Section R20-6-208. Group Coverage Discontinuance and Replace- ment

A.      Definitions. The following definitions apply in this Section:

1.        “Group insurance” means an insurance benefit that meets all the following conditions:

a.         Coverage is provided through insurance policies or subscriber contracts to classes of employees or members defined in terms of conditions pertaining to employment or membership;

b.        The coverage is not available to the general public and can be obtained and maintained only because of

the covered person’s membership in or connection with the particular organization or group;

c.         Coverage is paid for by bulk payment of premiums to the insurer; and

d.        An employer, union, or association sponsors the plan.

2.        “Health insurance coverage” means a hospital and medi- cal expense incurred policy, a nonprofit health care ser- vice plan contract, a health maintenance organization subscriber contract, or any other health care plan or arrangement that pays for or furnishes medical or health care services whether by insurance or otherwise, but does not include the following:

a.         Coverage only for  accident, or  disability  income insurance, or any combination of accident and dis- ability income insurance;

b.        Coverage issued as a supplement to liability insur- ance;

c.         Liability insurance, including general liability insur- ance and automobile liability insurance;

d.        Workers’ compensation or similar insurance;

e.         Automobile medical payment insurance;

f.         Credit-only insurance;

g.        Coverage for onsite medical clinics; and

h.        Other insurance coverage similar to the coverage specified in subsections (2)(a) through (g), of the Health Insurance Portability and Accountability Act of 1996 (Pub.L.No. 104-191) (HIPAA), under which benefits for medical care are secondary or incidental to other insurance benefits.

i.         The following benefits, if the benefits are provided under a separate policy, certificate, or contract of insurance or are otherwise not an integral part of the coverage:

i.         Limited-scope dental or vision benefits;

ii.        Benefits for long-term care, nursing home care, home health care, community-based care, or any combination of those benefits;

iii.      Other similar, limited benefits specified in fed- eral regulations issued under HIPAA.

j.         The following benefits if provided under a separate policy, certificate, or contract of insurance with no coordination between provision of benefits and any exclusion of benefits under a group health plan maintained by the same plan sponsor and if the ben- efits are paid for an event regardless of whether the benefits are provided under a group health plan maintained by the same plan sponsor:

i.         Coverage only for a specified disease or illness, or

ii.        Hospital indemnity or other fixed indemnity insurance.

k.        The following benefits if the benefits are offered as a separate policy, certificate, or contract of insurance:

i.         Medicare supplemental policy as defined under

§ 1882(g)(1)  of  the  Social  Security  Act,  42

U.S.C. 1395ss;

ii.        Coverage supplemental to the coverage pro- vided under, 10 U.S.C. Title 10, Chapter 55; or

iii.      Similar supplemental coverage provided to coverage under a group health plan.

3.        “Health status-related factor” means any of the following:

a.         Health status;

b.        Medical condition, including a physical or mental illness;

c.         Claims experience;

d.        Receipt of health care;

e.         Medical history;

f.         Genetic information;

g.        Evidence of insurability, including conditions aris- ing out of acts of domestic violence; or

h.        Disability.

4.        “Insurer” means an insurer that offers or provides group health insurance coverage, and includes an insurer that issues disability insurance as defined in A.R.S. § 20-253, a medical, dental, or optometric service corporation as defined in A.R.S. § 20-822, and a health care services organization as defined in A.R.S. § 20-1051.

B.       This  Section  applies   to  all  group  insurance   issued  by  an insurer.

C.      Effective date of discontinuance for non-payment of premium.

1.        If a group insurance policy provides for automatic dis- continuance of the policy after a premium remains unpaid through the grace period allowed for payment, the insurer is liable for valid claims for covered losses incurred before the end of the grace period.

2.        If the insurer’s actions after the end of the grace period indicate that the insurer considers the group insurance policy as continuing in force beyond the end of the grace period the insurer is liable for valid claims for losses beginning before the effective date of written notice of discontinuance to the policyholder or other entity respon- sible for paying premiums.

a.         The following actions indicate that the insurer con- siders the policy in force:

i.         Continued recognition, acknowledgement, or payment of subsequently incurred claims, or

ii.        Continued enrollment of employees or depen- dents.

b.        The following  actions  shall  not indicate  that  the insurer considers that policy in force:

i.         Recognition, payment, or acknowledgement of a claim by an insurer or processing a denial based on eligibility or other denial reasons set forth in the group benefit plan booklet; or

ii.        Recognition, payment, or acknowledgement of claims due to the group’s failure to notify the insurer that the employee or member is no lon- ger eligible for coverage or the group policy is terminated.

