GHDP Lists

Benefits that can be offered in a cafeteria plan

Qualified benefits (can be offered on a pre-tax basis) 1. Employer-provided accident or health coverage - this includes medical, dental, vision, disability, AD&D, business travel and accident plans, hospital indemnity, cancer policies, Medicare supplements, and reimbursements for FSAs 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 an HSA Permissible benefits (these can be offered, but are taxable) 1. Cash 2. Paid vacation days 3. Group term life insurance in excess of $50,000

Loss ratio standards for Medicare Supplement products

Rate filings must show that the following loss ratios meet the standard, which is the greater of the original expected loss ratio that the company filed and the statutory minimum 1. The lifetime loss ratio 2. The future loss ratio 3. The expected third-year loss ratio

Factors that determine leverage when negotiating rebates from drug manufacturers

Rebates are payments from manufacturers in exchange for preferred status of their drugs on a formulary 1. Number of lives represented - successful contracting requires at least 500,000 lives over which the plan can exert formulary control 2. Control of market share - ability to move market share to preferred products 3. Consistency of behavior - the predictability of the plan's response to a manufacturer's actions

Common functions for administering employee benefits

(all plan sponsors must perform these core activities, and the benefits director must be proficient at these) 1. Benefits plan design - create a benefit program that addresses the needs of the organization and can be effectively administered and communicated 2. Benefits plan delivery - involves serving plan participants through various activities. Must meet legal standards for quality service (e.g., complying with ERISA and COBRA standards). 3. Benefits policy formulation - management must make decisions on questions and issues that arise. These decisions must be codified into policies. 4. Communications - must effectively communicate benefit programs and plan provisions, which is challenging due to workforce diversity, regulatory requirements, and plan complexity. Legal standards require certain communications (e.g., summary plan descriptions, benefit statements, and statement of COBRA rights). 5. Applying technology - involves setting up a database containing information on all of the employer's different benefit plans. This information should be secure and easily accessible to the employer and its employees. 6. Cost management and resource controls - benefits directors must evaluate proposals from insurers and develop the firm's risk management approach 7. Management reporting - information systems are needed to monitor financial results, utilization, and compliance. Reports are needed in order to: a) Compare to the competition b) Measure achievement of human resources objectives (through industry surveys, employee surveys, and focus groups) c) Assess and manage program risks 8. Legal and regulatory compliance - must comply with fiduciary, funding, and other requirements as prescribed by law. Many standards were codified as part of ERISA. 9. Monitoring the external environment - involves monitoring various factors that impact benefit management activities

Uses of credibility for group long-term disability (LTD) insurance

) 1. Valuation of claims a) The 2012 Group LTD valuation standard requires insurers to use credibility to reflect company-specific claim termination experience in their valuation assumptions b) The formula for determining the full credibility standard (f) is: i) 0.05 = 1.44 * (selected variance factor / f)^0.5 Therefore, f = selected variance factor * (1.44 / 0.05)^2 ii) f = number of claim terminations required for full credibility iii) The selected variance factor varies by claim duration: 4.0 for 2-24 months, 3.0 for 25-60 months, 2.5 for 61-120 months, and 2.0 for greater than 120 months. This factor ensures that fewer terminations are required to be considered fully credible in later claim durations, since terminations in later durations are less volatile. c) For insurers with fewer terminations than f, the credibility factor (C) = (number of expected terminations / f)^0.5 2. Experience rating - the most common formula is: Premium rate = C * experience rate + (1-C) * manual rate 3. Manual ratemaking - for estimating credibility factors for manual rate development, approaches include: a) Subjective educated judgments, such as deeming experience to be credible if results are stable across multiple time periods i) Advantage: simplicity and flexibility ii) Disadvantage: it may be difficult to justify subjective decisions on credibility b) Formal procedures, such as limited fluctuation credibility concepts i) The minimum number of claims required for full credibility = λ = (1.96^2 / 0.05^2) * (1 + (σ / μ)^2), where μ and σ are the mean and standard deviation of the claim amounts ii) For insurers with fewer claims than λ, C = (number of expected claims / λ)^0.5 iii) Advantage: objective and theoretically justifiable iv) Disadvantages: may be difficult to implement and may not be applicable depending on the experience and the underlying credibility model

The elements of a data collection request to an employer in order to advise on Health & Welfare benefits

1. A Summary Plan Description which includes employee eligibility and plan design details for the various benefits available to employees 2. Documents detailing the costs for each benefit, splitting out the employer and employee portions 3. Contacts for medical, dental, vision, life, and disability providers to request detailed claims and enrollment data for the various programs 4. A census file, including demographic data (age, gender, salary, years of service, etc.) as well as plan election information (medical, dental, vision plan elections and coverage tier)

Qualifying events under COBRA that mandate continuing coverage

1. A death of a covered employee 2. A termination or reduction in hours for a covered employee 3. A divorce or legal separation of a covered employee from his or her spouse 4. A dependent child ceasing to be dependent under the terms of the plan 5. In respect to a retired employee only, a reorganization or bankruptcy by the employer

The basic functions of SLI transactions

1. A potential insured solicits advice from a financial adviser 2. The financial adviser solicits bids from possible insurers 3. The winning bidder issues a policy 4. The insured pays premium 5. The insurer pays eligible claims that are submitted by the insured 6. The insurer may share the risk with a reinsurer, a transaction that is not visible to the insured

Domains of quality from the Agency for Healthcare Research and Quality

1. Access to care - whether a patient can readily obtain needed services. Performance measures include the number and geographic distribution of providers. 2. Structure of care - whether care is provided by appropriate providers who use up-to-date technology. Measures include assessment of referral policies and use of electronic health records. 3. Process of care - whether services have been provided to appropriate member subpopulations. One measure is hospital readmission rates. 4. Outcome of care - whether treatment has been effective. Measures include what percentage of patients with diabetes meet blood sugar targets. 5. Experience of care - whether patients are satisfied with the care they have received. Is generally measured by surveys.

Classification of expenses and common units of measures

1. Acquisition related: # of policies issued, # of policy applications, sales commission, certificates issued, face/benefit amount, payment amount, and issue premium 2. Administration related: # of in force policies, certificates in force, service commission, premium income, # of billings, # of terminations, # of riders, deposit, face/benefit amount, and fund value 3. Benefit related: # of claims, face/benefit amount, # of terminations, claims paid, policy liability, fund value 4. Investment/Asset related: basis points (bps) of purchase price, market value, acquired value, disposal value, # of policy loans, amount of policy loans, mortgage payment, and bond interest 5. Taxes other than income tax: expressed as a percentage of premiums 6. Corporate and overhead expenses: # of in force policies, certificates in force, premium income, fund value, surplus, required capital, employees, percentage of non-overhead expenses

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)

Roles of the payment reform system

1. Actuary - quantify risks and prepare financial models 2. Chief financial officer - set a budget and allocate resources to keep the health system within the budget 3. Clinicians - provide high-quality care in order to achieve customer satisfaction and good outcomes 4. Coding specialists, data analysts, and information technology specialists - make sure other team members are receiving timely and accurate information 5. Policymakers - address systematic issues such as shortages of primary care physicians

Techniques an underwriter can use to manage selection in a multiple-choice environment

1. Add a loading to the premium to pay for the additional cost of selection 2. Employee contributions or plan design limits - place reasonable limits on the cost and benefit differentials among plans. For example: a) Limit the spread in monthly employee contributions b) Limit the spread in benefits c) Mix favorable and unfavorable cost sharing or benefit provisions among options to avoid one always being the best plan for high risks d) Avoid covering benefits with selection potential (e.g., infertility) in only one option 3. Allowing one insurer to offer all of the options - this allows that insurer to offset the antiselection from one option with the favorable selection in another option 4. Participation requirements when multiple insurers offer plans - for example, requiring all insurers to use the same eligibility rules, imposing minimum participation requirements on each option, or redistributing income among insurers through risk adjustment

Desired characteristics of premium rates

1. Adequate - high enough to generate an acceptable return on equity 2. Competitive - low enough to enroll enough members to meet volume and growth targets 3. Equitable - to avoid an unreasonable amount of cross-subsidization among groups (which will improve persistency)

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 4. Coinsurance (rarely offered) - the insurer covers a specific percentage of actual or reasonable charges, and does not include a maximum indemnity limit

Adjustments to the basic credibility formula for group medical insurance

1. Adjustment for employee turnover. Let p be the probability that an individual will stay in the group. z = [pk_1 + (n-p)k_2] / [1 + (n-1)k_3] 2. Adjustment for variance of members' expected claims a) Calculate an adjusted group size n' = n * (μ^2) / (μ^2 + σ^2), where μ and σ^2 are the mean and variance of the group's age-sex factors b) Then calculate credibility by replacing n with n' in the credibility formula 3. Adjustment for specific stop loss a) Because of very high deductibles, k_2 < k_3 b) Let s = k_2 / k_3. Therefore, k_2 in the credibility formula can be replaced with s * k_3. c) s can be estimated as 100% - 10% * (attachment point / 50,000) 4. Formula for fractional years of experience, where f is the fraction of the year of experience and z_1 equals z from the basic credibility formula: z_f = fz_1 / [1 + (f-1)z_1] 5. Multiple years of experience - calculate a separate credibility percentage to apply to each year. The most recent year is year 1, the year before that is year 2, etc. a) For year 1, calculate z using the basic credibility formula b) For years 2 and beyond: z_t = (1 - Σz_r) * z_(t-1)

Major advantages of episode-based profiling

1. Administrative feasibility 2. Minimal administrative burden for data collection 3. Comparable performance against defined standards 4. The "episode" view can be considered more "patient-centered"

Common rating characteristics included in manual rates for group health insurance

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

Major rating variables for health insurance

1. Age - claim costs increased 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 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. Parent (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 10. Smoking status 11. Weight 12. Presence and nature of other coverage 13. Situation-specific factors - e.g., whether the policyholder converted from another plan

Small group insurance rating factors allowed by the ACA

1. Age - rating factors are set by regulation and were determined based on a range limitation of 3:1 for adults. A separate factor applies for children and does not vary by age. 2. Geographic area - each state has a defined set of allowable rating zones, which address differences in provider payments, managed care programs, and competition. 3. Tobacco use - premiums are allowed to use a tobacco use rating factor load of up to 50% 4. Benefit plan - rates may differ by the amounts attributable to plan design, but not amounts due to the expected health status of groups who select the benefit plan 5. Managed care and negotiated discounts - benefit plan factors may account for network arrangements and care management protocols 6. Family composition a) The federal composite premium methodology prescribes that the composite premium is calculated based on separate enrollee premiums for age 21 and older and for ages under 21 b) The premium for a given family composition equals the sum of the average enrollee premium amounts for each family member covered, but counting no more than three children under age 21

Structure of Medicare ACOs

1. An ACO is a network that is either physician-practice based or hospital based that shares responsibility for providing care to patients 2. The Medicare Shared Savings Program has two models of gainsharing: a) One-sided - the ACO and CMS share 50/50 in any gains b) Two-sided - the ACO shares more of the gains, but is at risk for any losses 3. The ACO must meet certain requirements to be allowed to share savings with CMS: a) The ACO must meet certain quality standards in the following domains: patient/caregiver experience, care coordination/patient safety, preventive health, and at-risk population b) Savings must surpass a hurdle rate, which ranges between 2% for the largest ACOs and 4% for smaller ACOs 4. The ACO must manage all of the medical health care needs of at least 5,000 Medicare beneficiaries for at least three years 5. Patients do not enroll in the ACO. They are "attributed" to an ACO because they have received the plurality of their primary care from an ACO provider. a) The patient is assigned to a PCP who is accountable for providing quality care, reducing utilization, and convincing the patient not to seek care outside the ACO provider network

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.

Key learnings from disease management programs that ACOs should apply to be successful

1. Any DM program, to be successful, needs to employ high quality data analytics, as close to real-time as possible 2. Medical records need to have the analytical sophistication and workflow capabilities to support the program. ACOs emphasize electronic medical or health records, but many of these are simply a repository of data and are not universally used by providers. 3. Systems need to be aggregated before they can usefully support the ACO 4. The importance of economics a) Changing patient behavior in a way that produces a measurable financial outcome is a long and difficult undertaking b) Programs need to be focused on the patients who represent the greatest opportunity for cost reduction 5. The importance of planning and understanding the opportunity - economically successful programs must be focused. For example, they must identify what patients and what conditions will be managed.

Customer centric benefits of blockchain adoption in health insurance

1. Better availability of health records a) A common platform for patient data storage promotes interoperability b) The data repository can enable secure and reliable sharing of patient health information 2. Patient data security a) Blockchain is secured using cryptography and is an append-only system b) Patient data is stored immutably after validation, which minimizes fraud risk c) Using the private key, patients can share their data with chosen firms 3. Increasing process efficiencies with smart contracts systems in a rules-based environment 4. Removing third party dependencies

Types of group purchasing arrangements

1. Association health plans - health coverage is sold to employer members of an association, such as a professional or trade association 2. Multiple employer welfare arrangements - established by two or more employers or self-employed individuals in order to offer health coverage 3. Professional employer organizations - these provide various employer functions, in some cases taking on the administrative role of acquiring and obtaining health insurance for a group of employers 4. Group captives - multiple employers form an insurance company to underwrite their insurance, rather than buy insurance from a separate insurer

Special types of large groups

1. Association programs: a) Association of individuals - such as members of a medical society, who formed together to further a common interest b) Multiple-employer trust - covers the employees of two or more employers in the same industry 2. Taft-Hartley groups - state laws differ with respect to eligibility rules, types of coverage permitted, and minimum size requirements 3. Purchasing alliances - formed when two or more non-affiliated large groups come together to solicit insurance (in order to enhance their purchasing power). A more recent version of a purchasing alliance is a coalition of very large employers who contract directly with providers.

Types of age rating structures

1. Attained age rating - a policyholder's rate is a function of his or her 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.

