MARYLAND INSURANCE ADMINISTRATION STEVEN B. LARSEN, COMMISSIONER. GE Life and Annuity Assurance Company

Transcription

1 MARYLAND INSURANCE ADMINISTRATION STEVEN B. LARSEN, COMMISSIONER MARKET CONDUCT EXAMINATION REPORT OF THE MEDICARE SUPPLEMENT BUSINESS OF GE Life and Annuity Assurance Company 6610 West Broad Street Richmond, Virginia NAIC #65536 Report No January 21, 2003 Examination Dates: April 8, 2002 May 3, 2002 Examination Survey Period: January 1, December 31, 2001

2 The Honorable Steven B. Larsen State Insurance Commissioner of Maryland Maryland Insurance Administration 525 Saint Paul Place Baltimore, Maryland Dear Commissioner: Pursuant to your instructions and authorization, an examination has been made of the market conduct affairs of GE Life and Annuity Assurance Company, a Foreign Insurer, whose executive offices are located at 6610 West Broad Street, Richmond, Virginia The report of the examination is respectfully submitted herein. GE LIFE AND ANNUITY REPORT # PAGE 2

3 Table of Contents Section Page I. Scope of Examination...5 II. Company History...7 III. Reports Filed With the MIA...8 A. Medicare Supplement Insurance Experience Exhibit...8 B. Medicare Supplement Refund Calculation Forms...9 C. Reporting of Multiple Policies...9 IV. General Business Practices...10 A. Internal Audits...10 B. Market Conduct Examinations Done By Other Jurisdictions...10 C. Antifraud Plan...10 D. Disaster Recovery Plan...10 E. Policies and Procedures for Protecting the Integrity of Computer Information...10 F. Contracts with Other Entities...10 V. Agent Licensing and Third Party Administrators...12 A. Active Agents/Brokers...12 B. Terminated Agents/Brokers...12 C. Managing General Agents...13 D. Oversight of Agents and General Agents...13 E. Commissions...13 F. Third Party Administrators...14 VI. VII. Advertising...15 Marketing...16 A. Marketing Methods...16 B. Plans Being Actively Marketed Individually Marketed Plans Group Plans...17 C. Plans Previously Marketed But Later Withdrawn...17 D. Open Enrollment...17 E. Guaranteed Issuance for Disabled Individuals Under Age F. Outlines of Coverage and Medicare Supplement Buyer s Guide...19 G. Replacement Notices...20 H. Disclosure Statements...20 GE LIFE AND ANNUITY REPORT # PAGE 3

4 VIII. Administration of Business...21 A. Creditable Coverage...21 B. Medicaid Suspension...21 C. Free Look Period...21 D. Declined Applications...21 E. Terminated Policies...21 F. Complaints...22 IX. Policy Form Review...23 X. Renewals and Rates...24 XI. Rescissions...28 XII. Claims Reviewed...29 A. Claims Selection...29 B. Sample Processing Time...29 C. Pharmacy Claims...29 XIII. Summary of Violations...31 Acknowledgement...33 GE LIFE AND ANNUITY REPORT # PAGE 4

5 I. Scope of Examination The examination of GE Life and Annuity Assurance Company, (hereinafter referred to as the Company or GELAAC ) was conducted at its offices located at 700 Main Street, Lynchburg, Virginia 24505, pursuant, but not limited to Sections 2-205, 2-207, and of the Insurance Article of the Annotated Code of Maryland. The examination covered the survey period from January 1, 2001 through December 31, 2001 ( survey period ). The primary purpose of the examination was to assess Company compliance with the requirements of the Medicare Supplement Act, Title 15, Subtitle 9 of the Insurance Article and Code of Maryland Regulations ( COMAR ) Title 31, Subtitle 10, Chapter 06 Standards for Medicare Supplement Policies. Additionally, the examination was to determine if operations were consistent with the public interest. The Company markets the Medicare Supplement Plans indicated with an X : A B C D E F G H I J X X X X X The examination planning and testing methodologies followed standards established by the National Association of Insurance Commissioners ( NAIC ) and procedures developed by the Maryland Insurance Administration ( MIA ). Testing performed during the examination provided a credible basis for the findings and recommendations in this report. Certain unacceptable or non-compliant practices of the Company may not be germane to this target market conduct examination. Failure to identify or criticize any such practices in this report does not constitute their acceptance by the MIA. Below is a chart of the premium income taken from Schedule T of the Company s 2001 annual report. The Company reported a total premium volume of $ 76,688,876 for accident and health insurance during this calendar year. The following is a list of the states with accident and health premiums in excess of $ 2,300,666 (3% of market share) and the last row shows the percentage of premium attributable to Maryland business: State Premium Percent of Total Premium Michigan $16,713, California $10,890, Ohio $ 9,981, Pennsylvania $ 7,688, Indiana $ 6,616, Nebraska $ 4,783, GE LIFE AND ANNUITY REPORT # PAGE 5

6 State Premium Percent of Total Premium Texas $ 3,558, Missouri $ 2,499, Maryland $ 290, GE LIFE AND ANNUITY REPORT # PAGE 6

