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NAIC/STATE A&H REGULATORY UPDATE

Southeastern Actuaries Conference MeetingAtlanta, GA

November 20, 2008

John A. MacBain, FSA, MAAA

President, Actuarial Resources Corp of GA

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NAIC/STATE A&H REGULATORY UPDATE

� NAIC through its “B” Committee

� LHATF’s A&H Working Group (AHWG)

� Senior Issues Task Force (SITF)

� State Legislatures

� Federal Government

Primary Entities Involved With A&H Regulation

AHWG is the primary source of actuarial input for state-based A&H laws/regulations/guidelines

State legislatures remain active independently of the NAIC in certain A&H actuarial matters

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A. Current AHWG Actuarial Priorities

1. Development of a replacement for the 1985 NAIC Cancer Claims Cost Tables for valuation

2. Review and revise Medicare Supplement refund formula contained in Med Supp Model Regulation

3. Review LTC rating practices, particularly rate increase practices for closed blocks of business

4. Work on developing a principle based approach for minimum LTC reserves

5. Monitor implementation of PBR for A&H business

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B. State Legislative/Regulatory Activities

Efforts recently have centered on LTC closed block rating practices

1. FL – Rule 69O-157

2. TX – Proposed requirements focus on assumption of

pre-rate stabilization blocks of LTC

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A. Current AHWG Actuarial Priorities

1. Development of a replacement for the 1985 NAIC Cancer Claims Cost Tables for valuation

� Request to SOA Health Experience Studies committee to

collect cancer coverage experience data

� Data collection efforts seem to have slowed down; insufficient

number of companies have responded

� Variety of coverages available in the market could be an

issue with data collection

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A. Current AHWG Actuarial Priorities

2. Review and revise Medicare Supplement refund formula contained in Medicare Supplement Model Regulation

� Med Supp Refund Formula Subgroup wants changes

� Changes can be incorporated into Med Supp Model Regulation

� Would not become effective until federal Social Security Act is

amended

� AHWG believes calculations are not flexible enough

� Subgroup has asked AAA to provide input on various options

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A. Current AHWG Actuarial Priorities

2. Review and revise Medicare Supplement refund formula contained in Medicare Supplement Model Regulation (Cont’d)

� Options include combining plans (by type or state), plan

treatment by rating method, review loss ratio duration

� Review tolerance levels necessary for refund

� Review transitional issues

� Review 3/2004 AAA Report on refund benchmarks

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A. Current AHWG Actuarial Priorities

3. Review LTC rating practices, particularly rate increase practices for closed blocks of business

� SITF has requested AHWG “address the issues inherent to

closed blocks of [LTC] business”

� Issues cited by SITF were lack of profitability and rate spirals

� Request was added to AHWG charges for 2009

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A. Current AHWG Actuarial Priorities

4. Work on developing a principle based approach for minimum LTC reserves

� AAA LTC Principles Based WG is working on a stochastic

modeling approach for LTC valuation

� Also working with the SOA on morbidity data sources

� WG is continuing to refine a prototype of the model

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A. Current AHWG Actuarial Priorities

5. Monitor implementation of PBR for A&H business

� A&H business will be included in new SVL

� Valuation Manual section VM-25 contains A&H valuation

requirements

� Based on current guidance in APPM (not PBR)

� Continue finalization of VM-25

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A. Current AHWG Actuarial Priorities

5. Monitor implementation of PBR for A&H business (cont’d)

� Working on changes to Health Opinion (HAO)� Changes needed to improve content and achieve consistency

between Life/Health and Health A/S appointment requirements � Opinion mandates not in Valuation Manual section VM-30� Joint LHATF/CASTF developed proposed framework for

consistency� Changes exposed and on track for 2009 year end Opinion

Instructions

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B. State Legislative/Regulatory Activities

1. FL – Rule 69O-157

� Promulgated by authority of Section 627.9407 FS

� Applies to all LTC rate increase filings

� Policies issued or renewed on or after 7/1/06

� Rates after increase must be ≤ current new business rates

(other than benefit difference)

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B. State Legislative/Regulatory Activities

1. FL – Rule 69O-157 (Cont’d)

� If not currently issuing new business, rates after increase cannot exceed published rates

� Published rates are issue age (FL requires)� Published rates = weighted average (by 1st yr premium) of new

business rates� Published rates for Facility Only, Home Health Care Only, and

Comprehensive Only� May adjust for other than published benefit configurations and

underwriting classes

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B. State Legislative/Regulatory Activities

2. TX – Rate Increases For Pre-Rate Stabilization Blocks of LTC

� TX DOI wants to work with carriers on a solution to the problem

of frequent, large rate increases on these blocks

� TX DOI also realizes solvency is an issue

� Nothing has been proposed as a law or reg

� Looking at authority under Code Section 1651.055

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B. State Legislative/Regulatory Activities

2. TX – Rate Increases For Pre-Rate Stabilization Blocks of LTC (Cont’d)

� Approach being discussed involves moving policyholders to a

rate stabilized policy through acquisition of the block

� Would likely involve some sort of experience “true up” and

other incentives (i.e. premium tax credit, etc.)

� Communication of rate increases is also an issue