The ADLs allowed by HIPAA, and typical definitions

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 associated personal hygiene, including caring for 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

Challenges for small companies offering group medical plans

1. Because small companies are most often fully insured, they are subject to state-mandated benefits 2. Because employees are usually in a relatively small geographic area, plans must be designed using options available in that area 3. Small companies may have to provide additional documentation so that insurers can verify the existence of the company 4. Most states do not allow companies to join forces to form larger purchasing pools in order to get group discounts

Reasons for using the functional approach for 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 employees 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

Methods for calculating gross premiums

1. Block rating (short time 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 + E^N) + E^F] / (1 - E^G) a) N = net premium (claim cost) b) E^N = percent of claim expenses c) E^F = fixed expenses d) E^G = 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

Using the buildup and density function approach for pricing

1. Buildup approach - each claim type (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.

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

Ways in which bundled payments have been used

1. By providers to attract more business, including from self-pay patients and medical tourism 2. By providers to engage physicians (especially surgeons) 3. By providers to gain the cooperation of physicians to reduce hospital cost 4. By payers to reduce payments 5. By payers to encourage patients to use lower-cost or higher-quality providers

Formulas for the ACO's initial and adjusted benchmark costs for Performance Year 1 (PY1)

1. C_0 = (0.1)C_B1(1+t_B1)(1+t_B2)(R_B3/R_B1) + (0.3)C_B2(1+t_B2)(R_B3/R_B2) + (0.6)C_B3 a) Bt = Benchmark Year t (B3 is the last benchmark year prior to PY1) b) C_Bi = Cost PMPY in benchmark year i; i = 1, 2, 3 c) C_0 = Cost PMPY in initial year d) Trend Factors: (1+t_i); i = B1, B2 are national increases in PMPY costs from year i to i+1 in the two years prior to B3 e) Average risk scores: R_i is the average risk score applicable in year i for Performance Year i, including benchmark year Risk Score, R_B3 2. Updated (adjusted) benchmark. The Benchmark year cost PMPY (C_0) is updated to the first performance year claim cost, C'_PY1, in two ways: a) With the change in risk profile of the population: C'_PY1 = (C_0)*(R_PY1/R_B3) b) By adding the absolute increase in National Parts A and B PMPY. This increase is not risk- or trend-adjusted. c) The risk ratio (R_PY1/R_B3) is calculated in accordance with section 22.5 (adjusts the risk ratios correctly according to how the risk score changes, demographic risk score changes, and mix of the population like including newly attributed members)

Steps to construct a physician summary cost profile

1. Calculate the average cost of each episode type assigned to physicians in each specialty 2. Adjust the cost using the patient-specific risk score producing the expected cost 3. A physician's cost profile = sum of (observed costs / expected costs) for all assigned episodes

Adjustments needed for using past claims to project future experience

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 claims_t = Claim cost PMPM_s * Number of members_t * (1+leveraged claim cost trend)^(t-s) * Avg durational factor_t / Avg durational factor_s * (1+Antiselection factor due to lapses_t-s) * (1+Adjustment factor for other changes_t-s)

Situations where employees may be offered multiple choices

1. Choice between medical coverage and no coverage - this creates antiselection because employees who waive employer coverage often have lower average health costs than those who don't 2. Choice between the employer's plan and other available coverage, such as a spouse's employer's plan 3. Choice based on member cost sharing - options may differ by deductible, coinsurance, etc. 4. Choice based on provider networks or medical management - the level of provider choice, the degree of medical management, and the presence of specific providers may drive employee selection decisions 5. Choice based on prescription drug formularies - such as differences in coverage and cost sharing for drugs that treat chronic conditions 6. Choice among insurers - two or more insurers may offer health plan options to the same employee 7. Optional riders added to core coverage - the insurer may allow employees to buy coverage riders such as vision, disability, and dental 8. Choice between consumer-directed plans and traditional plans

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. Generally expressed as a percentage of premium. 4. Premium taxes 5. Other taxes and assessments - includes federal and state income taxes and new assessments due to the ACA 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

Considerations in setting LTC claim cost assumptions

1. Claim costs will vary by nursing home, assisting living facility, and home health care 2. Substitution effect among the various benefits 3. Increased demand for LTC services due to the presence of insurance 4. Availability of benefits from other programs (such as Medicare) 5. Availability of LTC services in the geographical area 6. The effect of underwriting selection and underwriting classes 7. The financial benefits to the claimants of remaining eligible for benefits (not getting well) 8. The effect of mortality on termination rates 9. The effect of marketing and claims processes

Actuaries advising plan sponsors should pay special attention to the following technical analyses

1. Claims projections 2. Budgeting 3. Risk allocation 4. Risk management 5. Plan design 6. Claims control features (networks or allowed claim charges)

Components of the TNHP pricing formula

1. Claims under the control of non-preferred providers: N% 2. Cost differential: P% = 1 - (Average preferred cost / Average non-preferred cost) 3. Member liability differential: M% = change in non-preferred providers' costs due to additional cost share 4. Shift = the assumed percentage of non-preferred users reacting to increased member liability by switching to preferred providers 5. TNHP savings formula = N% * [M% + Shift * (P% - M%)] 6. Equilibrium at M% = P%

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

1. Classify employee and dependent needs or objectives into logical functional categories 2. Classify the categories of persons the employer may want or need to protect 3. Analyze current benefits with respect to employee needs and the 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

Types of health care facilities

1. Community-based single acute care hospitals 2. Multihospital systems (MHSs) - consolidation has led to most hospitals being part of an MHS, which gives them negotiating leverage 3. For-profit national hospital companies - because these hospitals are owned by national companies, they have much less local autonomy 4. Specialized hospitals - these provide care to only a certain type of patient (e.g., children's hospitals and psychiatric hospitals) 5. Physician-owned single-specialty hospitals - these restrict themselves to elective procedures within a single specialty, so they are not equipped to handle emergencies and severe conditions 6. Accountable care organizations - these coordinate care for designated Medicare FFS beneficiaries and participate in a shared savings program 7. Government hospitals - may be county-run, state-run, or federal 8. Subacute care (skilled or intermediate nursing facilities) - these are well suited for prolonged convalescence or recovery cases. The cost for a bed day is much less than in an acute-care hospital. 9. Ambulatory surgical centers (ASCs) and procedure centers - are typically equipped to handle only routine cases 10. Hospice - a broad term referring to health care services provided at the end of life, which may be at an inpatient facility, ambulatory facility, or no facility 11. Retail health clinics - small clinics usually associated with a retail store (such as Target or Walgreens). Provide basic primary care services, such as immunizations and preventive screenings. 12. Urgent care centers - a hybrid of a low-level emergency department and a PCP practice 13. Other types of ambulatory facilities - includes centers for birthing, community health, diagnostic imaging, occupational health, pain management, and women's health

Methods for comparing benefit programs to the competition

1. Compare the benefits payable to representative employees under different circumstances 2. Compare actual costs to the employer for different benefit plans 3. Calculate relative values of the different benefits based on uniform actuarial methods and assumptions 4. Compare benefit plans feature by feature to isolate specific provisions that may be appealing to certain employee groups

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 (e.g., phase in a large rate increase)

Models that are considered Advanced APMs, in the 2017 performance year

1. Comprehensive End Stage Renal Disease Care Model (Two-Sided Risk Arrangements) 2. Comprehensive Primary Care Plus (CPC+) 3. Shared Savings Program Track 2 4. Shared Savings Program Track 3 5. Next Generation ACO Model 6. Oncology Care Model (Two-Sided Risk Arrangement) 7. At a later time Shared Savings Program Track 1+ was added to this list

Functions (or components) of patient-centered medical homes

1. Comprehensive care - provided through several different care providers 2. Patient-centered - a relationship-based process to educate patients and allow them to define the levels of care with which they are comfortable 3. Coordinated care - incorporating the entire health care system in order to facilitate communication about the patient and discuss best practices among different provider groups 4. Accessible services - providing multiple channels for the patient to be able to reach out and gather information or receive care 5. Quality and safety - implementing quality improvement measures while taking into account the patient's progress, concerns, and overall well-being

Benefits that cannot be offered in a cafeteria plan

1. Contributions to medical savings accounts 2. Qualified scholarships and education assistance programs 3. Certain fringe benefits 4. Qualified LTC insurance (although an HSA fund can be used to pay for LTC) 5. Athletic facilities 6. De minimis benefits 7. Dependent life insurance 8. Employee discounts 9. Lodging on the business premises 10. Meals 11. Moving expense reimbursements 12. No-additional-cost services 13. Parking and mass transit reimbursement 14. Contributions to a college savings account 15. Legal or financial assistance 16. 403(b) plans

Factors that could make HDHPs more effective

1. Cost transparency: price shopping in this market is still difficult a) Prices can be different based on network discounts b) Many providers don't even know the costs of their own procedures c) Claim costs may differ because of factors that are not known before a procedure 2. Discussions between providers and patients particularly in: a) Value based care arrangements b) "Reference based" plans 3. Pre funding of HSAs at the beginning of the calendar year 4. Allowing more first dollar coverage to curb the fear of members forgoing necessary care 5. Lengthened consumerism: allow more design flexibility, allow a longer coinsurance period (lower deductible paired with a higher out-of-pocket max)

ACA mechanisms for controlling antiselection

1. Coverage mandates and premium subsidies to encourage participation a) Premium subsidies - available to lower income individuals to make coverage more affordable b) Employer mandate - requires employers with 51 or more employees to offer affordable insurance coverage that meets a minimum coverage level, or pay a penalty c) Individual mandate - requires all individuals to obtain insurance that provides minimum essential coverage, or pay a penalty that is the greater of: i) A flat per-person fee of $95 in 2014, $325 in 2015, $695 in 2016, and increasing with inflation thereafter. The household fee is limited to three times those amounts, and each child counts at 50% of those amounts. ii) A percentage of all income over the tax filing threshold. The percentage is 1% in 2014, 2% in 2015, and 2.5% in 2016 and thereafter. The total penalty for a household cannot exceed the national average premium for a bronze qualified health plan 2. Aligning market rules on and off the exchanges - the subsidies offered in the exchanges will attract a different health risk to the exchanges. To mitigate this selection impact, regulations impose certain requirements 3. Open enrollment periods - to limit the opportunity for antiselection by only allowing members to enroll or change coverage during a set time period (except when there is a qualifying life event). The ACA established a single open enrollment period in the individual market each year. 4. Minimum benefit levels - individual and small group policies must cover all essential health benefits and provide at least a bronze actuarial value (except for catastrophic plans for certain individuals). There is also a cap on out of pocket spending and there must be no cost sharing for preventive services. 5. Premium stabilization programs (the three R's) - the reinsurance, risk corridor, and risk adjustment programs are perhaps the most direct tools used by the ACA to confront antiselection

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 was considered to vary inversely with the square root of the number of claims or lives. So it will take 4 times the exposure base to double the credibility. 5. For coverages with stochastically independent claims, longer experience periods can be used to increase exposure and therefore credibility

Criteria to be considered an Advanced APM

1. Criterion 1: Requires use of certified Electronic Health Record (EHR) technology a) At least 50% of the clinicians use certified EHRs to document and communicate clinical care b) Each ACO participant, tax ID, submits data on the advancing care information performance category 2. Criterion 2: Requires Merit-based Incentive Payment System (MIPS) comparable quality measures a) Ties payment to quality measures that are evidence-based, reliable, and valid b) At least one measure must be an outcome measure if an appropriate measure is available 3. Criterion 3: Bear a more than nominal amount of financial risk a) Either it is a Medical Home Model expanded under CMS Innovation Center authority, or it requires participants to bear a more than nominal amount of financial risk

Considerations for determining the employer's optimal defined-contribution amount for a private exchange

1. Current funding approach - what is the employer's current philosophy around subsidies and how does it compare to a defined-contribution approach? 2. Variations by coverage tier - does the employer want to subsidize dependents at a different level than the employee? 3. Member impact - how does this impact the member payroll contributions and what sort of dissatisfaction could arise? 4. Financial goals - does this change meet the employer's financial goals? 5. Competitive pressures - how does the subsidy compare to the benefits provided by other organizations that compete for similar talent?

Description of the unintended incentive in ACO payment models

1. Current rules suggest the CMS will calculate benchmarks for a new three-year period in the same way original benchmarks were calculated. For example, a 60% weight will be applied to the most recent year. 2. This creates an incentive to increase spending in that year in order to increase the benchmark 3. Conversely, this removes the incentive to create savings in that year, penalizing ACOs that do so by giving them a lower benchmark 4. As a result of the unintended incentive, the current payment model may result in higher rather than lower Medicare FFS spending

Elements of a DRG contract

1. DRG/case rate schedule - shows the case rate for each DRG for an initial length of stay and the per diem for days beyond that level 2. Maximum days - the number of days for which the case rate applies. Cases that exceed that length of stay are then paid a per diem rate for each additional day. 3. Carve-outs for specialty drugs and implant devices - additional payments may be made for these items 4. Stop loss - a contract may also have a stop loss to be applied on a case level 5. Transplants - payment for transplants is usually negotiated separately 6. Readmissions - the contract must state whether payment will be made for readmissions

Actuarial standards for the use of data

1. Data that is completely accurate, appropriate, and comprehensive is frequently not available, so the actuary should use available data that allows the actuary to perform the analysis 2. Considerations in selecting data 3. Review of data - the actuary should review the data for reasonableness, unless such a review is not necessary or practical 4. The actuary should use appropriate data 5. Reliance on data and other information supplied by others - the accuracy of this information is the responsibility of those who supply it. The actuary may rely on this information, but should disclose this reliance. 6. Confidentiality - the actuary should handle data containing confidential information consistent with Precept 9 of the Code of Professional Conduct 7. Limitation of the actuary's responsibility - the actuary is not required to audit the data or determine whether data supplied by others is intentionally misleading

The most common retrospective experience rating arrangements

1. Deficit recovery arrangement - deficit is recovered through a premium increase 2. Unilateral arrangement - the policyholder gets the surpluses, and deficits are assumed by the insurer 3. Bilateral arrangement - the plan sponsor assumes full risk, paying deficits and keeping surpluses

Definitions, steps, and uses of health risk adjustment

1. Definition - the process of adjusting measures of healthcare utilization and cost to reflect the health status of members 2. The first step is risk assessment - the method used to assess the relative risk of each person in a group (may be referred to as a risk adjuster). Consists of: a) Risk classification - to group individuals into classes based on risk characteristics b) Risk measurement - to determine the level of risk for the classes 3. The second step is payment adjustment - the method used to adjust payments to reflect differences in risk 4. Risk adjustment methods are used for provider profiling, case management, provider payment, and rating and underwriting 5. Risk adjustment is being used to adjust payments to Medicare and Medicaid plans. And the ACA includes a risk adjustment provision that will apply to most individual and small group plans.

Additional advantages of health spending accounts

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

Constraints of the TNHP shift estimation

1. Demand curve constraint: Shift will increase as the member liability differential increases 2. Maximum shift constraint: At most, all non-preferred users can shift to preferred providers 3. Limited network pricing constraint: Most TNHPs should never be priced less than a plan requiring members to access only preferred providers

Elements of a typical physician credentialing application

1. Demographics, licenses, and other identifiers (such as national provider identifier) 2. Education, training, and specialties 3. Practice details - such as services provided and office hours 4. Billing and remittance information 5. Hospital admitting privileges 6. Professional liability insurance 7. Work history and references 8. Disclosure questions - such as suspension from government programs or felony convictions 9. Images of supporting documents - such as a state license certificate

Steps to understand how benefit designs impact the company financials after merging two employer groups

1. Determine "total cost rates", which represent the average expected cost PEPM paid by the plan (claims and administrative expenses) a) These rates are also often referred to as premium equivalent rates b) The rates will vary by coverage tier (Employee Only, Employee + Spouse, etc.) 2. Determine the enrollment distribution. Use current enrollment by plan and coverage tier and make "migration" assumptions about which plans employees will choose once the merger is complete. 3. Determine employee contributions (can vary by salary and coverage tier) 4. The "company subsidy" is the difference between the total cost rates and the employee contribution 5. The total company cost is determined by cross-multiplying the company subsidy with the enrollment for each group of employees for whom the subsidy varies.