3.        The effective date of discontinuance shall not be before midnight at the end of the third scheduled work day after the date on which the notice of discontinuance is deliv- ered.

D.      Requirements for notice of discontinuance.

1.        An insurer’s notice of discontinuance shall include a request to the group policyholder to notify covered employees of the date when the group policy or contract will discontinue and to advise that, unless otherwise pro- vided in the policy or contract, the insurer is not liable for claims for losses incurred after the date of discontinu- ance. If the plan involves employee contributions, the notice of discontinuance shall also advise that if the poli- cyholder continues to collect employee contributions beyond the date of discontinuance, the policyholder is solely liable for benefits for the period which contribu- tions were collected.

2.        The insurer shall also provide the policyholder with a supply of notice forms that the policyholder can distribute to the covered employees. The notice forms shall explain the  discontinuance   and  the  effective  date,  and  advise

employees to refer to their certificates or contracts to determine their rights on discontinuance.

E.       Extension of benefits.

1.        A group policy shall provide a reasonable provision for extension of benefits for an employee or dependent who is totally disabled on the date of discontinuance as fol- lows:

a.         For a group life plan with a disability benefit exten- sion of any type such as a premium waiver exten- sion, extended death benefit in the event of total disability, or payment of income for a specified period during total disability, the discontinuance of the group policy shall not terminate the benefit extension.

b.        For a group plan providing benefits for loss of time from work or specific indemnity during hospital confinement, discontinuance of the policy during a disability or hospital confinement shall not effect benefits payable for that disability or hospital con- finement.

c.         A hospital or medical expense coverage, other than dental and maternity expense, shall include a reason- able extension of benefits or accrued liability provi- sion. A provision is reasonable if:

i.         It provides an extension of at least 12 months under “major medical” and “comprehensive medical” type coverage; or

ii.        Under other types of hospital or medical expense coverage, it provides either an exten- sion of at least 90 days or an accrued liability for expenses incurred during a period of dis- ability or during a period of at least 90 days starting with a specific event that occurred while coverage was in force, such as an acci- dent.

2.        An insurer shall ensure that the policy and group insur- ance certificates includes a description of the extension of benefits or accrued liability provision.

3.        An insurer shall ensure that benefits payable during a period of extension or accrued liability are subject to the policy’s regular benefit limits, such as benefits ceasing at exhaustion of a benefit period or of maximum benefits.

4.        For hospital or medical expense coverage, an insurer may limit benefit payments to payments applicable to the dis- abling condition only.

F.       Continuance of coverage in situations involving replacement of one plan by another.

1.        When a group policyholder secures replacement coverage with a new insurer, self-insures, or foregoes provision of coverage, the replaced insurer is liable only to the extent of its accrued liabilities and extensions of benefits after the date of discontinuance.

2.        The succeeding insurer shall cover each individual who:

a.         Was eligible for coverage under the prior plan on the date of discontinuance, and

b.        Is eligible for coverage according to the succeeding insurer’s plan of benefits with respect to a class of individuals eligible for coverage.

3.        For the purpose of successive health insurance coverage under subsection (F)(2), a succeeding insurer’s plan of benefits shall:

a.         Not have any non-confinement rules; and

b.        Provide, as to any actively-at-work rules, that absence from work due to a health status-related fac- tor is treated as being actively-at-work.

4.        Nothing in subsection (F)(2) prohibits an insurer from performing coordination of benefits.

5.        A succeeding insurer shall cover each individual not cov- ered under the succeeding insurer’s plan of benefits under subsection (F)(2) according to subsections (a) and (b) if the individual was validly covered, including benefit extension, under the prior plan on the date of discontinu- ance and is a member of a class of individuals eligible for coverage under the succeeding insurer’s plan. Any refer- ence in subsection (a) or (b) to an individual who was or was not totally disabled is a reference to the individual’s status immediately before the effective date of coverage for the succeeding insurer.

a.         The minimum level of benefits to be provided by the succeeding insurer shall be the level of benefits of the prior insurer’s plan reduced by any benefits pay- able by the prior plan.

