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WSR 97-21-151

PROPOSED RULES

INSURANCE COMMISSIONER'S OFFICE

[Filed October 22, 1997, 11:05 a.m.]

Continuance of WSR 97-20-139.

Preproposal statement of inquiry was filed as WSR 97-13-072.

Title of Rule: Procedures and standards for health care service contractors and health maintenance organizations to use in filing contract forms and rate schedules with the insurance commissioner.

Purpose: To provide consistent and up-to-date guidelines for filing contract forms and rate schedules and to specify the standards to be used to determine when proposed premiums are not unreasonable in relation to benefits.

Other Identifying Information: R 97-2.

Statutory Authority for Adoption: RCW 48.02.060, 48.44.050, and 48.46.200.

Statute Being Implemented: RCW 48.44.020 (2)(d), 48.44.022, 48.44.023, 48.46.060 (3)(d), (5), 48.46.064, and 48.46.066.

Summary: These rules set guidelines to be applied when rate filings are required and what the filings are to contain. They further provide the parameters within which the rates will be evaluated.

Reasons Supporting Proposal: RCW 48.44.020 (2)(d) and 48.46.060 (3)(d) allow the commissioner to disapprove contracts because the benefits are unreasonable in relation to the amount charged. This statute serves to provide the public with protection from excessive charges for the benefits provided by health benefit plans. The rule that established a standard for the evaluation of rates was repealed in 1995 because it was outdated, inflexible, and inappropriate for the current health care environment. Legislation that would have established a standard for this evaluation was passed by the legislature in 1996 but was vetoed by the governor. In the absence of standards, lengthy and costly litigation has occurred regarding the rates filed by carriers. In light of the lack of standards and the litigation that has occurred, the regulated community has requested that rules be adopted that not only establish standards for the evaluation of rates, but also establish guidelines for the material that is to be submitted in support of the requested rates. These new rules respond to these needs as well as the public's need for protection by defining the parameters within which the rates will be evaluated and the material that must be submitted in support of the requested rates.

Name of Agency Personnel Responsible for Drafting: Brian Morris, Olympia, (360) 664-4301; Implementation and Enforcement: Ida Zodrow, Olympia, (360) 664-8137.

Name of Proponent: Deborah Senn, Insurance Commissioner, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The new rule requires annual filings for health benefit plans and plans offered by limited health care service contractors. It includes a list of data elements and justifications that must be supplied in support of individual and small group rates. The rule establishes loss ratio and rate of increase criteria that, if met, will result in a determination that requested rates are not unreasonable. If the criteria are not met, the rule defines the components of the rate that will be reviewed in order to determine if the requested rate is not unreasonable. It is anticipated that the rule will bring more uniformity to the material submitted and help to establish a common language for discussions regarding the requested rates. It is further anticipated that the rule will allow the carriers a better understanding of how the filed rates will be reviewed.

Proposal Changes the Following Existing Rules: These rules will provide up-to-date guidelines for filing contract and rate schedules. These rules provide the standard to be used to determine when proposed premiums are not unreasonable in relation to benefits.

A small business economic impact statement has been prepared under chapter 19.85 RCW.

(a) Is the rule required by federal law or federal regulation? No, federal law does not require this rule proposal.

(b) What industry is affected by the proposed rule? The industry code that would be affected by this rule includes hospital and medical service plans, industry code #6324. In Washington, such plans are called health care service contractors (HCSCs) and health maintenance organizations (HMOs).

(c) List the specific parts of the proposed rule, based on the underlying statutory authority (RCW section), which may impose a cost to businesses. Most rates filed by health care service contractors (HCSCs) and health maintenance organizations (HMOs) are currently subject to review by the commissioner. The commissioner has the statutory authority to disapprove these rates if the benefits provided therein are "unreasonable in relation to the amount charged" (RCW 48.44.020 (2)(d) and 48.46.060 (2)(d)). Although rate analysts for the Office of the Insurance Commissioner evaluate rates based on criteria included in this proposed rule, the commissioner believes it is important to explicitly set forth in a rule, the standards used to review rates. The intended result of this proposed rule is to achieve uniformity in the rate review process for all carriers, consistent with applicable statutes and regulations, standard actuarial practices, and standards for financial reporting.