Steps for developing premium rates in a multiple-choice environment

1. Determine the actuarial value of each benefit option as if it were sold on an independent basis 2. Estimate the enrollment mix by plan option 3. Estimate the relative health status factor for each option based on the expected enrollment mix 4. Calculate the preliminary selection adjusted rates from step 1 multiplied by the relative health status factors in step 3. 5. Calculate the average selection load as the ratio of the average of the step 4 selection adjusted rates and the average of the step 1 actuarial rates 6. Calculate the blended selection adjusted rates by multiplying the step 1 actuarial rates by the average selection loading from step 5

Services actuaries can provide to quantify the potential risk and trade-offs between stop-loss carriers

1. Evaluating adequate aggregate and specific limits under the policy 2. Evaluating the potential trade-off in policy terms, conditions and limitations 3. Evaluating the accuracy and appropriateness of policy premiums

The basic steps and considerations for completing an expense study

1. Determine the scope of the study 2. Collect expense data 3. Check the consistency of the expense data with internal and external reports 4. Determine which expenses will be excluded from the determination of the best estimate assumption for expenses 5. Determine the expense categories to be used 6. Determine the unit exposure bases to be used 7. Classify expenses to the expense categories 8. Allocate expenses to the expense categories 9. Determine unit expenses 10. Perform reasonability checks

Areas of opportunities and challenges for actuaries working in the self-insured market as a result of the ACA

1. Determining the ACA Minimum Value (MV) for self-insured plans 2. Enrollment and expense projections 3. Minimum essential coverage (MEC) plan cost estimates 4. Setting affordable employee contributions 5. Balancing benefits and employer budget 6. Defined contribution plans

Steps for a retrospective experience rating premium rate increase calculation

1. Develop a premium adj. factor to trend experience period premiums forward to current premium level 2. Trend forward claims in experience period(s) to the rating period 3. Loss ratio experienced at current premium levels = Trended claims / adjusted premiums to current level 4. Credibility weight the loss ratios from multiple experience periods if applicable 5. Renewal rate increase = credibility weighted loss ratio / target loss ratio - 1 6. Rating period premium = current premium * (1 + renewal increase) + applicable deficit recovery charge + pooling premium chargej

Steps in prospective experience rating

1. Develop past claim experience - should be incurred claims for an experience year (restated) 2. Use pooling methods 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 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. Plan choice considerations - when employees can choose between an HMO, PPO, and/or indemnity, there is often antiselection against the indemnity plan 7. Small group considerations a) Prior to the ACA, insurers recognized small group experience through formula-based and re-underwriting methods b) All small groups with fully insured medical coverage are now subject to the community rating restrictions of the ACA

Steps in the rate formula for managed health care

1. Develop the projection period base rate PMPM - based on historical medical costs trended forward, and reflects the average characteristics of the block of business 2. Apply group-specific additive adjustments - such as the added cost of covering mandated services in a given state 3. Apply group-specific multiplicative adjustments - includes factors for the benefit plan, geographical area, age/gender, degree of health care management, and health status 4. Add retention loads - includes administrative expenses, a buildup of contingency reserves, coordination of benefits savings, and profit 5. Convert to a contract rate (per employee or subscriber) - for group coverage, this includes developing tiered rates (employee only, family, etc.)

Types of ancillary services

1. Diagnostic a) Laboratory b) Imaging (such as x-rays and MRIs) c) Electrocardiography d) Cardiac testing 2. Therapeutic a) Cardiac rehabilitation b) Noncardiac rehabilitation c) Physical therapy d) Occupational therapy e) Speech therapy f) Other long-term therapeutic services 3. Pharmacy 4. Ambulance and medical transportation services

How episode-based profiling is likely to improve and become more standardized over time

1. Electronically submitted claims will increase accuracy 2. Fully documented claims have more reliable episode profiles 3. Comorbidities and other risk-adjustment factors will be credited more accurately 4. Organized and supported practice infrastructure will distinguish performance characteristics 5. Catalyze the medical profession to develop administrable evidence-based performance measures

Basic data elements needed to analyze stop-loss risk

1. Eligibility and enrollment information, including the location of the self-insured plan and members 2. Underlying health benefit plan design 3. Current rates, proposed renewal rates, and name of the incumbent 4. Past stop-loss experience, including both premiums and claims 5. Claimants with high claims costs, typically any member exceeding one-half the specific deductible 6. Claimants with diagnoses and/or prognoses that indicate a high likelihood of a large claim

Common elements of private exchanges

1. Employee choice - private exchanges often offer more plan design options than traditional employer-sponsored plans 2. Employer subsidies - the employer typically makes a defined contribution 3. Ancillary product offerings - products such as dental and vision are often offered alongside medical and pharmacy benefits 4. Online enrollment and decision-making tools - these tools allow members to evaluate their health care needs, understand their employer's subsidy, and elect benefits that meet their needs 5. Benefits administration - most private exchanges offer end-to-end benefits administration, including enrollment, eligibility, customer service, and billing

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

Technological tools used by benefits directors to support customer-driven processes

1. Executive information systems - provide management information in summary format. Helps identify utilization patterns and cost factors. 2. Imaging and optical storage - eliminates paper records and allows sharing of documents over a network 3. Access to information over the internet - facilitates paper-less communication from the plan sponsor to insurance carriers, investment custodians, and third-party administrators 4. Client-server technology - integrates networked applications with desktop and mobile tools, allowing decentralized management and supporting self-sufficient plan participants 5. Employee self-service - allows customer-driven benefits modeling, retirement planning, and updating of personal data

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

Categories of regulatory guidance that have been proposed to change HSAs

1. Expansion of plans that can be paired with HSAs 2. Expansion of contributions made to HSAs 3. Expansion of major medical use of HSA funds to a broader variety of expenses 4. Expansion of non-major medical use of HSA funds

Loadings on the net premium (retention)

1. Expense loadings - usually the largest part of retention 2. ACA fees - such as the insurer fee 3. Deficit recovery charge (may make rates uncompetitive) - charged to a specific policyholder to recover that policyholder's past losses 4. Termination risk charge - charged to all policyholders to finance (in advance) the risk of groups leaving while in a deficit position 5. Pooling charges - usually covered in net premium 6. Profit charge or contribution to free reserves - may be built into other assumptions 7. Investment income - may be credited (net of investment management costs and taxes) 8. Explicit margin - reduces insurer's risk 9. Charge to cover risk of rate guarantees. When rate guarantees exist, consider the risk arising from misestimation risk and trend risk.

Key areas of review to avoid potential gaps in coverage between SLI and the underlying plan benefits

1. Experimental and investigational definitions 2. Clinical trial definitions 3. Coverage of claims outside the U.S. 4. Usual, reasonable, and customary definitions 5. Medicare eligibility for end-stage renal disease claimants or covered retirees 6. Coordination of benefits and subrogation provisions 7. Coverage of other administrative fees such as legal fees or network access fees 8. Cost containment vendor fees 9. State surcharges and assessments

Disadvantages of self-insurance

1. Exposure to several different financial risks: a) Costs not fully predictable b) Actual claims may deviate from expected c) Plan sponsors must be prepared for the monthly volatility of claims 2. Exposure to other risks such as fiduciary, legal and reputational risks 3. Plan sponsors are exposed to the administrator's operational risk 4. Fully insured arrangements are easier for employers to understand and budget 5. Smaller or more risk-averse self-insured employers will likely purchase Stop-Loss Insurance (SLI)

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. When given the opportunity, healthy individuals will be more likely to decrease coverage while unhealthy individuals will tend to increase coverage. A common example of internal antiselection is premium leakage. 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 because they are: a) Less likely to be able to find coverage elsewhere (although this is no longer true in markets affected by the ACA) b) Less likely to be willing to become uninsured c) Emotionally less willing to change their insurance coverage

Types of provider payment models

1. FFS - providers are paid for each service they perform, either through a fee schedule or as a percent of charges 2. Global capitation - providers are paid a fixed rate for each member they agree to service. The payment is based on the average costs of the population, rather than the services provided. 3. Shared savings - providers typically get reimbursed using FFS, but they also receive a percentage of the savings they create by reducing utilization below a benchmark. Usually, providers only receive the bonus if they meet certain quality targets. 4. Diagnosis-related groups (DRGs) and case rates - the hospital is paid a single price, or case rate, for an admission rather than a price per day or for each service provided during the stay. There is often an outlier adjustment where the provider gets paid an outlier per diem rate if the admission exceeds a certain number of days. 5. Bundled payments - a single payment is made for an episode of care, which usually starts with a specific DRG or a surgery and extends for a specific future period (typically 30, 60, or 90 days) 6. Reference pricing - a benefit limit (i.e., the reference price) is established for a specific medical procedure or device. The patient must pay the difference between the allowed charge and the reference price. 7. Provider excess loss reinsurance - protects the provider from high-cost outliers. It is generally paired with one of the previous payment models. 8. Pay-for-performance (P4P) - any payment arrangement can include a P4P aspect by including incentives for higher quality of care or disincentives for lower quality. This adds performance risk.

Types of payments included in APPs

1. Fees for clinical services 2. Capitation 3. Time-based payments, such as hourly pay 4. Rewards for participation in specific clinical initiatives 5. Bonuses for achieving specific quality targets 6. Remuneration for administrative duties and costs 7. Financial contributions for medical information technology 8. Additional payment types for academic physicians: a) Compensation for teaching b) Research funding c) Stipends for administrative duties d) Partial compensation or subsidies for staff, facilities, and equipment

Common purposes for trend analysis

1. Financial reporting - should meet the following criteria: a) Be done on a retrospective basis b) Be done at the enterprise level, as well as the division or market level c) For statutory reporting, include a provision for adverse deviation. But for GAAP reporting, be on a best-estimate basis 2. Pricing - for setting premiums or for planning and budgeting. Trend rates may be calculated on the following bases: a) Eligible charges (billed charges before provider contracts or discounts are applied) b) Covered charges (allowed charges) c) Net paid claims - shows the bottom line trend after accounting for changes in provider contracts, member cost sharing, and coordination of benefits 3. Experience analysis - for analyzing changes in a block of business over time

Plan-related risks transferred to the insurer with a fully insured contract

1. Financial risks, such as the risk that actual claims deviate unfavorably from expected claims 2. Operational risks, such as the risk that the admin operations of the plan fail or cost more than expected 3. Litigation risks, such as the risk that a plan participant sues the plan for failure to pay legitimate claims 4. Fiduciary risks, such as the risk that plan assets, including employee contributions, are squandered

Considerations for the plan sponsor's primary fiduciary when selecting an insurer for a full insured product

1. Financial strength 2. Cost 3. Claims payment timing and practices 4. Governance and internal controls 5. Compliance record and reputation 6. Expertise 7. Reporting ability 8. Appeals process 9. Complaints record 10. Provider network breadth

Benefit opportunities offered by cloud technology

1. Flexible computing resources to meet the dynamic resource and computing requirements 2. Optimize operating costs by converting fixed costs to variable costs and sourcing resources on demand 3. Makes infrastructure management easier as maintenance and upgrades will be managed by the service provider 4. Anytime, anywhere access to data from multiple sources, which enables smooth mobile-app functionality 5. Efficient regulatory compliance as cloud service providers develop expertise in HIPAA compliant storage 6. Ability to capture and store data from real-time data sources due to flexibility in scale

Major issues with pay-for-performance methods

1. Gaming the system by miscoding diagnoses or services 2. Unintended incentive to avoid the most severely ill patients 3. Unmeasured objectives could be ignored 4. Selecting patients on the basis of the likelihood of a positive outcome 5. Compliance with treatment protocols rather than need

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 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

External factors that impact benefit management activities

1. General business and competitive conditions - benefit programs are increasingly important for attracting and retaining employees. There is a trend toward benefits outsourcing. 2. Governmental policy - requires monitoring laws and subsequent regulations, as well as proposed legislation 3. Workforce demographic shifts - greater diversity has led to flexible benefit plan offerings. The aging of the workforce has created a greater interest in retirement programs. 4. New product development - must develop a means to evaluate new products and services, and to integrate them into existing plan offerings 5. New organizational structures - must redesign plans to fit the new structures and remain compliant 6. Technological enhancement and innovation - must keep abreast of technological changes and proactively plan the introduction of new technologies

Comparison of the core attributes of public and private exchanges (public exchange/private exchange) 1. Who sponsors 2. Who can enroll 3. Types of coverage available 4. Plan designs available 5. Who pays for coverage

1. Government/Employer 2. Individuals and small groups/Employees and retirees of sponsor 3. Medical and prescription drug/Medical, prescription drug, dental, vision, and other voluntary benefits 4. Plans with actuarial values of 90%, 80%, 70% and 60%/Exchange operator or employer defines the plan designs 5. Individuals and small employer groups. Individual subsidies and small business tax credits exist./Employers provide a subsidy and members pay the rest

Adjustments made to determine specific stop loss manual rates

1. Group risk characteristics - age, gender, area, industry, trend 2. Underlying benefits - particularly the out-of-pocket max 3. Contract provisions - contract basis, contract length, and benefit carve-outs 4. Claims cost controls - provider networks, reference-based pricing plans, etc. 5. Deductible leveraging - particularly on the group risk characteristics

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

Types of voluntary benefits

1. Group term life 2. Dependent life insurance 3. Supplemental life insurance 4. Accidental death and dismemberment insurance 5. Long-term and/or short-term disability income insurance 6. LTC coverage 7. Dental insurance 8. Vision benefits coverage 9. Critical care insurance 10. Cancer insurance 11. Hospital indemnity insurance 12. Automobile insurance 13. Homeowners insurance 14. Group homeowners and automobile insurance 15. Adoption assistance 16. Benefits under a legal services plans 17. Travel accident insurance 18. Student medical insurance

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)

Make up of an HDHP

1. HDHP has a specific meaning under the IRS code to be accompanied with an HSA 2. An eligible plan has cost share limits with minimum deductibles and caps on out-of-pocket max (OOPM) a) In 2019, self only coverage has a min. deductible of $1,350 and OOPM cap of $6,750 3. The plan must have limited first dollar coverage a) The deductible must be met before any other cost sharing can be applied, except for preventative care 4. For self only coverage, an embedded deductible is used while for family coverage the deductible is aggregate a) If the individual deductible is less than the minimum deductible for family coverage, then the family deductible is required to be administered on an aggregate deductible basis

Formulas to determine the effective tax rate after pricing in the HIF

1. HIF Expense = fixed dollar fee owed by the company 2. Additional Prem for HIF = HIF Expense / (1 - Corporate tax rate) 3. Operating Income = Premiums + Additional Prem for HIF - Claims - Expenses - HIF Expense 4. Effective tax rate = Corporate tax rate * (Premiums + Additional Prem for HIF - Claims - Expenses) / Operating Income

Health insurers' applications that can leverage RPA and AI

1. Health plan consulting - AI can help provide personalized health plan recommendations 2. Customer health management - more effective health management including targeted care interventions, early risk identification and mitigation, and automated adherence communications 3. Claims management - improve efficiency and accuracy in claims adjudication and closing pending claims 4. Streamlined policy application - automating the underwriting and enrollment process 5. Agent empowerment - AI can help human agents provide more personalized customer service

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) - normally administered separately from the flexible plan

Information gathered during underwriting for managed health care

1. Health status - determined based on: a) For individual and small group: physician exams, prescription drug histories, and medical questionnaires b) For large groups: medical cost experience and a listing of employees' major health conditions 2. Ability to pay the premium - based on income verification and credit history 3. Availability of other coverage - information is needed for coordination of benefits with other insurance and workers' compensation 4. Historical persistency - groups that frequently change carriers may not persist long enough for the insurer to recoup acquisition costs

Qualities an organization needs to succeed under payment reform

1. Highly integrated system 2. Effective care management initiatives 3. More efficient health system than the rest of the market 4. Select and restricted networks 5. Collaborative relationship between the provider organization and payers to reduce costs 6. Reasonable methods to establish capitation rates, episode payments, and other payments 7. Equitable methodology for allocating global capitation payments or quality incentives among the individual participating providers

Proposed strategies for improving incentives in ACO payment models

1. Modify the benchmark weights to give equal weight to each of the three years that are used for calculating the benchmark a) This would reduce the incentive to increase spending in the last year before a new contract b) Alternatively, even more than three historical years could be used when calculating benchmarks 2. Introduce a form of "yardstick competition" a) Base an ACO's benchmark not only on its own past performance, but also on the performance of other Medicare providers or on a local benchmark b) This would introduce competition into the payment model. The more an ACO lowered its spending relative to that of its competitors, the greater its cumulative rewards would be.

