DEPARTMENT OF REGULATORY AGENCIES
Division of Insurance
3 CCR 702-4
LIFE, ACCIDENT AND HEALTH
Proposed Amended Regulation 4-6-7
CONCERNING PREMIUM RATE SETTING FOR SMALL GROUP HEALTH PLANS
Section 1.	Authority
Section 2.	Scope and Purpose
Section 3.	Applicability
Section 4.	Definitions
Section 5.	Premium Rate Setting
Section 6.	Use of Composite Rates
Section 7.	Rate Filings and Actuarial Certifications
Section 8.	Enforcement
Section 9.	Severability
Section 10.	Effective Date
Section 11.	History
Section 1.	Authority
This regulation is promulgated under the authority of §§10-1-109(1), 10-16-102(10)(b)(II), 10-16-104.9, 10-16-105(6.5), 10-16-105(7.2), 10-16-105(8)(f), 10-16-105(8.5) and 10-16-109, C.R.S.
Section 2.	Scope and Purpose
The purpose of this regulation is to establish and implement rules for setting premiums for small group health benefit plans.  This regulation concerns: applicability and scope of Colorado’s small group health rating laws; carriers’ obligations to provide coverage; premium rate setting; use of composite rates; rate filings; and actuarial certifications.
Section 3	Applicability
This regulation shall apply to all small group carriers and health benefit plans subject to the small group laws of Colorado.
Section 5	Premium Rate Setting
A.	Calculating Premium Rates Adjusted for Case Characteristics
1.	Index Rate - Each carrier offering a health benefit plan to groups in Colorado shall develop a single index rate for all small group plans it offers.  This single index rate is identical to a community rate for the company’s universe of small group plans offered for new issue or renewal.  It should be calculated using the experience for all small group plans.  The premium rate charged during a rating period, applicable to all small employers, shall be based upon this index rate, adjusted for case characteristics and coverage as allowed in this Section 5.
2.	Plan Design Adjustment - The Index Rate may be adjusted to reflect differences attributable to different plan designs.  If the small employer carrier elects to make this adjustment, the small employer carrier should calculate a rate adjustment factor for each small group plan design.  Differences in the rates for different benefit plans, for persons with the same case characteristics of age, geographic location and family size, shall be attributable to plan design only.  Using this methodology, a carrier's rates for a plan with richer benefits than the Colorado Standard Health Benefit Plan should be higher than the rates for its Colorado Standard Health Benefit Plan, and a carrier's rates for a plan with leaner benefits than the Colorado Standard Health Benefit Plan should be lower than the rates for its Colorado Standard Health Benefit Plan.
3.	Acceptable Case Characteristic Factor Categories - For all small employer policies carriers choosing to modify the unique index rate by the use of case characteristics must utilize one or more of the categories listed below.  Carriers shall develop a rating factor for each category, which is actuarially based.
a.	Age - if a carrier uses age to calculate rates, then it shall use the following 12 mandatory age categories.  Rates must be based on employee age only, not employee and spouse ages.

Mandatory Age Categories	
Children ages newborn through age 19 (or through age 24 if the child is a full-time student covered as a dependent), excluding emancipated minors	
Emancipated minors and persons ages 20 through 24	
Age 25 through 29	
Age 30 through 34	
Age 35 through 39	
Age 40 through 44	
Age 45 through 49	
Age 50 through 54	
Age 55 through 59	
Age 60 through 64	
Age 65 and older: Medicare is primary payer	
Age 65 and older: Medicare is secondary payer	
b.	Geographic Location - if a carrier uses geographic location to calculate rates, then it shall use the 9 mandatory categories listed below.  In determining that these geographic location categories best serve the public interest, the commissioner considered the key issues of accessibility, availability, consumer choice and the cost of health care in all areas of the state.  Public and consumer input was solicited, received, and evaluated.  The commissioner determined that these area groupings best serve the public interest by maximizing consumer choice options and health care availability in all areas of the state at the lowest possible cost and will ensure that the rates charged are not excessive, inadequate or unfairly discriminatory.  The appropriate population base for these categories is the base as determined by the federal government in establishing MSAs, except for the last two categories listed below.  No MSA exists for these counties and consequently these counties were grouped by population size.  Carriers may, with the prior written approval of the commissioner, establish one or more additional categories by further subdividing the last two categories.
Rates must be based on the primary physical location of the small employer’s business, except that an employer with multiple business locations in separate geographic categories may be provided with separate rates for each physical business location.  There cannot be a separate factor for a small employer’s out-of-state employees, if any.  These individuals shall be rated as if they are working in the small employer’s primary physical business location.

