest;

(10) Experimental nature of the coverage;

(11) Policy reserves;

(12) Mix of business by risk classification; and

(13) Product features such as long elimination periods, high deductibles and high maximum limits.

Section 5. Rating standards on or after May 1, 2008

The requirements of this section apply to rates in effect on or after May 1, 2008, for policies subject to this Rule pursuant to Section 3.

Rate filings may be filed electronically, using the System for Electronic Rate and Form Filing (SERFF), or on paper. Paper filings must include two copies of the cover letter. If the filing is found to be in compliance with the law, one copy of the cover letter (and any other materials sent in duplicate) will be returned to the insurer stamped to confirm that the rates are acceptable. Every rate submission must contain the following information:
1. Insurer Information: Include the name and address of the insurer. The name, title, email address, and direct phone number of the person responsible for the filing must also be included.
2. Description of Benefits: Include a brief description of the benefits provided by each policy form and any attached riders or endorsements.
3. Dates of Issue: State the period during which the policy form was issued in Maine.
4. In Force Business: State the policy or certificate count and annualized premium of Maine policyholders or certificate holders who will be affected by the proposed rate revision.
5. Proposed Effective Date: State the proposed effective date and method of the proposed rate revision implementation (e.g. next anniversary or next premium due date).
6. History of Rate Adjustments: List the approval dates and average percentage rate adjustments for the form both nationwide and in Maine since inception of the policy form.
7. Maine and National Experience on the Form (Past and Future Anticipated): Experience from inception for each calendar year and, where appropriate, each policy year must be displayed. If there have been prior rate adjustments, past experience must be presented on both an actual basis and a current premium rate basis. Show experience separately for Maine and for all states in which the form is or was sold. State whether the proposed rates are based on Maine experience, national experience, or a combination and explain the reasons this basis was used. If nationwide experience is used, premiums must be adjusted to the Maine rate level.
8. Waiver of Premium: Specify whether waived premiums are included in earned premiums and incurred claims.
  1. If waived premiums are included, include the following:
    
    (i) Specify the amount of waived premiums over the last 12 months.
    (ii) Specify the amount of reserves held for future waived premiums.
    (iii) Indicate the effect of the proposed rate increase on future waived premiums and reserves.
  2. If waived premiums are not included, specify the amount of waived premiums in each year.
9. Supporting Information: The filing must include sufficient supporting information to demonstrate that the rates are not excessive, inadequate, or unfairly discriminatory. At a minimum, the filing must include an analysis of actual and projected experience with respect to morbidity, mortality, lapsation, and any other relevant factors. Include a comparison to original pricing assumptions and to the assumptions at the time of any previous rate adjustment. Include a demonstration that the actual and projected experience meets the standards of subsection B.
10. Premium breakdown: Separately for the future period and for the lifetime of the form, show the following items as a percentage of earned premium. Past experience must be accumulated with interest. Future experience must be on a present value basis.
  1. Initial contract reserves (applies to future period only; zero for lifetime);
  2. Incurred claims;
  3. Commissions;
  4. Administrative expenses other than commissions that are a percentage of premium (e.g., premium tax);
  5. Fixed administrative expenses; and
  6. Profit = 100% + (a) - (b) - (c) - (d) - (e).
    For purposes of this section, incurred claims do not include any active life reserves, claim adjustment expenses, or cost containment expenses.
11. Similar forms:
  1. If the form is no longer actively marketed, a statement must be included as to whether a similar form is actively marketed and, if so, a discussion of equity between the two forms, including a comparison of the benefits and premium rates, must also be included. “Similar forms” means all of the long-term care or nursing home care policies and certificates issued by an insurer in the same benefit classification as the policy form being considered. Certificates of employee groups as defined in 24-A M.R.S.A. § 2804, labor union groups as defined in 24-A M.R.S.A. § 2805, or trustee groups as defined in 24-A M.R.S.A. § 2806 are not considered similar to certificates or policies otherwise issued as long-term care or nursing home care insurance but are similar to other comparable certificates with the same benefit classifications. The different benefit classifications are: institutional benefits only, non-institutional benefits only, and comprehensive (institutional and non-institutional) benefits.
  2. Rates for individual policy forms for closed blocks must not exceed rates for an open block, unless the difference is justified by differences in benefits or other conditions, or unless the fact that renewal rates would exceed new business rates was disclosed at issue. The Superintendent may approve exceptions to this requirement, if the enrollees are permitted to change to the new form based on original issue age and the Superintendent determines that the change would be in the best interest of the enrollees.
12. Actuarial Certification: There must be certification by a qualified actuary that, to the best of the actuary’s knowledge and judgment, the entire rate filing is in compliance with the applicable laws of the State of Maine and with the rules of the Bureau of Insurance. “Qualified actuary,” as used herein, means a member in good standing of the American Academy of Actuaries.
13. Any additional information that the Superintendent deems necessary.
1. For purposes of this subsection, the following definitions apply:
  1. “Future” means the period after the proposed rate increase takes effect.
  2. “Past” means the period beginning when the first policy was issued and ending on the date the proposed rate increase takes effect. Past experience includes actual experience plus projected experience for the portion of the period beyond which actual experience is available;
  3. “Past adjusted earned premiums” means past earned premiums adjusted to the proposed rate level.
  4. “Initial premium” means the premium at the rate initially filed for the form, before any rate increases.
  5. “Increased portion of premium” means the total premium minus the initial premium.
2. Except as provided in subsection C, no rate increase will be approved unless the actual and projected experience submitted pursuant to subsection A meets the terms of this paragraph. The accumulated value of past incurred claims plus the present value of future incurred claims must not be less than the sum of the following:
  1. Sixty percent of the accumulated value of past adjusted earned premiums plus the present value of future projected earned premiums; and
    