Key questions to ask when analyzing trends

1. How accurate were the original projected trend and PMPM estimates? 2. Which assumptions were driving any variation? 3. How can the process be modified to achieve greater accuracy? 4. What other factors, expected or unexpected, drove the trends?

Decisions that must be considered by a plan sponsor when choosing to self-insure

1. How benefits are administered 2. What benefits to offer 3. Which, if any, provider network to utilize 4. Which pharmacy benefit program to offer

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 (e.g., 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) c) Multiple allocation methods - a combination of the other two methods 2. How administrative expenses should be allocated to groups - should differentiate between first year and renewal expenses. Various allocation bases exist 3. What the competition includes as expenses in its pricing - adjustments may be needed to match what others are doing in the marketplace

Capabilities of a well-functioning contract management system

1. Identify network gaps or where provider recruiting is most needed 2. Track recruiting efforts, provide reminders, and generate recruiting reports 3. Generate new contract blanks and new contracts with information filled in 4. Store copies of different versions of any provider's contract 5. Track and report contract changes for each provider 6. Track and manage permissions and sign-offs on contracts 7. Store images of signed documents and convert imaged documents into machine-readable formats 8. Support an entirely paperless contracting process 9. Provide early notification or reminders for upcoming actions such as recredentialing or renegotiations 10. Direct electronic feed of required demographic information to other internal functions 11. Direct electronic feed of market-facing systems such as internet physician searches 12. Be searchable on multiple attributes 13. Analyze the potential impact of changes in contract terms

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 k_2, and recalibrate the model. 3. At all durations, when a rate spiral is severe and volatile. The projection formula may need stronger terms to fit this type of situation, such as: Shock lapse = [Rate increase - trend] / [(Rate increase - trend) + (1 + trend) / EF] EF = elasticity factor, which measures the ability and willingness of the population to change coverage after a rate increase (e.g., may be 1.3 for healthy lives and 0.8 for unhealthy lives)

Tools used in the underwriting process

1. Individual application - includes individual identifying information, financial information (if relevant to the coverage), medical history, 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 - 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 - a class of 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.

Contracting considerations for different types of physician groups

1. Individual physicians - advantage is the direct relationship with the physician. Disadvantage is the effort to maintain the relationship is large for just one physician. 2. Medical groups - advantage is the same contracting effort yields a higher number of physicians. Disadvantage is that if the relationship is terminated then there is greater disruption in patient care. 3. Independent practice associations (IPAs) a) Advantages: a large number of providers come along with the contract, the IPA may accept more financial risk, and some IPAs perform network management, credentialing, and medical management b) Disadvantages: the IPA can hold a considerable portion of the delivery system hostage to negotiations, and the plan's ability to select and deselect individual physicians is limited 4. Faculty practice plans (medical groups that are organized around teaching programs) a) Advantages: these programs provide highly specialized care and they add prestige to the plan by virtue of their reputation for quality care b) Disadvantages: tend to be less cost effective in their practice styles, and they are not set up for case management, so care is not well coordinated 5. Physicians in integrated delivery systems (IDSs) - there are two types: a) Hospital systems that affiliate with private physicians b) Hospital systems that employ physicians - these often have substantial negotiating leverage 6. Patient-centered medical homes - these coordinate all care for a group of patients 7. Specialty management companies - these focus on managing very specialized services using physicians (e.g., single-specialty case management of neonatal care)

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 (such as minimum participation percentages for associations)

Factors that influence an employee's choice of health plan in a multiple-choice environment

1. Inertia - employees often prefer to stay with a prior plan option 2. Plan provisions and costs - such as covered services and employee cost sharing amounts 3. Employee and dependent demographics - such as age, gender, health status, and family size 4. Employer actions and attitudes - such as employer contributions towards premiums and the attitude toward managed care 5. Eligibility for other health insurance coverage - such as through a spouse's plan 6. Information available about options - such as employee communications and advertising 7. Provider and provider network attributes - such as provider availability, reputation, quality, and medical management restrictions 8. Insurer and administration issues - such as claim administration and customer service

Common drivers of product ideas

1. Innovator or follower - some companies are successful at innovating, while others are successful at following and learning from competitors 2. Changing laws and regulations - new rules can lead to new products developed specifically to operate within the new set of rules 3. Consumer demand - companies must constantly seek consumer feedback and market intelligence 4. Marketing and sales - these teams can spot holes in the product spectrum where consumer demand is not being fully met 5. Leveraging insurer capabilities - product development teams must know what the insurer does well and find ways to grow in those areas 6. Social need - for example, Medicare Part D served the social need of helping seniors who were being overwhelmed by the cost of expensive medications 7. Changing demographics - leads to a shift in the types of products that will be marketable and saleable 8. Changing economy and financial markets - leads to changes in purchasers' views of their need for insurance 9. Competitive advantage - product development ideas should utilize the company's competitive advantages

Requirements that mitigate antiselection between exchange plans and off-exchange plans

1. Insurers must include all ACA-compliant policies in a single risk pool. So identical plans must have identical rates on and off the exchanges. 2. Risk adjustment will be applied to even out risk between insurers and between the on- and off-exchange portions of the risk pool 3. Insurers must pay the same commissions to brokers and agents on and off exchanges 4. The exchange fee (3.5% of premiums for each exchange policy) must be spread across the entire single risk pool, including off-exchange policies 5. Carriers participating in exchanges must offer at least one gold an done silver level plan on the exchange 6. Carriers are prohibited from marketing practices intended to discourage unhealthy individuals from signing up 7. Open enrollment periods are identical on and off the exchange

Considerations when offering a level funding product

1. Insurers would want better-risk small groups to choose ACA products since these groups are very profitable under community rating. But these groups will seek lower-cost alternatives, so they could go to competitors who offer level funding policies. 2. Insurers have not yet had much success with level funding products. But this should change once transitional policies go away, making level funding products the cheapest option for many groups. 3. Level funding products are not easy to price, sell, and administer: a) Insurers must have the skills to properly project the expected claim costs of individual small groups. They also must become familiar with stop-loss products. b) Insurers should retain legal expertise to understand the stop-loss regulations in their states and develop contracts appropriately c) Selling stop-loss policies often requires the filing of rates and forms with state departments of insurance 4. Level funding products should be designed and priced to closely resemble the fully insured products they are replacing 5. Most small groups are not familiar with self-funding or stop loss, so insurers will need to help them and their brokers understand these products

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.

The Lines of Business (LOB) included/excluded when determining the Health Insurer Fee (HIF)

1. LOBs included in determining the HIF a) Insured individual and group medical plans b) Insured dental, vision, behavioral health, and pharmacy plans c) Medicare Advantage and Medicare part D plans d) Medicaid and CHIP programs e) Retiree-only plans 2. LOBs excluded in determining the HIF a) Self-insured plans b) Stop loss insurance c) Medicare supplement plans d) Disability and LTC products e) Specified disease, accident-only coverage, and hospital indemnity coverage f) US issued expatriate plans (starting after 2015)

The actuary's role in payment reform

1. Lead the pricing exercise 2. Help quantify the risk - help the provider understand the various risks the provider is taking when selecting a payment model 3. Calculate the correct price for the selected payment model 4. Help project and model cash flows

Description of level funding products

1. Level funding is an ASO product with integrated stop-loss coverage. It allows groups to benefit from the advantages of self-funding, while limiting the disadvantages. 2. The cost components of level funding products are: a) An ASO fee to cover administrative and selling expenses b) Aggregate stop-loss (ASL) coverage c) Specific stop-loss (SSL) coverage d) A paid claims fund held by the insurer to cover the group's expected non-stop loss claim costs over the projection period e) An IBNR fund to cover claims incurred during the projection period, but paid afterward 3. A sixth, unofficial component is an incurred claims cost projection, which is used to develop several of the other cost components 4. The paid claims fund is what allows the group to pay fixed monthly payments a) The payment into the fund = the ASL corridor * the group's projected paid claims below the SSL deductible b) This payment pre-funds the group's maximum liability. Any amounts greater than this are covered by stop loss. c) If the group's actual paid claims are below the maximum liability, the group will receive some portion of the paid claims fund's surplus as a refund

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

Implications for an employer to consider before deciding to self fund long-term disability (LTD) coverage

1. Loss of third-party guarantee for employees - an employer who self funds is responsible for the entire LTD liability, so there is no third-party insurer to guarantee benefit payments 2. Volatility in claims - an employer who self funds will not benefit from insurance risk pooling, so it is not protected against fluctuations in claim incidence and severity. The employer is also at risk for claims liabilities that are larger than expected. 3. Economic cycles - LTD claim costs are often tied to economic conditions. Claim costs often increase at the same time the company's profits are suffering. 4. Employee relations - any legal suit regarding a claim will be brought against the employer 5. Accounting regulations - financial accounting standards require that employers recognize a liability for self-funded LTD benefits 6. Tax risks - if a trust is used for maintaining reserves, contributions are limited to paid claims plus a reasonable claim reserve. There are substantial penalties for making excess contributions.

Practical considerations in determining credibility levels

1. Management philosophy regarding experience rating 2. Competitive pressures 3. Ability of administrative and management areas to accept the level of experience rating 4. The trade-off between the cost of experience rating and gains in the quantity and quality of new business 5. The effect on existing business of a change in the credibility level 6. The need for consistency between classes of business 7. Regulatory restrictions on the use of experience rating for certain group sizes

Considerations for applying credibility to the group medical insurance market

1. Many credibility models apply to products for which claims are rare, so they must model claim frequencies. But for group medical insurance most individuals have claims, so a reasonable simplifying assumption is that all individuals have claims. 2. Individuals who have high claims in one year will tend to have above average claims in the next year. So the credibility of a group of only one member is significant. 3. Because the market is competitive, insurers that use inappropriate credibility levels could experience significant losses

Reasons for experience rating

1. Many policyholders prefer to pay premiums based on their own experience, rather than having their experience pooled with other groups 2. The insurer wants to quote and charge premiums that are as competitive as possible 3. The insurer wants to avoid antiselection, with good groups going to competitors and bad groups staying

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 (e.g., child-care or elder-care services) 10. Needs for educational assistance for employees and their dependents 11. Needs for LTC for employees (active and retired) and their dependents 12. Other employee benefit needs or goals (such as incentive programs)

Categories of value based quality performance measures used by PBM, Green Shield Canada

1. Medication adherence - measured in the Proportion of Days Covered for the following disease states: a) Hypertension b) Cholesterol (statins) c) Diabetes 2. Disease management (DM) - these measures look at whether patients are being treated according to current evidence and recommended clinical guidelines: a) Statin use in persons with diabetes b) Suboptimal control of asthma c) Absence of a controller inhaler in asthma patients d) Pharmacist health coaching 3. Patient safety - high risk medication use in the elderly

Key terms needed to discuss the Employer Shared Responsibility (ESR)

1. Minimum Essential Coverage (MEC): MEC plans cover all essential benefits, including hospitalization, outpatient and physician services, and prescription drugs 2. Full-Time Employee (FTE): is an employee who works an average of 30+ hours/week, measured monthly (130 hours is a monthly equivalent of at least 30 hours/week) 3. "Affordable" coverage is if the FTE required contribution for self-only coverage under the medical plan does not exceed 9.5% of their household income for the taxable year 4. Minimum actuarial value (MV): plan must pay at least 60% of covered expenses 5. Federal or State Insurance Exchange - an online marketplace where consumers may shop for qualified insurance coverage and request a federal subsidy

Limitations of episode-based profiling

1. Misidentification of high and low performing physicians 2. Comparative bias of providers 3. Physicians' cost efficiency scores may be inaccurate if: a) Episode responsibility is attributed incorrectly b) Cost outliers distort estimates of underlying performance c) Episodes considered in profiles are not representative of a physician's usual practice d) Risk adjustment is inadequate to control for effects of patients' comorbid conditions e) The number of episodes available for profile calculations is insufficient for reliable estimation 4. Inclusion of hospital costs in episode-based profiles represents other challenges a) Cost efficiency measures can be heavily influenced by hospital costs b) Hospital costs are largely beyond physicians' control c) Adverse impact for physicians practicing in high-cost settings, academic medical centers

LTC pricing assumptions

1. Morbidity 2. Mortality - consider the effect of selection and classification of applicants 3. Lapses - consider marketing, competitiveness, payment mode and method, nonforfeiture benefit 4. Expenses - product development, commissions, marketing, compliance, underwriting, issuance, policyholder service and claim administration 5. Taxes - reflect tax reserve basis of the plan as well as the premium, income or other applicable tax rates 6. Investment return - consistent with returns on assets supporting the liabilities 7. Mix of business - consider distribution of age, gender, marital status, underwriting classes, distribution system, and plan options 8. Change over time - for assumptions likely to change, consider reflecting change

Process for investigating claims

1. Most carriers have a rigorous process to uncover cases where the applicant has lied during underwriting 2. This process requires scanning claims for further investigation, based on the following criteria: a) Timing - usually do not investigate claims beyond the time limit for rescinding a contract b) Conditions - certain conditions (e.g., accidents) can be ruled out as being a pre-existing condition c) Size - don't investigate a claim if the cost of investigation exceeds the cost of the claim d) Sentinel conditions or procedures - some conditions are related to others that lend themselves to antiselection (e.g., certain diseases may be an indicator of the presence of HIV) 3. The actions the insurer may take after an investigation include: a) Reformation - the contract is reissued retroactively under the terms which would have applied if the insurer had been aware of the condition b) Rescission - declaring the policy void from the beginning. The ACA prohibits rescissions of health insurance policies unless the insurer can prove fraud or intentional misrepresentation of a material fact.