HMOs and HCSCs are currently required to file specific rating information with the commissioner for approval of all individual and small group rates. This proposed rule imposes costs on the carriers by modifying and expanding the filing requirements associated with the rate review process. In addition, the commissioner recognizes the potential for costs associated with the time required for reading and comprehending the new rule. The goal of this impact statement is to determine whether potential costs would disproportionately affect small carriers doing business in Washington state.

(d) What will be the compliance costs for industries affected? The intent of the proposed rule is to set forth in rule a consistent set of criteria on which to evaluate rate increases proposed by HCSCs and HMOs. The Office of the Insurance Commissioner (OIC) staff will use the proposed criteria to determine whether a proposed rate increase is unreasonable in relation to benefits. In order to thoroughly and consistently evaluate these rates, a set of proposed filing requirements is included in this rule. Some of these filing requirements are new to the health carriers and will increase the costs of compliance to this industry; however, rule drafters have attempted to create filing requirements which reflect, as much as possible, the way HMOs and HCSCs currently do business.

New filing requirements that may impose additional compliance costs on HMOs and HCSCs include:

Documentation and justification of adjustments made to experience data, claim trend assumptions, and future claim costs assumptions.

Nonclaims expense allocation information and justification of forecast changes in expenses.

Information on investment earnings.

Information on criteria to determine contribution to surplus.

Description of methodology used to adjust base rates.

(e) What percentage of the industries in the four-digit standard industrial classification will be affected by the rule? This proposed rule would affect one hundred percent of the HCSCs and HMOs that file rating information for individual and small group health benefit plans subject to OIC rate regulation under RCW 48.44.020 and 48.46.060.

(f) Will the rule impose a disproportionately higher economic burden on small businesses within the four-digit classification? In order to evaluate the effects of this proposed rule on large and small HCSCs and HMOs, it is important to recognize the varying structure of the health carriers within the industry. Tables 1 and 2 (on the following page) describe the types of health benefit plans that are currently offered by the largest and smallest HCSCs and HMOs in Washington state. The carriers will remain anonymous to maintain confidentiality. There are currently only two health carriers that have under fifty employees in the state of Washington. These "small" carriers exclusively offer health plans that are not subject to this proposed rate review rule (e.g. Medicaid plans, subsidized basic health plans). Presuming these carriers continue to offer these or similar types of plans, these companies would not be affected by the proposed rule. Conversely, all of the largest four carriers (largest 10%) described in Table 2 offer plans that are subject to rate review by the commissioner and would be subject to this proposed rule. Due to the types of benefit plans small carriers choose to offer, they are effectively excluded from the requirements of this proposed rule. Thus, this proposed rule does not appear to disproportionately burden "small" HCSCs and HMOs.

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(g) Can mitigation be used to reduce the economic impact of the rule on small businesses and still meet the stated objective of the statutes that are the basis of the proposed rule? Consideration of possible cost impacts played a key role in shaping the proposed draft rule. Two technical workgroup meetings with carrier staff familiar with the filing process were held specifically to discuss aspects of the draft rule that may potentially create compliance difficulties. In addition, four workgroup meetings to discuss policy impacts of the rule were held throughout July, August, and October. Table 3 summarizes the cost reduction efforts that have taken place to reduce the economic burden on small businesses affected by this rule.

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(h) What steps will the commissioner take to reduce the costs of the rule on small businesses? As described in Table 3, the commissioner has taken steps to reduce the costs imposed by this rule. Small carriers are invited to provide input throughout the rule drafting process. The drafters will continue to meet with HMO and HCSC representatives to discuss the proposed rule.

