VI. Formula Testing and Future Tasks Testing The formula will be tested by applying it to actual health insurers' books of business. In particular, the formula will be applied to companies with a variety of corporate structures and financial positions. The formula will also be applied to historical information from companies that have failed to see if it would have been useful in warning of the failure. This will help assess the reasonableness and adequacy of the formula. It will also help the NAIC in their determination of an appropriate RBC level for regulatory action. Data is being gathered now and will continue throughout this process . The information will be used to test and validate the formula. Tasks The Task Force feels that risk based capital formulas should always be subject to review and improvement . The following are some items that we identified requiring further effort. •
The accounting treatment of assets used in the delivery of health care may need further study. In particular, the admission of these assets on statutory financial statements and the C-1 risk factor to be applied to them. Additionally, the underlying HMO accounting standards that result in different accounting treatments for similar assets across various health plan organizations.
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Simplification and aggregation of the formula will be considered as the formula is subject to public exposure and comment.
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Many laws and regulations are specific to type of carrier. This creates an uneven treatment of a number of aspects of the health coverage such as ability to adjust rates , valuation practices , and surplus accumulation , For HORBC to have an equitable effect on all health plans , other regulations should be adjusted to establish consistent regulatory for each health product regardless of the company providing the coverage. As long term care business matures and further experience becomes available, it may be worthwhile to reconsider the formula basis for long term care and express the C-2 factor as a combination of the premium and active life reserves rather than just premium.
January 18, 1995
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