S 0221 General Bill, By T.W. Mitchell and Washington
 A BILL TO PROVIDE THAT BENEFITS OF AN INDIVIDUAL HEALTH INSURANCE POLICY MUST
 BE CONSIDERED REASONABLE IN RELATION TO PREMIUMS CHARGED IF THE PREMIUM RATES
 ARE FILED PURSUANT TO A LOSS RATIO GUARANTEE THAT MEETS THE REQUIREMENTS OF
 THIS ACT AND THAT BENEFITS MUST CONTINUE TO BE CONSIDERED REASONABLE IN
 RELATION TO THE PREMIUM CHARGED SO LONG AS THE INSURER COMPLIES WITH THE TERMS
 OF THE LOSS RATIO GUARANTEE, AND TO PROVIDE FOR RELATED MATTERS.

   10/17/94  Senate Prefiled
   10/17/94  Senate Referred to Committee on Banking and Insurance
   01/10/95  Senate Introduced and read first time SJ-75
   01/10/95  Senate Referred to Committee on Banking and Insurance SJ-75

A BILL

TO PROVIDE THAT BENEFITS OF AN INDIVIDUAL HEALTH INSURANCE POLICY MUST BE CONSIDERED REASONABLE IN RELATION TO PREMIUMS CHARGED IF THE PREMIUM RATES ARE FILED PURSUANT TO A LOSS RATIO GUARANTEE THAT MEETS THE REQUIREMENTS OF THIS ACT AND THAT BENEFITS MUST CONTINUE TO BE CONSIDERED REASONABLE IN RELATION TO THE PREMIUM CHARGED SO LONG AS THE INSURER COMPLIES WITH THE TERMS OF THE LOSS RATIO GUARANTEE, AND TO PROVIDE FOR RELATED MATTERS.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION 1. Benefits of an individual health insurance policy must be considered reasonable in relation to premiums charged if the premium rates are filed pursuant to a loss ratio guarantee that meets the requirements of this section, and benefits must continue to be considered reasonable in relation to the premium charged so long as the insurer complies with the terms of the loss ratio guarantee. The loss ratio guarantee must be in writing and signed by an officer of the insurer and shall contain at least all of the following:

(1) a recitation of the anticipated lifetime and durational target loss ratios contained in the original actuarial memorandum filed with the policy form when it was originally approved;

(2) a guarantee that the actual South Carolina loss ratio for the experience period in which the new rates take effect and for each experience period thereafter until new rates are filed will meet or exceed the loss ratios referred to in (1) above. If the annual earned premium volume in this State under the particular policy form is less than one million dollars and therefore not actuarially credible, the loss ratio guarantee must be based on the actual nationwide loss ratio for the policy form, excepting experience from jurisdictions which have one million dollars of earned premium and have implemented a loss ratio guarantee for the policy form. If the nationwide earned premium for the policy form is less than one million dollars, the experience period must be extended until the end of the calendar year in which one million dollars of the earned premium is attained;

(3) a guarantee that the actual South Carolina, or aggregate national, if applicable, loss ratio results for the experience period at issue will be independently audited at the insurer's expense. This audit must be completed during the second quarter of the year following the end of the experience period, and audited results must be reported to the Chief Insurance Commissioner not later than June thirtieth following the end of the experience period;

(4) a guarantee that if the actual loss ratio during an experience period is less than the anticipated loss ratio for that period, then South Carolina policyholders will receive a proportional refund based on premium earned. The total amount of the refund must be calculated by dividing the incurred claims for the applicable experience period by the anticipated loss ratio and subtracting that result from the actual earned premium during the experience period. If nationwide loss ratios are used, then the total amount refunded in South Carolina must equal the total refund, as calculated above, multiplied by the total earned premium during the experience period from all South Carolina policyholders who are eligible for refunds and divided by the total earned premium during that period in all states on the premium form. The refund must be made to all South Carolina policyholders who are insured under the applicable policy form as of the last day of the experience period and whose refund would equal $10.00 or more. The refund must include interest, at the then-current accident and health reserve interest rate established by the National Association of Insurance Commissioners, from the end of the experience period until the date of payment. Payment must be made during the third quarter of the year following the experience period for which a refund is determined to be due;

(5) a guarantee that refunds of less than $10.00 will be aggregated by the insurer and paid to the Department of Insurance.

(6) As used in this section, the term "loss ratio" means the ratio of incurred claims to earned premium by number of years of policy duration, for all combined durations;

(7) As used in this section, the term "experience period" means, for any given rate filing for which a loss ratio guarantee is made, the period beginning on the first day of the calendar year during which the rates first take effect and ending on the last day of the calendar year during which the insurer earns one million dollars in premium on the form in question in South Carolina or, if the annual premium earned on the form in South Carolina is less than one million dollars, nationally, provided, if annual nationwide earned premium is less than one million dollars, the end of the calendar year in which one million dollars of earned premium is attained. Successive experience periods must be similarly determined beginning on the first day following the end for the preceding experience period.

SECTION 2. This act takes effect upon approval by the Governor.