(i) Which mitigation techniques have been considered and incorporated into the proposed rule? Based on written comments from and discussions with representatives of HCSCs and HMOs, as well as input from OIC rate analysts, the commissioner eliminated several provisions from the proposed rule that significantly reduced the filing costs associated with this rule. Elimination of these provisions has reduced the analytical work and paperwork required to comply with the proposed rule. On September 29th and October 6th, carriers were invited to a meeting to discuss potential cost produced by the proposed rule. Changes were proposed and discussed in a meeting with HMO and HCSC representatives on October 17th. Details of mitigation efforts are described in Table 3.

(j) Which mitigation techniques were considered for incorporation into the proposed rule but were rejected, and why? The original draft required filing every year. Most HMOs and HCSCs file rates every year; however, filings are currently only required every three years. Health insurance rates may actually be increasing even when carriers do not file rate increases due to trend factors that are built into rates. The assumptions and factors on which these trends are based, however, may change from year-to-year. The intent of including a twelve-month filing requirement is to evaluate the appropriateness of the rating factors with annually updated information.

At the workgroup meetings, carrier representatives requested that the twelve-month filing requirement be modified to allow more flexibility. One suggestion was to allow an exemption for carriers who choose to keep premiums at the same level as the previous year (0% rate increase). This mitigation approach was rejected in favor of expanding the filing time period from twelve months to eighteen months to increase flexibility. The rate rule standards require analysts to review loss-ratios and rating factors every year, even when 0% increases are proposed, because a 0% increase may not be appropriate. The amount of increase would depend on the rating factors, which may be changing significantly from year-to-year. Therefore, it did not seem that a filing exemption would be appropriate for carriers with 0% rate increases, considering that the proposed standard is based on reviewing the appropriateness of rates as a function of certain rate factors. The standard is not based solely on the amount a rate changes.

(k) Briefly describe the reporting, recordkeeping, and other compliance requirements of the proposed rule. The rate review criteria are designed to be consistent with applicable statutes and regulations, standard actuarial practices, and standards for financial reporting. It is not the intent of this rule to require recordkeeping that is not consistent with the standard practice and sound financial management of health carriers. HMOs and HCSCs are required to file documentation regarding claims expenses, nonclaims expenses, criteria for determining contribution to surplus, and justification for adjustments made to base rates. All data would come from records and reports that are part of the standard rate making process.

(l) List the kinds of professional services that a small business is likely to need in order to comply with the reporting, recordkeeping, and other compliance requirements of the proposed rule. In the event an HCSC or HMO has difficulty comprehending the intent of the proposed rule, the Insurance Commissioner will make resources available to assist the carrier in understanding and complying with the proposed rule. "Small" businesses (as defined in RCW 19.85.020(1)) will not need to employ additional professional services as a result of this rule. The commissioner, however, will make efforts to explore any potential disproportionate impacts on relatively small businesses by soliciting cost information and including health carrier representatives in all technical workgroups. It is possible that this rule may require "relatively" small HMOs and HCSCs (although they employ well over fifty employees) to acquire additional actuarial resources. The commissioner has made efforts to mitigate these impacts by loosening the actuarial certification requirements of the rule. The commissioner will continue to make efforts to ensure that smaller carriers will not need to employ disproportionately more resources than larger carriers in order to comply with this rule.

(m) Analyze the cost of compliance including, specifically:

Cost of equipment: No additional cost of equipment expected.

Cost of supplies: No additional cost of supplies expected.

Cost of labor: Firms may possibly need to hire consulting labor to assist them in making their initial filing under the revised criteria.

Cost of increased administration: More in-depth filing requirements may require additional administrative coordination to file rates.

(n) Compare the cost of compliance for small business with the cost of compliance for the largest businesses in the same four-digit classification, using one or more of the following (as specifically required by RCW 19.85.040 (1)(a), (b), and (c)). HCSCs and HMOs offering individual and group plans based on standard, nonnegotiated rates are currently subject to community rating statutes (RCW 48.44.022, 48.44.023, 48.46.064 and 48.46.066). Rate proposals for all state and federally funded plans are subject to appropriate state and federal regulation. The target of the proposed rate review rule is to provide a consistent set of criteria for all plans under the jurisdiction of the OIC.