Reasons a small company should require employee contributions for medical insurance

1. Most employees today are accustomed to paying some level of contribution 2. Requiring a contribution motivates employees who have other coverage options to use those options 3. It is easier to require contributions beginning at the plan's inception than it is to start requiring contributions at a later date 4. Requiring a contribution can help avoid legal problems since the contribution makes it clear who is covered by the plan versus who opted out

Self-insured plans' financial risks that should be considered for mitigation or transfer

1. Natural/random claim volatility a) Certain diagnoses develop claims at different rates b) Hospital contracts can affect cash-flow timing c) Accident claims and claims that give rise to subrogation d) Occurrence of out-of-network claims e) Internal processes and systems of TPAs 2. A lull in claim payments will arise in the first few months of a newly self-insured plan during which excess cash flow can be used to build a reserve 3. The impact of catastrophic claims on an employee benefit plan

Tabular method formulas for calculating net premiums

1. Net premium = Σ_[z=issue yr to final yr] Pr(Clm_z) * AC_z * v^z * l_z a) Pr(Clm_z) is the probability of a claim occurring (incidence rate) in year z b) AC_z is the average claim cost (assuming a claim occurs) in year z c) v^z is the present value factor corresponding to year z d) l_z is the proportion of originally issue lives still in force in year z 2. The average claim cost is calculated as follows: AC_z = Σ_[s=1 to FnlCmPyt] Cm$_s * Pr(1-Tn_s) * v^s a) s is the claim duration b) Cm$_s is the claim dollars payable at duration s c) Pr(1-Tn_s) 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

A common retrospective profit/loss formula from a policyholder's perspective

1. Net premiums = paid premiums - pooled premiums - admin expense - other expenses - profit - taxes 2. Incurred claims = claims paid + increase in claim reserves - pooled claims 3. Profit or loss = Net premiums - incurred claims 4. The actual profit or loss a policyholder is accountable for will depend on the funding arrangement

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

Activities required for serving plan participants

1. New employee benefits orientation 2. Policy clarification on benefits eligibility, coverage, and applicability of plan provisions 3. Dealing with exceptional circumstances and unusual cases 4. Collection and processing of enrollment data, claims information, and requests for plan distributions 5. Benefits counseling and response to employee inquiries for active employees 6. Benefits counseling for employees who are terminating, retiring, disabled, or on leave

Challenges in applying credibility for LTD insurance

1. Non-independence of claims a) Claim incidence is not independent due to external factors (such as economic recessions) and group-specific dynamics (such as work conditions and the physical demands of some jobs) b) Claim terminations are not independent due to external factors such as changes in claims management practices or changes in the economy 2. Heterogeneous claims - claim experience does not always emerge similarly to how it did in the past, due to: a) Changes in the demographic mix of employees b) External factors like economic recessions c) Changes in underwriting or claim management practices d) Changes in plan design 3. Competitive pricing pressures - due to a competitive market environment, there is pressure to give past experience more credibility than it theoretically should be given 4. Claim duration - claim experience tends to be more volatile in the early claim durations 5. Benefits from other sources - the approval of Social Security benefits or the loss of workers' compensation benefits can significantly impact net benefit amounts 6. Outlier claims - when credibility is based on claim amounts, large outlier claims could artificially increase the credibility of the past experience 7. Regulatory requirements - some states have adopted credibility requirements, such as requiring credible data to support changes to existing pricing factors 8. Estimating parameters of a credibility model is often based on a combination of subjective opinion and empirical testing

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 (such as 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. 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 (for up to 21 days per year) 9. Caregiver training - provides training and education to help informal caregivers obtain state licensure as a home health care provider 10. Death benefit - typically pays a percentage of all premiums paid minus any benefits paid 11. Cash alternative benefit - some plans give the option of receiving claim payments for home and community-based care as a cash benefit, rather than as a reimbursement benefit

Common rating tiers for group health insurance

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

Steps for pricing bundled payments

1. Obtain claims data 2. Select DRGs or conditions - look for enough volume, a population that will have similar treatment patterns, and potential for savings that is due to variation in care. Knee and hip procedures are popular selections. 3. Define the episode - specify the full time period and mix of services for which the organization is financially responsible and at risk. Typically includes: a) Anchor stay - period of time between admission and discharge b) Post-discharge period or post-anchor event period - typically covers 30, 60, or 90 days from the discharge date c) Post-episode period - covers 30 days past the episode end date as a quality control to make sure providers are not waiting until the end of the episode to provide services 4. Define exclusion criteria - should be easy to implement and not overly specific 5. Estimate cost of the bundle - done by analyzing claims data 6. Identify savings opportunities - these will be different for every episode and every organization. For example, discharging more knee replacement surgery patients to their home instead of a rehabilitation center will lead to savings.

Reason why a health plan wants to contract with providers

1. Obtain favorable pricing (less than full billed amounts) 2. Obtain payment terms that result in an underwriting gain 3. Get the provider to agree to provide services to the plan's members 4. Meet service area access standards required by the states and Medicare 5. Obtain contractual agreement for several clauses, many of which are required by the states and Medicare. The provider agrees to: a) Submit claims directly to the plan, not the member b) Not balance bill the member for any amount above the agreed-upon payment terms c) Hold harmless the member (not bill for any amounts owed by the plan) d) Cooperate with the plan's utilization management program e) Cooperate with the plan's quality management program f) Give the plan the right to audit clinical and billing data for care provided to plan members g) Not discriminate (and other similar requirements)

Reasons why a provider wants to contract with a health plan

1. Obtain favorable pricing when in a strong negotiating position 2. Ensure that it will not be excluded from the network of a large payer 3. Receive direct payment from the plan, thereby avoiding the need to collect from the patient 4. Receive timely payment (usually 30 days or less) 5. Have plan members directed or steered to it 6. Not lose business (or medical staff) as a payer steers members to others who are contracted providers 7. Received defined rights around disputing claims and payments

Actions available to the underwriter

1. Offer full coverage with no restrictions (for major medical insurance, this is generally the only legal option now, due to the ACA) 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 - e.g., offer coverage in a substandard risk pool 6. Offer a different benefit plan than the one applied for - e.g., offer a longer elimination period or shorter benefit period on a disability income policy

Characteristics of the group technique of providing employee benefits

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

Process for developing episode based measures of quality performance using a claims database

1. Opportunities are identified 2. Quality Management Event (QME) opportunity is attributed to physicians using fixed attribution rules 3. A compliance rate is calculated for each physician by comparing opportunities with successes 4. Performance can be assessed in terms of a relative compliance rate

Plan design approaches for controlling adverse selection

1. Parallel design should be maintained - e.g., 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)

Approaches used for modeling antiselection

1. Partition models - the population is broken into subsets (e.g., healthy vs. unhealthy), which are modeled separately. Individuals are ranked by cost, and a line is drawn to define the subsets. a) Drawing the line in a Cumulative Antiselection Theory (CAST) model - the cutoff line is chosen so that the ratio of average claim costs between the unhealthy and healthy groups is a chosen multiple (such as 5 or 10) b) Drawing the line in a Minnesota Antiselection Model - this model defined boundary conditions on the antiselection which might occur in a specific situation, in order to estimate the antiselection expected under different scenarios c) Drawing the line in internal antiselection - a modified CAST model can be used, adding a decrement to reflect the potential of the insured to change benefit plans 2. Deterministic vs. stochastic models - deterministic models typically project results based on expected values. But a true picture of the future requires distributions of potential values, which are provided by stochastic models. 3. Markov processes - in most cases, a two-subset partition model is sufficient. But if more partitions are needed, a Markov chain can be created to determine the population distribution in future time periods

Applications of APIs in the health insurance sector

1. Patient eligibility verification 2. HIPAA compliance 3. Digital claims management 4. Provider directory compliance 5. Population health data access

ACA rating requirements effective in 2014

1. Plans may not impose pre-existing condition exclusions 2. Rating variation is only allowed based on: a) Age (limited to a 3 to 1 ratio from highest to lowest age band) b) Geographic rating area c) Plan design and network relativities d) Tobacco use (limited to a 1.5 to 1 ratio) e) Family composition 3. Individual and small group plans must be offered on a guaranteed issue and renewal basis 4. Waiting periods for coverage must not exceed 90 days

Components that may be included in APPs that target primary care physicians

1. Patient-enrolled models - these models require providers to formally enroll patients in their practices and register this enrollment with the ministry of health (MoH) 2. Rostering - this is the process of enrolling patients and registering that enrollment with the MoH. Many APPs pay the physician a fee for the administrative work of rostering patients. 3. FFS billing - payment is made based on the provincial fee schedule. An APP may incorporate a bonus top-up, such as an extra percentage of the fee for enrolled patients. 4. Capitation payments - the physician receives a fixed payment for the comprehensive annual care of a rostered patient. The payment varies by age and gender. 5. Shadow FFS billing - physicians who participate in a capitation APP must still submit FFS invoices for services provided to rostered patients. The MoH needs this information for evaluating patient access and utilization. 6. Preventative care bonus - annual bonuses are offered for physicians who meet certain percentage targets for preventative health care 7. Comprehensive care management fee - a payment for the ongoing administrative work and upkeep that comprehensive family doctors do in addition to seeing their patients 8. Chronic disease management bonuses - an annual bonus for managing chronic diseases 9. New patient incentives - fixed bonuses to physicians who accept "orphaned" patients (i.e., those who do not have a family doctor) as new patients into their practices 10. Administrative fees - per-patient fees paid annually to help cover some of the administrative costs of meeting the accountability criteria of capitation APPs 11. Sessional fees - fees based on an hourly rate and paid for specific services. Many emergency departments offer physicians a guaranteed sessional fee for working as the doctor on duty. 12. Block funding - a guaranteed payment to provide medical services for patients in a specific location (typically a rural or remote area) for a defined interval of time

Types of bases used for allocating expenses

1. Percent of premium 2. Percent of claims 3. Per policy 4. Per employee (certificate) 5. Per member (each person covered) 6. Per claim administered 7. Per case (some expenses are charged directly to the case for very demanding groups)

Methods used to calculate a reserve for an aggregate stop-loss block of business

1. Policy year-to-date method a) Eligible year-to-date losses are compared to pro rata attachment points b) Reserves are established for each policy on which eligible losses exceed the pro rata attachment point 2. Loss ratio method: include margin for adverse deviations that is expected for the block of business

Phases of the value based initiative rollout in Canada

1. Performance reflection - pharmacies receive scorecards with performance information 2. Performance disclosure - an overall score or "star rating" are made available to plan members 3. Performance accountability - tie pharmacy reimbursement to their overall performance scores

Equation for physician-specific reliability

1. Physician-specific reliability = (physician to physician variance) / (physician to physician variance + physician-specific error variance) a) Large variations in cost would have a large physician-specific variation b) Physician-to-physician variance is larger when there is a wider distribution of cost profile scores

ACA reforms that address the adequacy of coverage

1. Plans in the exchanges must cover EHBs 2. Standardized tiers of coverage based on relative cost-sharing a) 90% for platinum plans b) 80% for gold plans c) 70% for silver plans d) 60% for bronze plans 3. Insurers must provide first-dollar coverage of approved preventive services 4. Plans may not impose pre-existing condition exclusions 5. There is a cap on enrollees' annual out-of-pocket liability

Advantages of self-insurance

1. Potential cost savings 2. Plan design flexibility 3. Immediately reap the savings from wellness or disease management programs 4. Claims management (select own vendors) 5. Cash flow (can hold own IBNR reserves) 6. Investment income 7. Benefit from favorable claims experience

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. 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 features of the group medical insurance market

1. Premium rates are usually guaranteed for one year 2. Groups usually consist of employees (and their dependents) of a single company or a governmental unit, or members of a union 3. Healthy individuals tend to remain healthy and incur few claims, while many illnesses tend to last more than one year 4. Insurance coverage is written without individual health underwriting 5. Premium rates do not change during the contract year 6. Retrospective experience rating may be used for larger groups 7. Insurers have a manual rating system that includes many factors, such as geographic location, age, and gender 8. Most insurers use the group's own claim experience in projecting claim costs a) For groups with less than 300 members, insurers typically blend the group's own experience with a manual rate b) This requires a credibility table or formula, which should not vary by too many factors and should be relatively easy to explain 9. Purchasers of group health insurance tend to be very knowledgeable about their benefits and will shop around for competitive premiums 10. The market for health insurance coverage is very price competitive 11. The policyholder is usually advised by a consultant or broker who has little loyalty to the insurer 12. Competitive pressure exerts a downward price influence and reduces profit margins 13. Most covered individuals incur at least some claims over the course of the year 14. The distribution of medical claims by individual has a very high variance

Types of physicians and other professional providers

1. Primary care physicians (PCPs) and specialty care physicians (SCPs) - for traditional HMOs, the distinction between PCP and SCP is very important because the PCP acts as a gatekeeper and must authorize any visits to a specialist 2. Hospital-based physicians - specialties include radiology, anesthesiology, pathology, emergency medicine, and hospitalist. These physicians often have exclusive rights at a hospital, so they are reluctant to contract for anything less than full charges. 3. Nonphysician or mid-level practitioners that provide primary care - the most common are physician assistants and nurse practitioners. These are a great asset in managed care because they deliver excellent primary care, tend to spend more time with patients, and are well accepted by most members. 4. Mental health providers 5. Other types of professionals - podiatrists, dentists, orthodontists, optometrists, chiropractors, physical therapists, occupational therapists, nutritionists, acupuncturists, audiologists, respiratory therapists, and home health care providers

Categories of appropriateness of data used in an actuarial analysis

1. The data is of acceptable quality to perform the analysis 2. The data requires enhancement before the analysis can be performed, and it is practical to obtain additional or corrected data 3. Judgmental adjustments or assumptions can be applied to the data, or the analysis results, to allow the actuary to perform the analysis 4. The data is likely to have significant defects 5. The data is so inadequate that it cannot be used to satisfy the purpose of the assignment

Key players in the product development cycle

1. Product development team - is responsible for generating new product ideas and studying the market 2. Senior management - sets the company goals and is responsible for making the decision to pursue a proposed idea 3. Marketing - is focused on advertising, name recognition, and branding 4. Sales - often has insights into price sensitivity and the types of products customers want 5. Underwriters - can help quantify the risk associated with certain plan features 6. Information technology (IT) - can help in understanding the feasibility of the infrastructure needed to administer the product 7. Operations - work with IT teams to administer the product 8. Compliance - ensures the product is compliant with laws and regulations 9. Actuarial - prices the product and works on the projections and feasibility studies 10. Finance - reviews the projected enrollment and pricing to determine whether projections meet corporate profit targets

Accumulated profit/loss from the insurer perspective

1. Profit/loss from policyholder account experience 2. Profit/loss from pooled experience = pooled prem - pooled claims 3. Risk & profit embedded in paid premiums which is usually a % of premium 4. Accumulated total profit/loss from the insurer perspective for this account = profit/loss from account experience + profit/loss from pooled experience + risk & profit embedded in paid premiums

ACA initiatives that promote health care access and consumer choice

1. Prohibitions on pre-existing condition exclusions 2. Restricting the use of lifetime maximums 3. Prohibiting annual benefit maximums on essential benefits 4. Requiring most groups to offer coverage to dependents up until age 26 5. Creating a health insurance exchange that is both guaranteed issue and without pre-existing condition exclusions

Steps for building a new product

1. Project enrollment - this is critical to helping senior management decide whether the product is worth pursuing 2. Price the product - includes an assessment of the market price sensitivity. After initial pricing, the projected enrollment should be reviewed again. 3. Perform financial assessments - to determine whether the new product can meet the company's required return on investment or return on equity 4. Implement the infrastructure needed to administer the product (process claims, bill and collect premiums, and service member inquiries) 5. Get senior management approval

Purpose of the cancer claims cost tables work group and its report

1. Propose new valuation tables for cancer policies. New tables were created for two types of benefits: a) First occurrence benefit - generally a lump sum amount paid on the first occurrence of cancer b) Hospitalization benefit - generally a daily indemnity amount paid when the person is confined to a hospital for the treatment of a covered cancer 2. Document the processes followed in preparing the proposed tables 3. Make the experience gathered for this effort available to practitioners in the industry. This should aid actuaries pricing and reviewing product filings.

