[Federal Register Volume 59, Number 100 (Wednesday, May 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12811]


[[Page Unknown]]

[Federal Register: May 25, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
[BPD-814-N]

 

Medicare Program; Methodology for Calculating the Interest Rate 
To Be Applied to Medigap Premium Refunds and Credits

AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Notice.

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SUMMARY: This notice announces the methodology that may be used by 
Medicare supplemental insurance policy (``Medigap'') issuers to 
calculate the interest to be paid on premium credits and refunds due to 
Medicare beneficiaries. The Social Security Act requires the insurers 
annually to issue refunds or credits when their loss ratios do not meet 
statutory minimums and to pay interest from the end of the calendar 
year involved until the refund is made or the credit is applied.

EFFECTIVE DATE: This notice is effective on May 25, 1994.

FOR FURTHER INFORMATION CONTACT: Julie Walton, (410) 966-4622

SUPPLEMENTARY INFORMATION:

I. Background

    Under the Medicare program, Medicare pays for certain services 
furnished to beneficiaries entitled to Medicare. The beneficiary is, 
however, responsible for certain deductibles, coinsurance amounts, and 
charges, subject to certain limits, that exceed the amount allowed by 
Medicare. The beneficiary is also responsible for charges for items and 
services not covered by Medicare. He or she may purchase additional 
private insurance to help pay the costs.
    One type of private insurance beneficiaries may purchase is a 
Medicare supplemental policy, known as a Medigap policy. These policies 
typically offer coverage of some or all of Medicare's deductible and 
coinsurance amounts and sometimes include coverage of services not 
covered under Medicare. Section 1882 of the Social Security Act (the 
Act) sets forth Federal standards applicable to Medigap policies.
    Under section 1882, no Medigap policy (as defined in section 
1882(g)(1) of the Act) may be issued in a State unless it complies with 
State laws that have been established in accordance with section 
1882(b)(1) and have been approved by the Health Care Financing 
Administration (HCFA). (While Federal certification under section 
1882(c) would be necessary in the absence of an approved State program, 
all States currently have approved programs.)
    Among other requirements, section 1882(b)(1)(B) of the Act 
incorporates by reference the loss ratio provisions of section 1882(r). 
Under section 1882(r)(1), a Medigap policy may not be issued or sold in 
any State unless it can be expected to return a minimum level of 
benefits, calculated as a percentage of premiums. Under section 
1882(r)(1)(B), the issuer of the policy must provide for a proportional 
refund, or a credit against future premiums, if necessary to assure to 
that loss ratio targets are met. Section 1882(r)(2)(C) requires that 
the refund or credit include interest from the end of the policy year 
involved, at a rate specified by the Secretary that is not less than 
the average rate of interest for 13-week Treasury notes.
    Section 13.B of the Model Regulation to Implement the National 
Association of Insurance Commissioners (NAIC) Medicare Supplement 
Insurance Minimum Standards Model Act, adopted by the NAIC on July 30, 
1991, specifies how and when the refund or credit calculation is to be 
done. The Model interprets ``policy year'' to mean ``calendar year.'' 
Appendix A of the Model contains the reporting form that is to be used 
by issuers in reporting their loss ratio experience to the State. This 
form must be submitted by May 31 of each year. The form requires that a 
description of the refund and/or credit against premiums to be used be 
attached to the form. In order to describe the refund or credit, the 
insurer must know how to calculate the interest rate.

II. Provisions of the Notice

    There are several possible methods for calculating the interest 
rate. We expect to specify a single methodology that will be applicable 
for future years in the context of formal rulemaking relating to 
section 1882 generally. However, it is not possible to conclude that 
process in time for insurers to meet the May 31, 1994 deadline. The 
purpose of this notice is to meet the needs of States that are 
requiring refunds and premium credits this year.
    Until we specify otherwise, States may choose any reasonable 
methodology, subject to our approval. However, we have determined that 
the methodology described below is an acceptable way to calculate the 
interest rate required by section 1882(r)(2)(C). If the State chooses 
this approach, no further approval is necessary.
    We have determined that it is reasonable to apply the same 
methodology that is used by HCFA when States have been overpaid under 
the Medicaid program (title XIX of the Social Security Act). Under 42 
CFR 433.38(d)(2), State repayments are subject to interest charges at 
the rate HCFA determines to be the average of the bond equivalent of 
the weekly 90-day Treasury bill auction rates during the period for 
which interest will be charged. (See 47 FR 29275; July 6, 1982). We 
will find it acceptable if States apply the same methodology we use to 
implement this section. Specifically, we use the unweighted average of 
the weekly auction average (investment) rates as published by the 
Federal Reserve. The rates are applied as simple interest for the 
entire application period measured in days, assuming a 365-day calendar 
year. The following table shows the rates for 1994 through the week 
ending April 22; however, any insurer can obtain the rates 
independently from the Federal Reserve Statistical Release, which is 
made available each Monday. Information on the availability of the 
release is available by telephoning (202) 452-3206. 

                     Selected Interest Rates: 3-Month Treasury Bills for Calendar Year 1994                     
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                                                      Annualized                                   Aver. int. to
       Week ending         Bankdiscount(percent)  interest(percent)   Auction date   Release date  date(percent)
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Jan. 7...................              3.10                 3.17     Jan. 3.......  Jan. 10......          3.17 
Jan. 14..................              3.02                 3.08     Jan. 10......  Jan. 18......          3.13 
Jan. 21..................              2.95                 3.06     Jan. 18......  Jan. 24......          3.10 
Jan. 28..................              2.96                 3.02     Jan. 24......  Jan. 31......          3.08 
Feb. 4...................              2.99                 3.06     Jan. 31......  Feb. 7.......          3.08 
Feb. 11..................              3.24                 3.31     Feb. 7.......  Feb. 14......          3.12 
Feb. 18..................              3.28                 3.35     Feb. 14......  Feb. 22......          3.15 
Feb. 25..................              3.33                 3.41     Feb. 22......  Feb. 28......          3.18 
Mar. 4...................              3.40                 3.48     Feb. 28......  Mar. 7.......          3.22 
Mar. 11..................              3.52                 3.60     Mar. 7.......  Mar. 14......          3.25 
Mar. 18..................              3.57                 3.65     Mar. 14......  Mar. 21......          3.29 
Mar. 26..................              3.61                 3.70     Mar. 21......  Mar. 28......          3.32 
Apr. 1...................              3.50                 3.58     Mar. 28......  Apr. 1.......          3.34 
Apr. 8...................              3.71                 3.80     Apr. 4.......  Apr. 11......          3.38 
Apr. 15..................              3.63                 3.72     Apr. 11......  Apr. 18......          3.40 
Apr. 22..................              3.76                 3.85     Apr. 18......  Apr. 25......         3.43  
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    The insurer will be liable for the average rate from January 1 
until the refund date, payable at simple interest (i.e., the number of 
days between January 1 and the refund date, divided by 365 and 
multiplied by the average rate.)

III. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: May 12, 1994
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 94-12811 Filed 5-20-94; 8:45 am]
BILLING CODE 4120-01-P