Due to the structure of the "small" health carriers in this state, small companies are effectively excluded from the filing requirements and potential cost impacts of this rule. Because the cost impact on these "small" businesses is $0 per employee and the cost impact on larger carriers is greater than $0 per employee, this proposed rule does not disproportionately burden "small" health carriers in this state. The commissioner will continue to solicit input and consider further mitigation of possible cost impacts on medium-sized businesses (with 100-300 employees) relative to larger carriers. In an effort to reduce disproportionate filing burdens on smaller businesses, the commissioner has modified and eliminated a number of requirements (see Table 3).

(o) Have businesses that will be affected been asked what the economic impact will be? All carriers were informed of the commissioner's intent to draft a rule regarding rate review criteria for all health carriers in July 1997. The CR-101 for this rule was filed on July 23, 1997. Four workgroup meetings were held throughout July and August. The workgroups included representatives from health carriers, consumers, and members of the business community who would potentially be affected by a proposed rate rule. In addition, a public hearing was held on August 8, 1997, to discuss the proposed rate rule. Two technical workgroup meetings to discuss cost impacts were held on September 29 and October 6, 1997. An additional workgroup meeting to discuss policy changes was held on October 17, 1997. Additional workgroup meetings will be held before the rule-making hearing.

(p) How did the commissioner involve small businesses in the development of the proposed rule? All small HCSCs and HMOs were invited to provide feedback to the commissioner regarding the intent to draft a rule pertaining to rate review standards in July 1997. Also, all small carriers were sent copies of the draft rule on September 29, 1997, and asked to provide comments to the commissioner. Four workgroup meetings, which included representatives from small carriers, were held throughout July and August and October.

(q) How and when were affected small businesses advised of the proposed rule? Small carriers were advised of the proposed rule in writing on July 23, 1997. Also, see parts (o) and (p) for more details.

A copy of the statement may be obtained by writing to Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, Internet e-mail KacyB@oic.wa.gov, phone (360) 407-0729, or FAX (360) 407-0569.

RCW 34.05.328 applies to this rule adoption.

Hearing Location: General Administration Building, 1st Floor Auditorium, 11th and Columbia, Olympia, Washington, on December 3, 1997, at 9:00. The rule-making hearing originally scheduled for November 7, 1997, has been canceled. In its place, a public information meeting will be held on November 7, 1997, at 9:00 a.m. in the General Administration Building, 1st Floor Auditorium, 11th and Columbia, Olympia, Washington. For more about the public meeting, please call Brian Morris, (360) 664-4301.

Assistance for Persons with Disabilities: Contact Steve Carlsberg by December 1, 1997, TDD (360) 664-3154.

Submit Written Comments to: Kacy Brandeberry, P.O. Box 40256, Olympia, WA 98504-0256, Internet e-mail KacyB@oic.wa.gov, FAX (360) 407-0569, by December 1, 1997.

Date of Intended Adoption: December 18, 1997.

October 22, 1997

Ida Zodrow

Deputy Commissioner

SUBCHAPTER I--HEALTH PLAN RATES

NEW SECTION

WAC 284-43-900 Authority and purpose. This subchapter is adopted under the general authority of RCW 48.02.060, 48.44.050, and 48.46.200. Its purpose is to provide guidelines for the implementation of RCW 48.44.020 (2)(d), 48.44.022, 48.44.023, 48.44.040, 48.46.060 (3)(d), 48.46.060(5), 48.46.064, and 48.46.066 as to the filing of contract forms by health care service contractors and health maintenance organizations and the calculations and evaluations of premium rates for these contracts.

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NEW SECTION

WAC 284-43-905 Applicability and scope. This subchapter applies to health benefit plans as defined in RCW 48.43.005(9), and contracts for limited health care services as defined in RCW 48.44.035(1), offered by health care service contractors and health maintenance organizations registered in this state under chapter 48.44 or 48.46 RCW. It applies to such plans purchased directly by individuals, small employers, and large employers, or other organizations.