Examples of overarching philosophy, guiding principles, and objectives developed after merging two employer groups

1. Provide tools and resources to encourage employees to become better healthcare consumers 2. Promote accountability for lifestyle and healthcare choices 3. Ensure affordable payroll contributions for lower paid workers 4. Minimize barriers to seeking appropriate healthcare which may be caused by high out-of-pocket costs 5. Utilize best-in-class and industry-leading solutions to maximize financial efficiency 6. Limit year over year volatility for employees a) Minimize increase in payroll contributions b) Minimize disruption of existing patient/provider relationships, particularly Primary Care Physicians (PCPs) 7. Maximize financial efficiency by offering high performance networks 8. Optimize employee health and well-being and productivity through effective care coordination and healthy lifestyles programs

Technology trends that are impacting health insurance

1. Provider competition spurring insurers to focus on customer convenience 2. Social media becoming a customer engagement channel and a tool for building brand loyalty 3. Wearable tech enriching customer engagement 4. Robotic Process Automation (RPA) and Artificial Intelligence (AI) increasing operational efficiency 5. Blockchain shows potential for application in health insurance 6. Application Programming Interface (API) enabling enhanced data management in health insurance 7. Predictive and behavioral analytics for risk mitigation, fraud detection, and anticipating future needs 8. Value-based payment models opening up new opportunities for analytics 9. Insurance technology (InsurTech) companies creating a more streamlined and integrated ecosystem 10. Cloud technology becoming a key infrastructure component

Comparative advantages for healthcare providers and payers

1. Providers advantages are clinical data, cost, and more customer touchpoints 2. Payers advantages are actuarial capabilities, underwriting expertise, and claims experience

Types of mental health providers

1. Psychiatrist - a physician who specializes in mental health and is able to prescribe drugs 2. Psychologist - has a doctoral degree in psychology and two years of supervised professional experience 3. Clinical social worker - a counselor with a master's degree in social work 4. Licensed professional counselor - has a master's degree in psychology, counseling, or a related field 5. Certified alcohol and drug abuse counselor - has specific clinical training in alcohol and drug abuse and provides individual and group counseling 6. Psychiatric nurse practitioner or nurse psychotherapist - a registered nurse practitioner with special training in psychiatric and mental health nursing 7. Marital and family therapist - a counselor with a master's degree and special training in marital and family therapy

Steps for eligible clinicians to becoming Qualifying APM Participants (QPs)

1. Qualifying APM Participant determinations are made at the Advanced APM Entity level 2. CMS determines "Threshold Score" for each Advanced APM Entity using two methods: a) CMS will use the method that results in a more favorable QP determination b) Payment amount method: (Cost for Part B professional services to attributed beneficiaries) / (Cost for Part B professional services to attribution eligible beneficiaries) = Threshold Score % c) Patient count method: (# of attributed beneficiaries given Part B professional services) / (# of attribution-eligible beneficiaries given Part B professional services) = Threshold Score % 3. The Threshold Score for each method is compared to a QP threshold table 4. If a Threshold is met the eligible clinicians in the Advanced APM Entity become QPs for the payment year 5. QPs are excluded from MIPS, receive a 5% lump sum bonus, and receive a higher FFS update in 2026

Considerations in determining a base for unit expenses

1. Represents a direct relationship between the base and the expenses, and is easily projected in valuation 2. The limited number of base units available and the detailed expense information obtained from the study

General steps of the process used to establish self-insured rates

1. Request data from the TPAs 2. Gather data and review for reasonableness 3. Develop initial estimates using a projection methodology with adjustments for the following: a) Enrollment changes b) Benefit changes c) Network/provider reimbursement changes d) Large claims e) Trend f) Administrative fees g) SLI

Rate setting approaches

1. Rerating - rating based on direct, existing experience (e.g., 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 (e.g., using the 1985 CIDA table for pricing DI). Typically used for long-term, non-inflation-sensitive products. b) Buildup and density functions - 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 (but it risks not receiving this 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. Stop loss is usually purchased from an insurer. Governed by ERISA, so premium taxes and state mandates are avoided. 4. Minimum premium contracts - fully insured plan that includes a minimum premium rider (provides for the employer to fund an account 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) - used with self-insured plans to provide insurance for claims that exceed the expected claim level 6. Retrospective premium arrangements - the policyholder pays some percent of the regular premium (e.g., 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).

Components of new business underwriting for large groups

1. Review the characteristics of the group in order to screen, approve, and classify the group 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

Pricing strategies for controlling adverse selection

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

Consumer choice and empowerment that is encouraged through the use of HDHPs

1. Saving for health care services: account fund ownership encourages regular deposits 2. Selecting appropriate treatment venues: for example, using urgent care instead of the emergency room 3. Avoiding unnecessary care and/or avoiding those treatments that have marginal benefit 4. Brand to Generic drug substitution: generic drugs have lower costs and lower cost trends 5. Comparing quality ratings of providers: using online tools 6. Negotiating prices with providers, particularly for costs under the deductible 7. Improving their own health and taking other illness avoidance measures: financial incentives are aligned with health improvement

Shift assumption equation when Shift is 100% for member liability greater than equilibrium

1. Shift Line: Y = mX + b = [100% / Equilibrium] * Member Liability Differential 2. Y-intercept = b = 0%, i.e., no shift is expected without a cost share differential 3. Slope = m = 100% / Equilibrium 4. X variable = Member Liability Differential

Factors that may influence future trends

1. The impact of exchanges - enrollees will likely change health plans more frequently than in the past, which will require insurers to have a more in-depth understanding of the impact of population shift 2. Cost savings initiatives - including accountable care organizations, clinical interventions, and wellness programs 3. The economy - some economic factors may help in setting better trend estimates

Reasons why more small employers have not dropped group health coverage

1. Small group premiums generally remained stable 2. The rollout of the individual marketplaces was rocky, and there is uncertainty about the individual market 3. Offering employer-sponsored insurance continues to be an expectation as part of the business culture or necessary to compete for talent

Goals of the graduation method chosen for creating the values in the new cancer tables

1. Smooth the inherent volatility in the data collected 2. Provide a good fit to the initial data 3. Demonstrate flexibility to control the risk of negative reserve calculations due to declining data patterns for younger and older ages 4. Demonstrate flexibility to develop reasonable patterns where data over a number of attained ages had to be aggregated

Requirements for level funding

1. Some form of SLI that involves aggregate insurance 2. Clearly defined and robust specific advance funding and/or aggregate accommodation 3. The aggregate attachment point be fully funded 4. The ASO/TPA administrator pays all claims from these funds

Primary mechanisms for managing the financial risks of self-insuring

1. Specific SLI protects the plan from large single medical claim events 2. Aggregate SLI protects the plan sponsor from an accumulation of adverse medical events in total

Variables that can influence the completion factors for stop-loss

1. Specific deductible 2. Contract basis 3. Plan's TPA

Steps for an insurer to design a Tiered Network Health Plan (TNHP)

1. Start with an existing plan 2. Select a provider category to tier 3. Next, tier providers in the chosen category on cost and quality measures 4. Finally, add additional cost share to providers not meeting desired standards

Potential cost savings when a plan sponsor chooses to self-insure health benefits

1. State premium tax savings 2. Elimination of state-mandated benefits 3. Avoidance of the health insurer fee 4. Removal of insurer expenses and risk charges 5. Claims costs

Steps in the process for CMS to assign beneficiaries to an ACO

1. Step 1 - the beneficiary is assigned to a participating ACO when: a) The beneficiary has at least one primary care service furnished by a primary care practitioner, and b) More primary care services (measured by Medicare allowed charges) are furnished by primary care practitioners at the participating ACO than from the same types of providers at any other ACO 2. Step 2 - for a beneficiary who has not received any primary care services from a primary care practitioner, the beneficiary is assigned to the participating ACO if: a) The beneficiary received at least one primary care service from a specialist physician utilized in assignment at the participating ACO, and b) More primary care services (measured by Medicare allowed charges) are furnished by specialist physicians utilized in assignment at a participating ACO than from any other ACO

Practical issues that have determined the success or failure of previous value-based arrangements

1. Success in provider payment arrangements depends on good holistic risk management by the payment reform team 2. Payment reform is organization-specific - there is not one payment structure that is the best in all circumstances 3. Results of payment reform are decidedly mixed, with both successes and failures 4. Insurance companies have an important role in payment reform since they can pool and reduce insurance risk. Providers must be required to take on insurance risk 5. The mechanics and administration of payment models that incorporate provider risk have improved since the 1990s consumer backlash against them 6. Engaging all stakeholders (e.g., policymakers, actuaries, and providers) is important 7. Organizations need various qualities to succeed under payment reform

Considerations when negotiating terms of commercial ACO contracts

1. Target costs - how are the baseline costs developed? Is there rebasing from one year to the next? 2. Risk adjustment - the actuary can help the payment reform team understand the benefits and impacts of the different risk adjusters to use in creating the target cost 3. Trend - will the baseline and measurement years be trended, and at what rate? 4. Shared savings - what are the savings rate and loss rate, and are the targets achievable? 5. Attribution - the attribution method is extremely important, but the details can be quite complex 6. Random variation - is the number of members attributed to the ACO large enough that gains and losses will not just be due to statistical fluctuation? 7. Stop loss - the ACO and the payer may wish to negotiate specific and aggregate stop loss 8. Data and reports - the ACO will need member-level detail on enrollment, medical claims, and pharmacy claims. It will also need detailed reporting in order to reconcile gains and losses. 9. Quality - are there a sufficient number of measures to ensure reliable results and reasonably determined benchmarks and targets? 10. Infrastructure cost support - will there be a care coordination fee to help the ACO get up and running with its infrastructure?

Reasons LTD claim experience tends to be more volatile in early claim durations

1. Terminations in early durations are dominated by recoveries (as opposed to deaths), and there is a strong correlation between recoveries and cause of disability 2. Benefits from other sources are typically awarded within the first few years of claim, creating irregular payment streams 3. The change in definition of disability from "own occupation" to "any gainful occupation" usually occurs within the first few years of claim, resulting in a spike in recoveries at that time 4. The maximum benefit period for mental and nervous claims is usually limited to 24 months

Recommended practices for using credibility procedures

1. The actuary should use an appropriate credibility procedure when determining if the subject experience has full credibility or when blending the subject experience with the relevant experience. In selecting a procedure, consider: a) Whether the procedure is expected to produce reasonable results b) Whether the procedure is appropriate for the intended use and purpose c) Whether the procedure is practical to implement when considering its cost and benefit 2. The actuary should exercise professional judgment in selecting relevant experience to blend with the subject experience. This relevant experience should have characteristics similar to the subject experience. 3. The actuary should use professional judgment when selecting, developing, or using a credibility procedure 4. The actuary should consider the homogeneity of both the subject experience and the relevant experience

Impact of the ACA exchanges on large group underwriting

1. The availability of exchange subsidies changes the equation for employees who are comparing costs between individual plans and group plan options 2. Some employers have dropped dependent coverage and transitioned non-Medicare retirees to public exchanges 3. The existence of subsidized individual coverage may create more early retirees 4. COBRA enrollment will decline 5. Dependents from low income families are more likely to enroll in exchange coverage due to subsidies

Criteria for a beneficiary to be assigned to a participating ACO

1. The beneficiary must have a record of Medicare enrollment 2. The beneficiary must have at least one month of Part A and Part B enrollment, and cannot have any months of Part A only or Part B only enrollment 3. The beneficiary cannot have any months of Medicare group (private) health plan enrollment 4. The beneficiary may be assigned to only one Medicare shared savings initiative 5. The beneficiary must live in the United States or US territories and possessions 6. The beneficiary must have a primary care service with a physician at the ACO 7. The beneficiary must receive the largest share of his or her primary care services from the participating ACO

Disclosure requirements for assumptions and methods used in an actuarial report

1. The communication should identify the party responsible for each material assumption and method 2. If the assumption or method is prescribed by law, disclose the applicable law, the assumptions or methods affected, and that the report was prepared in accordance with the law 3. If a material assumption or method is selected by another party, the actuary has three choices: a) If it does not conflict with the actuary's professional judgment, no disclosure is needed b) If it significantly conflicts with the actuary's professional judgment, then disclose this fact c) If the actuary is unable or not qualified to judge its reasonableness, then disclose this fact In the case of either b or c, also disclose the affected assumption or method, the party who set it, and the reason it was set by this party, rather than by the actuary

Reasons plans are outsourcing benefits administration

1. The complexity of administering benefits 2. The efficiencies of specialized service providers 3. The abilities of specialized providers to obtain favorable pricing because of their business volume 4. The ability of service providers to more readily implement technology and monitor regulations and market trends

The major sources for expense and unit allocation data

1. The major data sources for expenses: a) The company's general ledger b) The company's data warehouse c) Agent/broker payment/payroll system d) Staff payroll system e) Policyholder payment system f) Budget, business planning, and financial reports g) Transfer pricing analysis, agreements, and reports h) Human resources systems i) Investment management systems 2. The units and allocation data may be collected from many data sources: a) Policy/certificate and valuation systems b) Benefit payment systems c) Transaction files/systems d) Sales, financial, and accounting reports e) Policy issue/underwriting systems and reports f) Budget and business planning reports g) HR and agency administration systems h) An analysis may be used to determine a time or activity based allocation method

Major considerations in the rate setting process

1. The market - competitors' pricing sets expectations for consumers, limiting pricing options 2. Existing products - expectations will be based on the pricing strategies used for 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

Significant findings in the reliability of physician cost profiling

1. The median reliability of physician cost profiles had a wide range by specialty 2. Overall, the majority of physicians did not have cost profiles that met common thresholds of reliability 3. Doubling the number of episodes produced only modest gains 4. It is recommended that users of physician cost profiles directly assess reliability 5. Surgical specialties in particular appear to have low reliability scores 6. Opportunities for cost control still exist among physicians with more reliable scores 7. Misclassification presents difficulties achieving cost control objectives 8. Developing better measures of cost performance at the physician level appears to be the most promising method to increase the reliability of cost profiles 9. Consumers, physicians, and purchasers are all at risk of being misled by the results produced by these tools

Varying factors used to determine the expected aggregate claims cost percentage

1. The number of employees covered by the plan 2. The aggregate factor to be quoted, such as 125% of expected first dollar claims 3. The specific stop-loss deductible 4. The aggregate benefit limit, for example, maximum aggregate claim of $1 million

The factors that determine the reliability of cost profiles

1. The number of observations (i.e., episodes of care) 2. The variation among physicians in their use of resources to manage similar episodes 3. Random variation in the scores

The minimal information needed to determine appropriate COBRA base premiums

1. The plan's claims data (both paid and incurred) for the base period 2. Information on all applicable administrative and vendor costs 3. Information relating to any stop-loss premiums, parameters, and reimbursements 4. Projected covered lives for the coming determination period

Ways in which provider group-based ACOs are expected to generate savings

1. The practice should implement "care coordination" to manage the care of the patients who need additional services 2. Access to integrated medical records and consistent management by the physician should reduce the need for tests 3. The ACO should develop a network of efficient providers and limit the use of less efficient providers 4. The focus on quality should result in fewer unnecessary services and better population health 5. Redirecting care to cost-efficient providers 6. Reducing duplication of services and unnecessary care 7. Preventing medical errors

