GOVERNMENT OF NEWFOUNDLAND & LABRADOR AND LABRADOR TEACHERS’ ASSOCIATION ANNUAL PREMIUM RATE SETTING PROCESS
Each year, both Government and NLTA will use this Premium Rate Setting Process to determine the required premium rates under their Group Insurance programs. For the Government program, this process will be used to calculate the contribution rate to the NLTA program, subject to Clause 8 below. For the NLTA program, this process will be used to compare against the Government premium rate for determining Government’s contribution, subject to Clause 8 below. In both cases the rates are exclusive of all surplus, deficit or other cash adjustments.
The Basis of this Premium Rate Setting Process follows:
1. The Accidental Death and Dismemberment rate is determined by the insurers and the rate is negotiated with the Insurer and accepted by each plan sponsor.
2. The Basic and Dependent Life rates will be the rates determined by the rate setting mechanism for each of the NLTA and Government plans as outlined below:
|5 Year Experience Rating|
|1||Projected Annual Premium||$|
|2||Adjusted Premium (5 years)||$|
|3||Paid Claims (5 years)||$|
|5||Total Projected Claims||(3 x 4)|
|6||Claim Ratio||5 / 2|
|7||Projected Annual Claims||1 x 6|
|9||Required Premium||7 + 8|
|11||Required Rate Action||9 / 1|
Note: For purposes of this calculation, under the Government plan, paid claims are reduced by any post age 65 life claims.
3. The health premium rates will be determined by the rate setting mechanism for each of the NLTA and Government plans as outlined below.
|Health Premium Rate Setting Formula|
|1||Projected Annual Premium||$|
|2||Paid Claims from Previous Period||$|
|5||Total Paid Claims||(2+3+4)|
|8||Total Projected Paid Claims||(5+7)x6|
|10||Total Projected Claims & Retention||(8+9)|
|11||Projected Loss Ratio||10 / 1|
|12||Rate Action Required||11 – 100|
4. Upon receipt of the renewal information from the insurer, confirmation of the financial information, review of all claims and trend information, Government and the NLTA will submit the foregoing information to an agreed upon group insurance consultant for the purpose of producing a premium rate adjustment schedule as noted in numbers 2 and 3 above.
5. The group insurance consultant will:
- Request and liaise with the plan sponsors and the insurers to ensure the necessary information is received in a timely fashion.
- Review and confirm the reasonableness of any assumptions made.
- Review and confirm that the information contained in the information pertaining to each plan is correct and reasonable.
- Prepare a brief summary to each of the parties outlining the premium rates calculated using this premium rate setting process, including a summary of all calculations, indications that all documents have been reviewed and confirmation that the premium rates have been calculated using the agreed upon process.
- Meet with both plan sponsors, if necessary, to address any issue that may arise.
6. Each party shall be responsible for expenses associated with the provision of its plan renewal information from the insurer, confirmation of the financial information, review of all claims and trend information, to the group insurance consultant. The parties shall pay equally the expenses and remuneration of the group insurance consultant.
7. Once the rate has been determined using the prescribed calculation and using the required supporting documentation, the rates calculated using this method will be used to determine the Government contribution to the NLTA plan.
8. The Government contribution to the NLTA required premium rate will be 50% of the lowest premium rate obtained for each Group Insurance plan option (identified in Items 1, 2, and 3 above) as determined by the calculation contained in Item 4. For example where the Government required premium rate for Basic Health is greater than the NLTA required premium rate for Basic Health, Government will contribute 50% of the NLTA required premium rate. Conversely, where the Government required premium rate is less than the NLTA required premium rate, Government will contribute 50% of the Government required premium rate. Under no circumstances will the Government contribution to the NLTA exceed 50% of the NLTA rate calculated under this schedule.
9. Inflation/Trend factors will be negotiated and agreed to with each Insurer independently by Government and NLTA. As both plans are insured, the Insurer(s) will have a vested interest in ensuring that the appropriate/reasonable factor is used.
10. After these premium rates have been calculated, both Government and NLTA have the option of using any surplus funds they have available to offset the respective rates in their own plans.
11. The components of the premium rate setting mechanism are as follows:
- Projected Annual Premium – Projection of premium derived solely from the monthly premium rates and number of employees covered under the program. The rates and volumes are those in force in the most recent month available for the premium rate setting.
- Paid Claims – Total Cash Claims paid through the period.
- IBNR Adjustment – Any adjustment to the Incurred But Not Reported Reserve.
- Inflation/Trend Factor – The negotiated inflation/trend factor agreed to by the insurer and the plan sponsor.
- Amendment Factor – Estimated claims adjustment due to a benefit level change.
- Claim Adjustments – Credits or charges for items such as non-recurring claims.
- Retention Charges – Projected Charges outlined in the underwriting agreement between the insurer and Government including General administration, claims administration and processing, Risk Charges, Premium Tax, out of scope expenses (i.e.: mail outs, Amendments), Consulting fees and Pooling Charges.
- Projected annual premium is reduced by any third party administration fees, however these fees are added to the total rate to determine the final contribution rate.
- Paid claims exclude all new ex gratia claims.
- The demographic factor refers to the insurers adjustment for the change in the composition of the insured group, in terms of age, sex, etc.