7 II. Company History GE Life and Annuity Assurance Company ( GELAAC ), formerly known as The Life Insurance Company of Virginia ( Life of Virginia ) until January 1,1999, was granted a Virginia charter on March 21, Since then, the Company has been owned or affiliated with various companies through stock exchanges or other business transactions. In January 1968, the Company was part of the Richmond Corporation and was acquired in June 1977 by Continental Group, Inc. In June 1983, the Company acquired American Agency Life Insurance Company and in November 1984 KMI Continental became the parent company. In April 1986, the Company was acquired by Combined Insurance Company of America, a wholly owned subsidiary of an insurance holding company, Combined International Corporation, which later changed its name to Aon Corporation. On April 1, 1996, General Electric Capital Assurance Company (Delaware) acquired Life of Virginia from Aon Corporation. Life of Virginia acquired The Harvest Life Insurance Company (Ohio) and its subsidiaries on January 1, 1999 and changed its name to GE Life and Annuity Assurance Company (GELAAC). On December 29, 1999, GE Financial Assurance Holdings, Inc. sold its shares to Phoenix Group Holdings, Inc. (Connecticut). Today, ownership of GELAAC is divided as follows: General Electric Capital Assurance Company %; Federal Home Life Insurance Company %; and Phoenix Group Holdings, Inc %. GELAAC is licensed in the District of Columbia and all states except New York. GE LIFE AND ANNUITY REPORT # PAGE 7

8 III. Reports Filed With the MIA A. Medicare Supplement Insurance Experience Exhibit: The Company filed the Medicare Supplement Insurance Experience Exhibit with the MIA, as required as part of their Annual Report for all plans marketed in Maryland. The examiners reviewed the 2001 Medicare Supplement Experience Exhibit and advised the Company of the following errors: 1. Policy forms MSP-1992H and MSP-1992B were withdrawn from use on February 22, MSP-1992B is included on the Exhibit and reflects no business written. MSP- 1992H is not included on the Exhibit and should be included. 2. The Exhibit reflects 0 as the approval date for policy form HMSPD96. The Exhibit should reflect an approval date of December 30, Policy form HMSPD96 lacks an approval date on the Exhibit. The approval date of December 30, 1998 should be indicated. 4. The following forms have incorrect approval dates on the Exhibit: Policy Form No. Approval Date on Exhibit Correct Approval Date by the MIA MSP-1992A 2/20/92 12/30/98 MSP-1992B 8/14/92 12/30/98 MSP-1992C 2/20/92 12/30/98 MSP-1992F 2/20/92 12/30/98 MSP-1992J 2/20/92 12/30/98 5. The following forms have an incorrect closed date on the Exhibit: Policy Form No. Closed Date on Exhibit MSP-1992A 2/25/97 MSP-1992B 11/6/96 (withdrawn at the MIA on 2/22/99) MSP-1992C 2/25/97 MSP-1992F 2/25/97 MSP-1992J 2/25/97 Policy forms MSP-1992A, MSP-1992C, MSP-1992F and MSP-1992J are still being marketed by the Company and these dates should be removed. Policy form MSP-1992B should reflect a closed date of February 22, GE LIFE AND ANNUITY REPORT # PAGE 8

9 Company Response: We have researched this issue and find that the dates contained on the annual statement were the original Harvest Life Insurance Company policy approval dates. These dates appeared incorrectly on the first GELAAC annual statement referencing these plans and were copied incorrectly in each successive year. We thank you for bringing this error to our attention. As a result of your inquiry we have taken steps to correct this information on the annual statement. An amendment is being prepared and will be filled with the state, which will correctly reflect the approval date of the Medicare Supplement forms. The examiners direct the Company to make all of the corrections to the Exhibit, not just the approval dates, and resubmit it to the MIA. B. Medicare Supplement Refund Calculation Forms: The examiners requested copies of all the Medicare Supplement Refund Calculation Forms filed with the MIA as required by COMAR B(1) and COMAR Because filing of these reports is not required until May 30 th of each year, the examiners received refund calculation forms filed in May 2001 for business written through the year 2000 for all Medicare Supplement plans. No violations were found. C. Reporting of Multiple Policies The examiners requested and received the Reporting of Multiple Medicare Supplement Policies filed with the MIA. The report shows the Company has not issued more than one policy to the same individual. No violations were found. GE LIFE AND ANNUITY REPORT # PAGE 9

10 IV. General Business Practices A. Internal Audits The examiners requested copies of any internal audits conducted by the Company during the survey period. The Company provided the examiners with one internal audit concerning incorrectly charged rates that were brought to the attention of the Company by a complaint filed with the Montana Insurance Department. The examiners found incorrectly charged rates to Maryland residents. (See Section XIV Renewals and Rates for further explanation.) B. Market Conduct Examinations Done By Other Jurisdictions The Company stated that no other jurisdictions conducted market conduct examinations for the Company s Medicare Supplement business for the survey period. C. Antifraud Plan The examiners requested a copy of the Company s Antifraud Plan filed with the MIA. The Company supplied the examiners with a copy of an Antifraud Plan submitted to the MIA on December 7, 2001 along with proof of antifraud training for their personnel. D. Disaster Recovery Plan The examiners requested, received and reviewed the Company s Disaster Recovery Plan which was last updated in June The examiners did not find any problems. The examiners were also given the Disaster Recovery Plan for Wakely and Associates, Inc., a third party administrator contracted to process claims for GELAAC. This plan was reviewed by the examiners and no problems were found. E. Policies and Procedures for Protecting the Integrity of Computer Information The examiners requested, received and reviewed the Company s policies and procedures for the protection of computer information. The Plan is dated November The examiners did not find any problems. F. Contracts with Other Entities The examiners requested copies of all contracts between the Company and any entity delegated or authorized to perform insurance-related services for Medicare Supplement plans on its behalf. GE LIFE AND ANNUITY REPORT # PAGE 10