Mandatory Geographic Location Categories	
Boulder County (known as the Boulder-Longmont PMSA)	
Adams, Arapahoe, Broomfield, Denver, Douglas, and Jefferson counties (known as the Denver MSA)	
Weld County (known as the Greeley PMSA)	
El Paso County (known as the Colorado Springs MSA)	
Larimer County (known as the Fort Collins-Loveland MSA)	
Mesa County (known as the Grand Junction MSA)	
Pueblo County (known as the Pueblo MSA)	
Counties in Colorado with a population of 20,000 or fewer residents: Alamosa, Archuleta, Baca, Bent, Chaffee, Cheyenne, Clear Creek, Conejos, Costilla, Crowley, Custer, Dolores, Gilpin, Grand, Gunnison, Hinsdale, Huerfano, Jackson, Kiowa, Kit Carson, Lake, Las Animas, Lincoln, Mineral, Moffat, Otero, Ouray, Park, Phillips, Pitkin, Prowers, Rio Blanco, Rio Grande, Saguache, San Juan, San Miguel, Sedgwick, Washington, and Yuma counties.  (Such counties may be grouped into one or more geographic location categories based on differences in medical costs of the carrier with the prior written approval of the Commissioner.)	
All other Colorado counties: Delta, Eagle, Elbert, Fremont, Garfield, La Plata, Logan, Montezuma, Montrose, Morgan, Routt, Summit, and Teller counties. (Such counties may be grouped into one or more geographic location categories based on differences in medical costs of the carrier with the prior written approval of the Commissioner.)	
PMSA = Primary Metropolitan Statistical Area
MSA = Metropolitan Statistical Area
(1)	Geographic rating factors must be determined on the same basis, reflect the relative differences in expected costs, and produce rates that are not excessive, inadequate, or unfairly discriminatory in such geographic areas.  For example, a geographic factor of 1.2 for the Colorado Springs MSA and a factor of 1.0 for the Denver MSA would imply that costs can reasonably be expected to be 20% higher in the Colorado Springs MSA than they are in the Denver MSA.  All changes in the geographic rating factors must be supported on this basis.
(2)	Approval to subdivide categories eight and nine above into two or more subcategories must be obtained in advance.  The material provided to support the subdivision(s) shall be based upon statistically-credible data using the Division of Insurance’s credibility standard and/or other actuarially-determined standards.  The Division’s credibility standard is 2,000 life-years and 2,000 claims per year. (See Section 6(M) of Amended Colorado Insurance Regulation 4-2-11).
c.	Family Size - if a carrier uses family size to calculate rates, then it shall use the 4 mandatory categories listed below.  If age is also used as a rating factor, rates must be based on employee age only, not employee and spouse ages.

Mandatory Family Size Categories	
1 adult	
2 adults	
1 adult plus any number of children who are dependents of the primary insured or for whom the primary insured is legally required to provide health insurance coverage.	
2 adults plus any number of children who are dependents of the primary insured or for whom the primary insured is legally required to provide health insurance coverage.	
Section 7	Rate Filings and Actuarial Certification
A.	The provisions of §§10-16-105(6), 10-16-105(6.5) and 10-16-107, C.R.S., and Colorado Insurance Regulation 4-2-11 shall apply to the filing of rates for small employer health benefit plans.  Expected rate increases for small employer health benefit plans shall be submitted for approval to the Division of Insurance at least 60 days prior to the proposed implementation of the rates.
B.	Small employer health benefit plan rate filings shall not be combined with either individual or large group rates.  Additionally, they shall be filed separately by type of coverage (indemnity, preferred provider organization, or health maintenance organization).	 
C.	Pursuant to §10-16-105(6.5), C.R.S., all carriers who sell, or offer for sale, policies subject to the requirements of this regulation, must submit an annual actuarial rate certification to the Division of Insurance prior to March 1 of each calendar year.  Note - this certification may be combined with the Company’s Annual Rate Report.  (See Section 8 of Amended Colorado Insurance Regulation 4-2-11.)  Certifications shall be sent to the Colorado Division of Insurance, Attention:  Rates and Forms Section.  The certification must be signed by a qualified actuary and must contain at least the following:
1.	The name of the carrier and the identification number assigned by the National Association of Insurance Commissioners;
2.	A list of all plans of health benefits and policy forms to which the certification applies;
3.	A statement that covers at least the points listed in the following illustration:
" I am familiar with the small group rating laws and regulations of the state of Colorado.  In my opinion, as of January 1 of the year of this certification, the premium rates and rating methodology to which this certification applies are neither excessive, inadequate nor unfairly discriminatory, and they meet the requirements of the insurance laws and regulations of Colorado;"
4.	The name and title of the qualified actuary signing the certification, and the name of the firm with which he or she is associated; and
5.	The original signature of the qualified actuary and the date of the signature.   Signature stamps or signatures on behalf of the actuary are not acceptable.

Section 10	Effective Date
This amended regulation is effective October 1, 2008.
Section 11	History
Emergency Regulation 94-E-4; Effective October 20, 1994.
Emergency Regulation 95-E-2; Effective January 20, 1995.
Hearing date: December 8, 1994; Effective March 1, 1995.
Hearing date: April 2, 1998; Effective June 1, 1998, Amended Sections 2, 3, 4, 5, 6, 7 & 10.
Hearing date: October 2, 2000; Effective January 1, 2001, Amended Sections 5 & 6.
Hearing date: September 4, 2002; Effective January 1, 2003.
Hearing date: February 4, 2003; Effective March 31, 2003, Amended Sections 1, 5, 10 & 11.
Emergency Regulation 03-E-6, Effective September 1, 2003.
Hearing date: October 1, 2003; Effective December 1, 2003, Amended Sections 4, 5, 6, 7, 10 11.
Hearing date: February 2, 2004; Effective April 1, 2004, Amended Sections 5, 10, & 11.
Hearing date: August 4, 2004; Effective September 30, 2004.
Hearing date:  October 10, 2007; Effective January 1, 2008, Amended Sections 5, 7, 10, & 11.
Effective October 1, 2008, Amended Sections 5, 7, 10 and 11.