MATE GH DP Notecards

Additional advantages of health spending accounts

(these are in addition to the advantages of flexible accounts from the previous list) 1. Deliver compensation tax effectively 2. Encourage employees to self-insure predictable and budgetable expenses (such as vision and dental) 3. Soften the impact of higher employee cost sharing 4. Replace existing coverage, allowing the employer to gain control of future cost increases 5. Obtain the maximum value from health benefits under the Quebec tax system

Typical elements of consumer-driven health plans (CDHPs)

1. A high-deductible health plan (HDHP) 2. An individual health account to pay for expenses not covered by the HDHP 3. Information and tools to provide health education and help find the highest-quality providers at the lowest cost 4. A communications program to encourage consumerism and healthy behaviors 5. A health coach or consultant to help individuals use available information and provide guidance on use of health care providers 6. For serious chronic conditions, a proactive medical professional to coordinate care for the patient

Steps for constructing a parametric model

1. A model type is chosen (for example, the gamma distribution) 2. The data is used to estimate the value of the parameters. Maximum likelihood estimation is preferred. 3. The choice of model is validated by verifying that the model adequately represents the data. This is often done with the chi-square goodness-of-fit test.

Events which cause a policy to be reinstated

1. Acceptance of premium by the company, without requiring an application for reinstatement 2. Approval by the company of an application for reinstatement 3. Submission of an application for reinstatement, and the company not disapproving the application for a period of 45 days

Criteria for an appropriate policy form

1. Accurately describe the benefits and other policy terms which the insurer intends to offer 2. The provisions must result in a competitive product 3. Comply with a wide array of laws and regulations 4. The wording must meet readability standards

Categories of persons the employer may want to or be required to provide benefits for

1. Active full-time employees 2. Dependents of active full-time employees 3. Retired former employees 4. Dependents of retired former employees 5. Disabled employees and their dependents 6. Surviving dependents of deceased employees 7. Terminated employees and their dependents 8. Employees (and dependents) on temporary leaves of absence (such as for military duty) 9. Active employees who are not full time (such as part-time employees and directors)

Types of analyses for reviewing LTD claims experience

1. Actual to expected claim incidence rates 2. Actual to expected claim termination rates 3. Analysis of total costs or loss ratios - this includes an analysis of claim reserves 4. Analysis of benefit offset assumptions

Categories of mental disorders

1. Adjustment disorders 2. Anxiety disorders 3. Childhood disorders 4. Eating disorders 5. Mood disorders 6. Cognitive disorders 7. Personality disorders 8. Psychotic disorders 9. Substance-related disorders

Advantages and disadvantages of formularies

1. Advantages a) Reduce costs b) Encourage patients to use the most effective medications c) Educate patients and physicians about cost-effective alternatives to expensive brand drugs 2. Disadvantages a) Need for constant communication to physicians and patients about what drugs are preferred b) Member dissatisfaction when formulary changes cause their copays to change c) Member and physician dissatisfaction when their first choice isn't on the formulary

Procedural approaches for managing referral costs

1. Assign each patient to a PCP who is the gatekeeper for access to other services 2. Require written authorizations for referrals 3. Restrict the range of services and number of visits based on the patient's diagnosis 4. Require all tests to be done within the medical group 5. Limit the time within which a consult must be completed 6. Prohibit the use of secondary referrals (where specialists refer to a second specialist) 7. Require a written report from the specialist on the final status and history of the referred case

Types of age rating structures

1. Attained age rating - a policyholder's rate is a function of his age at renewal. Also referred to as step rating if rates are grouped into age bands. 2. Entry age or issue age rating - the rate reflects the age of the policyholder when the policy was issued 3. Uni-age rating - the rate structure doesn't recognize age at all, leading to subsidization of older individuals. Most community rate structures are uni-age.

Methods of providing inflation protection on LTC policies

1. Automatic inflation protection - benefit limits increase automatically each year by a preset percentage (required to be at least 5%) on a compound basis 2. Simple inflation protection - like automatic inflation, but using simple interest instead of compound interest 3. Periodic increase offers - the insured is periodically (usually every three or five years) given the opportunity to purchase additional coverage on a guaranteed issue basis

Formulas used for calculating three-tier rates

1. Average members per contract = N1 * 1 + N2 * 2 + N3 * F 2. Average premium per contract = N1 * S + N2 * S * R1 + N3 * S * R2 3. Average premium units = Average premium per contract / S = N1 + N2 * R1 + N3 * R2 4. Conversion factor = Average members per contract / Average premium units 5. S = Capitation rate * Conversion factor Where: a) N1, N2, and N3 are the percentage distribution of contracts for the three tiers b) R1 and R2 are the ratios of two-person and family rates to the single rate (S) c) F is the average number of members per contract for the family tier

Rating approaches for health insurance

1. Community rating - everyone in a given geographic area pays the same rate 2. Adjusted community rating - similar to community rating, but rates vary based on characteristics and past claims data of the plan sponsor 3. Experience rating - recent claims data is used to establish the appropriate rates 4. Cost-plus and self-insured approaches a) The sponsor pays its own claims, along with an administrative charge to an insurer or TPA who handles claims processing b) Those who use this approach may also purchase aggregate and specific stop-loss insurance

Characteristics of the ideal funding vehicle

1. Company tax deduction - for contributions that adequately fund retiree health benefits 2. Tax-free or tax-deferred savings mechanism for employees 3. Tax-sheltered investment earnings 4. Tax-free benefits for retirees 5. No impact on plan design provisions 6. Funds are counted as an asset under FAS 106 7. Assets are revocable if the obligation to the plan changes

Practical considerations in determining credibility levels

1. Competitive pressures 2. Ability of administrative and management areas to cope with experience rating 3. The trade off between the cost of experience rating and gains in the quantity and quality of new business 4. The effect on existing business of a change in the credibility level 5. Management philosophy regarding experience rating 6. The need for consistency among classes of business

Reasons for management adjustments in pricing

1. Competitiveness of the premiums for new business 2. Profitability in other lines of business 3. Relations with the public or the sales force 4. Social policy 5. Desire to manage the block from a long-term perspective (eg, phase in a large rate increase)

Eligibility rules for Medicare

1. Parts A and B a) Based on age - must attain age 65 and earn 40 credits. Those who did not earn 40 credits may purchase this coverage. b) Based on disability under age 65 - must be entitled to Social Security disability benefits for 24 consecutive months c) ESRD - persons with ESRD who have earned 40 credits are eligible 2. Part C (coordinated care plans) - must be entitled to Part A coverage and be enrolled in Part B 3. Part D (prescription drug plans) - must be either entitled to Part A coverage or enrolled in Part B

Managed care models used for workers' compensation

1. Passive discount PPO model - broad-based PPOs are used to try to ensure workers use a contracted provider. This is the most prevalent, but the least effective model. 2. Proactive model - uses the cost-control attributes of an HMO. It is limited to the states that allow employers to tell their employees which providers to use.

Financial advantages of the capitation method

1. Payments are made in advance - resulting in the medical group receiving the payment about two months earlier than it would in a non-capitated environment 2. Billing the patient for services is virtually eliminated 3. Bad debt losses are minimized (because patient billing is eliminated)

Types of bases used for allocating expenses

1. Percent of premium 2. Percent of claims 3. Per policy 4. Per employee (certificate) 5. Per claim administered 6. Per case (some expenses are charged directly to the case for very large size groups)

FDA guidelines to ensure that generic drugs are interchangeable with brand drugs

1. Pharmaceutical equivalence - uses the same active ingredients 2. Bioequivalence - is absorbed into the bloodstream at the same rate and extent 3. Therapeutic equivalence - is proven to be safe and effective and is both pharmaceutically equivalent and bioequivalent

Types of cafeteria plans in the US

1. Premium conversion plans - there are no employer contributions. The plan is offered so that employees can pay for their employee-paid insurance costs on a tax-favored basis. 2. Flexible spending accounts (FSAs) - these accounts are permitted for medical reimbursements, dependent care, and adoption 3. Full flex plans - participants can select from a wide range of benefits. The employer selects an amount to give for benefits, which is put towards the cafeteria plan or into an account

Common cost performance measures

1. Price level measures - such as a percentage discount from billed charges, or the average fee for a category of medical services 2. Utilization measures - such as hospital inpatient admits per 1,000 members per year, average length of stay, or referral rates to specialists 3. Claim cost measures - such as claim cost per member per month

Types of LTC plans

1. Reimbursement plans - cover actual expenses up to a daily (or weekly or monthly) maximum benefit 2. Indemnity plans - pay the maximum daily benefit while the insured is receiving qualified care 3. Cash-benefit plans - pay the maximum daily benefit if the claimant is benefit eligible, even if not receiving care (these plans were referred to as the service reimbursement model, service indemnity model, and disability model, respectively, in Bluhm (individual) chapter 2)

Risk pooling programs for small group business

1. Reinsurance programs - many states have these programs to help distribute the added risks of guaranteed issue requirements. Carriers can place individuals or entire groups into the reinsurance program by paying the reinsurance premium 2. Risk-adjustment formula programs - a couple of states have developed risk-adjustment formulas to help normalize the risk of guaranteed issue

Essential characteristics of a good model

1. Reliable accuracy - a model must be good at predicting the future. It must also be robust. 2. Suitability for use - the model should produce the results it is designed for, without adding unnecessary complications 3. Appropriate precision - this relates to how many decimal places should be kept in the values 4. Sensibility - the model should reflect a logical construction of what is being modeled 5. Effectively communicated - this includes communicating everything necessary to understand and use the model's results

Cost control features of comprehensive medical plans

1. Requiring second surgical opinions 2. Full coverage for certain diagnostic tests - to detect early certain medical conditions 3. Preadmission certification requirements for hospitalizations 4. Utilization reviews 5. Enhanced reimbursement for procedures performed at an outpatient facility

Explanation of group-specific community rating

1. This is a type of experience adjustment 2. A group's GSCR capitation = (Community medical capitation * Group's GSCR factor) + Net reinsurance + Administration + Premium tax + Surplus/profit + Reserve 3. The group's GSCR factor = C * Group's experience factor + (1 - C) * Group's CRC factor a) C is the group's credibility factor b) The group's experience factor is based on a comparison of the group's actual experience to plan-wide experience c) The group's CRC factor is the enrollment-weighted average of the age and sex cost factors

Criteria for selecting claims to investigate

1. Timing - usually do not investigate claims beyond the time limit for rescinding a contract 2. Conditions - certain conditions (eg, accidents) can be ruled out as being a pre-existing condition 3. Size - don't investigate a claim if the cost of investigation exceeds the cost of the claim 4. Sentinel conditions or procedures - some conditions are related to others that lend themselves to antiselection (eg, certain diseases may be an indicator of the presence of HIV)

Vehicles used to prefund retiree benefits

1. Welfare benefit funds - such as VEBAs, or continuance funds held by an insurance company 2. 401(h) funding in a qualified pension trust 3. Incidental account in a profit sharing plan 4. Employee-purchased group annuities 5. 401(h) account with a money purchase plan (Health Stock Option Plan - HSOP) 6. Qualified retirement trust funds - pension plan or 401(k) profit sharing plan 7. Health savings accounts

Types of multiemployer plans

1. Welfare benefit plan - may provide various types of benefits, such as life insurance, disability insurance, health insurance, vacation, and unemployment benefits 2. Pension plan - to provide retirement income benefits

Questions to ask in evaluating employee benefit plans

1. What are the objectives of the employer and employee? 2. What benefits should be provided? 3. Who should be covered under the benefit plan? - retirees, dependents? 4. Should employees have benefit options? 5. How should the benefit plan be financed? 6. How should the benefit plan be administered? - by the employer, an insurer, or a TPA? 7. How should the benefit plan be communicated?

Decisions an organization must make to manage health care risk

1. What mode of health care delivery system will be used? 2. What benefits will be provided? 3. What contractual, financial, or payment arrangement will be negotiated with insurers or providers?

Reasons for using reinsurance on a new product

1. Where there is a concern regarding the capacity to accept full risk 2. When there is uncertainty as to the emerging experience (such as with long-term care) 3. To smooth out annual experience fluctuations 4. To provide a fully-developed product that the company must merely implement 5. To help in underwriting and rating the new product

Types of major medical insurance

1. Comprehensive major medical coverage - meant to cover smaller expenses, so it has smaller deductibles 2. Catastrophic medical - has very high deductibles (such as $25,000 to $100,000) 3. Short-term medical - coverage typically lasts for 3 to 12 months. The amount (and cost) of underwriting is much less than with other coverages. 4. State high risk pool plans - benefits vary by state, but normally resemble a basic major medical plan. Subsidized through assessments on health insurers. 5. Consumer directed plans - a high-deductible major medical plan with a personal spending account (such as an MSA or HSA)

Types of drug utilization review programs

1. Concurrent review - occurs at the point of service and flags potential overuse based on clinical edits (such as too-soon refills, duplicate claims, drugs requiring prior authorization, and quantity limits) 2. Retrospective review - pharmacists or nurses review patient profiles to determine patient compliance or suggest alternative therapies 3. Prospective review - educating physicians and patients about drugs or drug therapy

Steps for identifying expenses to count as medical expenses for MLR calculations

1. Conduct a baseline audit and assessment - identify resources with potential for allocating some costs as medical expenses 2. Identify and quantify potentially qualified operational units, programs, and costs 3. Document methods and findings - make sure calculations would be credible to an external reviewer 4. Prepare minimum loss ratio allocations 5. Prepare for a regulatory audit of the reported values - perhaps obtain an external review of the calculations

Process for forecasting multiemployer plan financials

1. Develop cost-per-eligible data and consider projected cost increases 2. Project cost-per-eligible for the new agreement period 3. Project hours-per-eligible for the new agreement period 4. Forecast total fund expenses for the new agreement period 5. Develop contributions-per-eligible and total employer contributions 6. Forecast the fund balance, reflecting investment earnings, plan expenses, contributions, and claims 7. Calculate outstanding plan liabilities for claim reserves and other contingencies

Disadvantages of contracting with provider organizations

1. Less negotiation leverage (with lower discounts) 2. The possible need to pay an access fee 3. The inability to select only the most efficient and high quality providers 4. The provider organization may not be able to effectively negotiate or decide whether to contract on behalf of the providers 5. The provider organization may have solvency problems if it retains too much risk 6. In the future, the organization could switch to another insurer or form its own insurance company, and take the membership with it

Options for spreading the cost of adverse selection

1. Load the prices of the lesser-valued options - reduces the reward for opting down 2. Load the prices of the highest-valued option - this may cause more employees to opt down 3. Spread the cost of the adverse selection over the price of all the options

Types of living benefits for life insurance

1. Long-term care benefits - provides a monthly benefit of 2% of the face amount, beginning when the insured is permanently confined to a nursing home 2. Catastrophic illness benefits - typically pays 25% of the face amount upon the occurrence of a listed disease, such as stroke or cancer 3. Terminal illness benefit - pays 25% to 50% of the face amount when the insured has been diagnosed with a terminal illness with less than 6 (or 12) months to live

Methods used to determine reasonableness of rates

1. Loss ratio standards (see previous lists) 2. "Me too" filing - the insurer mimics approved rates used by a competitor, stating that since the regulator approved the competitor's filing, the insurer's filing also includes reasonable rates 3. "Reasonable expectations" test (applied by some regulators) - the allowed increase in any given year is limited, on the basis that policyholders have a right to expect a rate increase to be reasonable relative to other similar policies

Goals of provider networks formed by insurers

1. Lower the cost of health care (see separate list of cost measures) 2. Increase the quality of health care (see separate list of quality measures) 3. Increase member satisfaction (see separate list of member satisfaction measures) 4. Keep the network as broad as possible while still maximizing the above performance measures

Alternatives for employers with regard to Medicare Part D

1. Maintain the current employer-sponsored plan and receive a retiree drug subsidy 2. Contract with a PDP or MA-PD to provide benefits to retirees that are enrolled in Medicare 3. Contract with CMS directly to become a PDP or MA-PD for the employer's own retirees 4. Provide a separate prescription drug plan that coordinates or supplements the benefits of any available PDP

Elements of prescription drug plans

1. Member eligibility cards 2. Online claim adjudication 3. Tiered copays or deductibles and coinsurance 4. Pharmacy networks providing discounts for branded medications 5. Mail service 6. Maximum allowable cost pricing for generics 7. Formularies and/or preferred drug lists 8. Prior authorizations for certain high-cost medications 9. Therapeutic interchange or switching

Types of member satisfaction measures

1. Member opinions - regarding various aspects of the care they receive, such as access, friendliness, and perceived quality 2. Behavioral indicators of satisfaction - such as disenrollment rates

Considerations to address when imposing an individual mandate

1. Whether and how to define minimum creditable coverage 2. Whether and how to define affordability 3. How to set premium subsidies 4. How best to set and enforce penalties for noncompliance 5. Whether to also impose an employer mandate 6. What type of enrollment methodology to use 7. The impact of on individual mandate will vary by: a) State (depending on different market rules by state) b) When it is implemented (should be in conjunction with any new rating rules such as community rating) c) What coverage options are available

Critical areas for managing care in an HMO

1. Minimize emergency room use by expanding clinic hours 2. Use outpatient surgery instead of admitting patients to the hospital 3. Avoid duplicating ancillary services by not repeating tests in the hospital that were already performed in the clinic 4. Select cost effective hospitals 5. Adopt careful preadmission controls and discharge monitoring 6. Control referrals within the medical group 7. Control referrals to external providers, since the medical group is financially responsible for those referrals 8. Develop a management information system to compare practice patterns of physicians in similar specialties

Cafeteria plan advantages and disadvantages to the employee

Advantages 1. Employees can pay for benefit expenses on a tax-favored basis 2. Employees can have more control over their health spending Disadvantages 1. Benefit elections must be made prior to the beginning of the year, and the election is irrevocable (with limited exceptions) 2. The use-it-or-lose-it rule means benefit dollars unused at the end of the year are forfeited 3. Since there is no FICA tax, participants may see a slight reduction in social security benefits

Analyses for testing the pricing structure of the flexible benefit plan

1. Winners and losers analysis - a comparison of an employee's situation before and after implementing the program 2. Employer cost analysis - involves identifying costs in the following categories: a) Credits b) Price subsidies c) Adverse selection d) Dependent coverage - will the program cause employees to change their coverage? e) Benefit utilization - will the new plan cause employees to change the services they use? 3. Reasonableness - test whether the options are understandable, if the price tags make sense, and if the credits are adequate for employee needs

Advantages and disadvantages of insurance

Advantages 1. Premium is set in advance by the insurance company 2. Having an outside administrator - so disputes do not have to be handled by the employer 3. Employees gain the financial backing from an outside financial institute 4. The insurance company can help design systems to control costs for the employer 5. Insurance may be more economical than other alternatives for handling risk Disadvantages 1. Administrative expenses are added to the premium 2. Employer satisfaction is affected by the insurer's ability to handle claims and solve problems

Cafeteria plan advantages and disadvantages to the employer

Advantages 1. The employer does not have to pay FICA or FUTA (Federal Unemployment Tax Act) taxes on contributions 2. Deferred amounts do not count when determining workers' compensation premiums 3. Creates increased awareness of the overall cost and value of employee benefits 4. Helps to contain health care costs and prevent wasting benefit dollars on duplicate or unneeded benefits Disadvantages 1. The large cost of administration and operation of a cafeteria plan 2. If a medical reimbursement account is included in the plan, the total amount of the employee's account must be available at any time in the year 3. Adverse selection can result in increased costs 4. Plans are subject to complex coverage and nondiscrimination testing

Advantages and disadvantages of health spending accounts replacing health and dental plans

Advantages for the employer 1. Fixed contribution (gives employer control over benefit cost increases) 2. Contributions to the account are tax deductible 3. The accounts are easy to administer and communicate Advantages for the employees 1. The accounts provide flexibility as to how the money is spent 2. Benefits are non-taxable to the employee 3. Can be used to buy insurance 4. The employee can decide what expenses are covered Disadvantages 1. Benefits are inadequate since there is no insurance 2. Inequities a) A flat contribution per employee means families receive relatively less protection than singles b) A percentage of pay contribution means lower-paid employees receive less protection than higher-paid employees 3. Inflation is borne by the employees

Advantages and disadvantages of using the worksite for modifying health risk factors

Advantages: 1. The employer has a clear interest in employee health because of its link to productivity 2. Programs can be delivered cost effectively to a large number of individuals at one time 3. Employees may be more likely to participate as a way to take a break from the work day Disadvantage: the employees' dependents are not reached because they are not present at the worksite

Benefits of an integrated medical management system

Integrated systems combine all health care programs (medical, disability, wellness, productivity management, etc.) into one 1. Better coordinated service delivery 2. Greater utility for consumers and service providers 3. Efficiencies of operation and scale 4. Better information for management decision making

PPACA approach to expanding access to coverage

PPACA (Patient Protection and Affordable Care Act) is name of the 2010 health reform law 1. Require most US citizens and legal residents to have health insurance (or face tax penalties) 2. Create state-based exchanges through which individuals and small employers can purchase coverage, with premium credits and cost sharing subsidies provided to low-income individuals 3. Impose penalties on large employers for employees who receive tax credits in the exchanges 4. Impose new regulations on health plans 5. Expand Medicaid coverage to individuals with incomes up to 133% of the federal poverty level

Reasons for using parametric vs. empirical models

Reasons to use empirical models: 1. They reflect the actual experience of a population covered by a specific set of benefits 2. Changes in products make it difficult to use parametric models because a model that fits the data one year may not be adequate the next Reasons to use parametric models: 1. They are more tractable mathematically and allow for the construction of confidence intervals 2. By using maximum likelihood estimation, a model can be created that is unbiased and has very small variance 3. They allow for various statements about the population to be tested 4. They have the ability to smooth grouped observations

Reasons for and against using subsidized pricing

Reasons to use subsidized pricing: 1. To encourage selection of cost-efficient options 2. To limit potential for adverse selection by encouraging broader participation Reasons to avoid subsidized pricing: 1. Can skew employee choices by masking the true value of each option 2. Can restrict cost management effectiveness since some costs are hidden and are therefore harder to control 3. Re-pricing can be harder if prices are artificially derived in the first place 4. It is harder to determine employer cost because price tags no longer equal expected claims

Definition of the force of trend

The force of trend is the trend in average per capita reimbursement to providers of medical care services from all types of private payers of health benefits

NAIC minimum anticipated loss ratios

The loss ratio is adjusted for policies with premiums falling outside a certain range 2. Medicare Supplement - 65% for individual and 75% for group 3. Long-term care a) Previous model regulation (still used by some states) - 60% b) New model regulation - certification that initial premiums are sufficient to cover moderately adverse experience. For rate increases, average of 58% (for original rates) and 85% (for increased amount). 4. Conversion policies - 120% 5. Additional benefit policies a) Planned increases - 75%, applied to the increased amount b) Unplanned increases - average of 85% (for unplanned premiums), 75% (for planned increases), and 60% (for the initial premium)

An example of a factor model (simplified - based on age only)

The profitability of a solicitation to a group of persons is: PV cash flow = Q*RR*GP*a*(1-LR-ER) - Q*SC = PV future profits - total solicitation costs a) Q = quantity solicited b) RR = response rate c) GP = gross annual premium d) a = annuity factor e) LR = loss ratio f) ER = expense ratio (assuming all expenses are variable so none are fixed) g) SC = solicitation cost h) LR, ER, a, and GP are assumed to vary by age

Types of primary utilization management programs

These are found in all forms of managed care (typically handled by telephone) 1. Precertification - reviews medical necessity and identifies case management opportunities 2. Concurrent review - monitors patient care to shorten the length of stay 3. Discharge planning - assesses what services will be needed after discharge 4. Large case management - identifies members with high risk for problems and tries to improve the coordination of care

Types of expanded utilization management programs

These are found with stronger forms of managed care, such as HMOs 1. Referral management (gatekeeper approach) - members gain access to care by PCP referrals 2. Outpatient precertification - requires prior authorization for certain procedures 3. On-site concurrent review - places clinically-trained nurses at hospitals to review cases 4. Centers of excellence - these networks of facilities perform high-cost procedures 5. Prenatal advisory services - identify pregnant women at risk for delivering unhealthy babies, and provide education on proper prenatal care

External sources of medical care trends

These are typically of limited usefulness due to lack of applicability 1. Proprietary databases 2. Medicare - history of cost increases for the over age 65 and disabled populations. Distorted by eligibility expansions, legislative changes, deductibles and copays. Little maternity, pediatric, prescription coverage. 3. National health expenditure portion of GDP - Split by providers and source of funds. Has significant lag and is subject to revision. 4. Medical CPI/PPI - M-CPI measures the increase in out-of-pocket costs but is based on billed (non-discounted) charges, so it probably overstates trend. PPI started in 1993 and early data was volatile (may prove useful in the future). 5. Trend surveys - typically compiled by consultants. Helps get a second opinion of own company trends.