b.        The succeeding insurer shall provide coverage until at least the earliest of the following dates:

i.         The date the individual becomes eligible under the succeeding insurer’s plan as described in subsection (F)(2);

ii.        The date the individual’s coverage would ter- minate according to the succeeding insurer’s plan provisions applicable to individual termi- nation of coverage such as at termination of employment or ceasing to be eligible depen- dent; or

iii.      For an individual who was totally disabled, and covered by a type of coverage for which sub- section (E) requires an extension of accrued lia- bility, the end of any period of extension of benefits or accrued liability that is required of the prior insurer under subsection (E), or if the prior insurer’s policy is not subject to subsec- tion (E), would have been required of the insurer had its policy been subject to subsection

(E) at the time the prior plan was discontinued and replaced by the succeeding insurer’s plan;

c.         For health insurance coverage, if an individual who was totally disabled at the time the prior insurer’s plan was discontinued and replaced by the succeed- ing insurer’s plan, and if subsection (E) requires an extension of benefits or accrued liability, the mini- mum level of benefits to be provided by the succeed- ing insurer shall be the level of benefits of the prior insurer’s plan, reduced by any benefits paid by the prior plan.

d.        If the succeeding insurer’s plan has a preexisting conditions limitation, the level of benefits applicable to preexisting conditions of persons becoming cov- ered by the succeeding insurer’s plan according to subsection (F) during the period the limitation applies under the new plan shall be the lesser of:

i.         The benefits of the new plan determined with- out application of the preexisting conditions limitation, or

ii.        The benefits of the prior plan.

e.         The succeeding insurer, in applying any deductibles, coinsurance amounts applicable to out-of-pocket maximums, or waiting periods, shall give credit for the satisfaction or partial satisfaction of the same or similar provisions under a prior plan providing simi- lar benefits. For deductibles or coinsurance amounts applicable to out-of-pocket maximums, the credit shall apply for the same or overlapping benefit peri-

ods and shall be given for expenses actually incurred and applied against the deductible or coinsurance provisions of the prior plan during the 90 days before the effective date of the succeeding insurer’s plan but only to the extent these expenses are recog- nized under the terms of the succeeding insurer’s plan and are subject to similar deductible or coinsur- ance provisions.

f.         If the succeeding insurer is required under this Sec- tion to make a determination about the benefits in the prior plan, the succeeding insurer may ask the prior plan to provide a statement of the benefits available or other pertinent information sufficient to permit the succeeding insurer to verify the benefit determination. For the purposes of this Section, all definitions, conditions, and covered-expense provi- sions of the prior plan shall govern the benefit deter- mination. The benefit determination is made as if the succeeding insurer had not replaced coverage.

Historical Note

Former General Rule Number 73-34. R20-6-208 recodi- fied from R4-14-208 (Supp. 95-1). Section expired under

c. Divide the results in subsection (b) by the number of thousands of the Equivalent Level Death Benefit to arrive at the “Equivalent Level Annual Dividend.”

4.        “Equivalent Level Death Benefit” means the amount of benefit of a policy or term life insurance rider calculated as follows:

a.         Accumulate the guaranteed amount payable upon death, regardless of the cause of death, at the begin- ning of each policy year for 10 and 20 years at 5% interest compounded annually to the end of the 10th and 20th policy years, respectively.

b.        Divide each accumulation in subsection (a) by an interest factor that converts the accumulation into one equivalent level annual amount that, if paid at the beginning of each year, would accrue to the value in subsection (a) over the periods stipulated in subsection (a). If the period is 10 years, the factor is

13.207 and if the period is 20 years, the factor is 34.719.

5.        “Generic name” means a short title that is descriptive of the premium and benefit patterns of a policy or a rider.

6.       