Important impacts of HDHPs

1. The probability that a market average risk member will exceed a given deductible a) For a $1,350 and $3,000 deductible there is a 48% and 32% chance, respectively 2. As members have access to account funds to help pay for point of service claims less than the deductible, it will erode the impact of the HDHP 3. The account funding in the above table is assumed to be half of the deductible 4. The impact of account funding is likely to be on the lower side of the cited ranges if the employee owns the account (HSA), but on the higher end if an employer owned account such as an HRA or FSA is used

On a raw level, factors that primarily drive HDHP cost savings

1. The relative health of individuals selecting the different plans 2. The utilization impact arising strictly from plan design and funding 3. Cost savings resulting from increased consumer engagement 4. Note that HDHPs have not shown a clear ability to bend the cost curve beyond initial impact

Make up of an HSA

1. The savings account is owned by the individual employee 2. Either an employer or an employee can contribute to the account 3. The account can be used to pay the cost share of the HDHP or other qualifying expenses 4. Account contributions are exempt from personal income tax 5. Contributions are limited to a specific amount no matter if an employer, individual, or both are contributing to the account 6. The account also acts like a tax advantaged retirement account since amounts can be invested and accumulate interest tax free over time 7. As long as funds in the HSA are used for eligible medical expenses, they remain tax-free at the time of withdrawal

Considerations in selecting data to use in an actuarial analysis

1. The scope of the assignment and the intended use of the analysis 2. The desired data elements and possible alternative data elements 3. Whether the data is appropriate and sufficiently current 4. Whether the data is internally consistent 5. Whether the data is reasonable given relevant external information that is readily available 6. The degree to which the data is sufficient for the analysis 7. Any known significant limitations of the data 8. The availability of alternative data, and the benefit and practicality of obtaining this data 9. Sampling methods that were used to collect the data

Required documentation related to data quality

1. The source of the data 2. Any limitations on the use of the actuarial work product due to uncertainty about data quality 3. Whether the actuary reviewed the data, and any limitations due to data that was not reviewed 4. A summary of unresolved concerns the actuary may have about questionable data values 5. A summary of any significant steps the actuary has taken to improve the data 6. A summary of significant judgmental adjustments or assumptions the actuary applied to the data or to the results 7. The existence of results that are highly uncertain or potentially biased due to the quality of the data 8. The extent of the actuary's reliance on data and other information supplied by others 9. Disclosures in accordance with ASOP #41 if: a) Any material assumption or method was prescribed by law b) The actuary relies on other sources and thereby disclaims responsibility for any material assumption or method c) The actuary has otherwise deviated materially from the guidance of this ASOP

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

Challenges faced by insurance carriers when dealing with the HIF

1. Timing of the fee: collection, assessment, and pricing 2. Accounting standards recommend to recognize the liability in the year of payment 3. Fee suspensions in 2017 and 2019 made estimating the HIF for each of those years new again 4. MLR rebates being triggered as premiums grew and shrank based on the uncertainty of HIF suspensions 5. Explaining LR swings by 2-3% based on whether or not the HIF would be priced for and/or collected 6. Since the HIF is a fixed fee, pricing is highly dependent on enrollment assumptions a) Missing the enrollment assumptions can under/over fund the fee, or even lead to MLR rebates 7. Implicit cross-subsidization as fees are paid from a company level entity 8. Estimating the HIF 9. Pricing implications because of the non-deductibility of HIF, the effective tax rate is leveraged 10. The non-level playing field created by the different company tax structures of corporations when determining assessed premiums

Considerations when setting employee contribution levels for an employer health plan

1. Total compensation philosophy - this includes how compensation is divided between salary and benefits. Some employers allocate a larger portion of total compensation toward benefits. 2. Benefits budget - many employer budgets are not keeping pace with increases in the cost of health care, so a greater portion of costs must be paid by employees 3. Benefit competitiveness - employers must consider the total benefit structure compared to other employers with whom they compete for talent 4. Collective bargaining - this leads to union groups often having better health coverage and subsidization than non-union groups at the same company 5. Legislative and regulatory issues - new laws may cause employers to change benefits or employee contribution levels. For example, the ACA affordability threshold (contributions being no more than 9.5% of household income) resulted in some employers reducing required contributions.

As of 2018 the ACO Tracks available and their potential gains/losses

1. Track 1: one-sided basis (gainsharing only). Potential savings are limited to 50% of gains to a maximum of 10% of benchmark costs. 2. Track 1+: two-sided basis. Potential gainsharing up to 50% of savings to a maximum of 10% of benchmark costs. Loss sharing is fixed at 30% of losses. Loss sharing is limited to 4% of benchmark costs OR 8% of fee-for-service revenues. 3. Track 2: two-sided basis. Potential gainsharing up to 60% of savings to a maximum of 15% of benchmark costs. Loss sharing is between 40% and 60% of losses. Loss sharing is limited to between 5% and 10% of benchmark costs, depending on year. 4. Track 3: two-sided basis. Potential gainsharing up to 75% of savings to a maximum of 20% of benchmark costs. Loss sharing is between 40% and 75% of losses. Loss sharing is limited to 15% of benchmark costs.

Methodologies used to allocate corporate/overhead and direct expenses between expense classes or categories

1. Transaction-based: uses the amount or number of transactions recorded in the system to allocate expenses 2. Activity-based: similar to transaction based, but more detailed 3. Time study-based: needs individuals to track their time spent on various activities 4. Expense-based: considers management time relative to the expenses they manage 5. In force-based: often used as a proxy for transaction or activity-based allocation 6. Staff-based: staff-supported functions such as HR, payroll, cafeteria, and facilities

Assumptions needed for projecting values in antiselection models

1. Trends in claim costs (from aging, duration, secular trend, etc.) 2. Lapsation, separately for each sub-population (often varies by size of rate increase) 3. Movement between populations, often expressed as a net movement from healthy to unhealthy 4. The time value of money (interest) 5. Premium rate increases

Items needed to estimate a company's 2020 HIF

1. Written premium schedule to determine assessed premium (or eligible) 2. The 2019 premiums of the insurer 3. The industry-wide premiums in 2019 4. The 2020 premiums of the insurer 5. The estimated 2020 industry fee (starting in 2019 it is based on premium growth) 6. The federal and state income tax rates for 2020

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 account 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

Considerations for analyzing current benefits in the employee benefit plan

1. Types of benefits - a common approach is to prepare an outline or table showing how the different types of benefits meet the various employee needs 2. Levels of benefits - the analysis should also show the amount of those benefits that is currently provided under various scenarios 3. Probationary periods - analyze any periods during which newly-hired employees are not yet eligible to receive benefits, to determine whether they are appropriate 4. Eligibility requirements - various requirements should be analyzed. For example, should survivors of deceased employees continue to be covered, for what benefits, and for how long? 5. Employee contribution requirements - determine how much employees will be required to contribute to the cost, and whether the plans will be mandatory or voluntary 6. Flexibility available to employees - determine the choices that will be given to employees in selecting their benefits 7. Actual employee participation in benefit plans - determine what percentage of employees enroll in each benefit, which may indicate whether the benefit meets employee needs

Penalties that apply if the ACA enacted ESR rules are not met

1. U.S. Code Section 4980H(a): Penalties may apply if an employer: a) Does not offer MEC to at least 95% of its full-time employees (and their eligible non-spouse dependents) and at least one FTE enrolls in an Exchange (state or federal) plan and receives a federal subsidy to assist with payment of the monthly insurance premium. b) The penalty is $2,000 per year for each FTE (less 30 employees). The fee is nondeductible for income tax purposes and the employer pays regardless of whether some employees elected employer provided coverage. The fee is increased annually after 2014. c) The penalties do not apply to employers with fewer than 50 FTE in the prior year 2. U.S. Code Section 4980H(b): Penalties apply if an employer: a) Offers MEC to at least 95% of its full-time employees, but coverage is either "unaffordable," or does not provide MV b) The penalty is $3,000 per year for each FTE who enrolls in an Exchange plan and receives a federal subsidy. The fee is nondeductible for income tax purposes and is increased annually after 2014. 3. The employer must do some reporting to show compliance with MEC a) IRC Section 6055 reporting focuses on enrollment in MEC b) IRC Section 6056 reporting focuses on the offer of MEC to FTE's

Traditional techniques for controlling antiselection that are prohibited by the ACA

1. Underwriting, including offering alternative coverage or denying coverage 2. Health status rating 3. Pre-existing condition exclusions 4. Exclusionary riders 5. Lifetime or annual dollar limits 6. Limiting benefit coverage or imposing very high cost sharing designed to attract healthier risks 7. Rescissions, except in cases of fraud or intentional misrepresentation 8. Marketing practices that discourage unhealthy risks from signing up

Methodology for calculating ACO shared savings payments, one-sided model

1. Updated (adjusted) benchmark for PY i: C'_PYi 2. Actual spending: determined from the ACO's actual spending in PY i 3. In each PY, savings = Updated (adjusted) benchmark - actual spending 4. Maximum sharing rate = 50% for one-sided models. Also called the quality performance sharing rate 5. Shared savings a) Shared savings rate = maximum sharing rate * quality performance score (straight average of the 4 domain scores) b) Shared savings = savings * shared savings rate c) Shared savings are capped at 10% of the updated benchmark in the one-sided model d) A minimum savings rate (MSR) is used to reduce the chance of payments due to random fluctuations. Savings must exceed this rate to trigger shared savings, but once the MSR is met, all savings are shared (even those below the MSR).

Situations where consumer engagement is less likely to have an impact even under an HDHP

1. Urgent care needs without time to engage in proactive consumer behavior 2. Individuals with higher cost chronic care needs are more likely to hit their out-of-pocket limit

Risks to the provider under shared savings

1. Utilization risk - because of the complexity of contracts, this risk is hard to quantify 2. Technical risk - this risk is high due to the complexity of calculating benchmarks, reconciling savings, measuring quality, and distributing savings and losses 3. Insurance risk - there is a risk that year-to-year variation in claims costs will result in claims costs that are different than the benchmark 4. Performance risk - there is a significant risk regarding whether care management efficiencies can be achieved and whether the benchmark can be met

Risks to the provider under global capitation

1. Utilization risk - changes in utilization have the opposite impact as in a FFS model. Profit increases for providers as utilization decreases. 2. Technical risk - this risk is quite high. A provider organization will need complex structures in place to allocate money among various providers. 3. Insurance risk - all of the insurance risk is transferred to the provider. The provider takes on the risk that members will need more services than was expected when negotiating the capitated rate. 4. Performance risk - the provider is at high risk since it takes on the financial responsibility for all of the care the patient receives

Risks to the provider under FFS

1. Utilization risk - for most services, the provider's profit increases as utilization increases 2. Technical risk - this risk is low because FFS is easy to implement, design, and monitor 3. Insurance risk - providers have very little insurance risk. They are not at risk for the year-to-year variation in claims cost of a specified population. 4. Performance risk - this risk may exist if the claims administrators do not carefully monitor nonspecific codes

Risks to the provider under DRG/case rates

1. Utilization risk - increased admissions lead to increased profits. But the provider has an incentive to reduce the length of stay because for longer stays the provider has additional costs but no additional reimbursement. 2. Technical risk - this risk is low to medium because DRGs have existed for some time and there are established models for creating DRG groupings 3. Insurance risk - the provider is at risk for longer lengths of stay, but not for incidence risk 4. Performance risk - the hospital must be cautious of discharging patients too early. That could increase the risk of readmissions, which carries financial penalties from Medicare.

Risks to the provider under reference pricing

1. Utilization risk - members will be less likely to use provider services as their out-of-pocket share increases 2. Technical risk - there is risk related to educating the policyholder on reference pricing 3. Insurance risk - some patients may need high-cost care, in which case the insurance risk is shifted to the patient and away from both the insurer and the provider 4. Performance risk - patients who are charged high amounts for procedures may be unhappy with both their providers and their insurers

Types of risk associated with payment arrangements, from the provider's perspective

1. Utilization risk - the risk that changes in utilization will impact provider profitability 2. Technical risk - the risk of appropriately structuring technical elements of a contract 3. Insurance risk - the risk of variation in demand for medical services over time and the risk of differences in utilization within segments of the insured population. Examples include: a) Age, gender, and acuity differences b) Number of high-cost cases vs. average c) Year-to-year variation in patient demand for services d) Proportion of the population that has zero claims in a year 4. Performance risk - the risk of inefficiency, suboptimal quality, and high cost of care

Risks to the provider under provider excess loss reinsurance

1. Utilization risk - this risk is shifted to a reinsurer 2. Technical risk - this risk will vary with the structure of the stop-loss contract. The most common approach is a coinsurance arrangement, which has low technical risk. 3. Insurance risk - the provider's risk of high outlier costs is somewhat mitigated 4. Performance risk - this risk is highly dependent on the structure of the reinsurance policy

Risks to the provider under bundled payments

1. Utilization risk - when the number of episodes increases, provider profits can increase. But within an episode, the provider will need to decrease medically unnecessary services in order to make a profit. 2. Technical risk - this risk is quite high due to challenges such as defining conditions, coordinating care, and partnering among different providers 3. Insurance risk - the provider is at risk for members who have higher allowed costs than the average episode 4. Performance risk - there is risk related to proper discharge planning and communication

Corporate actuarial functions within financial reporting

1. Valuation of policy liabilities (GAAP, tax, internal management, embedded value, US GAAP, etc.) 2. Dynamic Capital Adequacy Testing (DCAT) 3. Earnings analysis, such as embedded value, sources of earnings, earning at risk 4. Capital analysis and management, such as MCCSR, capital planning, Value at Risk, policyholder and shareholder dividend recommendations 5. Risk management programs and reporting, including asset/liability management 6. Long-term projections of actuarial elements for corporate/business planning 7. Research related to the above functions

Definitions related to payment reform

1. Value-based arrangements - a payment model or contract agreement that reimburses services based on quality measures such as patient outcomes and efficiency, often at a predetermined price. It is the opposite of a volume-based arrangement. 2. Payment reform - the environment where more contracts move to value-based arrangements 3. Payment model - the arrangement between a payer and provider to reimburse the provider for services 4. Service delivery model - the manner in which providers organize and deliver care to patients. Can refer to an approach (such as telemedicine) or organization (such as an ACO).

Key drivers influencing technology trends in health insurance

1. Value-based reimbursement models naturally extend to providers offering sponsored health plans 2. Competition spurring health insurers to explore innovative avenues of customer engagement 3. Wearables have gained in popularity and real time data offers many opportunities to insurers 4. Automation reducing human induced errors and delays in customer service 5. Blockchain offers a secure method to store patient data with access for providers and payers 6. The need to integrate data from various sources in shared platforms 7. The need to improve fraud detection and anticipate customer needs 8. Increasing costs haved pushed payers toward quality focused, value based care 9. The fragmented nature of the current healthcare system invites InsurTech to offer new solutions 10. The volume of electronic health records and real time data pushes the demand for cloud technology

Small group insurance underwriting criteria allowed by the ACA

1. Verification that the entity is a licensed employer in the state 2. A requirement that a group's employees live, work, or reside within the service area of the plan's network 3. Participation and contribution requirements for coverages issued outside open enrollment periods 4. Employee eligibility requirements, such as the number of hours worked 5. Enforcement of employer restrictions on coverage for late entrants (such as waiting periods)

Formula for determining Medicare allowed amounts

1. Weights are determined based on: a) Relative value units (RVUs) - these are categorized by Current Procedural Terminology codes. There are three components for each RVU: work/practice cost (w), facility/cost of living (f), and malpractice (m). b) Geographic Practice Cost Index (GPCI) - these are based on provider ZIP codes 2. Medicare allowed amount = (GPCI_w * RVU_w + GPCI_f * RVU_f + GPCI_m * RVU_m) * conversion factor 3. Payments are also adjusted for various reasons, such as who performs the service (e.g., professional surgeon vs. assistant surgeon) and where the service is performed

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?

