Anticipated Economic Impact of Implementing the Rule (Note: if the Rule is Likely to have a Significant Economic Impact on Small Businesses)
Minimal economic impact.
Contact Person
Susan Pfeiffer, Division of Early Care and Education
(608) 266-8702
Insurance
This statement of scope was approved by the governor on September 13, 2012.
Rule No.
Relating to
Risk based capital requirements and affecting small business.
Rule Type
Permanent.
Detailed Description of the Objective of the Rule
The objective is to change the level at which a life risk-based capital (RBC) trend test would trigger a company action level event, effectively resulting in earlier remedial action for a life insurer or fraternal insurer that is trending badly. In addition, the changes would make Wisconsin's regulations consistent with the National Association of Insurance Commissioners (“NAIC") model regulation.
Description of the Existing Policies Relevant to the Rule and of New Policies Proposed to be Included in the Rule and an Analysis of Policy Alternatives; the History, Background, and Justification for the Proposed Rule
The existing regulation establishes RBC requirements for an insurer based on the risks inherent in the insurer's operations by requiring it to perform a calculation of its authorized control level RBC. Under the current regulation, a company action level event, which requires the company to take certain remedial steps, is triggered if:
(a) An insurer's capital is between 1.5 and 2.0 times the authorized control level RBC, or
(b) The insurer's capital is at or below 2.5 times the authorized control level RBC and the insurer has a negative trend test result, calculated pursuant to the RBC instructions.
The proposed rule would change the “2.5" in (b) to “3.0"; i.e., a company action level event would occur if the insurer's capital is at or below 3.0 times the authorized control level RBC and the insurer has a negative trend test result.
Updating this regulation consistent with the NAIC model regulation will also bring Wisconsin's requirements for life insurers into alignment with the requirements for health insurers and property and casualty insurers.
Detailed Statutory Authority for the Rule (Including the Statutory Citation and Language)
Pursuant to s.
623.11 (1), Wis. Stats., “The commissioner shall, when necessary, determine the amount of compulsory surplus that an insurer is required to have in order not to be financially hazardous under s.
645.41 (4), Wis. Stats., as an amount that will provide reasonable security against contingencies affecting the insurer's financial position that are not fully covered by reserves or reinsurance."
Pursuant to s.
623.11 (2), Wis. Stats., “The commissioner may . . . establish by rule minimum ratios for the compulsory surplus in relation to any relevant variables, including the following: (a) amounts at risk; (b) premiums written or premiums earned; (c) liabilities; (d) equity investments of all or certain kinds in combination with any of the variables under pars. (a) to (c)."
The company action level provision under the regulation provides an early warning that an insurer might be approaching a financially hazardous condition. The proposed change to the regulation would modify a single variable, as authorized by s.
623.11 (2), Wis. Stats., potentially resulting in an earlier warning that a company is approaching financially hazardous condition.
Estimate of the Amount of Time that State Employees will Spend to Develop the Rule and of Other Resources Necessary to Develop the Rule
200 hours and no other resources are necessary to develop the rule.
List with Description of All Entities that may be Impacted by the Rule
The rule will apply to domestic life and health insurers that complete a life annual statement, and domestic fraternal insurers. The impact is expected to be minimal.
Summary and Preliminary Comparison of any Existing or Proposed Federal Regulation that is Intended to Address the Activities to be Regulated by the Rule
The Office is unaware of any proposed or existing federal regulations that are intended to address the activities to be regulated by the proposed rule change.
Anticipated Economic Impact of Implementing the Rule (Note: if the Rule is Likely to have a Significant Economic Impact on Small Businesses)
The impact of the proposed rule change is anticipated to be minimal. These changes are intended to provide an early warning that an insurer might be approaching a financially hazardous condition.
A significant economic impact on small businesses?
No
The local/statewide economic impact:
Minimal or none (< or = $50,000)
Contact Person
Insurance
This statement of scope was approved by the governor on September 13, 2012.
Rule No.
Chapter
Ins 57, Wis. Adm. Code.
Relating to
Care management organizations and affecting small business.
Rule Type
Permanent.