A.R.S. § 41-1056(E) at 8 A.A.R. 491, effective Septem- ber 30, 2001 (Supp. 02-1). Section R20-6-208 renum- bered from R20-6-210 and amended by final rulemaking at 13 A.A.R. 2061, effective August 4, 2007 (Supp. 07-2). R20-6-209.     Life Insurance Solicitation a. Determine the guaranteed cash surrender value, if   any, available at the end of the 10th and 20th policy   years. b. For policies participating in dividends, add the ter-   minal dividend payable upon surrender, if any, to the   accumulation of the annual Cash Dividends at 5% A. Scope.   interest  compounded  annually  to  the  end  of  the   1.     This Section applies to any solicitation, negotiation, or   period  selected  and  add  this  sum  to  the  amount   procurement of life insurance occurring in Arizona. This   determined in subsection (a).   Section applies to any issuer of life insurance contracts, c. Divide the result in subsection (b) (subsection (a) for   including fraternal benefit societies.   guaranteed-cost policies) by an interest factor that   2.     Unless otherwise specifically included, the Section does   converts into an equivalent level annual amount that,   not apply to:   if paid at the beginning of each year, would accrue to   a.      Annuities,   the value in subsection (b) or subsection (a) for guar-   b.     Credit life insurance,   anteed cost policies, over the periods stipulated in   c.      Group life insurance,   subsection (a)). If the period is 10 years, the factor is   d.     Life insurance policies issued in connection with a   13.207 and if the period is 20 years, the factor is   pension and welfare plan as defined by and subject   34.719.   to the federal Employee Retirement Income Security d. Determine the equivalent level premium by accumu-   Act of 1974 (ERISA), 29 U.S.C. 1001 et seq.; or   lating each annual premium payable for the basic   e.      Variable life insurance under which the death bene-   policy or rider at 5% interest compounded annually   fits and cash values vary according to unit values of   to the end of the period stipulated in subsection (a)   investments held in a separate account.   and  dividing  the  result  by  the  respective  factors B. In this Section, the following apply:   stated in subsection (c). This amount is the annual   1.     “Buyer’s Guide” means a document that contains the lan-   premium payable for a level premium plan.   guage  in  the  Appendix  to  this  Section  or  language e. Subtract the result of subsection (c) from subsection   approved by the Director.   (d).   2.     “Cash dividend” means the current illustrated dividend f. Divide the result of subsection (e) by the number of   that can be applied toward payment of the gross pre-   thousands of the Equivalent Level Death Benefit to   mium.   arrive at the Live Insurance Surrender Cost Index.

“Life Insurance Surrender Cost Index” means the cost index that is calculated as follows:

3.        “Equivalent Level Annual Dividend” is calculated as fol- lows:

a.         Accumulate the annual cash dividends at 5% interest compounded annually to the end of the 10th and 20th policy years;

b.        Divide each accumulation in subsection (a) by an interest factor that converts the accumulation into one equivalent level annual amount that, if paid at the beginning of each year, would accrue to the val- ues in subsection (a) over the periods stipulated in subsection (a). If the period is 10 years, the factor is

13.207 and if the period is 20 years, the factor is 34.719.

7.        The Life Insurance Net Payment Cost Index is calculated in the same manner as the comparable Life Insurance Cost Index except that the cash surrender value and any terminal dividend are set at zero.

8.        “Policy Summary” means a written statement describing elements of the policy, including:

a.         The following prominently placed title: Statement of Policy Cost and Benefit Information.

b.        The name and address of the insurance producer, or, if no producer is involved, a statement of the proce- dure to be followed to receive responses to inquiries regarding the Policy Summary.

c.         The full name and home office or administrative office address of the company by which the life insurance policy is to be or has been written.

d.        The generic name of the basic policy and each rider.

e.         For the first five policy years and representative pol- icy years thereafter sufficient to clearly illustrate the premium and benefit patterns, including the years for which Life Insurance Cost Indexes are displayed and at least one age from 60 through 65 or maturity, whichever is earlier, the following amounts, where applicable:

i.         The annual premium for the basic policy;

ii.        The annual premium for each optional rider;

iii.      Guaranteed amount payable upon death at the beginning of the policy year regardless of the cause of death except for suicide, or other spe- cifically enumerated exclusions provided  by the basic policy and each optional rider, with benefits provided under the basic policy and each rider shown separately;

iv.       Total guaranteed cash surrender values at the end of the year with values shown separately for the basic policy and each rider;

v.        Cash dividends payable at the end of the year with values shown separately for the basic pol- icy and each rider. Dividends need not be dis- played beyond the twentieth policy year; and

vi.       Guaranteed endowment amounts payable under the policy that are not included under guaran- teed cash surrender values in subsection (iv).

f.         The effective policy loan annual percentage interest rate, if the policy contains this provision, specifying whether the rate is applied in advance or in arrears. If the policy loan interest rate is variable, the Policy Summary shall include the maximum annual per- centage rate.