11 The Company provided the examiners with copies of: 1. an Administrative Services Agreement between Wakely and Associates Inc. (hereinafter referred to as Wakely ) and GELAAC to provide: actuarial services annual rate filings; claim processing; Medicare Annual Notice mailings; and product filings. 2. a Project Specific Agreement between GE Capital International Services and GELAAC to provide: data entry; new application/quality assurance review; application processing; policyholder services; and call center response. 3. a Services and Shared Expenses Agreement between Great Northern Annuity Corporation ( GNA ), General Electric Capital Assurance Company and any additional corporations who are direct or indirect subsidiaries of GNA Corporation. The examiners reviewed these contracts and no problems were found. GE LIFE AND ANNUITY REPORT # PAGE 11

12 V. Agent Licensing and Third Party Administrators A. Active Agents/Brokers The examiners requested a listing from the Company of all appointed agents/brokers active during the survey period. The Company supplied a list of 13 captive agents and 1 broker active during the survey period selling Medicare Supplement. The examiners reviewed the listing to verify that each agent/broker was appointed in compliance with Section of the Insurance Article. The examiners found the following 3 discrepancies between the MIA and Company records: AGENT/BROKER NAME MIA AGENT NUMBER DISCREPANCY Barry D. Green NPI Company shows appointment of 1/17/89; MIA shows appointment of 2/13/97. Willard L. Wooten RPI Company shows appointment of 1/17/89; MIA shows appointment of 7/2/99. Norman C. Washington RPI Company shows appointment of 7/2/01; MIA shows appointment of 10/19/01. B. Terminated Agents/Brokers The examiners requested a listing from the Company of all agent/brokers terminated during the survey period. The Company provided a listing of 6 agents/brokers terminated during the survey period selling Medicare Supplement. The examiners reviewed the listing to verify compliance with Section of the Insurance Article. The examiners found the following 2 discrepancies between the MIA and Company records: AGENT/BROKER NAME MIA AGENT NUMBER DISCREPANCY Mark R. Patzschke RPI Company shows termination of 4/1/01; MIA shows 12/19/01 termination. Donald E. Leather RAI 8463 Company shows termination of 4/30/01; MIA shows 8/10/01 termination. In total, the examiners found 5 violations of Section (a)(1) of the Insurance Article for failure of the Company to notify the MIA of an appointment or termination of an agent/broker within 30 days of the occurrence. GE LIFE AND ANNUITY REPORT # PAGE 12

13 Company Response: GELAAC has reviewed the records of the agents noted in the report and agree with the Department s findings. Although we agree with the findings we are not sure why there was a delay in the receipt of this information by the MIA. Our records indicate that Mr. Patzscke s termination date was April 1, 2002, and the information was submitted through APAK on July 5, 2001, while Mr. Leather s termination of April 30, 2001 was sent on July 31, We have also determined that Norman Washington s appointment was submitted originally on July 2, 2001 through APAK, however, it was later discovered that the MIA did not receive the information, and the information was resubmitted with the original appointment date left on the system. We find that the delay in notifying the MIA of appointments and terminations was due to a backlog in our system. We have since corrected this backlog, allowing us to now process changes within 24 hours. C. Managing General Agents The Company does not conduct business with Managing General Agents. Agents and brokers are under the supervision of Area Managers and Divisional Managers who are employees of the Company. D. Oversight of Agents/Brokers The examiners requested the Company s procedures concerning oversight of agents and brokers. The Company responded with a one page Agent Oversight memorandum that explained agent oversight was performed as a function of the Company Human Resources Department relative to agent complaints, the gathering of information from LIMRA surveys and Company compliance manager training sessions. The Company also stated that agents are given compliance updates by way of sales bulletins and the Company s intranet. The Company did not furnish a manual or other types of written policies and procedures pertinent to agent oversight for the examiners review. The examiners strongly recommend that the Company develop a policies and procedures manual for the oversight of agents. Company Response: GELAAC is currently in the process of reviewing its policies and procedures manual for agent oversight. E. Commissions The examiners requested a list of all agents receiving compensation for Medicare Supplemental policies during the survey period including all commissions paid. The Company GE LIFE AND ANNUITY REPORT # PAGE 13