Detailed Description of the Objective of the Rule
The proposed objective of the rule is to:
1.
Correct a reference error in s.
Ins 57.06, Wis. Adm. Code.
2. Review and revise the working capital and restricted reserve requirement calculations for Care Management Organizations (CMO) with the Wisconsin Department of Health Services (DHS). The proposed rule may modify the basis of the calculation and the minimum requirements for working capital and restricted reserves.
The resulting rule is intended to ensure that CMO requirements are reflective of the cash flows required to meet operational needs, the organizations actual experience, and are based on required expenditures rather than projected budget expenditures.
3. Evaluate and revise the business plan requirements for CMOs who are seeking a renewal of their annual permit. The proposed rule may differentiate the annual business plan submission requirements between initial and renewal permits.
Description of the Existing Policies Relevant to the Rule and of New Policies Proposed to be Included in the Rule and an Analysis of Policy Alternatives; the History, Background, and Justification for the Proposed Rule
1.
Currently, s.
Ins 57.06, Wis. Adm. Code makes reference to s.
Ins 9.05 (3), Wis. Adm. Code, which provides requirements for Defined Network Plans. This reference is incorrect, and will be changed to the correct CMO requirement.
2. The existing rule prescribes that working capital shall be maintained of at least 3% of projected annual capitation over the contract period, and restricted reserves shall not be less than the sum of the following:
a) 8% of the first $5 million annual budgeted capitation revenue
b) 4% of the next $5 million annual budgeted capitation revenue
c) 3% of the next $10 million annual budgeted capitation revenue
d) 2% of the next $30 million annual budgeted capitation revenue
e) 1% of annual budgeted capitation revenue in excess of $50 million
The proposed rule would change the following:
•
The basis of the calculations from using projected annual capitation and annual budgeted capitation for working capital and restricted reserves, respectively, to using the Family Care service revenues, excluding member obligation and other third party service revenues, earned in any 12-month period.
•
Implement a minimum requirement or floor for working capital and restricted reserves.
In addition, the proposed change may result in the reduction of the 3% requirement for working capital.
3. The existing rule prescribes the same business plan requirements for initial and renewal permitting of CMOs. The proposed rule may provide clarification of the requirements for initial permitting of CMOs participating in a Family Care Program region and renewal permitting for those CMOs that have been participating in a Family Care Program region for multiple years.
Detailed Statutory Authority for the Rule (Including the Statutory Citation and Language)
The statutory authority for this rule is ss.
227.11 (2) (a), and
601.41 (3), Wis. Stats., that provides for the commissioner's rule making authority in general. Also, s.
648.10 (1), Wis. Stat., states that the commissioner may “promulgate rules that are necessary to carry out the intent of the chapter, including, after consulting with the department, standard for the financial condition of care management organizations." The changes that will be proposed follow consultation with the Department of Health Services and address standards for the financial condition of CMOs.
Estimate of the Amount of Time that State Employees will Spend to Develop the Rule and of Other Resources Necessary to Develop the Rule
200 hours and the Department of Health Services contracted professional accounting and actuarial services.
List with Description of All Entities that may be Impacted by the Rule
The proposed rule changes will only affect Care Management Organizations permitted under Ch.
648, Wis. Stat.
Summary and Preliminary Comparison of any Existing or Proposed Federal Regulation that is Intended to Address the Activities to be Regulated by the Rule
The Office is unaware of any proposed or existing federal regulations that are intended to address the activities to be regulated by the proposed rule change.
Anticipated Economic Impact of Implementing the Rule (Note: if the Rule is Likely to have a Significant Economic Impact on Small Businesses)
The impact of the proposed rule change is anticipated to be minimal. These changes are intended to lessen the regulatory burden on CMOs by adjusting the basis of the financial requirements to use actual results versus budgeted amounts and by clarifying the filing requirements for initial and renewal permitting.
This rule is not anticipated to have any impact on small businesses other than CMOs.
A significant economic impact on small businesses?
No
The local/statewide economic impact of the rule:
Minimal or none (< or = $50,000)
Contact Person
Insurance