Group disability benefit provisions

(DI BENEFITS PMM) 1. Definition of disability (see separate list) 2. Integration - direct integration (deduct full amount of other benefits) or all sources integration (pay least of 70% of salary less other income, 60% of salary, maximum benefit). 3. Benefit amount - 50%-70% of salary 4. Eligibility - typically actively at work and minimum hours worked requirements 5. No payment until the elimination period is satisfied - LTD (commonly 30-180 days), STD (can be 0 for accident / 7 for sickness, 8/8, 15/15, 30/30) 6. Exclusions and limitations a) Exclude disabilities resulting from the commission of a felony, war, self inflicted, or riot b) Limits on pre-existing, mental/nervous, and subjective conditions 7. Fixed or indexed cost of living adjustments (LTD) 8. Individual conversions - right to convert to a guaranteed renewable individual policy 9. The minimum benefit provision guarantees a small benefit in cases where offsets would reduce the benefit to almost nothing 10. Survivor benefits (LTD) - lump sum or annuity typically equal to 3-6 months payments 11. Pension contribution benefit (LTD) - typically 3-15% of salary 12. Maximum benefits - typically $5,000-$6,000 for LTD or $500-$1,000 for STD 13. Maximum benefit duration - LTD (from 2 years up to age 65), STD (typically 13, 26, or 52 weeks, coordinated with the LTD elimination period)

Criteria for an individual to be HIPAA eligible

(HIPAA eligibility guarantees the individual the right to purchase coverage in the individual market) 1. Have at least 18 months of creditable coverage without a significant break in coverage (63 days or more) 2. The most recent coverage must have been through a group health plan 3. Not eligible for coverage under any other group health plan 4. Not eligible for Medicare or Medicaid 5. Not have other health insurance 6. Did not lose insurance for not paying the premiums or for committing fraud 7. Have accepted and used up any COBRA continuation coverage or similar state coverage if it was offered

NAIC method of applying minimum anticipated loss ratio standards

(LTC and additional benefit policies are treated differently than listed here - see previous list) 1. Initial filing of new policy forms - the projected loss ratio is compared to the minimum standard to prove reasonableness 2. Renewals - a calculated rate increase must meet the following standards: a) The policy form must meet the minimum anticipated loss ratio over its future lifetime (beginning at the rate increase effective date) b) The policy form must meet the minimum anticipated loss ratio over its entire lifetime (past and future) c) For Medicare Supplement, the expected third-year loss ratio must also meet the minimum anticipated loss ratio

Types of Medicare+Choice plans allowed by the BBA

(Note that "Medicare+Choice" was the Balanced Budget Act name for what is now called "Medicare Advantage) 1. HMOs - these are primarily the plans that were risk contracts from the pre-BBA era 2. Preferred provider organizations (PPOs) - these offer both in-network and out-of-network benefits. Cost sharing is lower for in-network services. 3. Provider service organizations (PSOs) - these function very similarly to HMOs, but are generally formed by a hospital system or large physician group 4. Private fee-for-service (PFFS) plans - these offer higher benefit levels than Original Medicare, while negotiating with physicians to accept slightly different payments 5. Medical savings account (MSA) plans - these combine a high deductible fee-for-service plan with a savings account that is funded by Medicare

Plan design approaches for controlling adverse selection

(PD CONTROLL) 1. Parallel design should be maintained - eg, include vision and ortho at the same coverage in all plans 2. Delay full payment - have lower benefits during a waiting period of 6 to 12 months 3. Certain coverages can be grouped together - predictable expenses (such as dental or vision) could be grouped with less predictable expenses (such as supplemental medical) 4. Offer a health spending account instead of insurance - useful for vision and dental 5. Not allow a large spread between options - could be done by requiring a core coverage level 6. Test the program with employees - to bring to light potential design weaknesses 7. Require proof of insurability for increases in coverage 8. Only allow mid-cycle changes if a life-changing event occurs 9. Limit the frequency of choice - allow benefit changes only every 2-3 years, instead of annually 10. Limit the degree of change - restrict changes to one level of coverage per year (staircase rule)

Potential causes of residual trend

(RESIDUAL P) 1. Random (chance) fluctuation - caused by large catastrophic claims and small epidemics 2. Expansion of covered services as a result of legislation (government interventions) - mandated benefits result in an increase in services 3. Shifting of costs from one market segment to another - lower Medicare or Medicaid reimbursement shifts costs to the private sector 4. Increase in provider reimbursement as a result of changes in provider billing patterns ("code creep") 5. Demographic changes - such as age, sex, and industry (often addressed in rates) 6. Utilization trend - change in frequency of services (due to adverse selection, provider practices, or large groups with odd use patterns entering or leaving the plan) 7. Advances in technology - sophisticated treatments (new infertility treatments) and diagnosis methods (MRI) 8. Level (or intensity) of medical services changes (eg, a shift from medical days to ICU days) 9. Product mix changes - from introducing new benefit plans (like POS). Identify this component separately

Tips for sales conversion on the internet site

(SITE SALES) 1. Should emphasize (on the homepage) the products available and links to other pages 2. Increase sales by increasing traffic and improving the site 3. Try site maps, search components, interesting links and bulletins 4. Experiment and constantly improve (the site is never complete) 5. Sales and traffic monitoring - must monitor successful sales and inquiries as well as traffic 6. Ask for feedback 7. Links should be provided for existing customers to check accounts/policies 8. Encourage repeat visits by bookmarking 9. Secure transactions - customers must feel that their information is secure

Bases allowed for determining community rates for federally-qualified HMOs

(These are from the HMO Act of 1973. More flexibility is allowed now, as explained on a separate list.) 1. A fixed schedule of rates that is charged to all employer groups and individual enrollees 2. Schedules of rates that vary by employer group, but that generate the same revenue per member per month for all groups 3. Schedules of rates that vary by employer group, but that generate the same revenue per subscriber per month for all groups

Criteria for provincial Medicare plans to qualify for federal contributions

(These are principles from the Canada Health Act) 1. Comprehensiveness - all medically-required hospital and physician services must be covered under the plan 2. Universality - all legal residents of a province must be entitled to the plan's services on uniform terms and conditions 3. Accessibility - reasonable access by residents to hospital and physician services must not be impeded by charges made to those residents 4. Portability - the plan may not impose a waiting period in excess of 3 months for new residents, and coverage must be maintained when a resident moves or travels within Canada or is temporarily out of the country 5. Public administration - the plan must be administered on a non-profit basis by a public authority (Extra-billing and user charges are not prohibited. But they will result in reductions in the federal grants to the province.)

Characteristics of the group technique of providing employee benefits

(all but the last one are meant to minimize adverse selection) 1. Only certain groups are eligible - groups formed solely for the purpose of obtaining insurance should not be offered coverage 2. Steady flow of lives through the group - to maintain a fairly healthy group 3. Minimum number of persons in a group - to prevent less-healthy lives from being a major part of the group 4. A minimum portion of the group must participate - such as 75% of employees must be covered in plans where the employee must pay a portion of the premium 5. Eligibility requirements and waiting periods are imposed 6. Maximum limits for any one person - to prevent the possibility of excessive amounts of coverage for any particular unhealthy individual 7. Automatic determination of benefits - some benefits may be determined based on a formula (such as a multiple of salary) to prevent unhealthy lives from obtaining large benefit amounts 8. A central and efficient administrative agency - to minimize expenses and handle the mechanics of the benefit plan

Categories of plans to be offered through the exchanges created by PPACA

(also referred to as "benefit tiers offered through the exchanges") 1. Bronze, silver, gold, and platinum plans - provide the essential health benefits with an out-of-pocket limit equal to the HSA current law limit (the OOP limits are reduced for those with low incomes) a) Bronze - covers 60% of benefit costs and represents minimum creditable coverage b) Silver - covers 70% of benefit costs c) Gold - covers 80% of benefit costs d) Platinum - covers 90% of benefit costs 2. Catastrophic plan - provides catastrophic coverage only, based on HSA current law levels, except that prevention benefits and three primary care visits are exempt from the deductible. Available only for those in the individual market up to age 30 or who are exempt from the mandate to purchase coverage. ("essential health benefits" is defined as a package that provides a comprehensive set of services, covers at least 60% of the actuarial value of the covered benefits, and limits cost sharing to the current law HSA limits)

Services offered by PBMs

(the chapter's lists of ways PBMs control costs are merged into this list due to their similarities) 1. Improving the prescribing and dispensing process through real-time claims adjudication 2. Maintaining retail and mail order networks that offer discounts and monitor performance 3. Performing drug utilization review 4. Providing data and reporting regarding drug use and industry trends 5. Controlling the cost of prescriptions dispensed 6. Account management and support 7. Communicating to patients regarding program use 8. Educational components for patients and physicians 9. Contracting with pharmacies to negotiate drug prices and rebate arrangements 10. Developing and managing formularies and prior authorization programs 11. Maintaining patient compliance programs 12. Operating disease management programs

Considerations in underwriting individuals for small group coverage

(an unhealthy individual cannot be singled out for a higher rate, but individuals are underwritten to determine the rate that will be charged to the entire group) 1. Enforcement of eligibility - check to see if each applicant meets the group's eligibility guidelines 2. Pre-existing condition limitations - HIPAA limits the use of these for individuals who had prior coverage 3. Treatment of new and late entrants - portability laws allow benefit limitations for pre-existing conditions to be applied for a short period of time for new entrants (12 months) and late entrants (18 months) 4. Individual medical assessment - the key is to convert information on individuals into a numerical measure for establishing the employer group's premium rate (often done by applying debit points based on medical conditions) 5. Post-issue underwriting - may result in coverage being rescinded if fraud or material misrepresentation is later discovered 6. Underwriting optional benefits (such as maternity or prescription drug coverage) - carriers generally offer the optional benefit only at issuance and require that all employees be covered

Key dimensions of medical benefit plans

(any medical plan can be defined by its position on these dimensions or continuums) 1. Definition of covered services and conditions under which those services will be covered 2. Degree to which the individual participates in the cost of the service 3. Degree to which the provider participates in the risk related to the cost of the service

Manual claim table adjustments for group life

(could also be referred to as group rating characteristics for life insurance) 1. Disability factors - an adjustment is needed if a group has a different waiver of premium approach than is assumed in the manual rates 2. Effective date adjustment - an adjustment is needed if the central date of coverage is not July 1 3. Industry factors - usually based on SIC codes 4. Regional factors 5. Lifestyle factors - eg, adjustments based on the percentage of employees that smoke 6. Marketing considerations - eg, added charges for rate guarantees 7. Contribution schedules - eg, a 5% discount if the employer pays the entire premium (since that reduces antiselection) 8. Case size factors and volume adjustments - larger groups may have lower mortality or expenses 9. Plan options - optional benefits and allowing lots of employee choices will create antiselection 10. Individual underwriting - will lead to lower initial mortality costs, but this effect will wear off over time (this last point came from a similar list in GH-D102-07)

Benchmarks of success for implementing wellness programs

(from the Wellness Council of America) 1. Capturing senior level support 2. Creating a cohesive wellness team 3. Collecting data to drive health efforts 4. Crafting an operating plan 5. Choosing appropriate interventions 6. Creating a supportive environment 7. Consistently evaluating outcomes

Pricing objectives for flexible benefit programs

(it is generally impossible to achieve all four at once) 1. Realistic prices - option price tags should reflect the value of the coverage 2. Equity - credits should be allocated based on an equal dollar amount or percentage of pay for all employees 3. No losers - each employee should be able to repurchase prior coverage with no increase in costs 4. No additional company cost - the new plan should cost the same as the old plan would have in the next plan year

Major tax changes as a result of PPACA

(other lower-profile tax changes were also made) 1. Impose a tax on individuals without qualifying coverage 2. Eliminate tax-free coverage of over-the-counter drugs (not prescribed by a doctor) through HRA, FSA, HSA, and Archer MSA accounts 3. Increase the Medicare Part A tax rate on wages from 1.45% to 2.35% on earnings over $200,000 for individuals and $250,000 for married couples filing jointly 4. Impose a 3.8% tax on unearned income for higher-income taxpayers 5. Impose a 40% excise tax on plan values that exceed $10,200 for individual coverage and $27,500 for family coverage 6. Eliminate the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments 7. Impose billions of dollars in new annual fees on the pharmaceutical manufacturing and health insurance sectors

Other major changes included in PPACA

(other than those covered in other lists) 1. Tax credits for small businesses that purchase health insurance for employees 2. Reduce and restructure payments to Medicare Advantage plans 3. Initiatives to reduce waste, fraud, and abuse in public programs 4. Initiatives to improve quality and health system performance 5. Initiatives to encourage wellness and prevention of illnesses (such as increasing coverage of preventive services) 6. Long-term care - establish a national voluntary insurance program for purchasing community living assistance services 7. Medicare Part D - phase down beneficiary cost sharing in the gap from 100% to 25% by 2020

Pooling methods

(regardless of the method chosen, a pooling charge must be applied to all groups being pooled to offset the average cost of claim modifications made during the pooling process) 1. Catastrophic claim pooling - forgive large claims 2. Loss ratio or rate increase limits - put a cap on one of the following: the loss ratio used in pricing, the rate increase proposed, or the aggregate claim dollars a group will be charged 3. Credibility weighting - weight with the expected incurred claims for the entire pool 4. Multi-year averaging - combine several years of experience (may give more weight to recent years) 5. Combination methods - for example, use both catastrophic claim pooling and a rate increase cap

Types of health care accounts

(see separate lists for comparisons of these accounts) 1. Health savings account (HSA) a) Must accompany a high-deductible health plan with a minimum deductible ($1,200 individual, $2,400 family) and maximum out-of-pocket limit ($5,950 individual, $11,900 family) (year 2011 amounts, indexed for inflation) b) Can be used to pay for qualified medical expenses, health insurance premiums in limited circumstances, LTC premiums, and LTC services c) Owned by the employee, who gets to keep the unused balance upon terminating employment 2. Health reimbursement arrangement (HRA) - can be used to pay for qualified medical expenses, health insurance premiums, and LTC premiums 3. Flexible spending account (FSA) a) Can be used to pay for qualified medical expenses b) The contribution amount must be specified at the beginning of the period, and the employee can use the full amount at any time in the coverage period c) Funds not used by the end of the period are forfeited (some of the FSA information is from Rosenbloom chapter 25)

Common rating tiers for group health insurance

(study note GH-D114-07 has a list with slight differences, which it refers to as premium rating structures) 1. One tier: composite 2. Two tier: employee only, family 3. Three tier: employee only, employee and one dependent, family 4. Four tier: employee only, employee with one dependent, employee with children, family 5. Five tier: employee only, couple, employee with child, employee with children, family

Additional benefits written as group coverages

(this chapter does not address the most visible group benefits: life, medical, dental, and disability) 1. Voluntary coverages - employers who reduce benefits may allow employees to buy back coverage (on an employee-pay-all basis) 2. Critical illness - lump sum benefit upon the diagnosis of certain specified conditions 3. Vision and hearing - coverage of periodic exams and corrective devices (with limits, such as one set of lenses per year and new hearing devices every 5 years) 4. Group legal - benefits may be limited (telephone consultations for few services) to comprehensive (including real estate transactions or adoptions) 5. Group property and casualty - employer arranges coverage but the employee pays the premium 6. Travel accident insurance - employers purchase coverage for employees on business travel (very inexpensive) 7. AD&D - pays benefits if an accident results in death or loss of one or more member (arm, leg, sight, hearing) (very inexpensive) 8. Student medical plans - offered for pre-college (limited coverage) and college students (more comprehensive coverage) 9. Hospital indemnity - pays a fixed daily benefit if the insured is hospitalized 10. Credit life insurance - pays a lump sum to pay off the insured's outstanding loan balance 11. Credit disability - benefits paid monthly to cover the insured's monthly loan payments

Funding sources for the Hospital Insurance Trust Fund

(this fund covers the costs of the costs of the Part A program) 1. Payroll taxes - 1.45% of earnings from each of the employee and the employer 2. Investment income from trust fund assets 3. Premiums paid by beneficiaries who voluntarily participate in Part A 4. A portion of the federal income taxes paid on Social Security benefits for high-income beneficiaries

Funding sources for the Supplementary Medicare Insurance Trust Fund

(this fund covers the costs of the costs of the Part B and D programs) 1. Beneficiary premium payments - representing about 25% of the funding 2. General tax revenues - representing about 75% of the funding 3. Interest earnings and miscellaneous income - these contribute only a small amount

Benefits typically provided with no cost sharing in medical plans

(this helps reduce the use of more expensive forms of care) 1. Outpatient diagnostic tests, x-rays, and laboratory exams 2. Outpatient surgery or procedures performed at an ambulatory care facility, doctor's office, or surgical center 3. Home health care 4. Second surgical opinions for specific medical procedures

Methods for calculating two-tier rates from three-tier rates

(this is referred to as the compositing process) 1. The family rate in a two-tier structure can be calculated from the three-tier rates as the weighted average of the two-person and family rates. But this only works if the family size distributions are the same under the two-tier and three-tier structures (which is uncommon). 2. When family size distributions are not the same for two-tier and three-tier structures: a) First, calculate the conversion factor for the three-tier rates, using the combined membership distribution for all contracts (two-tier and three-tier contracts combined) b) Then, use the new conversion factor to calculate new single, two-person, and family rates for the three-tier contracts c) Next, calculate the family rate for two-tier contracts as the weighted average of the two-person and family rates from the three-tier structure. In doing this, use the two-person and family weights from the two-tier contract distribution. 3. An alternative method can be used to make sure that each of the two-tier and three-tier premiums balance to the capitation. Simply calculate each tiering structure's rates on a stand-alone basis.

Questions to ask when choosing a PBM

(this list is a subset of the many questions listed in the chapter) 1. What are the options and pricing of the provider network that the PBM offers? 2. Are services and performance offerings backed by guarantees and significant financial penalties? 3. What kind of reports does the PBM offer? 4. What types of drug utilization review edits are performed routinely? 5. How does the PBM work with physicians to educate and modify prescribing patterns? 6. What types of educational programs are offered to patients? 7. What drugs are preferred by the PBM and can a client make changes to the preferred list? 8. Do enrollees experience difficulty in getting prescriptions filled because of technical problems? 9. What is the PBM's reputation with physicians and pharmacies? 10. What kind of cost savings has the PBM produced for its clients? 11. Is the PBM willing to agree to terms you find acceptable? 12. Is your organization geared up to change PBMs if needed? The last 2 items on this list are from the paper ?Effective contracting with PBMs ...?