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NEW SECTION

WAC 284-43-910 Definitions. For the purpose of this subchapter:

(1) "Adjusted earned premium" means the amount of "earned premium" the "carrier" would have earned had the "carrier" charged current "premium rates" for all applicable "plans."

(2) "Amount charged" means all sums charged, received, or deposited as consideration for a "contract" or "group contract" or the continuance thereof. An assessment or a membership, contract, survey, inspection, service, or similar fee or charge made by the carrier in consideration for a "contract" or "group contract" is considered part of the "amount charged."

(3) "Annualized earned premium" means the "earned premium" that would be earned in a twelve-month period if earned at the same rate as during the applicable period.

(4) "Anticipated loss ratio" means the "projected incurred claims" divided by the "projected earned premium."

(5) "Base rate" means the amount charged for a specific "plan," expressed as a monthly amount per "covered person or subscriber," prior to any adjustments for geographic area, age, family size, wellness activities, tenure, or any other factors as may be allowed.

(6) "Capitation expenses" means the amount paid to a provider on a per "covered person" basis, or as part of risk-sharing provisions, for the coverage of specified health care services.

(7) "Carrier" means a health care service contractor or health maintenance organization.

(8) "Certificate" means the statement of coverage document furnished "subscribers" covered under a "group contract."

(9) "Claim reserves" means the "claims" that have been reported but not paid plus the "claims" that have not been reported but may be reasonably expected.

(10) "Claims" means the cost to the "carrier" of health care services provided to a "covered person" or paid to or on behalf of the "covered person" in accordance with the terms of a "plan." This includes "capitation payments" or other similar payments made to "providers" for the purpose of paying for health care services for a "covered person."

(11) "Community rate" means the weighted average of all "premium rates" within a filing with the weights determined according to current enrollment.

(12) "Contract" means an agreement to provide health care services or pay health care costs for or on behalf of a "subscriber" or group of "subscribers" and such eligible dependents as may be included therein.

(13) "Contract form" means the prototype of a "contract" and any associated riders and endorsements filed with the commissioner by a health care service contractor or health maintenance organization.

(14) "Contribution to surplus, contingency charges, or risk charges" means the portion of the "projected earned premium" not associated directly with "claims" or "expenses" but that provide the "carrier" with compensation for underwriting the risks involved, provide a return on the "carrier's" investment of capital, or provide assurance of the "carrier's" solvency.

(15) "Covered persons" means all "subscribers" and their eligible dependents.

(16) "Current community rate" means the weighted average of the "community rates" at the renewal or initial effective dates of each plan for the year immediately preceding the renewal period, with weights determined according to current enrollment.

(17) "Current enrollment" means the number and demographic make-up of the "covered persons" for the applicable contracts as of the most recent date for which this information is available to the carrier.

(18) "Earned premium" means the "amount charged" plus any rate credits or recoupments, applicable to an accounting period whether received before, during, or after such period.

(19) "Expenses" means costs that include but are not limited to the following:

(a) Claim adjudication costs;

(b) Utilization management costs if distinguishable from "claims";

(c) Home office and field overhead;

(d) Acquisition and selling costs;

(e) Taxes; and

(f) All other costs except "claims."

(20) "Experience period" means the most recent twelve-month period from which the carrier accumulates the data to support a filing.

(21) "Extraordinary expenses" means "expenses" resulting from occurrences atypical of the normal business activities of the "carrier" that are not expected to recur regularly in the near future.

(22) "Group contract" or "group plan" means an agreement issued to an employer, corporation, labor union, association, trust, or other organization to provide health care services to employees or members of such entities and the dependents of such employees or members.