14 furnished a listing of 165 policies with effective dates from 3/13/93 to 4/1/02 that identified the agent receiving a commission for each policy. The examiners identified 10 replacement policies from the listing and requested the Company provide first year agent commission statements for each policy in order to review for compliance with Section of the Insurance Article and COMAR No violations were found. The Company informed the examiners that its Area and Divisional Managers receive some compensation from Company agent s sale of Medicare Supplemental policies. The Area Managers also directly assist agents in the sale of policies to individuals. Area Manager, Neil B. Apfelbaum, whose license expired in Maryland on July 1, 1995, was paid compensation during the survey period for the sale of the Company Medicare Supplement policies by its agents, but was never appointed in Maryland by the Company. The Company is in violation of Section (a) of the Insurance Article for paying a commission to a person that does not have a Certificate of Qualification. The Company is also in violation of Section (a)(1) of the Insurance Article for failure to notify the MIA of an appointment of an agent. Company Response: The compensation received by the Area Manager during the survey period was an area manager bonus. This bonus is based upon his agents gross marketing allowance (GMA), and only for the agents first year GMA. This bonus is not paid for policy renewals. GELAAC is taking steps to insure that no unlicensed agents or area managers receive compensation. In addition, Mr. Apfelbaum has been informed that he must be appointed in Maryland in order to receive future compensation on Maryland business. F. Third Party Administrators Wakely pays claims for the Company; however, they are not required to be a registered Third Party Administer as they are only administering individual lines of business. GE LIFE AND ANNUITY REPORT # PAGE 14

15 VI. Advertising The examiners compared the Company s advertising material against the records at the MIA. The Company provided the examiners with the following 6 pieces of advertising used during the exam period, but not filed with the MIA: Form No. HMSPBR96 MD HMSPAFS96 MD HMSPCFS96 MD HMSPDFS96 MD HMSPFFS96 MD HMSPJFS96 MD Description Brochure Fact Sheet Plan A Fact Sheet Plan C Fact Sheet Plan D Fact Sheet Plan F Fact Sheet Plan J The Company is in violation of Section of the Insurance Article and COMAR for using 6 pieces of advertising not filed with the MIA. Company Response: The advertising material currently in use by GELAAC in Maryland was originally filed and approved on January 22, 1998 for use by Harvest Insurance Company. When General Electric Financial Assurance acquired the company in 1998, the advertising material was updated to reflect the change to GELAAC. This change was the only revision to the advertising material. The advertising was then submitted to the MIA in February 1999 and was approved. GELAAC would not knowingly use unapproved advertising, as indicated by the recent filing and approval (February 11, 2002) of these same advertising pieces, which contained minor updates. In an attempt to locate the paper file documenting the approval of this material, we diligently searched several locations in an attempt to locate the file, and have not been successful. GE LIFE AND ANNUITY REPORT # PAGE 15

16 VII. Marketing A. Marketing Methods The Company stated that it markets Medicare Supplement policies primarily utilizing its captive agents. The agents marketing the Medicare Supplement products are provided with sales bulletins and access to the federal enrollment guidelines, along with a sales support team which provides any additional information needed by the agents to enroll a client. The Company did not provide the examiners with any information such as agent training manuals, scripts or written procedures that are generally used in the marketing process to obtain new business. B. Plans Being Actively Marketed The make up of standard Medicare Supplement Plans A-J is described in COMAR Individually Marketed Plans The Company markets Plans A, C, D, F and J on a simplified-underwritten basis. The Company submitted annual rate filings for these plans in 1999 and The 2000 plan rates were approved in December of 2000 and implemented by the Company in April of In 2001, the Company failed to submit its annual rate filing for the Medicare Supplement business. As such, the Company is in violation of Section (e) of the Insurance Article and COMAR C for failing to submit the 2001 annual rate filing. The examiners requested a list of all policies issued by the Company during the survey period. The examiners were supplied with a list of 25 policies issued to Maryland residents in In addition to these policies, there were 7 policies where applications were submitted in 2001 and the policies were issued in The examiners reviewed all 32 policies in order to confirm that the Company is: Using approved applications and replacement forms and asking required replacement questions. Charging the current filed and approved Medicare Supplement premiums for the specific type of policy sold. Not attaching waivers to policies which may exclude, limit or reduce coverage or benefits for specifically named or described diseases or physical conditions. GE LIFE AND ANNUITY REPORT # PAGE 16

17 Waiving the time periods applicable to pre-existing conditions and waiting periods in new policies for similar benefits to the extent the time was spent under the original Medicare Supplement policy. Complying with Medicare Open Enrollment and Credible Coverage requirements. Not altering an application unless the Company has obtained the applicant s written consent. No violations were noted 2. Group Plans The Company advised the examiners that they do not market group Medicare Supplement policies in Maryland. C. Plans Previously Marketed But Later Withdrawn The Company formally withdrew Plans B and H with the MIA in February The examiners requested copies of this withdrawal letter and the Company was unable to locate the file. The examiners researched the records at the MIA and located a copy of the approval to withdraw. D. Open Enrollment The examiners requested the Company s procedures for handling open enrollment. The Company responded as follows: Company Response: When a client is applying for a Medicare Supplement plan during the Open Enrollment period, the agent does not complete questions on the application. The remaining questions on the application are completed, and the application is then forwarded to GELAAC for issue. The Company published a memorandum that outlines the procedures the agents are to follow for HMO closings. The agents have been instructed not to complete these questions as a result of HMO closings. These are the same instructions he would receive for completing the application during the Open Enrollment period. Policies , , , (this policy is issued to a captive agent) and (this policy is issued to a captive agent s wife) were reviewed and all of these applications contained answers to health questions Although the Company did issue these policies, this practice does not follow the intent of Section (b) and (d) of GE LIFE AND ANNUITY REPORT # PAGE 17