Items included in a group insurance plan description

(this plan description is given to each member) 1. The name of the insurer and identification of the group insurance contract 2. The name of the group policyholder 3. The amount of insurance on the member and others insured through the member 4. Any exclusions or limitations 5. The circumstances under which the insurance terminates and the insureds' rights upon termination 6. A statement that the plan description is important and a suggestion that it be kept in a safe place 7. The procedure to be followed in making a claim 8. Where and from whom the member may obtain more detailed information

Strategies for constructing a provider network

1. "Careful selection" - physicians are carefully selected to achieve a reasonably small network the plan can work with efficiently 2. "Prune later" - physicians are broadly selected at the beginning and then cut back later once useful data is available for analyzing performance 3. "Broad as feasible"

Standard Part D benefit design for 2006

1. $250 annual deductible 2. Benefit of 75% of the cost of eligible drugs between $250 and $2,250 3. Beneficiaries pay the full cost of drugs from $2,250 until they have reached the out-of-pocket limit ($3,600) 4. After the out-of-pocket limit is reached, the beneficiary only has to pay the greater of: a) A copay of $2 for generics and preferred multiple source drugs and $5 for all other drugs b) 5% of the cost of the drug

County capitation rates paid to Medicare Advantage plans equal the greater of:

1. A blend of the county rate and national rate 2. A minimum or floor rate 3. The prior year's rate increased by the greater of 2% or the projected per capita growth in Medicare spending 4. The projected per capita fee-for-service spending in the county

Data sources for estimating disability claim costs

1. A company's own data is the best source if the data is reliable and credible 2. Intercompany experience studies 3. Rate filings of competitors 4. Research of governmental and business publications 5. Data from consulting firms and reinsurers

Major rating variables

1. Age - claim costs increase significantly by age for almost all health insurance coverages 2. Duration - durational trends are the trends in excess of those generated by insured age alone. They typically come from initial underwriting and from cumulative antiselection. 3. Gender - most coverages vary rates by gender, unless prohibited by law 4. Marital status - this is a big factor for LTC, since having a spouse at home can decrease the need for a nursing home 5. Parental (or family) status - rates must vary based on how many people are insured 6. Occupation - an important rating factor for DI coverages, but not for other coverages 7. Geographic area - rates may vary by area due to different patterns of care, provider contracts, availability of care, and legal requirements 8. Current health status 9. Past claim history - renewal rates are sometimes based on claim experience 10. Smoking status 11. Weight 12. Presence and nature of other coverage 13. Situation-specific factors - eg, whether the policyholder converted from another plan of the same insurer

Rating parameters used in small group manual rates

1. Age - many states limit the spread from highest age rate to lowest age rate 2. Gender - baby groups are usually charged gender-distinct rates. Larger groups are often given unisex rates 3. Geographic area - geographic factors account for claim cost variations by state and area 4. Group size - groups have a lower per insured cost as size increases (but states limit the use of group size factors) 5. Industry - factors are applied to risky industries, but are generally limited to a range of only 15% 6. Managed care and negotiated discounts - most carriers apply the effects of managed care programs through the use of benefit factors 7. Plan of benefits - most states require that rating factors only account for differences in plan design, and not differences in the types of groups that select the plans 8. Family composition - carriers typically use structures with two, three, or four tiers 9. Participation levels - this is not widely used as a rating factor and some state laws prohibit its use 10. Tobacco use - many states consider rating based upon tobacco use to be health status rating, and therefore do not allow it 11. Other possible rating characteristics include employer contribution level, evidence of prior coverage, and percentage of employees that are full-time and part-time

Allowable case characteristics

1. Age 2. Gender 3. Geographic area 4. Family composition 5. Group size (maximum of 20% from highest to lowest) 6. Industry (maximum of 15% from highest to lowest) 7. Other characteristics, with commissioner's prior approval

Common rating characteristics included in manual rates for group health insurance

1. Age 2. Gender 3. Health status 4. Rating tiers (see separate list) 5. Geographic factors 6. Industry codes 7. Group size 8. Length of the premium period

Insured characteristics that impact dental claim costs

1. Age and gender - adults have higher costs than children, females have higher costs than males 2. Geographic area - can be a significant factor 3. Group size - smaller groups have higher costs (due to adverse selection) 4. Prior coverage and pre-announcement - groups without prior coverage will have high costs in the first year due to utilization by those who had put off having dental work done. If the plan is announced many months prior to becoming effective, this problem becomes even worse 5. Employee turnover - high turnover increases costs since some new employees didn't have prior coverage 6. Occupation or Income - entertainers and professionals have higher costs 7. Participation - groups with less than 100% participation will have higher costs due to antiselection

Criteria used for underwriting large groups

1. Age and gender - age is the single best indicator of future mortality and morbidity. Age-gender factors are good predictors for several medical conditions, such as pregnancy and heart disease. 2. Location or area - there are significant regional and local differences in health care practices and prices 3. Type of industry - industry risk comes from health hazards, high stress, and employee lifestyles 4. Financial stability - layoffs result in COBRA coverage and can cause a spike in disability claims and elective medical and dental services 5. Ease of administration - larger groups have economies of scale, but offset that with added complexity 6. Level of participation - a 75% minimum participation rule is common, but is often modified to consider participation in all plan options offered by the employer (or through a spouse's employer) 7. Carrier persistency - due to competitive considerations, setup costs for new groups are not commonly recouped in the first or second contract year

Important rating variables when normalizing data for use in the rate manual

1. Age and gender - it may be appropriate to have separate age and gender factors for different major service categories or different plan types (such as high deductible plans) 2. Geographic area - the data should be adjusted to reflect one specific geographic area 3. Benefit plan - adjust the data to reflect a common benefit plan (commonly the richest plan) 4. Group characteristics - the manual rate should represent the "average group" with respect to group characteristics, such as industry and group size 5. Utilization management programs - adjust for any changes in these programs 6. Provider reimbursement arrangements - adjust for any changes in provider arrangements

Categories of eligibility for Medicaid

1. Aid for Families with Dependent Children - children and adults in poor, single-parent families that qualify for cash assistance 2. Supplemental Security Income - low-income aged, blind, and disabled individuals on cash assistance 3. Recipients of foster care and adoption assistance 4. Low-income Medicare beneficiaries 5. States may expand eligibility to other groups, such as working disabled, long-term care patients, and medically-needy individuals

Benefits included in PPACA definition of essential health benefits

1. Ambulatory patient services 2. Emergency services 3. Hospitalization 4. Maternity and newborn care 5. Mental health and substance-abuse disorders 6. Prescription drugs 7. Rehabilitative services and devices 8. Laboratory services 9. Preventative and wellness services and chronic disease management 10. Pediatric services, including oral and vision care

Requirements for Canadian health spending account reimbursements to be tax-free

1. An employee's election to allocate funds to the account must be made in advance of the plan year and must be irrevocable. An exception is allowed for family status changes. 2. The plan must require forfeiture of any unused account balances, using one of the following methods: a) One year rollover of unused balances - funds allocated to the account can be used to reimburse current year expenses or rolled over to next year's account. Unused amounts are forfeited at the end of the second year. b) One year rollover of unpaid claims - roll over unpaid claims from the prior year to be paid by this year's account balance. Funds remaining at the end of the year are forfeited.

Trend analysis techniques

1. Analyzing historical averages and graphs - recent experience, judgment, and competitive analysis are used to project future trends. The use of this approach is a cause of the cyclical nature of industry financial results. 2. Actuarial models - projects utilization and price data by type of service, but the result is still mostly based on historical experience 3. Linear regression model of historical claim costs - basically projects the historical average trend, but does adjust for random fluctuation 4. ARIMA models - does not work for cyclical changes that affect trends, so it is only good for short periods 5. Techniques using external indicators - these are dependent on the availability of leading indicators or a coincident indicator that has specified future values. Trend is projected based on future values of the external indicator (such as the Health Cost Index).

Activities for maintaining a flexible benefits program

1. Annual activities a) Financial review b) Repricing c) Communication - focuses on changes since the last enrollment, and how to re-enroll 2. Biennial or triennial activities a) Plan design benchmarking - to compare the plan to the plans of competing employers b) Plan design review - to make changes indicated by the benchmarking analysis c) Insurance carrier benchmarking - review insurance fees to ensure they remain competitive 3. Once every five years a) Insurance marketing - may want to put the insurance arrangement out to market b) Major design review - review of all the design and pricing elements c) Review how the plan is administered and communicated

Beneficiary cost sharing for Medicare Part B in 2006

1. Annual deductible of $124 2. Coinsurance of 20% for most Medicare allowed charges (exceptions: 50% for outpatient behavioral health services and no coinsurance for home health care)

Factors that cause experience trend to be different than the force of trend

1. Antiselection 2. Demographic changes - changes in the mix of demographic cells can affect observed trends 3. Cost shifting - may be the result of reduced provider payments by Medicare or negotiated managed care discounts. Providers increase their costs to offset the lost revenue. 4. Managed care initiatives 5. Benefit design - affects trends due to different cost sharing levels or benefit mix. Leveraging is a result of benefit design. 6. Random fluctuations - a major source of variation in trend rates, especially for small blocks 7. Type or place of service - services shifting from inpatient to outpatient

Design considerations for offering death benefits in a flexible benefits plan

1. Areas of choice - most employers offer choices for employee life, AD&D, and dependent life coverages. Very few offer survivor income choices. 2. Structure of options (these vary by coverage - the comments below are for employee life coverage) a) High option - the high option is commonly 4-6 times pay b) Low option - most plans require a minimum coverage level (such as $25,000). But some allow opt outs. c) Increments of coverage - most employers offer increments of full multiples of pay (one times pay, two times pay, etc.) d) Number of options - depends on other decisions, such as the spread between high and low options 3. Source of funds - the employer typically funds a basic level of coverage, and allows employees to purchase additional coverage using flexible credits (creating a taxable benefit) or their own contributions (non-taxable benefit) 4. Option pricing / credit allocation - must decide whether to charge a flat rate to all employees, or graded rates based on age and risk. Must also decide how to allocate credits (percent of pay, or graded). 5. Enrollment and re-enrollment restrictions - most employers limit increases in coverage, and require proof of insurability for increases

Design considerations for offering disability benefits in a flexible benefits plan

1. Areas of choice - very few programs offer short-term disability (STD) choices. Long-term disability (LTD) choices are offered in about 60% of flexible programs. 2. Structure of options (for LTD) a) High option - usually is 70% pay replacement b) Low option - usually is 50% pay replacement c) Number of options - usually only 2-3 options, since the range between high and low is small. Some plans allow the choice of with or without inflation protection. 3. Sources of funds - for STD, usually employee-pay-all. For LTD, could be company paid, employee-pay-all, or company-paid core benefit with employee-paid additional coverage. 4. Option pricing / credit allocation - credits and prices are typically expressed as a percentage of pay 5. Enrollment and re-enrollment restrictions - most programs require evidence of insurability for increases in coverage

Steps for planning a flexible benefits program

1. Assemble a project team 2. Understand the current situation (HR strategy, employee needs, competitive position) 3. Identify gaps in the current program 4. Develop preliminary design a) Collect data on current benefits and demographics b) Set objectives (minimum benefit level, financial goals) c) Develop design (general plan structure, how many options should be available?) d) Develop preliminary pricing structure and estimate costs 5. Analyze the implementation effort - determine communication needs and define administrative requirements 6. Explore legal and tax issues 7. Secure management approval to proceed 8. Test with a small group of employees (optional) 9. Seek input from the insurance carrier - may involve selecting a new carrier

Core components of a wellness program

1. Assessment of individuals through health risk assessments 2. A program of risk modification tailored to the workforce needs 3. A wide range of activities, such as disease management, weight control, and immunizations 4. Levels of intervention ranging from information only up to individualized interventions 5. Location either onsite or offsite through negotiated vendors 6. Communication channels 7. Evaluation strategy to study results of the program 8. Integration within the corporate framework

Steps in developing claim costs for use in a rate manual

1. Collect data - data should be collected for a period of at least 12 months (to avoid seasonality issues). The best source of data is a company's own experience. 2. Normalize the data for important rating variables (see separate list) 3. Project experience period costs to the rating period - claim costs need to be trended from the experience period to the rating period

Terms used in drug pricing

1. Average wholesale price (AWP) - price assigned by the drug manufacturer as a reference price for all discounts paid to pharmacies and PBMs 2. Wholesale acquisition cost (WAC) - price the manufacturer charges to the wholesaler. It is the list price before any rebates, discounts, or other price concessions. 3. Maximum allowable cost (MAC) - cost ceiling for reimbursement of generic drugs. Created in various ways, such as the average AWP of all manufacturers, the lowest AWP, or a discount off AWP 4. Average manufacturer price (AMP) - average price paid to the manufacturer for drugs distributed to the retail pharmacy after deducting customary prompt payment discounts 5. Average sales price (ASP) - manufacturer's average price to all purchasers, net of discounts, rebates, chargebacks, and credits for drugs 6. Widely available market price (WAMP) - price that a prudent physician or supplier would pay for the drug, net of any routine price concessions

Methods for handling risk

1. Avoidance - do not acquire the risk (eg, avoid the risks of smoking by not smoking). Some risks are unavoidable. 2. Control - attempt to prevent or reduce the probability or severity of the loss (eg, use a seat belt) 3. Retention - the risk is assumed and paid for by the person suffering the loss or taking responsibility for the loss. Should not be used with risks that have a large potential loss. 4. Transfer - the financial burden shifts to another party (includes insurance and non-insurance transfers) 5. Insurance - the pooling of losses by transferring risk to an insurer, who agrees to pay claims or render services connected with the risk

Benefits included in group term life policies

1. Basic benefits - the benefit amount is determined based on one of four benefit schedule approaches (flat amount, salary plan, salary bracket plan, class plan) 2. Voluntary group life benefits - offered in addition to the basic benefits provided by the employer. Usually employee pay all and age rated to lessen antiselection. 3. Disability benefits (one of the following) a) Waiver of premium (most common) b) Total and permanent disability (some or all of face amount paid in installments) c) Extended death benefit (pays the death benefit if the insured dies within 1 year of the date of disability) 4. Retiree benefits - benefits are often continued for retirees on a reduced basis (very expensive)

Typical definitions of the ADLs allowed by HIPAA

1. Bathing - washing oneself by sponge bath or in either a tub or shower, including the task of getting into or out of the tub or shower 2. Continence - the ability to maintain control of bowel and bladder function, or if unable to do so, the ability to perform personal hygiene associated with a catheter or colostomy bag 3. Dressing - putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs 4. Eating - feeding oneself from a receptacle (plate, cup, etc.) or by a feeding tube or intravenously 5. Toileting - getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene 6. Transferring - moving into or out of a bed, chair, or wheelchair

Before data from different sources can be used it needs to be adjusted for:

1. Benefit plan design 2. Geographic area 3. Time period of experience 4. Demographics like age, sex, and family status factors

Common LTC policy features

1. Benefit triggers - for most policies, benefits are paid if either of the following triggers are satisfied: a) ADLs - need assistance with a certain number of ADLs (normally two or three) b) Cognitive impairment - have Alzheimer's or some other form of irreversible dementia 2. Benefit period - ranges from one year to lifetime (often all benefits share an aggregate benefit and elimination period) 3. Elimination periods - for NH may be 0, 20, 90, or 365. For HH, may be expressed in visits. 4. Daily benefits - most policies contain a maximum daily (or weekly) benefit amount of $50 - $350 5. Issue ages - may limit issue age to 79, or limit benefit periods and/or issue amounts for 80+ 6. Inflation protection - can be a flat amount per year, a percentage per year, or a guaranteed purchase option on an attained age basis. Ways to adjust premiums to recognize inflation benefits are as follows: a) Premium adjustments are levelized over the life of the policy b) Attained age increases are similar to the benefit increase levels 7. Exclusions - NAIC Model Regulation permits various exclusions, including pre-existing conditions, mental or nervous disorders, alcoholism and drug addiction, conditions due to war, and self-inflicted injuries

Reasons for using the functional approach to designing and evaluating employee benefits

1. Benefits must be organized to be as effective as possible in meeting employee needs 2. Avoiding waste in benefits can be an important cost-control measure for employers 3. It is important to analyze where current benefits may overlap and costs may be saved 4. A systematic approach is needed to keep benefits current, cost effective, and in compliance with regulations 5. A systematic approach is needed to ensure that the various benefits can be integrated with each other

Major drivers of increases in generic dispensing rates

1. Big-name patent expirations in recent years 2. Strong plan design and formulary incentives (eg, wider copay differentials and step therapy programs) 3. Increased public awareness of generic cost savings and the safety of generic drugs 4. Retail outlets using aggressive marketing and pricing for select generics (eg, Wal-Mart pricing many generics at $4 copays for 30-day supplies)

Methods for calculating gross premiums

1. Block rating (short-term horizon) approach - claim costs are calculated for the rating period (typically a one-year period), and premiums are calculated by adding on expenses and profit charges. Gross premium = G = [N * (1 + EN) + EF] / (1 - EG). a) N = net premium (claim cost) b) EN = percent of claim expenses c) EF = fixed expenses d) EG = percent of premium expenses + profit as a percent of premium 2. Asset share approach - involves long-term projections of various items, in order to determine the necessary premium

Sources for hospital inpatient utilization and cost data

1. Blue Cross and Blue Shield plans, insurers, or large local employers 2. Annual statements filed by HMOs with state insurance departments 3. State health department studies 4. American Hospital Association 5. Medical groups 6. Hospitals 7. Other HMOs 8. Data vendors 9. Actuarial consulting firms 10. CMS (for Medicare data)

Types of association groups

1. Bona fide associations - defined under HIPAA, these guarantee issue coverage to members 2. Non-bona fide associations - membership comes with medical coverage. Rules limit how they must be formed and run, in order to ensure they aren't created solely for the purpose of insurance. 3. Discretionary group trusts - formed exclusively for the purpose of acquiring insurance

Definitions of drug types

1. Brand name medication - a medication made by one manufacturer under a patent issued by the US Patent Office 2. Generic or multisource medication - a medication produced by multiple manufacturers after the brand-name medication loses patent protection 3. Authorized generics - brand drugs that the supplier authorizes to be sold under a generic label 4. Branded generics - brand-name drugs that contain the same active ingredient as the original branded drug but can act differently because they contain slightly different compounds 5. Biotechnology medications - drugs that are manufactured by reengineering proteins, manipulating genes, and other sophisticated techniques for generating new molecules

Information required in an actuarial memorandum (NAIC list)

1. Brief description of the policy and benefits 2. For rate revisions, the scope and reason for rate revision, outline of all past rate increases, and past experience data 3. Brief description of how rates were determined, and the assumptions used 4. Estimated average annual premium per policy. For rate revisions, include the average before and after the rate increase. 5. Anticipated future and lifetime loss ratios, and a description of how they were calculated 6. Anticipated loss ratio presumed reasonable according to the guidelines 7. Supporting documentation for anticipated loss ratios that are less than the minimum standard 8. Actuarial certification of compliance with laws, and that benefits are reasonable in relation to premiums

Methods of accessing a provider network

1. Build or buy - this allows the company to have a proprietary interest in the network 2. Joint venture - could be through marketing someone else's product or through a full partnership 3. Rent - pay a fee to a PPO to use its network 4. Use a passive network - select low cost providers and include them in a PPO policy (although there is not a PPO contract)

Using the buildup and density function approach for pricing

1. Buildup approach - each claim type (eg, inpatient, outpatient, etc.) has its own claim cost calculation, as the product of claim frequency times average cost per service. The total claim cost is the sum of the various categories. Works well for benefits with copays. 2. Density functions - calculates a distribution of the expected annual claims for an individual, with no calculation of the different categories of benefits. Is useful when calculating the impact of deductibles and out-of-pocket limits. 3. Combining buildup and density functions - for PPO products, may calculate in-network costs using the buildup approach (due to copays), and out-of-network costs using the density approach (due to deductibles). The two are combined to get a final claim cost.

Motivations for implementing a flexible benefits program

1. Business conditions - could require cutting benefit costs, or the rate of cost increases 2. Employees may request greater involvement in benefit decisions 3. Employees may ask for new benefits to be added 4. To reduce the entitlement mentality of employees 5. Current benefit program is not competitive 6. Competitive benefits may be needed in order to recruit employees

Reasons for the growth of employee benefit plans

1. Business reasons - good benefit plans help the employer attract and retain capable employees, and can improve employee morale and productivity 2. Collective bargaining - the Taft-Hartley Act requires good-faith collective bargaining over conditions of employment (including benefit plans) 3. Favorable tax legislation - many plans are designed to maximize available tax benefits 4. Efficiency of the employee benefits approach - marketing of benefits through the employer is a cost-effective and administratively efficient distribution channel 5. Wage increase limits - wage increase limits during World War II and the Korean War led to an expansion of employee benefits as a way in which employers could increase the employees' total compensation 6. Legislative actions - the government has encouraged employee benefit plans through various legislative actions

Types of specialty accident and health products

1. Cancer products (see separate list) 2. Accident products - dislocation/fracture, AD&D, daily hospital confinement. Commonly sold as a rider. 3. Heart attack and stroke products - pays for confinement due to a heart attack or stroke. 4. Limited benefit plans - includes hospital indemnity plans and limited benefit medical plans 5. Other low incidence diseases (aka dread or specific disease plans) - generally lists diseases covered (such as ALS, multiple sclerosis, rabies, malaria, tetanus) 6. Supplemental disability income - lower benefits than standard DI. Could be own occ or any occ. Simplified underwriting. 7. Organ transplant - may exclude experimental treatments or require pre-authorization. May cover donor costs. 8. First occurrence of critical illness - pays a lump sum upon the occurrence of one of the listed diseases (eg, cancer, heart attack, coma). Higher premium and more complex underwriting than for other supplemental benefits. 9. Short term major medical - same benefits as major medical, but coverage is only for 1-6 months 10. Benefit enhancements a) Return of premium - return all premium paid (often at 10, 15, or 20 years) reduced by claims incurred. Most often used with low incidence products such as AD&D. b) Increasing benefits (inflation protection) - encourages persistency c) Add-on riders (increases level of coverage) - often used in direct mail programs

Types of risk-sharing models

1. Case management fee - the PCP is paid a set fee per member for overall case management services, and is also paid for services rendered 2. Physician incentive or bonus - bonuses are paid to the PCP for certain positive performance, such as good financial results, quality assurance compliance, and member satisfaction 3. Fee-for-service with a "withhold" - a withheld percentage is placed in a risk pool. Amounts are either returned or retained each year, based on the results of the risk pool. 4. Capitation for defined services - a fixed monthly payment is made for each member 5. Capitation with a withhold - a portion of the capitation payment is withheld as a tool to reduce referrals. The withhold is returned at the end of the year, depending on performance. 6. Capitation for complete services - a capitation is paid for all services, including specialist and hospital services 7. Budgeted capitation - a pool is set up (funded directly from premiums) for a group of PCPs for the year. When the pool is empty, no further monies are paid out for services. Surpluses may be shared with providers. 8. Salaried physicians - physicians are employed by the staff-model HMO and are paid a salary

Groups that are exempt from many of the DEFRA limitations

1. Collectively-bargained funds - if 90% of eligible employees are covered under a collective bargaining agreement, and if the benefits are subject to bargaining 2. Employee-pay-all plans covering at least 50 employees 3. Tax-exempt employer funds - for employers who have been exempt from taxes for the last five tax years 4. Groups of 10 or more unrelated employers

Major small group rating requirements from the NAIC model law

1. Certain case characteristics are recognized as allowable rating factors (see separate list of allowable case characteristics). This means they are not subject to the following premium range limitation tests. 2. Index rate a) The average of the base premium rate (the lowest rate that could be charged) and the corresponding highest premium rate b) Calculated only after all rates have been adjusted for all allowable case characteristics and benefit design variations 3. Rating restrictions between classes - the rating differential between classes is limited to 20% between the lowest and highest class index rates 4. Rating restrictions within a class of business - the premium rates charged to different groups within a given class of business cannot vary from that class' index rate by more than 25% 5. Rate increase limit for a given group - the increase is limited to the sum of the following: a) The percentage change in the new business rate from the prior to the new rating period b) 15% annually for experience c) Adjustment due to change in coverage or case characteristics

Adjustments needed for using past claims to project future claims

1. Changes in the covered population 2. Changes in duration - should anticipate durational effects in the claim costs 3. Changes in benefits - changes may be explicit (such as a change in copays) or implicit (such as a change in how a policy provision is interpreted) 4. Changes in claim costs - must project changes in frequencies and changes in average costs 5. Leveraging - as trends change the average claim cost, the impact of deductibles and copays causes claims to increase at a rate greater than trend 6. Other changes - includes antiselection, changes in underwriting, and changes in business practices Projected claimst = Claim cost PMPMs * Number of memberst * ((1 + leveraged claim cost trend)(t-s) - 1) * Avg durational factort / Avg durational factors * (1 + Antiselection factor due to lapsest-s) * (1 + Adjustment factor for other changest-s) It appears the "-1" in the formula above is an error, but it is not yet listed in the errata for this book

Sources of revenue for PBMs

1. Charging payers an administrative fee per transaction 2. Retaining rebate administrative fees negotiated with manufacturers 3. Filling mail service prescriptions from their wholly-owned mail order pharmacies 4. Disease management, education, and value-added programs 5. Securing discounts on drugs 6. Retaining the pharmacy spread 7. Retaining the spread in maximum allowable charge (MAC) list payments for generics 8. Reducing payments to pharmacies