(23) "Incurred claims" means "claims" paid during the applicable period plus the "claim reserves" as of the end of the applicable period minus the "claim reserves" as of the beginning of the applicable period. Alternatively, for the purpose of providing monthly data or trend analysis, "incurred claims" may be defined as the current best estimate of the "claims" for services provided during the applicable period.

(24) "Individual contract" means a "contract" issued to and covering an individual. An "individual contract" may include dependents.

(25) "Investment earnings" means the income, dividends, and realized capital gains earned on an asset.

(26) "Loss ratio" means "incurred claims" as a percentage of "earned premiums" before any deductions.

(27) "Medical care component of the consumer price index for all urban consumers" means the similarly named figure published monthly by the United States Bureau of Labor Statistics.

(28) "Net worth or reserves and unassigned funds" means the excess of assets over liabilities on a statutory basis.

(29) "Plan" means a "contract" that is a health benefits plan as defined in RCW 48.43.005(9) or a "contract" for limited health care services as defined in RCW 48.44.035(1).

(30) "Premium rate" means the "amount charged" per "subscriber" or "covered person" obtained by adjusting the "base rate" for geographic area, family size, age, wellness activities, tenure, or any other factors as may be allowed.

(31) "Projected earned premium" means the "earned premium" that would be derived from applying the proposed "premium rates" to the current enrollment.

(32) "Projected incurred claims" means the estimate of "incurred claims" for the rate renewal period based on the current enrollment.

(33) "Proposed community rate" means the weighted average of the "community rates" at the renewal dates of each plan for the renewal period, with weights determined according to current enrollment.

(34) "Provider" means any health professional, hospital, or other institution, organization, prescription drug vendor, or person that furnishes health care services and is licensed or otherwise authorized to furnish such services.

(35) "Rate renewal period" means the period for which the proposed "premium rates" are intended to remain in effect.

(36) "Rate schedule" means the schedule of all "base rates" for "plans" included in the filing.

(37) "Requested increase in the community rate" means the amount, expressed as a percentage, by which the "proposed community rate" exceeds the "current community rate."

(38) "Service type" means the category of service for which "claims" are paid, such as hospital, professional, dental, prescription drug, or other.

(39) "Small group contracts" or "small group plans" means the class of "group contracts" issued to small employers with no more than fifty eligible employees, including sole proprietors. "Small employer" is defined at RCW 48.43.005(13).

(40) "Staffing data" means statistics on the number of "providers" and associated compensation required to provide a fixed number of services or provide services to a fixed number of "covered persons."

(41) "Subscriber" means a person on whose behalf a "contract" or "certificate" is issued.

(42) "Unit cost data" means statistics on the cost per health care service provided to a "covered person."

(43) "Utilization data" means statistics on the number of services used by a fixed number of "covered persons" over a fixed length of time.

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NEW SECTION

WAC 284-43-915 Demonstration that benefits provided are not reasonable in relation to the amount charged for a contract per RCW 48.44.020 (2)(d) and 48.46.060 (3)(d). In addition to the requirements of RCW 48.44.022, 48.44.023, 48.46.064, and 48.46.066, where applicable:

(1) For individual and small group plans, benefits shall be found not to be unreasonable in relation to the amount charged if one or more of the following is true:

(a) The requested increase in the community rate is zero percent or less and the anticipated loss ratio is seventy percent or more; or

(b) The anticipated loss ratio is eighty percent or more and the requested increase in the community rate is not more than the applicable rate in the following table.

CPI* Maximum Rate Increase

7% or less CPI*+3%

7% to 10% 13%

10% or more CPI*

* CPI refers to the rate of increase in the medical care component of the consumer price index for all urban consumers.

(2) For group plans other than small group plans, benefits shall be found not to be unreasonable in relation to amount charged if the anticipated loss ratio is eighty percent or more.