18 the Insurance Article and COMAR Policies and were Medicare Supplement Plans C and F respectively, which were issued to Medicare Involuntary Disenrollees. Policy was issued to an applicant who applied for coverage during the applicant s Medicare Open Enrollment period. COMAR requires that individuals who apply for Medicare Supplement policies during the applicant s Medicare Open Enrollment period or apply as a result of involuntary HMO disenrollment, be provided with guaranteed issue policies by the Company. Although each applicant, for the above referenced policies, was issued the policy for which they had applied, each individual completed the Health Question(s) section of their Medicare Supplement application. The Company is instructed to inform all appointed producers and sales, underwriting and administrative personnel to cease the practice of requiring applicants to complete or answer questions related to health on the Company s Medicare Supplement applications during Open Enrollment periods or as a result of involuntary HMO disenrollment. Company Response: We are in the process of preparing a sales bulletin, which will be issued to the field instructing agents on how to properly complete an application for clients applying during the open enrollment period. E. Guaranteed Issuance for Disabled Individuals Under Age 65 The examiners requested all of the policies issued to disabled persons under age 65. The Company provided the examiners with 5 policies issued to disabled persons under age 65 for Plan C since December 21, No other Plans have been issued to disabled persons under age 65. The Company s advertising does not contain any language about the availability of Medicare Supplement policies to disabled persons under age 65. The examiners requested the Company s underwriting guidelines. The Company s underwriting guidelines were written in 1988 and have not been updated. There is no reference to Medicare Supplement coverage being available to disabled persons under age 65. The Company is in violation of COMAR D(1) for not actively marketing Plan C to disabled persons under age 65. The examiners direct the Company to advertise the availability of Plan C to disabled persons under age 65 in accordance with Section (b)(3) of the Insurance Article. GE LIFE AND ANNUITY REPORT # PAGE 18

19 Company Response: GELAAC appreciates the MIA s concerns that our advertising does not adequately address the availability of coverage to those under age 65 and on Medicare by reason of disability. GELAAC would like to assure the MIA that we will address this concern, and will update future advertising material to clearly reference the availability of Plan C to the under age 65 insureds. The examiners reviewed all 5 applications. All 5 of these applications contained answers to health questions. These policies are required to be written on a guaranteed issue basis without health questions in accordance with Section (b)(3), (4) and (5) of the Insurance Article. Although the Company issued these policies, the examiners direct the Company to cease asking health questions on disabled persons under age 65 applying for Medicare Supplement policies. F. Outlines of Coverage and Medicare Supplement Buyers Guide The Outline of Coverage and Medicare Supplement Buyer s Guide are given to the applicant at point of sale. The Company obtains a receipt for the Outline of Coverage and the Medicare Supplement Buyer s Guide on the application. Outlines of Coverage GOCMS0164 MD, GOCMS0165 MD, GOCMS0166 MD, GOCMS0167 MD and GOCMS0168 MD were approved by the MIA; however, they are not in compliance with: COMAR C(3)(b) because it is not in 12 point type; and COMAR C(3)(d), (e) and (f) as the premiums are not immediately following the cover page and do not include all of the billing modes. The Company revised the Outline of Coverage and submitted it to the MIA on June 28, The MIA sent the Company a disapproval letter dated October 3, 2001 advising the Company that the Outline of Coverage did not address the changes in the Medicare Supplement regulation set forth in COMAR B(11)(c), D and These changes became effective July 25, The Company is in violation of COMAR E for not revising the Outline of Coverage to comply with the required language revisions effective July 25, Company Response: On June 28, 2001, our third party administrator, Wakely Inc., submitted on GELAAC s behalf a revised outline of coverage and amendatory endorsement which added the references to outpatient prospective payment systems (OPPS) as required by COMAR C(1)(e). The MIA responded to Wakely Ins. on October 3, 2001 with objections GE LIFE AND ANNUITY REPORT # PAGE 19