Steps in building a forecast model

1. Choosing the basic structure of the model a) Tools used include spreadsheets, database models, and sequential programs b) Model types include asset share models and reserve development models 2. Choosing the information to be carried - the information needed will depend on the purpose of the model 3. Choosing assumptions and building a prototype projection a) Starting values and assumptions must be built into the model b) A prototype cell is defined, and then projected to the end of the forecast period 4. Extending the prototype - after the prototype cell is built, the model must be extended to other cells which represent the different subsets of the business being modeled 5. Validating the model (see separate list of validation methods) 6. Documenting the model - this allows the model to be evaluated by other professionals, and makes it easier to make modifications 7. Designing output and communicating results - the model output can be useless unless it is put into the context of the question being asked

Components of gross premiums

1. Claim costs 2. Administrative expenses - includes the costs of designing, developing, underwriting, and administering the product, as well as an allocation of overhead costs. Frequently much higher in the first year than in renewal years. 3. Commissions and other sales expenses - includes special bonuses, incentives, and advertising 4. Premium tax 5. Other taxes - includes federal and state income taxes 6. Risk and profit charges - depends on the degree of risk involved, the amount of capital allocated to support the product, and the expected return on the capital 7. Investment earnings - typically credited based on assets held

Methods of adjusting manual rates for specific benefit plans

1. Claim probability distributions - these are typically used to estimate the impact on claim costs of deductibles, coinsurance, out-of-pocket maximums, and annual benefit maximums 2. Actuarial cost models - these models build estimated total claim costs by developing a net claim cost (after member cost sharing) for each detailed type of service and summing to get the total

Types of credibility procedures

1. Classical credibility procedures - use probability distributions 2. Empirical credibility procedures - use actual experience, without reference to the underlying probability distribution 3. Bayesian credibility procedures - produce posterior distributions that reflect both the related experience and the subject experience 4. Approaches for determining partial credibility: N = volume of experience, F = full credibility standard, K = constant a) (N / F), raised to some fractional power b) N / (N + K)

Steps in setting rates in a community rating by class system

1. Classification of all members into classes - based on certain factors that predict differences in utilization of services (such as age, sex, marital status, and industry) 2. Determination of revenue needed to provide services to members in the different classes - based upon the projected costs by class 3. Development of composite premium rates for individuals and all family sizes - this is done for each group based on the demographics of the group

Steps in applying the functional approach to employee benefit plan design and evaluation

1. Classify employee and dependent needs or objectives into logical functional categories (see separate list of common loss exposures) 2. Classify the categories of persons the employer may want or need to protect (see separate list) 3. Analyze current benefits with respect to employee needs and the desired categories of covered persons 4. Determine any gaps in benefits or overlapping benefits in the current plan 5. Consider recommendations for plan changes to meet any gaps in benefits and to correct any overlapping benefits 6. Estimate the costs or savings from each of the recommendations made 7. Evaluate alternative methods of financing or securing the benefits 8. Consider other cost-saving or cost-containment techniques for both current and recommended benefits 9. Decide upon the appropriate benefits, methods of financing, and sources of benefits, by using the preceding analysis 10. Implement the changes 11. Communicate benefit changes to employees 12. Periodically reevaluate the employee benefit plan

DEFRA limitations on funding retiree life and health benefits

1. Contributions are limited 2. Investment income is taxed 3. Continuation of active coverage - the plan funded in the trust must cover both actives and retirees 4. Restricted treatment for key employees - contributions for key employees are subject to contribution limits. Contributions must be allocated to separate, individual accounts, and benefits paid from these accounts. 5. Excise tax - an employer is assessed an excise tax of 100% on any of the following: a) Benefits paid to retired key employees, but not paid from their separate accounts b) Benefits paid to any retiree under a discriminatory plan c) Amounts reverting to an employer from a benefit fund

Characteristics of multiemployer welfare plans

1. Contributions are made per unit of covered work and are generally employer-pay-all 2. Benefit eligibility for one period is earned based on work in a prior period 3. The labor agreement specifies the contribution rate and defines units of work 4. Contribution rates are set for the term of the labor agreement, which may be one, two, three, or four years 5. Benefit eligibility may require a minimum number of hours worked per month, or a waiting period, or both 6. Employees who lose eligibility may be allowed to continue on a self-pay basis 7. Retired and disabled employees may be covered as a separate category of self-pays 8. The level of benefits may change if the structure of employment changes (such as when the age distribution changes, or the size of the work force changes) 9. In a self-insured plan, if contribution rates are inadequate, then there may be a reduction in benefits or a forced termination of the trust

Purposes for having the insured share in the cost of the medical plan

1. Control utilization - studies have shown drastic reductions in utilization when a plan is subject to deductibles, copays, or coinsurance 2. Control costs - requiring cost sharing lowers the premium and can potentially lead to more affordable coverage 3. Control risk to the insurer - requiring cost sharing results in a benefit program that more truly represents an insurable risk

Organizational objectives of credit allocation

1. Cost management 2. Profit sharing - allocate credits based on the profitability of the company 3. Service recognition - vary credits based on length of service 4. Social responsibility - may required a minimum level of coverage 5. Benefit value equity - may want to give the same number of credits to everyone 6. Employee performance - may link some credits to performance 7. Health awareness - link credits to a health awareness campaign

Theoretical considerations in determining credibility levels

1. Coverages with low claim frequency are more volatile and will require a larger exposure base to be credible 2. Coverages with widely varying claim sizes will tend to be more volatile 3. The statistical confidence interval chosen by the insurer 4. Historically, statistical fluctuation is considered to vary inversely with the square root of the number of claims or lives. So it will take 4 times the exposure to double the credibility. 5. For coverages with stochastically independent claims, longer experience periods can be used to increase exposure and therefore credibility

Plan characteristics that impact dental claim costs

1. Covered benefits - plans often have a missing tooth provision and limit the replacement of dentures to once every 5-7 years 2. Cost sharing provisions - these provisions are important because receiving proper dental care is very elective from the insured's point of view. Provisions include deductibles, coinsurance and copays, and maximum limits. 3. Period of coverage - will need to project past experience into the future. Dental trend should not be assumed to be the same as medical trend. 4. Provider reimbursement levels - fee-for-service reimbursement is still most common and is frequently based on usual, customary, and reasonable levels (UCR). Capitation is common with dental HMO plans. 5. Care management practices - depend on the reimbursement method used. Practices include preauthorization, provider profiling, and self-management (for capitated providers)

Criteria to use in selecting physicians for a network

1. Credentialing - this involves reviewing credentials and verifying proper licensure 2. Office evaluation - visit the physician's office to evaluate service capabilities 3. Medical record review - analyze the physician's practice pattern with respect to quality and cost efficiency 4. Review of utilization or cost data - this approach is limited due to data credibility issues, and the potential negative impact on quality of care

Buhlmann credibility formulas

1. Credibility = Z = n / (n + k) n = number of trials or exposure units k = (expected value of the process variance) / (variance of the hypothetical means) 2. C = compromise estimate = Z * A + (1 - Z) * E A = actual outcome (such as a group's actual incurred claims) E = estimate of the outcome (based on experience from some other source) GH-D126-11 chapter 1 uses slightly different terminology here. Instead of A, it uses R = mean of the current observations or data. And instead of E, it uses H = prior mean.

Financial structures for flexible benefit programs

1. Credit-based pricing a) The benefits all come with a price tag b) Each employee is given a pool of credits. Employees pay for coverage with these credits and payroll deductions. c) Leftover credits are allocated to cash, retirement savings, a health spending account, or a personal account 2. Net contribution pricing a) Each benefit choice contains a net cost or net credit b) Costs are paid either by payroll deduction or by choosing a low level of coverage in another benefit area (thereby generating a credit) c) Leftover credits can be allocated as in the credit-based pricing approach

Sources of credits for flexible benefit programs

1. Current benefits - employer costs of current benefits that will continue as part of the program 2. Benefit reductions - a plan may be eliminated and the savings may be used as credits 3. Additional employer money - to provide a new benefit plan or make the program more attractive 4. Wellness credits - employees may have to earn credits through health or wellness initiatives, such as not smoking and completing a health risk assessment 5. Renegotiation of compensation - employees can direct a portion of their bonus into flex credits 6. Employee after-tax payroll deductions

Responsibilities of the intermediaries and carriers that process Medicare FFS claims

1. Determining costs and reimbursement amounts allowed by Medicare 2. Maintaining records 3. Establishing controls 4. Safeguarding against fraud and abuse 5. Conducting reviews and audits 6. Making the payments to providers for covered services 7. Assisting both providers and beneficiaries as needed

Steps in the flexible benefit option pricing process

1. Data collection and analysis 2. Preliminary option pricing - determine a fair price (based on relative values) for each option, using the claims data collected 3. Preliminary subgroup pricing - divide into smaller groups, such as single vs. family 4. Anticipation of changes - adjust preliminary prices for the following: a) Medical and dental inflation b) Technological improvements c) Plan (benefit) changes e) Adverse selection f) Shifts in government benefits - causing private plan costs to increase g) Smarter consumers - upon seeing the cost of care, they stop using some unnecessary care 5. Taxes and administration fees - decide whether to include these in the price tags 6. Adjustments to realistic price tags a) Subsidized pricing (see separate list of reasons for and against using subsidized pricing) b) Carve-out pricing - subsidize all options by the cost of the lowest option, so that option then costs $0 7. No coverage option pricing - decide whether to allow employees to waive coverage, and calculate opt-out credits 8. Pricing by business unit or location - may be done to reflect local costs or competition

Considerations in establishing morbidity assumptions for LTC

1. Data sources - insured data (such as intercompany study) is best but more population-based data exists. Population data must be adjusted for data bias and other issues. 2. Integration of coverages - if there is only one type of benefit, then utilization is increased by inappropriate placement 3. Reinstatements - should be handled consistently in pricing and administration 4. Transfers - reflect consistently in frequency and continuance curves 5. Coordination with other coverage - tax-qualified plans must coordinate with Medicare 6. Pre-existing requirement - not expected to produce dramatic savings due to the heavy level of underwriting 7. Level of care/charge levels - daily costs of care vary by type of care 8. Area - utilization and charges vary significantly by area for NH and HH services. 9. Policy options and benefit triggers - richer plan designs have greater potential for adverse selection 10. Age/gender - costs increase greatly with age. Females have higher costs. 11. Marital status - costs for married may be half of the costs for singles 12. Morbidity improvement - claim costs for a given age may be decreasing over time (debatable) 13. Underwriting - strongly impacts experience in early durations (and potentially even later durations) 14. Marketing - broker and career agents 15. Claim administration - may include various levels of care management 16. Reinsurance - arrangements include coinsurance, modified coinsurance, yearly renewable term 17. Regulatory considerations - the actuary must certify that rates are sustainable under "moderately adverse experience"

Probability definitions and theorems

1. Definition of conditional probability: P[A|B] = P[A and B] / P[B] 2. Bayes' Theorem: P[A|B] = P[B|A] * P[A] / P[B] Given a series of mutually exclusive and exhaustive events (denoted as Ai): 3. Theorem of Total Probability: P[B] = Sum over all i P[B|Ai] * P[Ai] 4. Definition of conditional expectation: E[X|A1] = Sum over all i xi * P[X=xi|A1] 5. Theorem 2.3: E[X] = Sum over all i E[X|Ai] * P[Ai]

Characteristics of health insurance that exacerbate underwriting cycles

1. Delay in recognizing changes in trends 2. Unwarranted optimism and pessimism in pricing - as a result of relying on recent results 3. Health insurance operates in a commodity-like market - so carriers are not able to successfully increase rates unless the market is doing the same 4. When rate increases are high, purchasers tend to comparison shop and the marketplace becomes increasingly price sensitive 5. During high trend periods, trend assumptions are likely to overshoot actual values 6. Accounting conventions - cycles can be exaggerated due to loss carry-forward provisions and retrospective refunds 7. Management decisions have reflected a changing emphasis between financial results and market share, with management reacting too late and overshooting the mark

Steps in the claim process for disability

1. Determine eligibility for coverage - Is the claimant insured and actively at work, is there a pre-existing condition? 2. Determine if the definition of disability is met - this is the most difficult step of the process 3. Determine the payment amount (usually straightforward) = Pre-disability income * benefit percent - offsets 4. Get ongoing proof of disabilities a) STD - often approved for a specified period based on the type of disablement. Reviewed at the end of the period b) LTD - reviewed annually, when the condition or treatment changes, or when the definition of disability changes

Steps for manual rating of disability coverage

1. Determine the base rates/premium (base premium = base rate * benefit amount) a) LTD: Base Ratex,g,e,w = Ix,g,e x RSVx,g,e,0 / 12 (RSV is the reserve at time 0, I is the probability of claim) b) STD: Base Ratex,g,e,w = Ix,g,e x Dx,g,e / 12 (D is the expected length of claim in weeks) 2. Deduct offset credits - to get the Net Base Premium 3. Demographic adjustments - adjust the Net Base Premium to reflect the person's salary, industry, occupation, and location 4. Plan provision adjustments - adjust for the definition of disability, maximum or minimum monthly benefits, pre-existing clause, and antiselection 5. Non-claim adjustments (retention) - the prior steps give the final claim cost. Add loadings for commissions, expenses, and premium taxes 6. Add profit - can be a percent of premium or a needed ROI/ROE

Steps of the stochastic simulation process

1. Determine the cumulative probability distribution (CPD) 2. For each trial, generate a random number for each random variable 3. Based on the random numbers, determine the value for each random variable (based on where that random number falls in the CPD) 4. Calculate quantities of interest and summarize the results of the trials

Steps for experience rating of disability coverage

1. Determine the group's manual rate with profit and expenses removed (this is the final claim cost) 2. Determine the experience-based rate using the last 3-5 years of data a) Discount claims and reserves to the midpoint of the experience period or to the actual date of disability b) Divide by exposure to get the experience-based claim rate c) If large claims are pooled, add a pooling charge 3. Blend the manual rate and the experience-based rate to get the case claim rate a) Blended rate = Manual claim rate * (1-Z) + Experience claim rate * (Z) b) Credibility (Z) = N / (N + K) where N = number of life years and K = constant (for example, 5,000 for LTD or 250 for STD) 4. Final case premium = blended rate / target loss ratio

Steps in prospective experience rating

1. Develop past claim experience - should be incurred claims for an experience year (restated) 2. Use pooling methods (see separate list) to dampen random statistical fluctuation 3. Calculate net premium (expected claim cost) a) Calculate a historical claim cost per unit of exposure b) Trend the historical experience to account for changes in claim costs - may be due to changes in morbidity, mortality, demographics, benefits, or antiselection 4. Calculate gross rates from net rates - apply loadings (retention) to the net premium (see separate list) 5. A final adjustment may be required when dealing with a politically-sensitive policyholder. Be sure to know the financial impact of any changes. 6. Multi-option considerations - when employees can choose between an HMO, PPO, and/or indemnity, there is often antiselection against the indemnity plan. 7. Small group considerations - need to recognize experience to some degree. May use one of the following: a) Formula-based methods (for groups with at least 10 lives) - a group is initially assigned to a rate class then reassigned at renewal if experience differs by a specified amount. b) Re-underwriting method - look at outlier cases to see causes of bad experience to determine prospective rates

Types of predictive models used for underwriting health insurance

1. Diagnosis based risk adjusters - estimate claims based on the diagnoses in a person's recent claim history 2. Prescription based risk adjusters - estimate claims based on the individual's prescription history 3. Modified experience rating - predictions are based on a complex algorithm of hospital, medical, and prescription claim dollars

Payments to Prescription Drug Plans are the sum of:

1. Direct subsidy payments - equal to the PDP's total bid (risk adjusted) minus the calculated beneficiary premium 2. Catastrophic benefit reinsurance - equals 80% of the total charges above the beneficiaries' out-of-pocket threshold 3. Risk sharing payments - based on the actual experience of the PDP relative to the original bid 4. Payments for the premium and cost sharing assistance provided to low-income beneficiaries

Requirements for insured statuses under Social Security

1. Disability-insured status - requires between six credits (at young ages) to 40 credits (at ages 62 or older). Some credits must have been earned recently, as follows: a) For those required to have 20 or more credits, 20 credits must be from the last 40 quarters b) For those required to have between 6 and 20 credits, at least half must have been earned after age 21 c) For those required to have 6 credits, all must be from the last 12 quarters 2. Fully-insured status - requires credits equal to the worker's age minus 22, with a minimum of 6 and a maximum of 40 3. Currently-insured status - requires 6 credits in the 13 calendar quarters ending with the quarter of death (the benefits available to individuals with these statuses are included in a list from Rosenbloom chapter 20)

Calculation of benefit amounts for Social Security disability and survivor benefits

1. Disabled-worker benefits - benefit amounts are calculated using essentially the same procedures as are used to compute retired-worker benefit amounts, using an assumed age of 62 and no early-retirement reduction factor (the worker's family may receive additional limited benefits) 2. Survivor benefits - the worker's primary insurance amount (PIA) is computed using the standard procedures, using an assumed age of 62. Survivors then receive a percentage of the deceased worker's PIA, as follows: a) 75% for eligible children b) Between 71.5% and 100% for eligible widows or widowers c) 82.5% for an eligible surviving parent, or 75% each for two parents (a family maximum applies, which is typically 175%)

Types of negotiated fee arrangements used with provider networks

1. Discounted fee-for-service 2. Fee schedule 3. Variable fee schedule (fees vary based on actual experience) 4. Bonuses and withholds 5. Per diem 6. Per case (such as per admission or per visit) 7. Global rates (incorporates hospital and physician charges in one rate) 8. Case rate per episode of care 9. Capitation

Advantages of employee assistance programs

1. Easy access to timely problem resolution 2. Less stigma is attached than with behavioral healthcare 3. EAPs are cost effective because of their focus on early intervention 4. There is regular communication between the EAP and its members

Group life insurance policy provisions

1. Eligibility - on hire or after a waiting period (eg, 60 days). Typically have actively-at-work and minimum hours worked (full-time) provisions. Evidence of insurability is required to enroll outside of the eligibility period. 2. Continuation of insurance during breaks in employment - permitted for 3-6 months in certain situations 3. Conversion - on termination, can convert to an individual policy without evidence of insurability 4. Portability - the employee can continue group coverage after an individual termination. Former employees are covered as a separate class or under a separate policy. 5. Grace period - usually allow 31 days from the due date to pay premium 6. Incontestability - the insurer cannot contest a claim once the contestability period is over

Description of Social Security survivor benefits

1. Eligibility - the individual must be fully insured or currently insured (the requirements for these statuses are included in a list from Bluhm (group) chapter 12) 2. Beneficiary categories a) Aged survivors: i) Widows aged 60 or over, or 50-59 if disabled ii) Dependent parents aged 62 or over b) Young survivors: i) Children under age 18, or at any age if disabled before age 22 ii) Children aged 18 in full-time elementary or high school iii) Widowed parents of children under age 16 or disabled before age 22 3. Benefits - computed the same as with retirement benefits, based on the PIA and reflecting the maximum family benefit

Description of Social Security disability benefits

1. Eligibility - the worker: a) Must be both fully insured and disability insured (the requirements for these statuses are included in a list from Bluhm (group) chapter 12) b) Must not be able to engage in any substantial gainful activity (with the impairment expected to continue for at least 12 months) 2. Beneficiary categories - same as for retirement benefits (spouses and children receive benefits) 3. Benefits - after 6 full months of disability, the worker receives 100% of his primary insurance amount (PIA), and dependents each receive 50%, subject to the maximum family benefit (<= 150% of PIA) and a limit of 80% of current earnings

Types of HMO plans

1. Individual practice association (IPA) model - the HMO contracts with individual physicians or associations of physicians 2. Group model - the HMO purchases services from an independent multispecialty group of physicians 3. Network model - same as the group model except more than one multispecialty group is used 4. Staff model - the physicians are salaried employees of the HMO

Types of coverage and nondiscrimination tests for cafeteria plans

1. Eligibility test - this test is designed to measure whether the plan discriminates in favor of highly-compensated individuals. Includes a length-of-services test and a facts and circumstances determination. a) Highly-compensated individuals are officers, 5% owners, highly-compensated employees, and the spouses and dependents of these individuals 2. Contributions and benefits test - this test involves mathematical testing as well as general nondiscrimination with respect to benefits 3. Key employee concentration test - nontaxable benefits provided to key employees cannot exceed 25% of the aggregate benefits provided to all employees a) Key employees are officers with annual pay of more than $160,000, 5% owners, and 1% owners with annual pay of more than $150,000

Reasons that employers buy group life insurance

1. Employees have come to expect it 2. Gives employees income and estate tax advantages 3. Has cost advantages when compared to most kinds of individual insurance 4. Is often issued with limited or no individual underwriting

Qualified non-taxable benefits that can be offered in a cafeteria plan

1. Employer-provided accident or health coverage. This includes the following coverages: a) Medical, drug, dental, and vision b) Disability c) AD&D d) Business travel and accident plans e) Hospital indemnity, cancer policies, and Medicare supplements f) Flexible spending accounts 2. Individually-owned accident or health policies 3. Employer-provided group term life insurance coverage (only the first $50,000 is nontaxable) 4. Employer-provided dependent care assistance 5. Employer-provided adoption assistance 6. Contributions to a 401(k) plan 7. Contributions to a health savings account

Types of discrimination regulations in Canada

1. Equal treatment provisions - these guarantee equal treatment with respect to employment. Prohibited groups for discrimination vary by province, but generally include age, disability, marital status, race, religion, and gender. 2. Non-discrimination in benefits - discriminating in the benefits provided to employees is prohibited. Some exceptions are allowed, such as allowing the employer to pay higher premiums for certain categories of employees in order to equalize benefits. 3. Equal pay for equal work - if two jobs are considered substantially the same, then an employer is not allowed to differentiate pay (including benefits) on the basis of gender 4. Pay equity - this goes even further than equal pay for equal work. If jobs are of equal value, then the employer cannot differentiate pay (including benefits) on the basis of gender. 5. Employment equity - requires that employers remove barriers in order to achieve increased representation in the workplace of women, visible minorities, aboriginal persons, and persons with disabilities

Plan design considerations for CDHPs

1. Establishing the parameters of the HDHP 2. Selecting a type of health care account 3. Level of preventive care coverage a) Most offer an initial health screening or physical at no, or very low, cost b) Also included are immunizations, routine annual physicals, and well-mother and well-baby visits 4. Whether the CDHP will be a full replacement plan or one of multiple options. A full replacement plan will minimize adverse selection and maximize cost savings, but may face employee resistance. 5. Employer contribution strategy a) Must decide how much to contribute to the employees' accounts b) CDHP contributions are often set to compare favorably with other options 6. For HRA plans, whether to permit carryovers of unused balances

Uses of general population data for pricing life insurance

1. Estimating annual improvements in mortality 2. Determining ratios of mortality by age bracket 3. Comparing male and female mortality 4. Developing rates for the non-working population (the very young and the very old)

Components of renewal underwriting for large groups

1. Evaluating the case - renewal evaluations focus on the same type of information used in initial underwriting, but now there is access to better claim and premium data 2. Developing renewal recommendations - the first step is to present the new premium rates for the existing program. Recommendations may involve proposed plan design changes and alternate rating and funding methods 3. Revision underwriting - includes developing cost estimates for any changes in plan design or group composition 4. Renewal monitoring - experience must be tracked throughout the year, with more formal analysis two to four times per year

Testing the effectiveness of a direct marketing campaign - Z-test

1. Example: (testing the RR for a new mail kit compared to the old kit) Assume there are 2 mailings - a test (T) and a control (C) Null hypothesis: H0: uT = uC Alternative hypothesis: H1: uT > uC Test statistic: z = (uT - uC) / [u(1-u) / NT + u(1-u) / NC] ^ 0.5 u = mean RR = (RC + RT) / (NC + NT) R = number of responses N = number of solicitations If z > za, where - is the probability that N(0,1) exceeds za, then accept the alternative hypothesis with a significance level of - 2. Rules of thumb that can be derived from these types of confidence formulas a) The rule of 50 - should have at least 50 responses for each test cell b) The rule of 5 - a mailing should only be 5 times larger than the test it was based on (to limit risk) c) The rule of small/large - small test mailings can only find large differences, therefore: i) Small cells might be combined to produce valid results ii) For small tests, only test major variables such as name selection, packages, or products

Advantages to the employer of offering flexible accounts

1. Expand the types of benefits offered with little or no additional employer cost 2. Add a new benefit without subsidizing an expensive coverage area 3. Offer a benefit that might appeal to only a small segment of the employee population 4. Contain costs (by setting a defined contribution) while providing employees with flexibility over how funds are spent 5. Test the appeal of flexible benefits without committing to a full-choice program

Loadings on the net premium (retention)

1. Expense loadings - usually the largest part of retention 2. Deficit recovery charge (may make rates uncompetitive) - charged to a specific policyholder to recover that policyholder's past losses 3. Termination risk charge - charged to everyone to finance (in advance) the risk of groups leaving while in a deficit position 4. Pooling charges - usually covered in net premium 5. Profit charge - may be built into other assumptions 6. Investment income - may be credited (net of investment management costs and taxes) 7. Explicit margin - reduces insurer's risk 8. Charge to cover risk of rate guarantees. This risk arises due to misestimation risk and trend risk.