    (Drafting Note: Past premiums are adjusted to the current rate level in order to ensure that the proposed increase does not recoup past losses. This methodology is set forth as the “Variation in Future Loss Ratio Approach” in the article entitled “Long-Term Care Insurance Rate Increase Considerations” published by the Society of Actuaries in the December 2003 edition of the Long-Term Care News.
  2. Twenty-five percent of the accumulated value of the increased portion of past adjusted earned premiums plus the present value of the increased portion of future projected earned premiums;
    
    (Drafting Note: The addition of 25% of the increased portion of the premiums reflects the lack of first-year expenses associated with this portion of the premium. This assumes that 15% of premium will cover renewal expenses. If this is not the case, the insurer may request an exception under subsection C.
An insurer will be granted an exception to the requirements of subsection B if it demonstrates that its reasonable renewal expenses exceed 15% of the increased premium. In that case, the 25% in subparagraph B(2)(b) will be replaced by 40% minus the demonstrated reasonable renewal expenses as a percentage of the increased premium.
All present and accumulated values used to determine rate increases must use the maximum valuation interest rate for contract reserves as specified in Bureau of Insurance Rule Chapter 130. The filing must disclose the use of any appropriate averages.
If the policy form affects policies issued both before and after October 1, 2004, separate filings must be submitted. The filing for policies issued prior to October 1, 2004 must meet the standards of this rule. The filing for policies issued on or after October 1, 2004 must meet the standards of Rule 425.

Section 6. Contingent Nonforfeiture Benefit Upon Lapse

This section does not apply to life insurance policies or riders containing accelerated long-term care benefits.
The insurer shall provide a contingent nonforfeiture benefit upon lapse every time an insurer increases the premium rates to a level which results in a cumulative increase of the annual premium equal to or exceeding the percentage of the insured’s initial annual premium set forth in Appendix A, based on the insured’s issue age, and the policy or certificate lapses within 120 days of the due date of the premium so increased. Unless otherwise required, policyholders shall be notified at least 90 days prior to the due date of the premium reflecting the rate increase.
Benefits continued as contingent nonforfeiture benefits upon lapse are described in this subsection:
1. For purposes of this subsection, “attained age rating” is defined as a schedule of premiums starting from the issue date which increases age at least one percent per year prior to age 50 and at least three percent per year beyond age 50.
2. For purposes of this subsection, the contingent nonforfeiture benefit shall be for a shortened benefit period providing paid-up long-term care insurance coverage after lapse. The same benefits (amounts and frequency in effect at the time of lapse but not increased thereafter) will be payable for a qualifying claim, but the lifetime maximum dollars or days of benefits shall be determined as specified in paragraph 3.
3. The standard nonforfeiture credit will be equal to 100% of the sum of all premiums paid, including the premiums paid prior to any changes in benefits. The insurer may offer additional shortened benefit period options, as long as the benefits for each duration equal or exceed the standard nonforfeiture credit for that duration. However, the minimum nonforfeiture credit shall not be less than 30 times the daily nursing home benefit at the time of lapse. In either event, the calculation of the nonforfeiture credit is subject to the limitation of subsection D.
4. a. The nonforfeiture benefit shall begin not later than the end of the third year following the policy or certificate issue date. The contingent nonforfeiture benefit upon lapse shall be effective immediately on the policy or certificate issue date.
  
  b. Notwithstanding subparagraph a, for a policy or certificate with attained age rating, the nonforfeiture benefit shall begin on the earlier of:
  
  (i) The end of the tenth year following the policy or certificate issue date; or
  (ii) The end of the second year following the date the policy or certificate is no longer subject to attained age rating.
5. Nonforfeiture credits may be used for all care and services qualifying for benefits under the terms of the policy or certificate, up to the limits specified in the policy or certificate.
All benefits paid by the insurer while the policy or certificate is in premium paying status and in the paid up status will not exceed the maximum benefits which would be payable if the policy or certificate had remained in premium paying status.
There shall be no difference in the minimum nonforfeiture benefits required under this section for group and individual policies.
To determine whether contingent nonforfeiture upon lapse provisions are triggered under subsection B, a replacing insurer that purchased or otherwise assumed a block or blocks of long-term care insurance policies from another insurer shall calculate the percentage increase based on the initial annual premium paid by the insured when the policy was first purchased from the original insurer.
The Superintendent may also approve any other alternative mechanism filed by the insurer in lieu of the contingent benefit upon lapse.

Section 7. Notice of Rate Increase

The insurer shall provide written notice by first class mail of a rate increase to all affected policyholders and to group certificate holders who are directly billed for coverage at least 90 days before the effective date of any increase in premium rates. An increase in premium rates may not be implemented until 90 days after the notice is provided.

Section 8. Effective date.

This rule is effective October 1, 2004. The 2008 amendments are effective May 1, 2008.

APPENDIX A

Contingent Nonforfeiture Cumulative Premium Increase over Initial Premium That qualifies for Contingent Nonforfeiture (Percentage increase is cumulative from date of original issue. It does NOT represent a one-time increase.)
Issue Age	Percent Increase Over Initial Premium*
29 and under	200%
30-34	190%
35-39	170%
40-44	150%
45-49	130%
50-54	110%
55-59	90%
60	70%
61	66%
62	62%
63	58%
64	54%
65	50%
66	48%
67	46%
68	44%
69	42%
70	40%
71	38%
72	36%
73	34%
74	32%
75	30%
76	28%
77	26%
78	24%
79	22%
80	20%
81	19%
82	18%
83	17%
84	16%
85	15%
86	14%
87	13%
88	12%
89	11%
90 and over	10%

* See Section 6(F)