20 to that submission. The objection raised by the MIA are directed to group insurance and guaranteed issue regulations. Because neither of these items appeared relevant to the form submitted we did not immediately respond. We will be responding to these concerns shortly. G. Replacement Notices The examiners reviewed the newly issued policies for replacement notices. The examiners also reviewed the replacement notices. Policies and were issued as internal replacements of existing plan F to plan D policies. The agent who placed both of these policies indicated on the Notice to Applicant Regarding Replacement of Medicare Supplement Insurance, that the existing policies were being replaced for Additional Benefits. Medicare Supplement Plan D is not considered to be an improved or upgraded plan in comparison to Medicare Supplement Plan F. A review of each policy file showed that a Company underwriter never questioned the reason provided for replacement given by the agent on both policies. Although no violations were found, it is recommended that the Company s Underwriting Department place closer scrutiny on reasons for the replacement of Medicare Supplement policies which may have been replaced in an unfair or inaccurate manner by Company agents. Company Response: GELAAC has procedures in place, which requires the underwriter to review the replacement forms received during the application process. The 2 policies noted in the report did not have notations on their file indicating that the underwriter questioned the agent s information. It is procedure that the underwriter note on the worksheet he completes any questionable information he finds on the replacement notice. H. Disclosure Statements The examiners requested the Company s Disclosure Statements issued with health policies that duplicate Medicare. The Company provided the examiners with 3 Disclosure Statements, form numbers BDUPNOTSDI95, BDUPNOTAC95 and BDUPNOTSDE95. The language of these forms vary from the Disclosure Statements required under COMAR The Company is in violation of COMAR A(2) for using these 3 forms. Company Response: The Disclosure Statements noted in the report BDUPNOTSDI95, BDUPNOTAC95 and BDUPNOTSDE95 have been revised and now comply with COMAR GE LIFE AND ANNUITY REPORT # PAGE 20

21 VIII. Administration of Business A. Creditable Coverage The examiners requested the Company s procedures for portability of benefits when the insured had Creditable Coverage prior to the issuance of their policy to verify compliance with Section (b) and (d) of the Insurance Article, COMAR and COMAR The Company has no written procedures; however, the Company waives the pre-existing conditions limitation in all of their Medicare Supplement policies so Creditable Coverage is not applicable. No violations were found. B. Medicaid Suspension The examiners requested and reviewed the Company s policies and procedures for the suspension of benefits as a result of an insured s eligibility for Medicaid. No violations of COMAR (11) were found. C. Free Look Period The examiners requested a listing of all policies surrendered under the free look provision during the survey period. The Company supplied the examiners with a list of 2 policies. The examiners reviewed these 2 policies. The examiners found that refund of premium on policy took 50 days and policy took 35 days. D. Declined Applications The Company rejected 1 application during the survey period. The examiners reviewed this application which was declined due to underwriting. No violations were found. E. Terminated Policies The examiners requested a listing of all policies terminated by the insured beyond the free look period, during the survey period. The Company supplied the examiners with a list of 37 policies. The examiners reviewed all 37 policies. The examiners found: 2 policies were terminated during the free look period; 2 policies were Major Medical policies and not Medicare Supplement; 1 policy was active and never terminated; 5 policies were exchanged for another Medicare Supplement plan with the Company; GE LIFE AND ANNUITY REPORT # PAGE 21

22 and 17 were terminated for non-payment of premium. These 27 policies were deleted from this sample and the remaining 10 policies were reviewed. The examiners the refund of unearned premium ranged from 12 to 224 days. F. Complaints There were no complaints filed with the MIA by Maryland residents during the survey period. The examiners requested a list of all complaints by Maryland residents received by the Company for Medicare Supplement policies during the survey period. The examiners were informed by the Company that no such complaints were received during the survey period. GE LIFE AND ANNUITY REPORT # PAGE 22

23 IX. Policy Form Review The examiners obtained the list of forms approved by the MIA. The examiners compared the list of forms from the MIA with the forms in use by the Company during the survey period. The examiners found Immediate Benefit Rider IBRI 5-82 in use but not approved by the MIA. The Company is in violation of Section (b) of the Insurance Article and COMAR A for using an unapproved form. Company Response: Form IBRI 5-82 is a form originally used by Harvest Insurance. In 1998 when GE acquired Harvest, this form along with the policy forms were submitted to the MIA for review as GELACC forms. The Company believes this form was approved by the MIA on December 30, Unfortunately, after diligently searching several locations for a copy of the approval, we have not been able to locate the approved copy of the form. The Company is in violation of COMAR B, C and D because policy forms MSP-1992A, MSP-1992-C, HMSPD96 MD, MSP-1992-F, and MSP-1992-J have not been resubmitted to the MIA for the revisions required in this regulation which was effective July 25, Company Response: In order to address the requirements of COMAR B, C and D, GELAAC had Wakely Inc. submit an amendatory endorsement on June 28, 2001, which added the references to outpatient prospective payment systems (OPPS) to the policy forms. The MIA responded to Wakely Inc. on October 3, 2001, with an objection to the submission. We are in the process of responding to that objection and regret the delay in responding. GE LIFE AND ANNUITY REPORT # PAGE 23