Mechanisms for controlling external antiselection

1. Individual underwriting before issue - includes initial screening of applicants by the agent 2. Pre-existing condition limitations 3. Requiring an enrollment mechanism that doesn't permit antiselection (for example, minimum participation percentages for associations)

Items included in asset share projections

1. Exposure values - including the number of policies sold or in force, number of claims or claim payments, number of premium collections, and number of units sold or in force 2. Revenue values - including premium, investment income, and explicit subsidies 3. Claim values - paid claims, incurred claims, claim reserves, claim adjustment expense reserves, and policy reserves 4. Capital values - must model the cost of the capital used by the line of business 5. Expense targets - expense loadings may be very detailed. The cost of capital is sometimes treated as an expense. 6. Profit targets - profit is calculated in one of the following ways: a) Percent of premium - present value of profits divided by present value of premiums b) Return on investment (ROI) - this is the interest rate at which the present value of future profits will exactly equal the initial investment c) Return on equity (ROE) - this is like the ROI method, except the initial investment is increased by the amount of capital that is set aside to cover the business

Types of antiselection

1. External antiselection - occurs as the person is first becoming insured. Those with expensive health conditions will seek insurance. 2. Internal antiselection - occurs while the person is insured a) Buy-down effect - upon receiving a rate increase, some policyholders switch to lower cost plans, so the actual premium increase will be less than expected b) Premium leakage - unhealthy individuals are less likely to buy down their benefits. So the claim cost reduction is less than the premium reduction and not enough premium is collected. 3. Durational (cumulative) antiselection - occurs as people make decisions about whether to end coverage. Higher cost insureds tend to keep their coverage in force longer.

Methods used by HMOs for projecting medical group costs

1. FFS method - projects costs based on FFS equivalent charges of all providers 2. Budgetary or Cost method - the demand for health care services is analyzed and projected to determine staffing and resource needs, which are multiplied by the average cost per staff or resource to determine the overall cost of care

Components of a policy form

1. Face page - the front cover of a form. Includes the insuring clause, consideration clause, renewal provision, and free look provision. 2. Table of contents 3. Schedule page - contains all the information that might be unique about the policy, including information on the policyholder, the terms of coverage, the benefits, and the premium 4. Definitions - defines terms for use in other sections of the policy 5. Premiums and reinstatement - describes the terms and conditions under which coverage starts and ends. Includes conversion, portability, and reinstatement clauses. 6. Benefit provisions - define the benefits 7. Exclusions and limitations - the allowable exclusions vary by coverage, and are specified by state law 8. Other provisions - many other provisions are required by laws (eg, the notice of claim and proof of loss provisions)

Typical tight underwriting standards for LTC

1. Face-to-face interview of all applicants age 65 and over, including cognitive screening 2. Medical application divulging past health history, lifestyle, medications, and whether the applicant has received or been advised to receive nursing home or home health services 3. Telephone verification of information on the application for those who do not have a face-to-face interview 4. Medical records or APSs are obtained for all cases 5. Specific criteria based on height / weight and health conditions 6. Applicants over age 72 must see a physician if a visit has not been recorded in the last two years

Services covered by medical policies

1. Facility services - includes acute care hospitals, emergency rooms, outpatient facilities, psychiatric facilities, alcohol and drug treatment programs, skilled nursing facilities, and home health care 2. Professional services - includes surgeries, office visits, home visits, hospital visits, emergency room visits, and preventive care 3. Diagnostic services 4. X-ray and lab services 5. Prescription drugs 6. Durable medical equipment 7. Ambulance 8. Private duty nursing 9. Wellness benefits 10. Nurse help lines 11. Disease management benefits

Methods used by states to enforce HIPAA portability standards

1. Federal fallback method (used by about 10 states) - each insurer is given the following three choices of what to offer: a) All of its individual market plans b) Only its two most popular plans c) Two representative plans (with a mechanism to subsidize high costs) 2. State high risk pool (used by roughly 30 states) - the pool provides coverage to eligible individuals 3. Other solutions (used by the remaining states) - these often require guarantee issue to eligible individuals

Areas of control within the Canadian health care system

1. Federal government - controls the supply of medical practitioners by limiting the number of immigrant doctors, setting quotas on specialists, and offering incentives for practices in under-served areas 2. Provincial governments - set quality controls and regulate the supply of facilities and expenditures. This includes setting hospital budgets, negotiating fee schedules, and conducting quality inspections of hospitals. 3. Medical profession - regulates medical quality, expenditure, and fraud controls. This includes medical licensing and discipline, and inspections of doctors' offices.

Examples of external data sources

1. Federal government publications a) The National Ambulatory Medical Care Survey b) The National Hospital Discharge Survey c) The National Health Interview Survey d) Consumer Price Index 2. Actuarial publications (usually based on insured populations). The SOA provides: a) Periodicals (Transactions Reports, Records of SOA) b) Reports on areas of special interest c) Mortality and disability tables d) Research Department and Foundation 3. Other external sources (must consider applicability) a) State health data organizations - hospital discharge and ambulatory care data. There is usually no exposure data. b) HMO and PPO data sources - from trade association publications c) HEDIS - performance measures to compare plans d) Hospital, medical and other periodicals and sources e) Major actuarial consulting firms - publish pricing manuals including data on health care use and costs

Workers in the US who are not covered by Social Security

1. Federal workers hired before 1984 2. About one-fourth of state and local government workers (those who are covered by plans that are comparable to Social Security) 3. A very small number of people who object to receiving governmental benefits on religious grounds 4. Railroad employees, who are covered by a program similar to Social Security

Steps for implementing a flexible benefits program

1. Finalize program design - reflect management and employee input, and make decisions about the details 2. Determine final pricing 3. Develop communication material - to help employees understand the program, and to enroll employees 4. Develop administration system 5. Prepare documents and contracts (eg, insurance contracts)

Group characteristics used in underwriting small groups

1. Financial viability - carriers need to retain groups long enough to recoup high acquisition expenses, so the group needs to be financially strong enough to stay in business 2. Industry / occupation - carriers must consider the type of work done and the lifestyles of employees. Under HIPAA, there are no ineligible industries, but surcharges are applied in states where they are allowed. 3. Group size - larger groups result in a better spread of morbidity risk and lower administrative expenses 4. Workers' compensation - some carriers require that all eligible employees be covered by workers' compensation 5. Participation requirements - these help ensure a better spread of risk by not allowing too many healthy employees to opt out of coverage 6. Employer contributions - the higher the employer contribution, the higher employee participation tends to be 7. Prior coverage and experience - for groups seeking coverage for the first time, find out why the group is now seeking coverage 8. Eligibility rules and classes - groups need to define who is eligible for coverage (for example, full-time employees who have been with the company for at least three months)

Basic plan structures of CDHPs

1. First-dollar coverage provided through a health care account 2. Employee is responsible for the difference between the account amount and the deductible 3. After the deductible, the plan coinsurance and copayments apply 4. Deductibles, coinsurance, and copayments differ for single versus family coverage and in-network versus out-of-network services

Methods used by HMOs to capitate medical groups

1. Fixed PMPM amount (may be based on age and gender distribution) 2. Fixed amount per single contract and per family contract 3. Fixed percentage of premium (rarely used except when there is only one medical group in the HMO)

Pricing approaches for flexible benefit programs

1. Flat credits - an equal amount of credits are allocated to all employees. Achieves objective 2 (equity). Variations include: a) Family credits - each employee receives credits equal to the current company cost for family coverage. Price tags are based on expected claims. Fails objective 4 (no additional company cost). b) Average credits - each employee receives credits equal to the current average company cost for all employees. Price tags are based on expected claims. Fails objective 3 (no losers). c) Single coverage credits - each employee receives credits or subsidies equal to the current company cost for single coverage. In order to have no losers, price tags for family coverage are reduced. Fails objective 1 (realistic prices). 2. Buy-back pricing - credits are allocated based on the average cost to the employer of singles and families prior to the flexible benefit program. Fails objective 2 (equity) because families get more credits. 3. Election-based pricing - same as buy-back pricing except families who opt down are given fewer credits, such that singles and families in those options have the same net cost. Comes closer to achieving objective 2 (equity), but still fails.

Tax advantages of flexible credits

1. Flexible credits are pre-tax, so paying for benefits with flexible credits creates tax savings 2. Taxes are based on how credits are spent (medical, dental, vision, and health spending accounts are not taxed) 3. Flexible credits are a tax-deductible business expense to the employer

Considerations for creating effective market reforms

1. For insurance markets to be viable, they must attract a broad cross section of risks 2. Market competition requires a level playing field a) All plan options must operate under the same rules b) Premium rates must be actuarially sound c) Provider payments must be comparable for all plans d) Any state requirements must apply equally to all participating plans 3. For long-term sustainability, health spending growth must be reduced

Major statistical paradigms and approaches to credibility

1. Frequentist or classical paradigm - the probability of an event is based on its relative frequency. All prior information is ignored. Approaches are: a) Limited fluctuation approach b) Greatest accuracy or Buhlmann's approach 2. Bayesian paradigm - prior information is incorporated via the prior distribution and the likelihood. The Bayesian approach uses this paradigm.

Other tests to test the effectiveness of a direct mail campaign

1. Full factorial model - all combinations of variables are tested. Calculates the effects of each variable and interactions. a) First calculate the overall mean (of the response rate for the test example) b) Calculate the mean for each factor by assigning + or - to the two outcomes of the factor being tested c) Interactions between two, three or more factors is possible, so calculate the means of the interactions d) Check: add up all the means for a given test cell to get the response rate for the cell: (u + ua + ub + uc + uab + uac + ubc + uabc = RRcell) 2. Fractional factorial design a) As the number of factors increases, the full factorial design with 2n cells becomes too large b) Choose a smaller subset of test cells that is orthogonal and balanced. This allows the calculation of the main effects, but not all of the interactions. c) The information from this analysis may point the way to additional testing 3. ANOVA - analysis of variance a) Used to test the significance of differences among factors

Basic types of employee assistance programs

1. Full-service EAP - offers a predetermined number of face-to-face visits with a counselor. Includes an array of work/life services and consultation services. 2. Work life benefits - does not offer face-to-face visits, but replaces them with telephone or web-based access to EAP counselors

Types of behavioral healthcare benefit plans

1. Fully insured arrangements - the managed behavioral healthcare organization (MBHO) assumes the financial risk for the provided service. The premium is usually 3% to 6% of the medical plan's premium. 2. Shared-risk arrangement - a variation of fully-insured, where there is a maximum amount the purchaser agrees to pay. Any amount above the maximum is paid by the MBHO. 3. ASO - the MBHO handles medical management, utilization review, claims payments, and other administrative functions. The purchaser assumes the financial risk.

Benefits covered by most Canadian provincial Medicare plans

1. Hospital services - room and board in a public ward, as well as physicians' services, diagnostics, anesthesia, nursing, drugs, supplies, and therapy 2. Physician services - includes services of a general practitioner, specialist, psychiatrist, and others 3. Other professionals, such as optometrists, chiropractors, osteopaths, and podiatrists 4. Prescription drugs for social assistance recipients and residents over age 65 in most provinces 5. Prostheses and therapeutic equipment 6. Other diagnostic services, such as laboratory tests and x-rays performed outside a hospital 7. Dental care - medically-required oral and dental surgery performed in a hospital 8. Out-of-province coverage - includes expenses incurred in other provinces and outside Canada

Taxation of flexible benefit plans in Canada

1. Funding sources are not taxable, but the benefits are taxable in the same manner as if they were provided individually in a traditional benefit program 2. To avoid taxation, benefit elections must be made before the plan year begins, and must be irrevocable, except when there is a change in family status or employment status 3. Health and welfare trusts are used by employers to fund certain employee benefits. Employer contributions are tax deductible. 4. Health spending accounts - these accounts can only be used for eligible expenses. Excess claims or excess credits (but not both) may be rolled over to the next plan year. 5. Vacation trading - vacation days can be purchased with flexible credits, if the days are used in the same year. Vacation days can be sold for credits, but that transaction is taxable. 6. Flexible benefits for retirees - coverages for retirees are taxed just as they are for employees

Critical components for successful wellness programs

1. Gaining management support 2. Sophisticated programming 3. A positive and upbeat image 4. Implementing well-designed, balanced, and well paced programming 5. Effective use of incentives

Steps of the rerating approach for pricing

1. Gather experience on existing business - use incurred claims (preferably on a runout basis) and earned premiums. The reliability of the data should be assessed before using it. 2. Restate experience - past premiums should be restated to the rate levels currently in effect 3. Project past results to the future - adjust for items that cause future experience to differ from past experience (see separate list) 4. Compare the projection against desired results - a rate increase is calculated by determining how much rates need to change to produce the desired loss ratio (which is based on the expected level of expenses and profit) 5. Apply regulatory and management adjustments (see separate list for reasons for management adjustments)

Suggestions for successfully launching flexible benefits plans

1. Get buy-in from senior management - make sure they understand and endorse the plan 2. Listen to employees - this includes the use of focus groups 3. Make communication a priority - before, during, and after the launch 4. Make sure the administration system is robust 5. Get the necessary help - consult with professionals who have designed flex plans in the past

Techniques used by Canadian provincial governments to manage providers

1. Global hospital budgets - budgets are negotiated each year between the provincial governments and each individual hospital 2. Physician fee schedules - these are negotiated between the provincial governments and the provincial medical associations 3. Utilization controls - the most common control is to set utilization targets and then adjust fee levels downward if the targets are exceeded 4. Control of physician supply - supply is controlled through the funding of medical schools

Rating options available to HMOs under community rating

1. Governmental units can be experience rated by federally-qualified HMOs 2. Medicare and Medicaid eligibles can be rated separately from groups and other individuals 3. The loading for administrative and marketing expenses can vary by group size (individual, less than 100, and 100 or more) 4. The ratio of rates by tier can be varied to match the rates for the employer group's inforce indemnity plan 5. Rates can vary for a given employer by contract distribution and family size 6. Family rates can vary between enrolled groups to reflect different dependent eligibility definitions 7. Once experience has been developed, the ratio between family and single rates can be adjusted to reflect actual costs

Equivalence tests a retiree drug plan must pass to receive the Medicare drug subsidy

1. Gross value test - the claims paid distribution is used to calculate the benefit that would be paid under each of the employer plan and the Medicare standard benefit. The value of the employer's plan must exceed the value of the Medicare standard benefit. 2. Net value test - the employer plan's net value must exceed the net value of the Medicare plan a) The net value of the employer's plan is determined by subtracting the retiree contribution from the plan's gross value b) The net value of the Medicare benefit may be determined by subtracting either the national average beneficiary premium or 25.5% of the Medicare gross value

Underwriting and rating parameters for dental

1. Group size - minimum group size of 5 is usually enforced to avoid antiselection 2. Eligible individuals - usually active employees and dependents (COBRA applies) 3. Participation - usually 75% required to reduce antiselection 4. Employer contributions - usually the employer contributes at least 50% to ensure minimum participation 5. Other coverages - if dental is packaged with other insurance options it helps to prevent antiselection 6. Demographics - rates can vary based on gender, age, location, industry, or family structure 7. Waiting and deferral periods - may have waiting period for new hires (or cover accidents only) 8. Incentive coinsurance - start with low coinsurance for types II and III and raise the level each year as the individual utilizes preventive services. 9. Transferred business - if the plan is a replacement, then pay for claims incurred in the prior year

Considerations in deciding whether to use retrospective experience rating

1. Group size - the group must be large enough to have credible data and to warrant the cost and time of experience rating 2. Contract provisions regarding the funding arrangement - some funding arrangements (like retrospective premium arrangements) will replace the experience rating formula 3. Company policies and practices - is an overriding factor 4. Company financial situation - crucial for insurers with small surplus (eg, the Blue plans)

Types of group life insurance

1. Group term life insurance 2. Dependent life - a typical benefit might provide $10,000 on the spouse and $2,000 on each child 3. Survivor income benefit - provides a monthly benefit payment to an eligible survivor of an employee who dies while insured 4. AD&D - may be offered in conjunction with a group term life plan or on a stand-alone basis 5. Group universal life - may be sold as a side fund attached to an employee's term insurance, or as an individual universal life policy 6. Living benefits (aka, accelerated death benefits) - pays a portion of the face amount prior to death, with the remaining benefit paid at death (see separate list)

Reasons for experience rating

1. Groups want it - at least those with good experience want the premium to reflect it 2. The insurer wants to quote and charge premiums that are as competitive as possible 3. The insurer wants to avoid antiselection (good groups going to competitors and bad groups staying)

Insurance market rules imposed by PPACA

1. Guarantee issue requirements and limits on rate variations for individual, small group, and the exchanges 2. Require rebates to consumers for loss ratios less than 85% for large group and Medicare Advantage plans and 80% for individual and small group plans 3. Provide coverage for dependent children up to age 26 for all individual and group policies 4. Prohibit lifetime coverage limits and prohibit annual limits beginning in 2014 5. Prohibit insurers from rescinding coverage except in cases of fraud 6. Prohibit pre-existing condition exclusions for children within 6 months of enactment and by 2014 for adults 7. Impose the same regulations in the individual, small group, and health exchange markets 8. Require all new medical policies to comply with one of four benefit categories (bronze, silver, gold, or platinum) (see separate list) 9. Limit deductibles for small group plans to $2,000 for individuals and $4,000 for families unless contributions are offered that offset deductible amounts above these limits 10. Limit any coverage waiting periods to 90 days 11. Create a temporary reinsurance program to pay individual plans that cover high-risk individuals 12. Allow states the option of merging the individual and small group markets

Methods used by disability income policies to adjust for the cost of living

1. Guaranteed insurability - automatically offering increased coverage to active insureds, at specified intervals 2. Automatic increases - adjust insured amounts over time, without action by the insured 3. Increase benefit payments over time for those on disability (may apply in addition to one of the previous two methods)

Premium oversight criteria to ensure a sustainable and competitive market

1. Health insurance premiums must be adequate to pay projected claims, expenses, and supporting risk charges 2. Premium oversight should be done in conjunction with insurer solvency oversight 3. Premium oversight requires strong actuarial representation 4. Appropriate RBC levels must be in place 5. Premiums should be self supporting and not subsidized by other lines of business 6. The premium review process: a) Should be transparent and equitable for all insurers b) Should allow for adequate premiums that appropriately reflect past experience c) Needs to be coordinated between state and federal regulatory entities

Types of flexible accounts in Canada

1. Health spending account (non taxable if requirements are met) - may cover any health care expenses that would be tax deductible under the Income Tax Act, as long as they are not covered by the provincial plan or other private insurance 2. Personal account (taxable) - may cover a wide range of benefits, at the employer's discretion, such as child care, financial counseling, or even sports equipment or gym memberships 3. Executive perquisite account (taxation depends on the taxability of the covered expense) - is a discretionary personal spending accounts for executives. Participants purchase perquisites from a list of available choices.