(3) If the conditions of subsection (1) or (2) of this section are not met, benefits shall be found not to be unreasonable if the projected earned premium for the rate renewal period is equal to the following:

(a) An actuarially sound estimate of incurred claims associated with the filing for the rate renewal period, where the actuarial estimate of claims shall recognize, as applicable, the savings and costs associated with managed care provisions of the plans included in the filing; plus

(b) A verifiable estimate of prudently incurred expenses that are allocated or assigned to the filing for the rate renewal period on the basis of a reasonable and consistent method; plus

(c) A well justified provision for contribution to surplus, contingency charges, or risk charges, where the justification shall recognize the carrier's investment earnings on assets other than those related to claim reserves or other similar liabilities; minus

(d) An actuarially sound estimate of the forecasted investment earnings on assets related to claim reserves or other similar liabilities for the plans included in the filing for the rate renewal period.

(4) The contribution to surplus, contingency charges, or risk charges in subsection (3)(c) of this section, shall not be required to be less than zero.

(5) For the purposes of this section, the rate of increase in the medical care component of the consumer price index for all urban consumers shall be measured by comparing the index for the month immediately preceding the month in which the filing is submitted to the index for the corresponding calendar month for the prior year.

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NEW SECTION

WAC 284-43-920 When a carrier is required to file. (1) Every contract form and any modification thereof, and every rate schedule and any change thereof shall be filed with the commissioner:

(a) Before being offered for sale to the public; and

(b) Within thirty days after the end of an eighteen-month period during which a previous filing has remained unchanged for such period, including contract forms filed prior to the effective date of this regulation.

(2) Filings of negotiated contract forms, and applicable rate schedules, that are placed into effect at time of negotiation or that have a retroactive effective date are not required to be filed in accordance with subsection (1)(a) and (b) of this section, but shall be filed within thirty working days after the earlier of:

(a) The date group contract negotiations are completed; or

(b) The date renewal premiums are implemented.

(3) An explanation for any filing delayed beyond the thirty-day period as described in subsection (2) of this section shall be given on the filing document as set forth in WAC 284-43-950.

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NEW SECTION

WAC 284-43-925 General contents of all filings. Each filing required to be made pursuant to WAC 284-43-920 shall be submitted with the filing transmittal form prescribed by and available from the commissioner. The form will include the name of the filing entity, its address, identification number, the type of filing being submitted, the form name or group name and number, and other relevant information. Filings shall also include the information required on the filing summary set forth in WAC 284-43-945 for individual and small group plans and rate schedules or as set forth in WAC 284-43-950 for group plans and rate schedules other than those for small groups.

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NEW SECTION

WAC 284-43-930 Contents of individual and small group filings. Under RCW 48.44.022(3) and 48.46.064(3) the experience of all individual plans shall be pooled; and under RCW 48.44.023(3)(i) and 48.46.066(3)(i) the experience of all small group plans shall be pooled. Filings for individual plans shall include base rates for all individual plans and filings for small group plans shall include base rates for all small group plans. Each individual and small group filing shall include all of the following information and documents:

(1) An actuarially sound estimate of incurred claims. Experience data, assumptions, and justifications of the carrier's projected incurred claims shall be provided in a manner consistent with the carrier's rate-making methodology and incorporate the following elements:

(a) A brief description of the carrier's rate-making methodology, including identification of the data used and the kinds of assumptions and projections made.

(b) The number of subscribers by family size, or covered persons for the plans included in the filing. These figures shall be shown for each month or quarter of the experience period and the prior two periods if not included in previous filings. This data shall be presented in aggregate for the plans included in the filing and in aggregate for all of the carrier's plans.

(c) Earned premium for each month or quarter of the experience period and the prior two periods if not included in previous filings, for the plans included in the filing.

(d) An estimate of the adjusted earned premium for each month or quarter of the experience period and prior two periods for the plans included in the filing.

(e) Claims data for each month or quarter of the experience period and the prior two periods. Examples of claims data are, incurred claims, capitation payments, utilization data, unit cost data, and staffing data. The specific data elements included in the filing shall be consistent with the carrier's rate-making methodology.

(f) Documentation and justification of any adjustments made to the experience data.

(g) Documentation and justification of the factors and methods used to forecast incurred claims.