24 X. Renewals and Rates The examiners requested, received and reviewed 50 renewals sent to Maryland residents during the survey period. The examiners confirmed that the rates in use during the survey period had been filed and approved by the MIA. The following policy rate violations are reported: Policy No is a Medicare Supplement Plan C issued to a 66-year old applicant, effective July 28, The Company presented billing data which showed the quarterly premium as $ as of April 28, The correct quarterly premium should have been $ The same policy changed rates on July 28, 2001 to $ quarterly. The correct premium should have been $ quarterly. The Company is in violation of COMAR for charging rates other than the filed and approved Medicare Supplement rates. Policy No is a Medicare Supplement Plan C issued to a 78-year old applicant, effective March 1, The Company sent the policyholder a rate change notification letter dated January 26, 2000 advising him that as of the policy anniversary date, March 1, 2000, the in force monthly rate would increase to $ The correct monthly premium charge should have been $ In a letter dated January 25, 2001, the Company notified the policyholder that the monthly premiums were being increased to $158.54, effective March 1, The correct monthly premium should have been $ The Company is in violation of COMAR for charging rates other than the filed and approved Medicare Supplement rates. Policy No is a Medicare Supplement Plan C issued to a 77-year old applicant, effective November 23, The Company provided billing data that showed the annual premium as of November 11, 2001 to be $ The correct annual premium should have been $ The Company is in violation of COMAR for charging a rate other than the filed and approved Medicare Supplement rate. Policy No is a Medicare Supplement Plan J issued to a 65-year old applicant, effective June 28, The Company informed the policyholder with a rate change letter dated February 25, 2001, that as of March 20, 2001, the in force monthly rate would be $ The GE LIFE AND ANNUITY REPORT # PAGE 24

25 correct monthly premium should have been $ On May 28, 2001, the Company notified the policyholder that the in force monthly rate would increase to $ effective June 28, The Company stated, in the notification letter to the policyholder, that the reason for the rate increase was Due to the continued raise in medical care cost it is necessary at this time to adjust the rate charged for your medical coverage. Obviously this rate adjustment was to correct the rating error; however, the Company did not state this fact as the reason for the increased rate in their correspondence to the policyholder. The Company is in violation of COMAR for charging a rate other than the filed and approved Medicare Supplement rate. The Company is also in violation of COMAR (3), for increasing the premium rates for a Medicare Supplement policy for an insured person more than once in a year. The Company informed the examiners that it had recently performed an extensive internal billing audit of its Maryland Medicare Supplement policies in 2002 that will result in premium corrections to 25 policies including the policies referenced above and reviewed during the survey period. The Company s examination of 114 renewed Maryland policies in the year 2000 revealed premium adjustments because of rate overcharges to 50 Maryland Medicare Supplement policies. The Company adjusted the premiums and refunded the money to the insureds. The Company has experienced numerous rating problems with the pricing of its Medicare Supplement policies since taking over the Medicare Supplement business from The Harvest Life Insurance Company in January In 2001, as a result of several consumer complaints in the State of Montana, the Company affiliate, Federal Home Life Insurance Company, was required by the Commissioner of Insurance to correct many serious Medicare Supplement policy rating and related policy administrative problems in that state. The Company has stated that it also had similar problems in California. Federal Home Life Insurance Company and GELAAC use the same staff for administration of their business. The examiners expressed concern to the Company about the numerous policy rating adjustments as the result of incorrect policy pricing performed by the Company in recent years. GE LIFE AND ANNUITY REPORT # PAGE 25

26 The examiners informed the Company that they would be receptive to a Plan Outline, from the Company that would present a course of action for reconciliation of premium for all its Maryland Medicare Supplement policies since the effective date of each respective policy. Company Response: GELAAC has reviewed all current premiums and corrected any existing errors on its in force Medicare Supplement business. These corrections, however, were done without knowledge of the previous correction efforts completed in In light of these previous correction efforts, GELAAC believes that it must review two additional situations to confirm that it has identified all policyholders adversely affected by over billings. First, GELAAC will validate previous correction efforts to make sure that refunds were processed as needed. If previous corrective efforts were done without providing refunds, GELAAC will take necessary corrective action. Second, because it is possible that policies may have lapsed or otherwise terminated before refunds were provided, GELAAC will obtain a listing of all terminated policies since January 1, 1998 and compare premium payments with actual rates that should have been charged. To the extent any overpayments are identified, GELAAC will provide back to former policyholders with interest as described above. GELAAC believes that these next steps should address any policies that might have slipped through previous corrective efforts and not been completely remedied. GELAAC will complete this review and refund any additional overpayments that it identifies to policyholders. As a result, GELAAC proposes providing the MIA with a written reconciliation report-both dollars and policies. The examiners direct the Company to report to the MIA the total amount of premium refunded for each policy and proof of payment. Company Response: GELAAC acknowledges that the rate implementation errors have occurred and GELAAC has taken steps to correct these past errors. Per our correspondence dated July 25, 2002, GELAAC believes that it has identified all over billing situations. Further, by letter dated August 7, 2002, GELAAC has provided the MIA with copies of all cover letters and checks sent to policyholders entitled to refunds. The examiners reviewed in detail the Company premium and billing reconciliation report provided on July 25, 2002 and the subsequent proof of refund data furnished by the Company on August 7, The information provided by the Company confirmed that the billing errors had been corrected and refunds, including interest, had been issued on the Medicare Supplement policies that were overcharged in Maryland. GE LIFE AND ANNUITY REPORT # PAGE 26