Micro-economic variables for modeling health care consumption

1. Health status 2. Availability and scope of insurance 3. Access to care 4. Actions of the primary care physicians

Major risks to be absorbed by prepaid medical groups

1. High overall hospital utilization 2. Catastrophic hospital claims 3. A high cost mix of medical, surgical, and ancillary services 4. High cost of referrals outside of the HMO 5. Misestimates of hospital cost per patient day 6. High administrative costs 7. Inability to meet enrollment goals (so admin loads per member are too high) 8. Skewed enrollment mix (misestimating family size or contract distribution) 9. Low penetration in employer groups with resulting higher risk enrollment 10. Poor underwriting 11. Inadequate premium estimates due to flawed data or high trends

Desired elements of a base trend analysis

1. Historical claim experience analysis - should monitor: a) Utilization data per member (frequency) b) Average dollar amount per unit of utilization (severity) c) Dollar cost per member per month (total claim cost) d) Historical changes by major service category (inpatient, outpatient, physician, pharmacy, etc) 2. Provider contract changes a) Determine how much of the observed trends were caused by changes in provider reimbursement levels b) Typically analyzed by major service category (inpatient / outpatient, PCP / referral physician, pharmacy, capitated services and other services) 3. Large claim analysis - may include large claims as a separate category in the previously-discussed analyses. Track individual claims over a certain level or total claims exceeding some level. 4. Demographic characteristics - track age/sex mix or changes in industry or occupation. 5. Trend report - standardized report should include historical trends in allowable PMPM claims and trend broken down by provider reimbursement changes vs. residual trend (identify components of residual trend if possible)

Categories of expenses commonly covered by private (supplemental) medical plans in Canada

1. Hospital charges - plans usually pay charges for room and board, up to the amount needed to upgrade to a semi-private or private room 2. Prescription drugs - these represent approximately two-thirds of the cost of private medical plans. Various plan designs exist, but they generally cover all drugs prescribed by a physician. 3. Health practitioners - eligible expenses are usually subject to inside limits (such as one treatment per day and a maximum number of treatments per year) 4. Miscellaneous expenses - these are usually eligible only if prescribed by a physician and include almost any insurable expense not otherwise covered, such as ambulance, x-rays, and prostheses 5. Out-of-Canada coverage - the most common coverage is for emergency care for short trips outside Canada

Types of limited benefit medical insurance

1. Hospital indemnity - pays a flat amount per day of inpatient hospitalization. Often limited to a certain number of days, and may have an elimination period. 2. Other scheduled benefits - limited coverage for one or more indemnity-type benefits (eg, $250 per ICU day or $20 per x-ray) 3. Dread disease - provide coverage only for a specified list of medical conditions (such as cancer) 4. Critical illness - provide a lump sum benefit in the case of a heart attack, stroke, heart surgery, cancer (except skin cancer), or diagnosis of specified conditions

Factors affecting the financial stability of multiemployer welfare plans

1. Hours or units worked per eligible - if each individual works only the minimum hours needed to be eligible, the plan may be in financial difficulty 2. Medical trends 3. Employment structure - information should be obtained on recent and expected employment patterns

Considerations in developing administrative expense assumptions

1. How expenses are allocated to the product - allocation methods include: a) Activity based allocation - distributes expenses according to some measure of use (eg, actual postage expenses can be charged to the function that generated the mail) b) Functional expense allocation - determines how expenses are split by line of business for new and renewal business (done by surveying employees to determine how time is spent) 2. How administrative expenses should be allocated to groups - should differentiate between first year and renewal expenses. Various allocation bases exist (see separate list). 3. What the competition includes as expenses in its pricing - adjustments may be needed to match what others are doing in the marketplace

Steps of the product development process

1. Identify and understand the need for the product - includes deciding whether the proposed product is a good strategic fit for the company 2. Design the product and all of the systems and procedures to support it 3. Take the product to market - training and communication plans must be in place

Ways in which PPACA limits adverse selection in exchanges

1. Imposing premium rating restrictions on health plans 2. Enacting an individual mandate 3. Providing a catastrophic coverage option for young individuals (up to age 30) 4. Limiting the distribution of subsidies and tax credits 5. Mandating risk adjustment mechanisms

Situations in which the CAST model does not work well

1. In the first 3-4 durations, when the impact of underwriting wear off overwhelms the CAST effects. The solution is to apply additional underwriting selection factors. 2. In later durations, where only a fraction of the original population remains. The solution is to choose a higher value of k2, and recalibrate the model. 3. At all durations, when a rate spiral is severe and volatile. The projection formulas may need stronger terms to fit this type of situation, such as: ShockLapse = [RateIncrease - Trend] / [(RateIncrease - Trend) + (1+Trend) / EF] EF = Elasticity Factor, which measures the price elasticity of the population (eg, may be 1.3 for healthy lives and 0.8 for unhealthy lives)

Approaches for designing a PPO or POS plan

1. Incentive approach - used to introduce managed care with the least disruption. Nonpreferred benefits stay at existing levels while preferred benefits are increased. 2. Disincentive approach - used when the primary goal is cost savings. Preferred benefits stay at existing levels while nonpreferred benefits are reduced. 3. Combination approach - preferred benefits slightly increase and nonpreferred benefits slightly decrease

Sources of Canadian tax policy

1. Income Tax Act and regulations - employee benefits are taxable, except for benefits that are specifically exempted 2. Canada Revenue Agency information circulars and interpretations bulletins - these set out the administrative policies for applying the Income Tax Act 3. Canada Revenue Agency advance tax rulings - taxpayers can ask Revenue Canada for advance rulings on proposed transactions (these are only binding in the specific case that is reviewed) 4. Canada Revenue Agency technical interpretations - these provide helpful guidance on technical issues, but they are not binding 5. Court decisions

Factors impacting the cost of a prescription benefit

1. Increased demand for many drugs due to advertising 2. Demographics of the population 3. Benefits, copays, and formulary design 4. Drug cost and the mix of branded products covered 5. Drug utilization 6. Costs charged by the PBM 7. Drug discounts, rebates, and other cost savings programs 8. Fraud and misuse of drugs 9. Ability of the plan to manage costs

Considerations in setting loss ratio formulas for minimum loss ratio standards

1. Incurred basis versus paid basis - benefits should be calculated on an incurred basis, allowing several months of claim runout 2. Cost containment expenses (such as medical management programs) should be included as part of the benefits 3. Capitation payments - when the provider assumes the responsibility of paying claims, the portion of payment meant to cover claim payment services should be removed from benefits 4. Premium taxes should be subtracted from the premiums 5. Income taxes should be subtracted from the premiums 6. Reinsurance and risk-adjustment payments should be reflected in both benefits and premiums 7. Policy reserves - the change in policy reserve needs to be added to the value of benefits 8. Time period - due to seasonality, calculations should be based on an annual timeframe 9. Geographic variances - an adjustment should be made to reflect that areas with larger claims will have higher loss ratios as a result

Dental reimbursement models and delivery systems

1. Indemnity - traditional fee-for-service reimbursement a) Scheduled indemnity plans b) UCR (Usual, Customary and Reasonable) plans 2. PPO - generally reimbursed with discounted fee-for-service a) Managed indemnity plans (passive PPOs) b) Discounted fee-for-service PPO plans c) Fee schedule PPO plans d) Exclusive provider organization (EPO) plans e) Point of service (POS) plans 3. Dental HMO - generally pre-paid or capitated a) Independent Provider Association (IPA) plans b) Staff model DHMO plans 4. Discount card plans - members receive discounts from preferred providers (this is not insurance)

Tools used in the underwriting process

1. Individual application - includes medical history, financial information (if needed), and a release to obtain information from third parties 2. Attending physician statement - the insurer may choose to request an APS from any physician listed in the application 3. Commercial databases (such as MIB) - used to check information provided in the application 4. Internal data - such as prior applications and claim databases 5. Telephone interviews - these can replace the need for requesting third party information, thereby speeding up the underwriting process 6. Inspection reports - any information obtained through direct contact with the applicant or others related to the applicant 7. Lab testing - may detect tobacco, illegal drugs, or the presence of some medical conditions 8. Medical exams - due to high costs, rarely used in underwriting for medical coverages 9. Tax returns - often the best source of financial information 10. Pre-existing condition provisions - used to protect against antiselection. For some coverages (such as hospital indemnity), these provisions replace underwriting entirely.

Coverages related to group disability income

1. Individual disability income 2. Workers' compensation plans 3. Social Security 4. Mortgage and credit disability insurance 5. Waiver of premium (in group life) 6. Administrative services only - not truly a separate product

Group disability underwriting characteristics

1. Industry - some industries may be too hazardous to underwrite 2. Occupations 3. Age distribution 4. Gender distribution 5. Income distribution 6. Group size 7. Location 8. Employment status - seasonal employees may not have enough job security

Insurer group life underwriting factors

1. Industry - use a SIC factor to adjust rates or decline 2. Contribution level - a 100% employer-paid plan has the least antiselection and best spread of risk 3. Eligibility - usually require full time and actively at work. What about dependents and retirees (antiselection is greater)? 4. Participation level - most states require 75% (needed anyway by the insurer to ensure an adequate spread of risk) 5. Benefit schedule - want minimum spread of amounts to reduce risk (less employee antiselection) 6. Prior experience - expected mortality can be developed from past experience for very large groups. But experience is rarely fully credible, so it is usually combined with expected manual claims. 7. Past rate history - rate history is usually needed to fully understand the prior experience 8. Individual underwriting - group life is generally offered with little or no individual underwriting. But underwriting is sometimes required for large amounts of insurance, late entrants, small groups, and some voluntary plans.

Challenges to overcome to implement VBID plans

1. Initial cost - VBID reduces long-term costs such as hospitalizations by reducing cost barriers to high-value treatments. But this will increase near-term costs. 2. Implementation and ongoing administrative costs - implementing VBID requires research, data analysis, and greater use of technology 3. Systems and data challenges - systems must capture more data to be able to determine who should receive different cost-sharing arrangements 4. Insufficient research - additional comparative effectiveness research is needed to expand VBID beyond the more prevalent chronic diseases 5. Barriers to personalization - implementing a personalized program may increase demands on the employer's human resource department 6. Regulatory and legal issues - some plan types (such as Medicare plans) have only a limited ability to provide incentives to encourage high-value services. 7. Privacy concerns - these may limit the ability to create personalized VBID programs 8. Unintended incentives - lowering copays may encourage the use of brand-name drugs over generics 9. Adverse selection - plans that lower cost-sharing for people with certain conditions may attract more of these people 10. Human element - even if services are free, individuals may not comply with appropriate standards of care (eg, to avoid drug side effects)

Beneficiary cost sharing for Medicare Part A in 2006

1. Initial deductible of $952 per benefit period 2. Daily inpatient coinsurance of $238 per day for days 61 through 90, and $476 per day for lifetime reserve days 3. SNF coinsurance of $119 per day for days 21 through 100

Part A services covered by Medicare

1. Inpatient hospital care for up to 90 days per benefit period and 60 lifetime reserve days 2. Skilled nursing facility (SNF) care for 100 days after an inpatient stay of at least three days 3. Home health care for 100 days after an inpatient stay of at least three days 4. Hospice care for terminally ill persons with life expectancies of six months or less 5. Inpatient psychiatric care for up to 190 days during a beneficiary's lifetime

Organizations that sell dental insurance

1. Insurance companies 2. Dental service corporations (eg, Delta Dental) 3. Blue Cross and Blue Shield plans 4. Dental HMOs 5. Dental referral (discount card) plans 6. Third party administrators

Reasons for and against offering a retiree group benefit plan

1. Is a tax-effective means of providing retirement financial security. But employers don't receive a full credit because of the hidden costs of their subsidy to the plan. 2. Is a valuable benefit for those currently receiving the coverage. But only those near retirement view this as valuable. 3. The benefits can support workforce planning and growth opportunities for employees. But many employees don't have long-term careers at one employer. 4. Availability of ongoing health coverage is viewed by some as a social responsibility of the employer. But as workers show less loyalty, this responsibility is evaporating. 5. It helps provide a competitive package of total compensation. But as more competitors eliminate coverage, this benefit is not required to compete. 6. Retiree plan costs may be nominal relative to the total spending on benefits. But this cost is increasing rapidly. 7. Retiree benefits are often at the top of the list of union demands. But these benefits can often be traded for something of more value to current workers.

Major types of business protection coverage

1. Keyperson coverage - sold to businesses to protect them from the risk of key individuals becoming disabled. Benefits last one or two years, to provide time for the key employee to be replaced. 2. Disability buyout coverage - provides the funds needed (generally lump sum) for a totally disabled partner or owner of a business to be bought out by the remaining partners or owners 3. Business overhead expense - pays for business overhead expenses in the event of the owner's disability. Coverage periods are typically fairly short, to provide for short-term needs only.

Assumptions needed for forecasting

1. Lapse assumptions - lapse rates vary widely by product, duration, company, and member or policy characteristics. They are generally highest in the first year, and then decrease thereafter. 2. Mortality - some models treat mortality as a separate decrement, but most models combine mortality and lapses (because mortality is a minor assumption for health insurance) 3. Claim costs - it is best to use actual experience when possible. Trend assumptions are needed for determining future claim costs. 4. Expense assumptions - expenses are usually expressed on a per unit basis (such as per policy or a percentage of premium or claims) 5. Profit assumptions - profits can be measured as an ROI, an ROE, or a percentage of premium 6. Model office assumptions - these assumptions define the proportion of the block of business that is represented by each model cell

Cost-reduction strategies used in active medical plans that can work for retiree plans

1. Large case management - saves more for Medicare, but the plan's savings may still be significant 2. Utilization review - some firms are tailoring review processes to older age groups 3. Medicare balance billing limits - create an education program to help retirees catch overcharges 4. Reasonable and customary limits could be reduced 5. Spousal initiatives - encourage spouses of retirees to accept coverage through their own plans 6. Dynamic provisions - increase deductibles and copays to keep pace with medical inflation 7. Managed prescription drugs (see separate list) 8. Enhanced quality - various quality initiatives may reduce plan costs (eg, educate retirees to make them better health care consumers) 9. Managed health - programs can be created to encourage healthy living (eg, lifestyle education) 10. Consumer awareness initiatives - give employees information to make health care decisions on the basis of cost and quality of care 11. Use Medicare Advantage PPO and PFFS plans to better manage health care delivery

Types of individual health insurance

1. Major medical - combines hospital, physician, and ancillary costs into one policy. Must cover a certain set of services defined by regulators. (see list of types of major medical plans) 2. Limited benefit medical - don't cover enough services to meet the definition of major medical (see list of types of limited benefit plans) 3. Group conversions - policies offered (on a guaranteed issue basis) to individuals leaving group coverage. State laws typically require this coverage to be offered. 4. Medicare Supplement and Medicare Select - supplement Medicare coverage by filling in the gaps in that coverage 5. Medicare Advantage - plans that contract with the US government to provide benefits to Medicare beneficiaries 6. Disability income - covers income lost due to an illness or injury 7. Business protection coverage - disability coverage that protects a business against the impact of an employee becoming disabled 8. Long term care - covers services for individuals who need assistance performing basic ADLs (defined in separate list) or who are cognitively impaired 9. Dental - not usually sold in the individual market due to antiselection concerns

Strategies for health plans negotiating with providers

1. Make offers on an accept or reject basis - this is common when dealing with individual physicians or small groups 2. Negotiate reimbursement levels - used with large medical groups and hospitals 3. Request proposals - also used with hospitals and large medical groups

Employer options for managing a pharmacy benefit plan

1. Manage the benefit and adjudicate claims internally 2. Outsource the benefit management to a health plan, PBM, or TPA 3. Contract directly with pharmacies and adjudicate claims internally

Types of managed care plans

1. Managed indemnity - includes precertification of most inpatient and outpatient services, and case management for high-dollar cases 2. PPO - provides benefits through a network of contracted providers, but allows care outside the network at higher deductibles and coinsurance 3. POS - preferred benefits are only available for care rendered by or coordinated through the PCP. All other care is payable at the nonpreferred level 4. HMO - provides comprehensive benefits through an established provider network. No coverage is available outside the network, except for emergencies or when traveling outside the coverage area 5. Consumer driven health plans - a high-deductible major medical plan is linked with a savings account (such as HRA or HSA) that is used to pay costs not covered by the plan. This gives the participant an incentive to use care efficiently. This last item is from Rosenbloom chapter 4

Types of distribution channels for individual health insurance

1. Managing general agents - authorized by an insurer to be its exclusive representative in some market segment. Is typically paid a commission (which it must share with the writing agent) or a commission override. 2. Independent marketing organizations - these sometimes follow a brokerage model, but may just focus on producing leads 3. Brokers - independent agents who typically shop around their business 4. Direct marketing - includes internet marketing, telemarketing, print, radio, television, and affinity marketing 5. Voluntary or workplace marketing - an employer sponsors a program by giving producers access to employees and allowing premiums to be paid through payroll deduction

Areas involved in drafting policy forms

1. Marketing - generally the driving force behind policy designs, due to its familiarity with the market 2. Sales force - sales goals will drive financial projections 3. Actuarial - prices the product and predicts financial results 4. Underwriting - identifies any antiselective opportunities in the product design 5. Claim administration - ensures that the proposed benefits can be administered as intended, and at a reasonable cost 6. Compliance - ensures that the benefit design complies with all regulations

Types of retiree benefits provided by employers

1. Medical 2. Prescription drug 3. Dental, vision, and hearing - for post-65 retirees, 26% of employers offer at least one of these coverages 4. Death benefits - only 39% of employers provide some type of benefit after retirement 5. Medicare Part B premium reimbursement - only 5% of employers reimburse the retiree's premium

Specific internal data sources

1. Medical claim system data - data used to pay claims (includes information on eligibility, the plan, and the provider) 2. Claim form data - used to pay claims for hospital (form UB-92) and physician services (Health Insurance Claim Form - CMS 1500). New form X12 837 must be used for electronic claims. 3. Premium billing and eligibility system - includes group and subscriber level data 4. Commission payment system 5. Utilization review or pre-certification systems 6. Provider contract system

Tools of the claim process for determining and handling disabilities

1. Medical evaluation - begins with an APS and can include independent medical exams 2. Rehabilitation plans - providing vocational training or physical rehabilitation 3. Financial evaluation of the claimant - verification of pre- and post-disability earnings 4. Settlements - these are risky, so be sure the insurer is not perceived as taking advantage of the claimant (ensure legal representation) 5. Fraud review - check information for inconsistencies or alterations 6. Managed disability - techniques are used to "manage" disability and encourage a return to work

Common loss exposures covered by employee benefit plans

1. Medical expenses for employees (active and retired) and their dependents 2. Losses due to employees' disability (short-term and long-term) 3. Losses due to the death of active employees, their dependents, and retired employees 4. Retirement needs of employees and their dependents 5. Capital accumulation needs or goals 6. Needs arising from unemployment or from temporary termination or suspension of employment 7. Needs for financial counseling, retirement counseling, and other counseling services 8. Losses resulting from property and liability exposures 9. Needs for dependent care assistance (eg, child-care or elder-care services) 10. Needs for educational assistance for employees and their dependents 11. Needs for long-term care for employees (active and retired) and their dependents 12. Other employee benefit needs or goals (such as incentive programs)

Commonly excluded drugs for prescription drug plans

1. Medications for smoking cessation, obesity, and cosmetic conditions 2. Biotechnology medications administered by a health-care professional (this is usually covered under the medical benefit instead) 3. Lifestyle drugs (such as hair loss drugs) 4. Over-the-counter medications

Considerations in pricing LTC

1. Morbidity (see previous list) 2. Investment earnings assumption - very significant because of the long term nature of the product 3. Expenses (excluding profit) - non-commission expenses are expected to average 13% to 18%. Commissions are very high in the first year. 4. Voluntary lapses - higher first year and lower later year lapses increase premium 5. Mortality - 1994 GAM is the table specified in NAIC Model. Many actuaries feel the rates in this table are too high. 6. Surplus strain/reserves - reserves have a significant impact of pricing due to the conservatism required and long duration of policies. Significant surplus strain occurs due to reserve and RBC requirements, the cost of capital, and policy issuance expenses. 7. Profit - takes 7-10 years to emerge. Use percent of premium, statutory IRR, or GAAP ROE. 8. Loss ratio requirements - most states require 60% minimum for individual (higher for group). The NAIC Model Regulation removes the requirement in favor of a certification of rate adequacy under moderately adverse experience.

Medicare Supplement pricing assumptions

1. Morbidity - past claim costs need to be trended forward to the rating period 2. Mortality - this is not a significant assumption for Medicare Supplement, and is frequently combined with the persistency assumption 3. Persistency - this should be based on the company's experience for similar products 4. Investment earnings - these will be credited to the various types of reserves that are held 5. Selection factors / underwriting - for underwritten policies, selection factors may be used for the first one to three years 6. Age and sex distribution - most policies are sold to individuals turning age 65 7. Smoker vs. non-smoker - If rates vary by smoker status, then the distribution of smoker status must be estimated 8. Area factors - claim costs by area may come from rating manuals or government statistics 9. Expenses and taxes 10. Other considerations - modal factors and policy fees are sometimes used

Contractual approaches for managing referral costs

1. Negotiate with a single-specialty group on a capitation basis 2. Negotiate discounted fee levels with referral physicians 3. For specialties with a low volume of claims, purchase specialist time on a retainer basis for a scheduled block of time each week 4. For HMO medical groups that are essentially primary care practices, contract out all specialty services to one large multispecialty group 5. Reinsure referral services through an experience-rated premium paid to a Blue plan

Methods used to limit the financial risk of inpatient hospital care

1. Negotiate with the hospital a per diem or DRG charge 2. Arrange for payment of services based on a percentage of billed charges 3. Purchase hospital coverage from an insurance carrier 4. Share the risk with the hospital (both the medical group and the hospital are paid a set percentage of total charges) 5. For large HMOs, the medical group may manage several floors or wings of a hospital, thus having tighter control over hospital costs 6. Use monitoring procedures - such as requiring prior approval for hospital admissions and reviewing cases which exceed certain preset limits

Methods for managing prescription drug costs

1. Negotiated reimbursement rates at certain pharmacies 2. Reduced administrative fees - by using a limited number of pharmacies 3. Real-time eligibility information - this will reduce payments for ineligible retirees 4. Utilization review - this may include prior authorization for certain prescriptions, substitution of high cost drugs, step therapy, and physician profiling 5. Mail-order plan - this can save money on maintenance drugs 6. Other plan design strategies, such as having lower copays on generic drugs 7. Coordinate the plan with Medicare Part D coverage

Tabular method formulas for calculating net premiums

1. Net Premium = NP = Sum(z)=issue yr to final yr Pr(Clmz) * ACz * vt * lz a) Pr(Clmz) is the probability of a claim occurring (incidence rate) in year z b) ACz is the average claim cost (assuming a claim occurs) in year z c) vt is the present value factor at duration t corresponding to year z d) lz is the proportion of originally issued lives still in force in year z 2. The average claim cost is calculated as follows: ACz = 's=1 to FnlCmPyt Cm$s * Pr(1-Tns) * vs a) s is the claim duration b) Cm$s is the claim dollars payable at duration s c) Pr(1-Tns) is the probability of a claimant at claim duration 0 remaining disabled at duration s d) FnlCmPyt is the claim duration of the final possible claim payment

Processes to measure when managing an insurance business

1. New business underwriting - can be measured by durational claim curves, and by the percentage of policies ultimately rescinded or reformed 2. Network contracting - can be measured by the percent of care received in network, and by the efficiency of the network in managing patients 3. Claim administration - can be measured by days of inventory. For DI and LTC, can be measured by claim frequency and termination rates. 4. Pricing - measured by actual-to-expected ratios 5. Investment performance - measure by portfolio rates of return, relative to pricing assumptions 6. Quality producers - measure by producer-specific financial results (may need to group data for credibility purposes) 7. Managing by geographic area or regulatory jurisdiction - might require geographic-specific analysis of loss ratios

Sources of funds for health spending accounts

1. New contributions by the employer 2. Employer savings from reducing medical plan costs 3. Employees directing employer-provided flexible credits to the account 4. Employees allocating a part of annual bonuses or company savings plan matches to the account

