These formulas do not produce the same absolute or relative RBC levels for a given health organization . This lack of consistency in RBC formulas creates different capital standards for organizations providing health coverage , depending on their corporate structure or often even the branch of state government under which they are regulated. Therefore , one of the primary goals established by Commissioner Wilcox for the RBC formula is to establish a consistent RBC measure applicable to the wide variety of organizations that are likely to provide health coverage in the future reformed environment. The Task Force feels that risk based capital regulation should be viewed in conjunction with all other regulations in place . For example risk based capital and valuation regulations are focused on encouraging and monitoring financial strength . Conversely, loss ratio and rate regulations focus on encouraging lower premium levels. The conflict these regulations suggests that care be taken to coordinate them to insure that they create a viable regulatory environment. The regulatory environment must also recognize that health plans compete for business and capital in various markets. The various regulations must also consider their impact on price and profitability to ensure a product remains affordable and allows for sufficient profit to provide a return that will allow a plan to attract capital. This report represents our recommendations within the context of the direction given to us by. Commissioner Wilcox throughout the process. In particular , that we are not, except for certain coverages (most disability income and long-term care coverages), recommending the overall level of risk based capital for any given regulatory response, but rather the relative levels of risk based capital within the formula . The levels shown in the formula represent the particular probability of ruin we modeled , but can not and do not reflect the other considerations which the NAIC will have to address in choosing the final level.
January 18, 1995
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