27 The examiners, however, were not completely satisfied that the company s Medicare Supplement premium rating and billing system was currently accurate. The Company was requested to furnish Premium & Billing data on all 2002 Maryland Medicare Supplement new issue policies and renewals for the period beginning January 1, 2002 thru June 30, The Company provided the information requested in a timely manner. The examiners reviewed the data and subsequently requested a detailed explanation of the Company s premium rating and billing system relative to the processing of Medicare Supplement rate increase, age change increases and anniversary/renewal transactions as related to the 2002 policy premium rating and billing data. The Company responded with a three page document that explained the current premium rating and billing system. The document also provided information on recent changes to the system. Primarily, a new rate implementation process which enables the Company to track premium rating errors and effectively make the necessary corrections prior to generating any policyholder rate change notifications. The examiners reviewed this information and are satisfied that the Company has implemented the necessary upgrade changes, to its Medicare Supplement premium rating and billing system, that should reduce and/or eliminate the numerous rating errors on its future and current Medicare Supplement business in Maryland. GE LIFE AND ANNUITY REPORT # PAGE 27

28 XI. Rescissions The examiners requested a listing of all rescissions made by the Company during the survey period. The Company informed the examiners that there were no rescissions during the survey period. GE LIFE AND ANNUITY REPORT # PAGE 28

29 XII. Claims Reviewed A. Claims Selection The purpose of this portion of the examination was to investigate the timeliness and claims handling practices of GELAAC s Third Party Claims Administrator, Wakely and Associates, Inc. to verify compliance with the prompt payment law of Section of the Insurance Article. The initial data requirements were set forth in a letter dated March 12, 2002 from the MIA to GELAAC. In addition the examiners discussed in detail by telephone with GELAAC the specific requirements necessary to complete the examination. Specifically, the examiners requested claim data pertaining to the Company s Medicare Supplement business. The examiners requested received from GELAAC a data file from Wakely that included all claims paid and denied during the survey period. The claim data file of 314 claims denied during the survey period was reviewed. From it, the examiners selected a random sample of 77 claim files to review for timeliness. Wakely provided GELAAC copies of all requested claims, which were forwarded to the examiners for review. The claim data file of 3,932 claims paid during the survey period was reviewed. From it, the examiners selected a random sample of 200 claim files to review for timeliness. Wakey provided GELAAC copies of all requested claim files, which were forwarded to the examiners for review. A. Sample Processing Time Processing time for the 545 paid, denied and pended claims sample ranged from 1 to 22 days with an average processing time of 6 days. 1. Claims Denied The examiners determined that all of the denied claims sampled were processed within 30 days after the date the Company received them. No violations were found. 2. Claims Paid The examiners determined that all of the paid claims sampled were paid within 30 days after the date that the Company received them. No violations were found. B. Pharmacy Claims Policy Plan J contains a drug benefit which pays fifty percent (50%) of outpatient GE LIFE AND ANNUITY REPORT # PAGE 29

30 prescription drug charges, after a two hundred fifty dollar ($250) calendar year deductible, to a maximum of three thousand dollars ($3,000) in benefits received by the insured per calendar year, to the extent not covered by Medicare. The examiners requested and the Company provided data on 71 paid and denied drug claims processed during the survey period. The examiners reviewed all 71 drug claims. Processing time ranged from 2 to 32 days. The following drug claim was paid in excess of 30 days and no interest was paid: Claim Number Date Received Date Paid Amount of Claim Payment Days to Process Total Interest Due /26/01 4/27/01 $ $.39 The Company is in violation of Section (c) of the Insurance Article and COMAR B(12) for paying 1 claim in excess of 30 days. The Company is in violation of Section (f) of the Insurance Article for not paying interest on 1 claim paid in excess of 30 days to process. Company Response: We agree with the MIA findings of violation of COMAR B(12) and Section (f), which cite GELAAC for failing to pay 1 claim in excess of 30 days and not paying interest on this 1 claim. It is our intention to comply with regulations and will provide interest where required. As requested by the MIA, we will pay interest as calculated by the MIA for the above policy by check to the insured. GE LIFE AND ANNUITY REPORT # PAGE 30

31 XIII. Summary of Violations Agent Licensing and Third Party Administrators Page 12 The Company is in violation of Section (a)(1) of the Insurance Article for failure to notify the MIA of an appointment or termination of 6 agents within 30 days of occurrence. Commissions Pages The Company is in violation of Section (a) of the Insurance Article for paying a commission to a person that does not have a Certificate of Qualification. Advertising Page 15 The Company is in violation of Section of the Insurance Article and COMAR for using 6 pieces of advertising not filed with the MIA. Marketing Pages The Company is in violation of Section (e) of the Insurance Article and COMAR C for failing to submit the 2001 annual rate filing. The Company is in violation of COMAR D(1) for not actively marketing Plan C to persons under age 65 eligible for Medicare due to disability. The Company is in violation of COMAR C(1)(e) for not revising the Outline of Coverage to comply with the required language revisions effective July 25, The Company is in violation of COMAR for using 3 Disclosure Statements with non-compliant language. Policy Form Review Page 23 The Company is in violation of Section (b) of the Insurance Article and COMAR A for using an unapproved form. The Company is in violation of COMAR B, C and D for not resubmitting all the policy forms to the MIA for the language revisions effective July 25, Renewals and Rates Page The Company is in violation of COMAR for charging rates other than the filed and approved Medicare Supplement rates. The Company is in violation of COMAR (3) for increasing the premium rates for 1 insured with a Medicare Supplement policy more than once in a year. GE LIFE AND ANNUITY REPORT # PAGE 31