Renewability provisions for health insurance

1. Noncancelable - the insurer may not cancel the policy or change premiums 2. Guaranteed renewable - the insurer may not cancel the policy, but can change premiums (subject to regulatory oversight) 3. HIPAA guaranteed renewable - policies can be canceled if the insurer offers conversion to any other individual policy it offers, or if it cancels all such policies in the state 4. Conditionally renewable - the insurer cannot cancel an individual's coverage due to health status, but can refuse to renew all insureds of the same class 5. Nonrenewable for stated reasons only - the insurer lists the possible reasons for which it reserves the right to cancel the policy 6. Optionally renewable - the insurer can selectively non-renew individual policyholders

PPACA minimum loss ratio (MLR) requirements

1. PPACA set MLR targets of 85% for large group and 80% for small group and individual 2. Loss ratio = medical care spending / premium revenue 3. Premium revenue can be reduced for specified taxes and regulatory fees 4. Medical care spending includes certain expenses in addition to claims. The NAIC has recommended counting expenses related to: a) Direct interactions to improve patient outcomes b) Preventing hospital readmission c) Improving patient safety and reducing medical errors d) Wellness and health promotion e) IT expense for medical care quality initiatives

Benefits that may be covered by LTC policies

1. Nursing home care - care provided in a facility that provides skilled, intermediate, or custodial care, and is either Medicare-approved or state-licensed to provide this care 2. Assisted living facility (ALF) care - care provided in a facility that is state-licensed as an ALF 3. Home and community-based care - LTC services provided in the person's home or in a community-based facility (like an adult day care center) 4. Hospice care - care provided through a facility or program designed to serve the terminally ill 5. Respite care - formal, paid care provided to relieve an informal care provider 6. Home modifications and equipment - services that allow an individual to remain at home, rather than have to be institutionalized (such as emergency alert systems and wheelchair ramps) 7. Care management services - services provided to develop a plan of care, identify providers, and coordinate care 8. Nonforfeiture benefits - allows an insured who voluntarily terminates coverage to receive a reduced paid-up benefit without having to continue to pay premiums 9. Bed reservation benefit - continues to reimburse the insured for institutional care even if he or she needs to temporarily transfer to an acute care facility due to a medical condition 10. Caregiver training - provides training and education to help informal caregivers obtain state licensure as a home health care provider 11. Death benefit - typically pays a percentage of all premiums paid minus any benefits paid

Actions available to the underwriter

1. Offer full coverage with no restrictions 2. Decline coverage 3. Offer coverage at a higher premium rate - the added load may be either temporary or permanent, based on the condition 4. Offer a standard policy with an exclusion rider - the rider excludes coverage for a specific condition or body system 5. Offer a different policy than the one applied for - eg, offer coverage in a substandard risk pool 6. Offer a different benefit plan than the one applied for - eg, offer a longer elimination period or shorter benefit period on a disability income policy

Reasons why past underwriting cycles lasted approximately three years

1. One-year rate guarantees 2. Pricing changes needing to be phased-in over a full year of renewals 3. Marketplace inertia, which causes delays for competitive considerations 4. The effects of incurred versus paid claim lags, which tend to obscure changes in financial results

Types of formularies

1. Open formularies - enrollees can use any covered drug prescribed for them. Typically includes hundreds of possible medications and several options per category. 2. Preferred formularies - encourage patients to use preferred drugs in return for a reduced copayment 3. Closed formularies - nonformulary drugs are not covered

Tests to assist in targeting the proper market segments

1. Ordinary least-squares linear regression: RR = u + Sum(aixi) Possible predictor variables (xi's) include customer's age/sex, income, education, purchase/credit information. Not recommended because response rate is unlikely to be a linear function of the variable 2. Logistic analysis: LN (RR/(1-RR)) = u + Sum(aixi) Uses maximum-likelihood to estimate the parameters (ai's) 3. Discriminant analysis: LN (RR/(1-RR)) = u + Sum(aixi) Uses least squares to estimate the parameters (ai's) 4. CHAID - chi square automatic interaction detection a) A method which splits predictive variables into clusters with similar response characteristics b) Split out one variable at a time, producing a tree until no more significant interactions exist c) Can be unstable if there is not much data 5. Factor analysis - group a large number of factors into more useable categories. The condensed number of factors has better predictive ability and stability. 6. Cluster analysis - groups individuals into clusters based on the proximity of their predictive variables

Coverage options for Medicare eligible individuals

1. Original Medicare - no premium is payable for Part A, but a premium is required to enroll in Part B 2. Medicare Advantage - such as an HMO, PPO, or private fee-for-service plan 3. Employer coverage - through a plan provided by a former employer 4. Medicaid coverage - for eligible individuals, Medicaid can assist with Medicare premiums, Medicare cost sharing, long-term care, and other services 5. Medicare Supplement and Medicare Select plans - to be eligible, a person generally must have Medicare Part A and Part B coverage

Bases used as expected amounts for actual to expected analysis

1. Original pricing assumptions - management likely reviewed these assumptions when the product was being developed, so management expectations may be based on these assumptions 2. Profit targets - this is the bottom line metric that most senior management is interested in 3. Current pricing - may be the most useful measure for inflation sensitive products, since inflation targets are not reliable over the long term 4. Tabular - for DI coverage, a published table is often used for comparison. For DI and LTC, companies with large amounts of data may develop their own internal tables for comparisons

Distribution channels for direct response products

1. Other financial service providers (eg, affiliate with bank) 2. Associations (such as AARP and college alumni groups) 3. Using another insurer's distribution for a product you develop 4. Own policyholders (to cross sell)

Data sources for developing dental claim costs

1. Own company data (best source) 2. Outside databases - Prevailing Health Care Charges System, MDR Payment System, National Dental Advisory Service, ADA "survey of Dental Fees" 3. Consulting firms (have manuals containing utilization data) 4. Rate filings of other carriers 5. Third party administrators 6. Reinsurers

Definitions of disability

1. Own occupation - less restrictive for the claimant. Very expensive, so it usually only applies for 12, 24, or 36 months. 2. Any occupation - more restrictive for the claimant to qualify for benefits, so it is cheaper 3. Specialty occupation - least restrictive and most expensive because the disability is based on the ability to perform duties of a "specialty" 4. Partial benefits - paid if the claimant can work part-time because it is seen as a step toward full-time work and recovery. Typically must follow a period of total disability. 5. Zero-day residual benefits - a variation of partial benefits, where the main difference is that zero-day residual benefits do not require that the insured be totally disabled before receiving benefits 6. Occupational vs. non-occupational a) LTD typically covers both occupational and non-occ disabilities, so it integrates with workers' compensation b) STD is typically non-occupational only

Profitability measures of direct marketing enterprises

1. PV of cash flow 2. PV of statutory profit 3. PV of free earnings released (aka stockholder dividends or stat profits minus change in required surplus) 4. IRR for cash, statutory profit, or dividends 5. GAAP profit margin 6. GAAP income/GAAP surplus (GAAP ROE) 7. Stat income/Stat surplus (Stat ROE) 8. Economic value added

Part B services covered by Medicare, when medically necessary

1. Physician services, including office visits, surgical procedures, and consultations 2. Durable medical equipment, diagnostic x-rays, and screening tests 3. Some outpatient hospital services 4. Some home health care not covered by Part A (beyond the first 100 days) 5. Laboratory testing and radiological services 6. Outpatient behavioral health services 7. Most physical, occupational, and speech therapy 8. Outpatient rehabilitation facility services and mental health care 9. Radiation therapy, renal dialysis, and some transplants 10. Drugs and biologicals that cannot be self-administered 11. Preventive health services (such as diabetes screening and mammograms)

Ways in which managed care programs influence health care

1. Plan design features redirect delivery of medical care 2. Access is restricted to a specific group of providers 3. Utilization management programs preauthorize certain medical care and monitor the use of more expensive forms of care

Basic components of dental plan designs

1. Plans are designed to emphasize preventive care 2. Cost containment provisions exist to limit the antiselection that results from the elective nature of benefits (see separate list of provisions) 3. Plans only reimburse for the least expensive form of adequate treatment 4. Substantial out-of-pocket costs ensure that participants use care appropriately 5. Benefits are divided into different classes, with reimbursement varying by class (see separate list of classes)

Key requirements of the NAIC Medicare Supplement Model Act

1. Policy standardization - ten standardized plans were created originally (Plans A through J), with two more (Plans K and L) added later 2. Open enrollment - individuals are given an open enrollment period during which insurers must accept applications on a guaranteed issue basis 3. Commissions - the first-year commission cannot be more than double the renewal commission 4. Loss ratio standards - 65% for individual and 75% for group policies 5. Annual rate filings - these must be done to demonstrate compliance with loss ratio requirements 6. Rate refund calculations - to enforce compliance with loss ratio standards (done annually)

Considerations in establishing a provider network

1. Population to be served - the mix of provider specialty types should be tailored to the population 2. Type of product - for example, is the network designed for a gatekeeper product or a non-gatekeeper product? 3. Accessibility of providers - often measured by the portion of the population that can access a provider within a short distance 4. Trade-off between size of network and level of discounts - an insurer can generally negotiate lower fee levels if it is willing to accept fewer providers into the network 5. Trade-off between size of network and level of medical efficiency - a smaller network also allows the insurer to be more selective in picking providers with efficient practice patterns 6. Entities with which to contract - must decide whether to contract through provider organizations, or negotiate directly with the individual providers 7. Target reimbursement levels and methodology - must balance between competitive premiums (through low provider reimbursement) and competitive reimbursement (to attract enough providers) 8. Current referral patterns - it is advantageous for a network to build on existing referral and hospital admission patterns

Advantages of multiemployer plans

1. Portability - employees may carry pension credits with them as they move from company to company 2. Continuity of coverage - benefits such as medical insurance can continue when the worker switches jobs within the same industry 3. Availability - the presence of multiemployer plans allows small employers to offer benefits that they may not have otherwise offered 4. Economies of scale - these can be achieved through group purchasing and simplified administration 5. Stability of benefit and labor costs - costs for a region or industry may be stabilized because employers are not competing with each other on the basis of different benefit programs 6. Tax deductibility - company contributions are generally tax deductible

Cost control methods and programs for behavioral health care

1. Preauthorization is usually required to access treatment 2. Predictive modeling and risk assessment - predicts high-risk users and then intervene to avoid preventable costs 3. Provider performance measurement - to measure utilization and appropriateness of treatment 4. Case management - coordinate the member's care to ensuring appropriate treatment 5. Utilization review - to determine the medical necessity and appropriateness of treatment 6. Outcomes management - identifies risks early to prevent emergencies and hospitalizations 7. Coordination of care - since many disorders coexist with each other, treatment needs to be coordinated to ensure a proper overlap of drugs, testing, and advice 8. Depression disease management programs - emphasize prevention through patient empowerment tools 9. Substance abuse relapse programs - encourage individuals to remain sober while confronting day-to-day life

Claim administration procedures used by dental plans

1. Predetermination - the plan wants members to submit expensive treatment plans for review before service 2. Least expensive alternative treatment - may limit reimbursement to this amount 3. Coordination of benefits - done to avoid paying benefits in excess of charges 4. Dental review - difficult claims should be reviewed by a dental consultant 5. Maximum allowable charge (aka UCR) - expenses are limited based on: a) The dentist's usual fee for the procedure b) The fee level set by the plan administrator based on charges submitted in the same geographical area c) The reasonable fee charged for a service when unusual circumstances or complications exist

Approaches to solve the closed block (CAST) problem

1. Prefunding - early premiums are set high enough to create a reserve to subsidize later premiums 2. Individual medical pool - a substandard pool is created, which is subsidized by the insurers 3. Interblock subsidy: durational pooling - to prevent rates from deteriorating too much, all policyholders beyond a given duration are pooled together 4. Interblock subsidy: rate compression - to prevent rates from deteriorating too much, limits are placed on the range of rates that can be charged to policyholders with similar demographics

Description of value-based insurance design

1. Premise of VBID: quality health care can be achieved in a cost-effective manner by encouraging the use of high-value services and discouraging the use of low-value services 2. Plan designs need to be modified to provide incentives to use the most efficient services 3. Medical evidence on health outcomes is used to determine the right cost-sharing 4. Most current VBID programs focus on prescription drug benefits for a few key chronic conditions (lower copays only for members of disease management programs)

Pricing of direct marketing products

1. Price using an asset share method, with acquisition cost as a random variable 2. The model is based on the following three interrelated variables: a) Gross premium level b) Profit margin, and c) The amount available for initial expense 3. Formulas: a) PV premium = AF * G AF = annuity factor G = annual gross premium level b) MKT = marketing cost per policy issued = SC / RR SC = cost of soliciting an individual RR = response rate (probability of accepting offer) c) V = variable expenses and claim ratio = PV expenses / PV premium ("PV expenses" here includes both variable expenses and claims, but not marketing costs) d) PM = profit margin = 1 - V - MKT / (AF * G) = 1 - % of premium spent on claims and expenses - % of premium spent on marketing = 1 - V - (SC / (RR * PV premium)) 4. Main conclusion: the RR is the essential variable to the success of direct response marketing

Uses of health insurance financial models

1. Pricing - financial and sales models are used to determine premiums 2. Reserve calculations and reserve basis evaluation - some reserves (such as gross premium reserves) are calculated by forecasting models 3. Monitoring of results - to validate assumptions, to warn of deviations from expected values, and for resource planning 4. Solvency testing - may indicate a need for gross premium reserves 5. Financial forecasting - corporations forecast results for various reasons 6. Actuarial appraisals - these are studies of the value of a block of business, typically used when transferring ownership

Sources of capital for medical groups that are sponsoring an HMO

1. Private venture capitalists - but they may require some control over operations and may have unrealistic growth and profit expectations 2. Some large medical groups will invest their own funds in the startup of their own HMO 3. Group physicians may buy stock in the HMO corporation

Desired characteristics for credibility methods

1. Produce results that are reasonable in the professional judgment of the actuary 2. Do not bias the results in any material way 3. Be practical to implement 4. Balance responsiveness and stability

Common statistical reasons for trend interpretation problems

1. Pulse outliers - one or more scattered points, high or low, in a series of monthly claim costs 2. Level shifts (discontinuities) - an abrupt step, up or down, in a series of monthly claim costs

Potential models for health insurance cooperatives

1. Purchasing cooperative - sponsoring one or more insurers (eg, the Connector model in Massachusetts) 2. Acting as an insurer - providing its own administration and contracting its own network 3. Based on a captive network - such as provider-owned plans

Types of wellness programs

1. Quality of work life - emphasis is on fun and development of workplace cohesion 2. Traditional program - clinical health risk is emphasized and biometric testing is used to direct individuals towards programs that might help them 3. Health and productivity management program - a systematic approach is taken to link health promotion activities with employer policies, employee benefits, and information services

Reasons for and against covering retirees in flex plans

1. Reasons retirees are not covered very often by flex plans a) Belief that retirees' needs do not vary much so they do not need choices b) Communication difficulties c) Some of the key motivations (in chapter 3) for introducing a flex plan to employees do not apply to retirees d) Adverse selection concerns 2. Reasons for covering retirees a) There is pressure to continue choice into retirement b) Increasing costs of retiree benefits have led to a defined contribution funding approach, which makes it easy for an employer to provide some benefit to retirees c) If the subsidy varies by service, the plan can be a way to reward long-term employees d) Contribution cutbacks increase the need for choice

Features introduced after FAS 106 to control retiree medical plan obligations

1. Redefining eligibility requirements to be more stringent than in pension plans (eg, age 60 plus 15 years of service) 2. Introducing service-related benefits (eg, employer cost share varying based on length of service) 3. Adjusting retiree contributions based on the employee's age at retirement (ie, early retirement reduction factor) 4. Capping the amount the employer subsidizes the plan. Done through a fixed-dollar subsidy, total expenditure cap, defined contribution cap, or account balance plan. 5. Use managed care programs to reduce costs through provider discounts and better care management

Prescription drug plan cost management tools

1. Reduce the pharmacy network size without compromising access (to improve discounts) 2. Offer mail service or 90-day retail prescriptions 3. Adopt a plan design that encourages generic substitution 4. Use a formulary that promotes cost effective drugs 5. Practice utilization management that targets high-cost users 6. Perform physician profiling 7. Educate patients about alternatives to high-cost therapies 8. Monitoring for fraud and abuse 9. Quantity limits and maximum dollar limits on all prescriptions 10. Step-therapy programs (members must try one drug before another, based on clinical criteria) 11. Use of drug utilization review programs (see separate list) 12. Using a pharmacy case management program 13. Prior authorization - certain prescriptions must be pre-approved by the PBM (this last point came from a similar list in study note GH-D127-10)

Tips for generating traffic to the internet site

1. Register with search engines 2. Choose keywords carefully (including the names of competitors can increase traffic) 3. E-mailing is not a very effective means of generating traffic 4. Get links to your site - may have to pay for them 5. Publicize the site in regular advertising 6. Use traffic analysis - which is the key to determining how successful the site is

Dental plan cost containment provisions

1. Reimbursement limitations - may reimburse 100% for Type I, 80% for Type II, and 50% for Type III 2. Calendar year deductible - typically $50 or less and may be waived for Type I 3. Calendar year annual maximum - typically $1,000, but ranges from $500 to $2,500 4. Exclusions include cosmetic services, experimental treatments, and services for on-the-job injuries 5. Pre-existing conditions limitations - prevent the plan from paying for charges incurred prior to the insurance effective date (such as replacement of a missing tooth from before insurance was purchased) 6. Benefits after insurance ends - coverage for work started before termination only continues for 31 days

Techniques for maximizing network performance

1. Selection and retention of high-quality, efficient providers (see separate list for criteria to use in selecting physicians) 2. Negotiated reimbursement levels and methods - these are used to control the cost and quality of care (see separate list for the types of negotiated fee arrangements) 3. Utilization management

Rate setting approaches

1. Rerating - rating based on direct, existing experience (eg, the experience of an existing block) 2. Fundamental pricing - rating from other data sources (used as benchmarks), which are adjusted to apply to the current situation a) Tabular method - an existing table (or a modification of it) is used as the morbidity basis for pricing (eg, using the 85CIDA table for pricing DI). Typically used for long term, non-inflation sensitive products. b) Buildup and density functions (see separate list) - a model is built to determine expected claims in the rating period. Generally used for inflation-sensitive products. c) Simulation - an existing distribution of expected claims is projected into the rating period, using all known information about the claimants (including prior claim experience)

Special funding arrangements for group insurance

1. Reserveless plans (aka deferred premium or premium drag plans) - the insurer foregoes premiums equal to part or all of the claim reserves. In return, the insurer receives a terminal premium when the group terminates (risk of not receiving terminal payment). The policyholder chooses how to invest money. 2. Fully insured plans - the standard arrangement. Policyholder pays insurer, who pays claims. 3. Self-insured plans - a trust receives employer money and pays the claims (so there is latitude in the choice of investments). Stop loss is usually purchased from an insurer. Governed by ERISA (no premium taxes or state mandates). 4. Minimum premium contracts - fully insured plan that includes a minimum premium rider (provides for the employer to fund a trust which the insurer uses to pay claims). Avoids premium tax on the portion of premium used to pay claims. 5. Stop loss contracts (specific and/or aggregate) - trends are leveraged, so give them special attention 6. Retrospective premium arrangements - the policyholder pays some percent of the regular premium (eg, 90%). At the end of the period, the policyholder is liable for an additional premium up to some amount (there is a risk of nonpayment).

Reasons why contingency reserves are needed for multiemployer plans

1. Reserves are needed if the assumed average units worked per individual is higher than the minimum required to receive benefits. The risk is that the hours worked will decrease while the number of eligible individuals will not. 2. Medical inflation may be larger than anticipated. This risk is important because contribution levels are fixed for multiple years at a time. 3. Small groups may need additional contingency reserves as a margin for possible claims fluctuation.

Techniques used by plan sponsors to control pharmacy costs

1. Review benefit design and how it fits into the overall medical program 2. Analyze experience to identify areas needing better management 3. Use pharmacy management tools and techniques (see separate list of cost management tools) 4. Anticipate financial impact of new drugs and set policies for them before they are released

Components of new business underwriting for large groups

1. Review the characteristics of the group in order to screen, approve, and classify the group (see separate list regarding underwriting criteria for large groups) 2. Evaluate the group's prior experience - prior data needs to be checked for accuracy and will need to be adjusted to fit the coverage being offered 3. Develop the proposal - explain the plan design, underwriting caveats, expense charges, and any performance guarantees or funding alternatives that will be used

Considerations for deciding whether to insure or self-insure an employer PDP

1. Risk tolerance - due to the risk of catastrophic claims and fiduciary or legal risk 2. Administrative expenses - the primary savings an employer can achieve by self insuring a PDP is the elimination of the insurer risk charge (between 1% and 3% of plan costs) 3. Cash flow - self-insured plans do not have a significant cash flow advantage because of how quickly prescription drug claims are processed 4. Design flexibility - insured PDPs may have limited design flexibility

Pricing strategies for controlling adverse selection

1. Risk-based pricing - price options in a way that reflects the expected cost of the benefit (eg, vary rates by age, gender, and smoker status) 2. Employer subsidization - subsidize prices to encourage broad participation, which will cause a better spread of risk

Wellness and preventive benefits typically provided by HMOs

1. Routine physical exams 2. Preventive screenings and diagnostic tests for early detection of certain diseases 3. Prenatal and well-baby care 4. Immunizations for prevention of diseases 5. Vision and dental checkups 6. Allowances for health club memberships

Types of employee groups covered by flexible benefit plans

1. Salaried employees - almost all flexible programs cover this group, with few eligibility restrictions 2. Hourly non-unionized employees - this group is covered by 80% of flex plans 3. Hourly unionized employees a) Inclusion of hourly employees is more common where unions are not involved because it is harder to negotiate flexible benefits plans with unions b) Unions are concerned about the ability of their members to make benefit decisions and about the diminished role of the union under a flex plan 4. Part-time employees - most employers include part-timers in the flexible benefit program 5. Retired employees - approaches for covering retirees include: a) Create a flexible plan for retirees that is comparable to the employee plan b) Permit employees to make a one-time election of pre-retirement flex coverage and allow that coverage to remain throughout retirement c) Provide a health spending account combined with catastrophic medical coverage

Types of statutory arrangements for Canadian tax purposes

1. Salary deferral arrangements - income is deferred to a subsequent year. Any benefit characterized under this arrangement is taxable immediately to the employee. 2. Retirement compensation arrangements - these are funded plans providing benefits upon retirement or termination of employment 3. Employee benefit plans - these are also funded plans, but benefits do not have to be used after employment. Employer contributions are not tax deductible until benefits are paid out, at which time benefits are taxable to the employee. 4. Employee trusts - an employer contributes amounts to a trustee to provide benefits for employees. Benefits must vest immediately, and contributions and earnings are taxable to the employees. 5. Private health services plans - these are insurance plans for covering medical expenses (includes health spending accounts)

Considerations for states when deciding whether to set up an exchange

1. Self determination - states must determine whether they want to be able to control the exchange, or let the federal government do so 2. Initial and ongoing cost - grants will help with set-up costs, but there will be ongoing costs 3. Recognition of individual state issues - a state can set up its exchange to meet its needs while the federal default exchange may use a "one size fits all" approach 4. The exchange can be used to provide coverage for Medicaid, CHIP, and other uninsured populations that the state must expand coverage to 5. Increased accountability to federal government - states that establish an exchange will have annual reporting requirements and may be subject to audits 6. Regulation of insurers - insurers will have products both in and out of the exchange, so states may find it easier to maintain regulatory control if it also controls the exchange

Common exclusions for medical plans

1. Services deemed not to be medically necessary 2. Services deemed to be experimental 3. Services related to cosmetic surgery 4. Other specified services, such as mental, hearing, and vision services 5. Transplants 6. Services for which payment is not otherwise required 7. Services required due to an act of war 8. Services provided as a result of a work-related injury 9. Services provided by a provider related to the patient

Types of regression techniques

1. Simple linear regression - estimate the value of Y given a particular value of X 2. Multiple regression - useful when there are a number of variables that impact the quantity of interest 3. Stepwise regression - a set of independent variables are analyzed and only those that make a significant contribution are included in the regression model 4. Neural networks - a nonlinear extension of linear regression. A program uses available data to construct an appropriate predictive model.