g.        Life Insurance Cost Indexes for 10 and 20 years but not beyond the  premium-paying period.  Separate indexes shall be displayed for the basic policy and for each optional term life insurance rider. The indexes need not be included for optional riders that are limited to benefits such as accidental death bene- fits, disability waiver of premium, preliminary term life insurance coverage of less than 12 months, and guaranteed insurability benefits, nor for basic poli- cies or optional riders covering more than one life.

h.        The Equivalent Level Annual Dividend in the case of participating policies and participating optional term life insurance riders, under the same circum- stances and for the same durations at which Life Insurance Cost Indexes are displayed.

i.         If the Policy Summary includes dividends, a state- ment that dividends are based on the insurer’s cur- rent dividend scale and are not guaranteed and a statement in close proximity to the Equivalent Level Annual Dividend as follows: “An explanation of the intended use of the Equivalent Level Annual Divi- dend is included in the Life Insurance Buyer’s Guide.”

j.         A statement in close proximity to the Life Insurance Cost Indexes as follows: “An  explanation of the intended use of these indexes is provided in the Life Insurance Buyer’s Guide.”

k.        The date on which the Policy Summary is prepared. The Policy Summary shall consist of a separate doc- ument. All information required to be disclosed shall

not be minimized or obscure. Any amounts that remain level for two or more years of the policy may be represented by a single number that clearly indi- cates the amounts that are applicable for each policy year. Amounts in subsection (8)(e) shall be listed in total, not on a per thousand nor per unit basis. If more than one insured is covered under one policy or rider, guaranteed death benefits shall be displayed separately for each insured or for each class of insured if death benefits do not differ within the class. Zero amounts shall be displayed as zero and shall not be displayed as a blank space.

C.      Disclosure requirements.

1.        The insurer shall provide to all prospective purchasers, a Buyer’s Guide and a Policy Summary before accepting the applicant’s initial premium or premium deposit, unless the policy for which application is made contains an unconditional refund provision of at least 10 days or unless the Policy Summary contains an unconditional refund offer, in which case the Buyer’s Guide and Policy Summary shall be delivered with the policy or before delivery of the policy.

2.        The insurer shall provide a Buyer’s Guide and a Policy Summary to any prospective purchaser upon request.

3.        If the Equivalent Level Death Benefit of a policy does not exceed $5,000, the requirement for providing a Policy Summary is satisfied by delivery of a written statement containing the information described in subsections (D)(8)(b), (c), (d), (e)(i) through (e)(iii), (f), (g), (j), and (k).

D.      General rules.

1.        Each insurer shall maintain at its home office or principal office for at least three years after its last authorized use a copy of each form the insurer authorized for use.

2.        A producer shall inform a prospective purchaser, before commencing a life insurance sales presentation, that the producer is acting as a life insurance producer and inform the prospective purchaser of the full name of the insur- ance company that the producer is representing. If an insurance producer is not involved in the sale, the insurer shall inform the prospective purchaser of the insurance company’s full name.

3.        An insurer or producer shall not use terms such as finan- cial planner, investment advisor, financial consultant, or financial counseling to imply that the insurance producer is generally engaged in an advisory business in which compensation is unrelated to sales unless that is true.

4.        If an insurer or producer refers to policy dividends, the reference shall include a statement that dividends are not guaranteed.

5.        An insurer shall not use a system or presentation that does not recognize the time value of money through the use of appropriate interest adjustments for comparing the cost of two or more life insurance policies unless the system or presentation is used to demonstrate the cash flow pattern of a policy and the presentation is accompanied by a statement disclosing that the presentation does not recog- nize that, because of interest, a dollar in the future has less value than a dollar today.

6.        In a presentation of benefits, an insurer shall not display guaranteed and non-guaranteed benefits as a single sum unless they are shown separately and in close proximity.

7.        An insurer shall include with a statement regarding the use of the Life Insurance Cost Indexes an explanation that the indexes are useful only for the comparison of the rela- tive costs of two or more similar policies.

8.        An insurer shall include with a Life Insurance Cost Index that reflects dividends or an Equivalent Level Annual Dividend a statement that it is based on the company’s current dividend scale and is not guaranteed.

9.        If an insurer reserves the right to change the premium for a basic policy or rider, the annual premium shall be the maximum annual premium.

E.       An insurer’s failure to provide or deliver a Buyer’s Guide or a Policy Summary as provided in subsection (C) constitutes an omission that misrepresents the benefits, advantages, condi- tions, or terms of an insurance policy.