(2) A verifiable estimate of prudently incurred expenses. Experience data, assumptions, and justifications shall be provided by the carrier as follows:

(a) A breakdown of the carrier's expenses allocated or assigned to the plans included in the filing for the experience period or for the period corresponding to the most recent "annual statement";

(i) Health care service contractors shall provide the expense breakdown in the same format as the annual statement schedule "Underwriting and Investment Exhibit, Part 3, Analysis of Expenses" as revised from time to time;

(ii) Health maintenance organizations shall provide the expense breakdown in the same format as the "Annual Statement, Report #2: Statement of Revenues, Expenses and Net Worth," for the medical, hospital, and administrative expenses as revised from time to time;

(b) Identification of any experience period expenses that are extraordinary; and

(c) Documentation and justification of the assignment or allocation of expenses to the plans included in the filing; and

(d) Documentation and justification of forecasted changes in expenses.

(3) A well-justified provision for contribution to surplus, contingency charges, or risk charges. Assumptions and justifications shall be provided by a carrier as follows:

(a) The methodology, justification, and calculations used to determine the contribution to surplus, contingency charges, or risk charges included in the proposed base rates; and

(b) The carrier's net worth or reserves and unassigned surplus at the beginning of the experience period and at the end of the experience period.

(4) An actuarially sound estimate of forecasted investment earnings on assets related to claim reserves or other similar liabilities. The carrier shall include documentation and justification of forecasted investment earnings identified in dollars, and as a percentage of total premiums and the amount credited to the plans included in the filing.

(5) Adjustment of the base rate. Experience data, assumptions, justifications, and methodology descriptions shall be provided that include:

(a) Justifications for adjustments to the base rate, supported by data, attributable to geographic region, age, family size, use of wellness activities, and tenure discounts;

(b) Justifications, supported by data if appropriate, of any other factors or circumstances used to adjust the base rates; and

(c) Description of the methodology used to adjust the base rate to obtain the premium rate for a specific individual or group, which is detailed enough to allow the commissioner to replicate the calculation of premium rates if given the necessary data.

(6) Actuarial certification. Certification by an actuary, as defined by WAC 284-05-060(1), that the benefits and services to be provided are reasonable in relation to the amount charged.

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NEW SECTION

WAC 284-43-935 Experience records. (1) Every carrier shall maintain for each plan for the five most recent years, records of:

(a) Incurred claims;

(b) Earned premiums; and

(c) Expenses.

(2) Such records shall include data for rider and endorsement forms that are used with the contract forms. Separate data may be maintained for each rider or endorsement form as appropriate. Experience under contract forms that provide substantially similar coverage may be combined for recordkeeping purposes.

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NEW SECTION

WAC 284-43-940 Evaluating experience data. In determining the credibility and appropriateness of experience data, consideration shall be given to all relevant factors, including:

(1) Statistical credibility of the amount charged and services and benefits paid, such as low exposure, low loss frequency, and recoupment;

(2) Actual and projected trends relative to changes in medical costs and changes in utilization;

(3) The mix of business by risk classification; and

(4) Adverse selection or lapse factors reasonably expected in connection with revisions to plan provisions, services, benefits, and amount charged.

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WAC 284-43-945 Summary for individual and small group contract filings.

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NEW SECTION

WAC 284-43-950 Summary for group contract filings other than small group contract filings.

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WAC 284-43-955 Effective date. This subchapter shall become effective on January 1, 1998.

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REPEALER

The following sections of the Washington Administrative Code are repealed:

WAC 284-44-100 Authority and purpose.

WAC 284-44-110 Applicability and scope.

WAC 284-44-120 Definitions.

WAC 284-44-130 When filing is required.

WAC 284-44-140 General contents of all filings.

WAC 284-44-150 Experience records.

WAC 284-44-160 Evaluating experience data.

WAC 284-44-190 Unique contract forms.

WAC 284-44-200 Effective date.

WAC 284-44-210 "Filing document" form--Standard contract filing information.