Considerations for designing retiree benefit plans

1. Simplicity 2. Ease of administration 3. Ease of communication to retirees 4. Predictability and stability of costs 5. High perceived value of the benefit by a broad group of employees 6. Consistency with other health plan offerings, such as the plan for active employees

Levels of nursing home care

1. Skilled nursing care - treatment that can only be performed by skilled medical personnel, under physician orders, on a 24-hour basis, and requires one or more professional nursing methods or procedures daily 2. Intermediate nursing care - treatment using skilled procedures and/or performed by professional medical personnel, but not all requirements for skilled care are satisfied 3. Custodial care - assisting with ADLs, not requiring trained medical personnel

HIPAA requirements that increased antiselection in the small group market

1. Small group carriers and HMOs must offer all of their major medical and comprehensive health insurance products on a guaranteed acceptance and renewal basis (with very limited exceptions) 2. Individuals cannot be rejected or singled out for special rating treatment due to their health 3. Pre-existing condition limitations or exclusions cannot be imposed on individuals who have had continuous coverage for more than 12 months

Decisions needed for developing the credit structure of the flexible benefit program

1. Sources of credits (see separate list) 2. Amount of credits - for the upcoming year and develop a strategy for future years 3. Allocation of credits - considerations include: a) Equity (objective 2) b) Allowing repurchase of the current program (objective 3 - no losers) c) Organizational objectives (see separate list)

Alternatives for the medical group to manage prepaid financial risks

1. Sponsoring an HMO by a medical group - capital must be raised initially to cover development and variable costs 2. Contracting with an umbrella organization (network HMO) - may be done by becoming part of a Blue Cross and Blue Shield network, becoming part of an insurer-sponsored network, or joining with a proprietary, independently-managed network 3. Determining financial responsibility for referral medical services - some medical groups bear total financial responsibility for referrals while other groups are only capitated for their own services. The number of referrals must be closely managed. (See separate lists for managing referral costs) 4. Sharing risk for hospital costs with the HMO - various methods are used to limit the financial risk of inpatient care (see separate list) 5. Participating with the HMO in reinsurance programs

Types of mental health / substance abuse (MH/SA) programs

1. Standard employee assistance program (EAP) - provide access to professional resources focusing on early intervention and decreased admissions 2. EAP gate plan - access to EAP is encouraged through health plan design, thus directing more clients to managed care 3. MH/SA network - a preferred network of providers is selected based on their clinical expertise and agreement to preferential prices 4. MH/SA network with EAP gate - this approach combines early mental health access with preferred pricing arrangements

Potential impacts on plan design due to PPACA

1. Standardization of certain benefits due to guidelines on minimum essential coverage 2. Continuing exodus from employer-provided health care for early retirees, since they will have access to coverage through health exchanges 3. Diminished role for flexible spending accounts due to annual contribution limit of $2,500 4. More conservative contributions to HSAs due to tax increase from 10% to 20% on distributions not used for qualified medical expenses 5. Greater reliance on outsourcing health plan administrative services, due to new administrative requirements 6. Curtailment of health plan offerings by certain employers, since their employees will have coverage available in the exchanges

Methods for validating forecast models

1. Starting values are compared directly to the actual values for that year 2. Year to year changes in the model are compared to actual past historical results 3. Model results are checked for reasonableness by people familiar with the business 4. Stress testing - analyze how the modeled results behave when some of the underlying assumptions are changed (includes sensitivity testing)

Characteristics of an insurable risk

1. There should be a large number of homogeneous risks 2. The loss should be verifiable and measurable 3. The loss should not be catastrophic in nature (proper spread of risk is essential) 4. The chance of loss must be calculable 5. The premium should be reasonable 6. The loss should be accidental from the standpoint of the insured

Essential ingredients for a strategy to manage the underwriting cycle

1. Strategies for targeted market segments - should encompass both marketing and financial objectives 2. Risk objectives - recognize that due to industry underwriting cycles, it is unlikely that a carrier can maintain market share without experiencing periodic underwriting losses 3. Timely evaluation of experience and trends - timely, tempered responses to economic influences 4. Counter-cyclical marketing - strategies must allow for pulling back at some points and being aggressive at others, even when the marketplace is behaving differently 5. Cost-effective administration - due to competitive pressures on expenses, the company's resources must be managed in an efficient manner 6. Consistent management compensation goals - incentives should hold management accountable for properly managing underwriting cycles

Classical measures of health care quality

1. Structural measures - such as the qualifications of physicians and hospitals 2. Process measures - such as whether protocols are followed 3. Outcome measures - these include administrative measures (such as access to services) and clinical measures (such as mortality rates)

Taxation of benefits in Canada

1. Supplemental medical - these may be provided to employees on a non-taxable basis (except in Quebec, which taxes premiums). To be tax free, the plan must cover only eligible medical expenses. 2. Dental - same as supplemental medical 3. Vision care - same as supplemental medical 4. Life insurance - benefits are not taxable, but premiums paid by the employer are taxable to the employee 5. Dependent life insurance - employer-paid premiums are taxable 6. AD&D and dependent AD&D - premiums and benefits are not subject to income tax (except in Quebec, which taxes premiums) 7. Short-term disability a) Under salary continuation plans, amounts paid to employees are fully taxable b) Under funded or insured group plans, employer contributions are not taxable income, and benefits are taxed only if the employer contributed toward the premium (with a deduction equal to the amount of any employee contribution) 8. Long-term disability - similar to short-term disability. Benefits will be taxable if any of the costs are employer paid, or if the plan is dependent on an employer-paid plan.

Categories of physician specialties

1. Surgical specialties - including orthopedics, general surgery, and neurosurgery 2. Medical specialties - including allergy, hematology, oncology, and rheumatology 3. Hospital-based specialties - including anesthesiology, radiology, and pathology

Advantages of contracting with provider organizations

1. The ability to sign up a large number of providers with a single contract 2. The group of providers is already set up and coordinated geographically or by type of service 3. Greater ability to shift risk (if the organization is set up to share risk) 4. Possibly better coordination of care

Reasons not to prefund retiree medical plans

1. The employer can achieve a higher ROI by investing in the business instead of in a benefit trust 2. Trust funds may imply the plan is permanent and restrict the ability to change 3. Tax advantages have been limited by DEFRA 4. 401(h) funding restrictions may be too limiting 5. Financial analysts may not handle the funds properly - they may decrease corporate assets 6. New legislation may alter funding practices in the near future 7. Use of cash is less flexible if it is in a trust than if it were retained in corporate assets 8. The reduction in FAS 106 cost is offset by reductions in earnings elsewhere

Major considerations in the rate setting process

1. The market - competitors' pricing sets expectations for consumers, limiting pricing options 2. Existing products - expectations will exist for the company's product, based on its current products 3. Distribution system - the compensation system, the structure of the distribution system, and the level of company control are all relevant in pricing 4. Regulatory situation - limitations may exist that impact how rates are set, and whether needed rate increases are allowed 5. Strategic plan and profit goals - pricing practices should reflect the company's goals

Considerations in deciding whether to build (instead of rent) a network

1. The number of members in the market - more members will result in fixed costs being lower on a per member basis 2. Percentage market share - this is a sign of negotiating power 3. Whether there is access to competitive rental networks for a reasonable fee 4. The type of service or provider - plans may build a network for some services and rent for others

Information needed for reviewing and certifying small group rates

1. The small group rate manuals used during the rating period being reviewed 2. The small group rate manuals used during the prior period 3. The policy and certificate forms used for the business 4. Listing of groups in force during the testing period, and the following for each group: a) Rates charged in the current and prior period b) Group size c) The value of allowable case characteristics d) The value of any change in benefit from the previous year 5. Depending on the type of certification required, may also need: a) Loss ratio and claim experience reports b) Sales brochures and other solicitation materials c) Description of the underwriting procedures d) Underwriting results for each new group e) Marketing materials f) Underwriting manual

Characteristics of successful multiple-employer health plans

1. The sponsoring association is a strong entity with a high percentage of eligible firms participating 2. There is a large pool of eligible members 3. There is a relatively small average employer size

Considerations for employers to decide whether to still offer healthcare coverage following PPACA

1. The suitability of the individual markets 2. Will employees understand the importance of purchasing their own coverage? 3. What is the selection impact on the remaining covered population of those who voluntarily move to the exchange plans? 4. What is the post-tax impact to employees of any change to the healthcare benefit program? 5. Cost comparisons for continuing to offer benefits vs. discontinuing coverage 6. How would discontinuing benefits affect employee retention and productivity? 7. How would the employer's competitive position be affected by discontinuing benefits?

Reasons to prefund retiree medical plans

1. There are tax advantages if a qualified trust is used 2. Results in a better allocation of costs among generations of stockholders 3. Investment earnings reduce FAS 106 costs 4. Increases the likelihood that the promised benefits will be paid 5. Trust funds are sheltered from corporate raiders 6. Increased latitude in cash flow use by management from year to year 7. Deductibility of contributions may be worthwhile, even if investment income is taxed 8. For government contractors and regulated firms, benefits may need to be funded to qualify as allowable charges

Types of flexible benefit plan structures in Canada

1. Traditional - provides no choice for employees in how to spend employer benefit dollars 2. Simplified flex - provides some choices, but does not have some of the more complex features of full flex plans. Plan types include health spending account only, modular, health care only, and net contribution pricing. 3. Full flex - employees choose from a range of options in several benefit areas. The core option is the minimum level of coverage that is permitted by the employer. 4. Financial security - combines a full flex plan with a pension or group savings plan 5. Total compensation - the employer provides a total compensation package, and the employee selects what portion should be taken as pay and what portion as benefits

Marketing approaches for direct response products

1. Traditional approaches include direct mail, TV, telemarketing, billing inserts, and pamphlets 2. Recently more customized - coordinated with events, built to suit customers, includes personal information in the offers 3. Internet is now used - is an inbound method, so it cannot target customers as easily

Group dental insurance is provided through:

1. Traditional employers 2. Multiple employer trusts 3. Unions 4. Associations 5. Chambers of commerce

Methods for training the field sales force

1. Training manual - this manual can be useful to reinforce product knowledge after the training sessions are over 2. Training sessions - sales representatives are brought in to participate in these sessions 3. Telephone conferencing 4. Videos 5. Product bulletins 6. Web-based training

Definitions of trend

1. Trend is a change in an index over a period of time 2. Allowable costs are the sum of the amounts for which the insurer and the member are liable 3. The net trend is the trend in allowable costs, adjusted for the leveraging effect of deductibles and copays 4. The pricing trend includes the net trend and an adjustment for inaccurate historical pricing trends 5. Provider reimbursement trend is the change over time in the reimbursement a provider receives for performing the same service 6. Residual trend is all trend other than provider reimbursement trend

Considerations in developing a manual claim table for life insurance

1. Two approaches can be used: a) Manual premium tables - calculate the manual premium rate, then adjust for group size. This adjustment will reflect the margin, profit, and expenses appropriate for the group size, relative to the averages built into the table. b) Manual claim tables - calculate the manual claim rate, then add the appropriate margin, profit, and expenses 2. Data sources - could use SOA studies, industry mortality tables, population statistics, or own company experience (which is the best source, if credible) 3. Changes in mortality - expected future mortality improvement should be reflected 4. Reinsurance - the net cost of reinsurance should be factored into the claim table or expenses 5. Conversions to individual life policies - these create severe antiselection, which should be reflected in the manual rates 6. Manual adjustments are made for group-specific traits (see separate list) 7. Rates for the group are based on age and gender mix, but groups typically end up charging a composite rate to all employees

Classes of dental benefits

1. Type I (preventive and diagnostic) - oral exams, x-rays, cleanings, fluoride, sealants 2. Type II (basic) - fillings, anesthesia, endodontics, periodontics and extractions (those last three are sometimes Type III) 3. Type III (major) - inlays, onlays, crowns, bridges and dentures 4. Type IV (orthodontics) is sometimes added to dental plans

Considerations for designing flexible accounts

1. Type of approach - decide whether to introduce a flexible account and which types of accounts to offer 2. How will the presence of the account impact other benefit choices? 3. Funding considerations - for example, decide if contributions to the accounts will be monthly or annually 4. Should there be limits on how much the employee can allocate to the flexible account? 5. How will mid-year changes be handled? - this will vary by account type and the reason for the change (family status change, termination, retirement, or death) 6. Disposition of funds at year end - funds are forfeited, rolled over, or (for personal or perquisite accounts) paid in cash

Issues regarding developing internal data

1. Types of data structures (sequential files, indexed sequential files, relational databases, and dimensional databases) 2. Types of data storage (on line, near line, off line) 3. Factors affecting the choice of data structure - volume of data, dynamic nature and frequency of use, retrieval time (depends on storage media), and ease of programming (manipulation desired)

Reasons to have a standalone drug plan, rather than combining with medical

1. Under the indemnity plan, there are typically no discounts for prescription drugs 2. Medical claim processers often cannot make coverage determinations for drugs as effectively as can the PBM 3. There is limited data in the medical claims processing systems for reviewing drug trends 4. Rebates and other drug cost-savings programs are not available through medical claims processers

Concerns about the Canadian Medicare system, from recent reports

1. Waiting for months to see a specialist is common 2. Shortages of equipment, specialists, and technicians cause waiting for diagnostic procedures 3. Waiting for elective and non-emergency surgery is common, due to a lack of operating room time and a shortage of hospital beds 4. Emergency rooms are overcrowded, due in part to the unavailability of after-hours clinics 5. People who need long-term care tend to wait in hospitals because of a shortage of beds in long-term care facilities 6. Technology-intensive services are not available everywhere 7. The demand for services exceeds the supply, resulting in rationing 8. Some essential services (such as prescription drugs for chronic illnesses) are not covered by Medicare

Behaviors that may indicate cognitive impairment

1. Wandering and getting lost 2. Combativeness 3. Inability to dress appropriately for the weather 4. Poor judgment in emergency situations

Macro-economic variables for modeling health care consumption

1. Wealth - increased wealth is a leading indicator of increased consumption and also investment in research 2. General inflation 3. Physician supply - increased supply should decrease prices and increase quantity and quality of care (hasn't happened) 4. More specialists - appears to have led to greater use of technology and more intense therapies 5. Population aging - causes consumption to increase (this variable helps picks up the demographic effect) 6. Effect of third party payers - decreases the consumer's sensitivity to costs and increases consumption 7. Managed care - should affect consumption, but only recently has market share been sufficient for effects to emerge

Definition of wellness, health promotion, and disease prevention programs

A set of organized activities and interventions offered through worksites, managed care organizations, and community agencies, whose primary purposes are to provide health education, identify modifiable health risks, and influence health behavior changes

Definition of employee benefits

Broad definition - includes virtually any form of compensation other than direct wages, including: 1. The employer's share of legally-required payments (such as Social Security) 2. Payments for time not worked (such as paid sick leave, paid vacations, and holidays) 3. The employer's share of medical and medically-related payments 4. The employer's share of retirement and savings plan payments 5. Miscellaneous benefits (such as employee discounts, severance pay, and educational expenditures) More limited definition - excludes legally-mandated benefits

Methods for coordinating benefits with Medicare

C = covered expenses % represents the application of the employer's benefit provisions M = the Medicare payment 1. Standard coordination of benefits: plan payment = the lesser of (C * %) or (C - M) 2. Exclusion: plan payment = (C - M) * % 3. Carveout: plan payment = (C * %) - M 4. Use the exclusion method with Part A benefits and carveout with Part B (this avoids the benefit payment differences caused by the timing of hospital vs. medical claim submissions) 5. Medicare Supplement (Medigap) plans

Comparison of dental reimbursement models

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Comparison of key features of health care accounts

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Key features of indemnity plans and managed care alternatives

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Summary of vehicles for funding retiree medical plans

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Tax treatment of health care accounts

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Types of cancer products

Covered benefits include hospitalization, radiation and chemotherapy treatments, and surgery costs 1. Uncapped - pays unlimited charges for specific treatments (radiation, chemo) 2. Indemnity - pays a fixed daily amount for any number of treatments. Becoming more common due to the uncertain costs and high trend of uncapped benefits 3. Hybrid - some indemnity and some actual charges, usually limited by an annual maximum 4. First occurrence - pays a one-time lump sum upon occurrence (excludes skin cancer)

Sources of ideas for new products

External product drivers 1. Plan holder (employer) - want to have a benefit plan to attract and retain good employees 2. Brokers, agents, and employee benefit consultants - these are a good source because they sell many competitors' products 3. Direct market input (market research) - focus group can give insight into market needs, and can identify weaknesses in competitors' products 4. Legislation and regulations - emerging legislation and regulations should be monitored and reflected in product planning Internal product drivers 1. Group sales force - can provide valuable information about competitors' products 2. Home office staff - can identify new products that would be a good strategic fit

Types of provider reimbursement

Hospital reimbursement strategies (combining this chapter and Rosenbloom chapter 4, page 96) 1. Straight discount strategy - a negotiated percentage off billed charges is used 2. Diagnostic related group (DRG) - a pre-negotiated amount is paid to hospitals for the total cost of treatment, based on the specific diagnoses 3. Case rates - these are flat rates negotiated for a specific service (such as outpatient surgery), rather than all services related to a specific diagnosis 4. Per diem - this is a fixed daily rate 5. Global rates - pays a specific fee for a major episode, covering all costs (professional, ancillary, facility, etc.) for that episode Other forms of reimbursement (from this chapter) 1. Fee schedules and maximums 2. Hospital ambulatory payment classifications - similar to DRGs but used for outpatient charges 3. Bonus pools - pays the provider a bonus if utilization is below target or quality-of-care criteria are met. Funded through withholds. 4. Capitation - the provider performs a defined range of services in return for a monthly payment per enrollee. Variations include global and specialty capitation. 5. Integrated delivery system - the insurer employs the providers of care (common in staff model HMOs)

Formula for calculating the taxable value (imputed income) of group term life coverage

Imputed income = (Coverage amount - $50,000) * Table 1 rate - employee contributions

Provisions included in medical plans

In addition to provisions related to the key dimensions of medical plans (see separate list) 1. Overall exclusions (see separate list) 2. Mandated benefits (due to regulations) 3. Coordination of benefits - to determine the payment when a service is covered under multiple benefit plans 4. Subrogation - assigns the carrier the right to recovery from any injuring party (commonly used for workers' comp claims) 5. Preexisting conditions exclusion - limits coverage for services related to preexisting conditions 6. COBRA continuation - employers with at least 20 employees must offer continued coverage for 18 to 36 months beyond a person's normal termination date 7. Conversions - offered to individuals no longer eligible under the group medical plan (often with limited benefits and very high premiums)

Current trends in medical product design

New products 1. Consumer driven health plans - these are viewed as a way to help educate employees about the true cost of health care, and to get them more involved in the decision-making process 2. Internet-based products - provide access to health related information on line 3. Personal network products - employees choose their own provider network, but pay more for higher cost providers Changes to existing products 1. Open access - many health plans are moving from gatekeeper models to PPO products 2. Tiered networks - lower cost sharing is given to those using a select group of providers 3. Focus on disease management - to improve the quality of care and reduce costs

Typical retrospective refund formula

Policyholder account balance = prior year's balance + premium + investment earnings - charged claims - expenses - risk charge - increase in stabilization reserve - profit 1. Prior year's balance - ending balance is carried forward if not eliminated at prior year end 2. Premiums - amount may be adjusted for interest based on the timing of payments 3. Investment earnings - very important for coverages with significant reserves 4. Charged claims = claims paid + increase in claim reserves - pooled claims + pooling charges + conversion charges + claim margins (may adjust claims for credibility) 5. Expense charges may vary by duration to allow for the recovery of acquisition costs 6. Risk charge covers the risk of loss on termination (depends on variance of claims, size of deficit, margins) 7. Addition to premium stabilization reserve - to reduce the risk of a deficit on termination. The insurer may require certain level of reserve before surplus can be paid as an experience refund. 8. Profit - usually built into other assumptions since the insurer is reluctant to show explicit profit in the formula

Loss ratio calculation approaches for LTC

Produce very different results because of the significant amount of investment income on LTC 1. PV of paid claims to collected premiums (lowest LR) 2. PV of discounted incurred claims to earned premiums (next lowest LR) - the approach required by most states 3. PV of undiscounted incurred claims divided by earned premiums - recognizes investment income on the claim reserve in the numerator 4. PV of discounted incurred claims + PV of - in policy reserve divided by PV of earned premiums - recognizes investment income on the policy reserve, but not on the claim reserve 5. PV of undiscounted incurred claims + PV of - in policy reserve divided by PV of earned premiums - recognizes investment income on both the policy reserve and the claim reserve (highest LR)

Waivers of Part D requirements for employer PDPs

Some of the more important waivers gave the employer the ability to: 1. Offer coverage on a nationwide basis 2. Provide a flexible design to closely match non-Medicare coverage 3. Maintain custom pharmacy networks 4. Provide employer-specific communication material that can include other medical benefit information 5. Maintain non-calendar year plan provisions 6. Enroll retirees on a group basis

Services covered by Medicaid

States must offer the following services: 1. Inpatient and outpatient hospital 2. Physician 3. Lab and x-ray 4. Skilled nursing facility and home health care 5. Preventive care, prenatal care, and screening and vaccines for children 6. Family planning 7. Services at federally-qualified health centers and rural health clinics 8. Transportation Optional services, which nearly all states offer: 1. Dental 2. Outpatient prescription drugs 3. Prosthetic devices and hearing aids 4. Optometric services and eyeglasses 5. Rehabilitation and physical therapy

Benefits covered by vision and hearing care plans

Vision 1. Vision examination 2. Lenses - tinted, oversized, and photochromatic lenses are consider cosmetic extras and are usually not covered 3. Frames - plans either limit the choice of frames or give a dollar allowance for each year Hearing 1. Otologic and audiometric examinations 2. Hearing instruments