Questions answered by a market assessment

1. What exists in the market today? 2. What is the product objective for the consumer? 3. What is the regulatory environment for this product? 4. What are the financial value and other benefits for the consumer? 5. What are the price targets? (the assessment may indicate a range of acceptable prices) 6. What is the likely reaction from competitors? 7. How will the sales team react?

Factors to consider when modeling payments and cash flows for a provider payment model

1. What types of unintended behaviors may occur due to incentives created by the payment model? 2. What other factors would jeopardize achievement of forecasted results? 3. How will results achieved during the model test be replicated? 4. Will the structure and the dimensions of the payment model change over time? 5. Will there be a phased-in approach? 6. How will the payment model promote continuous improvement of the service delivery model? 7. What key factors, including other delivery and payment reforms, may affect this progression?

Situations in which ASOP #25 applies

1. When the actuary is required by applicable law to evaluate credibility 2. When the actuary chooses to evaluate the credibility of subject experience 3. When the actuary is blending subject experience with other experience 4. When the actuary represents the data being used as statistically or mathematically credible

Comparison of key features of health care accounts a) HSA b) HRA c) FSA

1. Who owns the account? a) Employee/individual b) Employer c) Employer 2. Who can contribute? a) Employee/individual and employer b) Employers c) Employee and employer 3. Are contributions tax deductible? a) Yes b) Yes; contributions made by employer are excluded from gross income c) Yes, except long term care contributions made by the employer 4. What are the contribution limits? a) Indexed: In 2019, $3,500 for individuals and $7,000 for families b) Unlimited, except small employers have limits c) $2,700 in 2019 5. Can the funds rollover to the next year? a) Yes b) Yes, but not required and commonly forfeited at employment termination c) A small amount is allowed; most employees have "use it or lose it" policy 6. What distributions are tax free? a) Medical, Rx, dental, vision, LTC premiums, Medicare premiums b) Medical, prescription drugs, dental, vision, health insurance premiums, LTC premiums and limited expenses c) Medical, Rx, dental, vision 7. What distributions are not eligible? a) Amounts covered under another health plan (subject to penalties) b) Amounts covered under another health plan c) Health insurance premiums, LTC premiums or expenses,amounts covered under another health plan 8. Is an HDHP required? a) Yes b) No, but can be used with HDHP c) No, but can be used with HDHP

Formula for determining the company HIF % load in 2020

= (Company 2019 premiums * (2020 industry fixed fee / Industry prem 2019)) * (1 / Company 2020 premiums) * (1 / (1 - 2020 tax rate)) 1. 2020 industry fixed fee: After 2018 fees are based on eligible premium growth rates 2. Industry prem 2019: This is based on assessed premium 3. Company 2019 premiums: This is based on assessed premium 4. Company 2020 premiums: Assumed to be normal premiums 5. 2020 tax rate: This is the 2020 corporate tax rate, often 21% 6. 2020 company HIF load: 2020 HIF pre tax load to be applied to 2020 company premiums

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. For FSAs, 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

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

Advantages and disadvantages of closed-panel HMOs

Advantages: 1. Ability to more closely manage care 2. Delegation of many routine medical management functions to the group, which reduces administrative costs 3. Convenience for members of having lots of services available in one location Disadvantages: 1. Not as easily marketed to new members who would have to change doctors 2. Locations of medical offices may not be convenient for all members 3. Only feasible in medium to large cities 4. More complex and costly to set up and maintain

Advantages and disadvantages of private exchanges

Advantages: 1. Increased employee choice 2. Cost-savings potential from increased competition across carriers and best-in-class carrier pricing 3. Increased consumerism from members buying-down benefits as a result of a transparent defined-contribution approach 4. Robust online decision-support tools and customer service 5. Benefits administration simplification 6. Shift of financial and regulatory risks (for fully-insured models) 7. Cost predictability (for fully-insured models) 8. Improved cost transparency Disadvantages: 1. Additional expenses for exchange operator financing 2. Less control over plan design, clinical management, and member outreach 3. The need for the employer to increase the defined-contribution amount over time 4. Other member concerns, such as loss of plan-sponsor support and less generous benefits

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

Characteristics a small group insurer should consider in evaluating experience

But a small group insurer cannot decline coverage or rate groups based on these characteristics 1. Financial viability - consider how long the employer has been in business and whether there is significant employee turnover 2. Industry and occupation - consider the type of work done and the lifestyles of employees 3. Group size - larger groups result in a better spread of morbidity risk and lower administrative expenses on a per capita basis 4. Workers' compensation - in states that do not require small employers to purchase this coverage, insurers will have to cover expenses that workers' compensation would typically cover 5. Participation and employer contributions - historically, insurers required certain participation and contribution levels to help ensure a better spread of risk. Under the ACA, these requirements are no longer allowed except when coverage is issued outside of open enrollment periods. 6. Prior coverage - for a group changing carriers or seeking coverage for the first time, consider the group's motives for now seeking coverage

Formula for group term life imputed income

Employees are taxed on the value of employer-provided group term life insurance in excess of $50,000. This value is determined from Table I (rates vary by age) Monthly imputed income = [Table I rate * (Coverage amount - $50,000) / $1,000] - employee contributions

Optional benefits that may be added to group disability contracts

For LTD: 1. COLA - cost-of-living adjustment to provide inflation protection for benefits 2. Survivor benefit - a lump sum benefit payable to the insured's survivors upon the death of the insured 3. Expense reimbursement for day care expenses 4. Pension benefit - an additional benefit payment to replace lost contributions to retirement plans 5. Portability - allows an insured who leaves the group to continue group coverage 6. Conversion option - insureds who lose coverage can convert to either group or individual disability coverage 7. Spousal benefits - disability protection for spouses of employees 8. Catastrophic benefits - additional amounts for more serious disabilities, such as those resulting in total paralysis For STD: 1. 24-hour coverage - to cover both on-job and off-job disabilities 2. First day hospital coverage - elimination period is waived if the insured is confined in the hospital due to a disability 3. Survivor benefit (same as LTD)

Enrollment requirements for Medicare Advantage and Part D plans

MA plans are guaranteed issue for any beneficiary who meets the following requirements: 1. Is enrolled in Medicare Parts A and B 2. Does not have end stage renal disease (ESRD) 3. Applies during a valid enrollment period, such as: a) Initial enrollment period - when beneficiaries first become eligible for Medicare b) Annual open enrollment period - between October 15 and December 7 of each year, beneficiaries can enroll or change their MA or Part D coverage c) Special enrollment periods - these exist for various reasons, such as a change in residence or loss of current coverage 4. Resides in the plan's service area 5. Abides by the terms of the insurance contract Part D plans have similar guaranteed issue requirements, except that: 1. Beneficiaries are eligible as long as they are enrolled in Part A, Part B, or Part C 2. Beneficiaries with ESRD are eligible

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

Many of these variables can now only be used in rating large groups, due to the ACA 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 the experience to reflect a common reimbursement level 7. Other risk adjusters (based primarily on claim, diagnosis, encounter, and pharmacy data) - these may eventually become the primary method of risk adjustment

Profit formula for ACOs in the MSSP

Net gain/loss = - Revenue reductions + Bonus/share of revenue reductions - Start-up costs of the ACO - Administrative costs of operating the ACO + Reduction in direct expenses

Parameters that refine stop-loss coverage

Other than specific and aggregate parameters 1. The benefit types covered 2. The contract basis of SLI 3. How known risk exposures are covered by SLI (e.g., laser, load premium, laser pooling) 4. The maximum liability of the SLI

Typical retrospective refund formula

Policyholder account balance = prior balance carried forward + premiums + investment earnings - claims charged - expenses - risk charge - premium stabilization reserve addition - 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. Claims charged = claims paid + increase in claim reserves - pooled claims + pooling charges + conversion charges + claim margins 5. Expense charges typically vary by duration to allow for the recovery of acquisition costs 6. Risk charge covers the risk that the policyholder will terminate coverage while in a loss position 7. Addition to premium stabilization reserve - to reduce the risk of a deficit on termination. The insurer may require a 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

Steps of the product development cycle

Product development is the process by which new products are created and existing products evolve 1. Innovate - consists of: a) Understanding the company's strategic perspective b) Idea generation c) Idea screening - check for consistency with corporate goals and feasibility with the corporation's abilities d) Market assessment - to determine if a market exists for the product 2. Design the product - this phase consists of determining the product structure, plan design options, contribution requirements, and regulatory compliance 3. Build the product 4. Sell the product - the product is often test marketed, after which revisions are done before it is mass marketed 5. Assess the product - monitor financial results and consumer and market feedback 6. Revise the product - changes may be indicated by the product assessment, regulatory requirements, or consumer demand

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 - remove 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

ACA requirements that may change the availability of small group medical insurance

Requirements that may increase availability: 1. Small groups with 50 or more employees are required to offer coverage or pay a fee 2. Small groups with under 50 employees are offered temporary tax credits for providing coverage Requirement that may decrease availability: 1. The availability of guaranteed coverage in the individual market leads to some employers not seeing a need to offer employer coverage

Stop loss product variations

Specific stop loss variations 1. A no-laser guarantee 2. A no-laser rate cap 3. Aggregating specific stop loss Aggregate stop loss variations 1. Aggregate-only 2. Aggregate attachment points below 100% of the expected claims 3. Aggregate accommodation

Structural requirements of accountable care organizations (ACOs)

The ACA created ACOs for use in the Medicare program. They help achieve more integrated and efficient care by fostering local organizational accountability for quality and costs. 1. Those eligible to form an ACO include group practices, networks of individual practices, hospitals, rural health clinics, and federally-qualified health centers 2. Must be a legal entity that is authorized to conduct business in each state in which it operates 3. Must be formed for the purposes of: a) Receiving and distributing shared savings b) Repaying shared losses or other monies owed to CMS c) Establishing, reporting, and ensuring provider compliance with health care quality criteria 4. At least 75% of the ACO's board seats must be held by ACO participants 5. Management structure must be similar to what is found in a nonprofit health plan 6. Participants must have a sufficient investment such that ACO losses would be a significant motivator

Components of medical trend

The component method for developing pricing trends combines the following to get the pricing trend 1. Core cost trend - the rate of increase in the covered cost per service, before adjustments for specific factors such as aging or one-time changes. Consists of three parts: a) Unit cost trend - the change in payments to providers for a fixed basket of services b) Severity - the increase in the intensity of treatment c) Change in mix of services - such as changes in the distribution of type of service or provider 2. Core utilization trend - includes changes in utilization due to external forces, such as the economy, the number of workdays during the period, and changes in medical practice 3. One-time changes - response to a specific, identifiable situation. Types include: a) A significant change during one period, followed by a return to normal the following period. Examples include a severe flu season and weather events. b) A sustained change in claims level. Examples include legislative changes (new mandated benefits) and internal changes. 4. Expected population shifts - includes changes in geographic mix and age-gender mix 5. Structural changes - includes leveraging, benefit changes, changes to clinical programs, and network changes 6. Capitation - can impact trends if there is a material change in the average capitation fee or bonus payments 7. Margin - added to best estimate trend to minimize the chances of a loss

Stop loss contract basis

The contract basis is used to limit the period during which eligible losses must be incurred or paid 1. 12/15 - covers losses incurred within a 12-month policy period and paid within 3 months of the end of the policy. The extra 3 months is referred to as run-out coverage. 2. 12/12 - covers losses incurred and paid within the 12-month policy period 3. 15/12 - covers claims paid within the 12-month policy period and incurred during that period or within 3 months before that period. Is referred to as a run-in policy. 4. Paid - a run-in policy that covers claims paid during the 12-month policy period and incurred at any time after the original effective date 5. Incurred - pays for all losses incurred in the period but paid at any time. Is not common because an integral part of stop loss design is the limitation on payment dates. 6. Different run-in and run-out lengths exist, resulting in contracts such as 12/18 and 24/12

Benefit triggers for LTC insurance policies

The insured must satisfy the benefit trigger to become eligible for benefits. For tax-qualified policies, the trigger must be: 1. The inability to perform (without substantial assistance) at least two activities of daily living (ADLs), or 2. A cognitive impairment that requires substantial supervision to protect the health and safety of the insured. Behaviors that indicate cognitive impairment are: a) Wandering and getting lost b) Combativeness c) Inability to dress appropriately for the weather d) Poor judgment in emergency situations

Rating approaches for Medicare Supplement

The methodology used may be mandated by regulation 1. Attained age - rates are based on the individual's current age 2. Issue age - rates are based on the individual's age when the policy was issued 3. Community rates - all participants pay the same rate. Some modified community rating approaches differentiate based on age, sex, duration, or other parameters.

Methods used to calculate a reserve for a specific stop-loss block of business

The most common method used to calculate stop-loss reserves is to select an ultimate loss ratio 1. Earned Premiums * Ultimate Loss Ratio = Estimate of Incurred Claims 2. Reserves = Estimate of Incurred Claims - Paid Claims Another option is the Bornhuetter-Ferguson (BF) method 1. The BF approach implicitly combines the loss ratio and development methods 2. The general formula is: Reserve = Expected Losses * (1 - Completion Factor)

Descriptions of buy down effect and premium leakage

These occur when policyholders are allowed to buy down their benefits (move to higher deductibles) 1. Buy-down effect - upon receiving a rate increase, some policyholders switch to lower cost plans, so the actual premium increase will be less than what the insurer expected a) The buy-down effect is the lost premium due to buy downs b) Buy-down effect = actual pure premium before buy down - actual pure premium after buy down 2. 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. a) Premium leakage = expected pure premium after buy down - actual pure premium after buy down

Areas of specific concern for product design of critical illness insurance

These all relate to managing risk 1. Definitions - limiting benefits for conditions that are non-life threatening when diagnosed 2. Avoidance of antiselection at issue 3. The potential high cost of benefits for some conditions beyond age 75 4. The potential high cost of long-term guarantees due to advances in medical science leading to earlier detection

Alternative coverage options for low-risk small employer groups to remain outside the fully-insured market

These allow healthy groups to reduce costs by avoiding being part of the ACA single risk pool for small groups 1. Continue in plans that are exempt from many ACA reforms: a) Grandfathered plans - plans that existed before the ACA and are allowed to continue indefinitely as long as their benefits and cost-sharing structure do not change significantly b) Grandmothered or transitional plans - plans that renewed in 2013 before the ACA's primary benefit and rating reforms went into effect, and which most states allow to continue through 2017 2. Set up a self-funding arrangement - these often include stop-loss insurance with very low attachment points. So they mimic traditional insurance, but are exempt from most of the ACA's market reforms. 3. Obtain coverage through group purchasing arrangements - these lower costs by self insuring and pooling admin functions. They may also claim large employer status to avoid small group reforms. 4. Drop coverage entirely - the employer mandate does not apply to employers with fewer than 50 employees, and the ACA guarantees coverage to the employees who are dropped

Examples of objectives for a new benefits structure after merging two employer groups

These are actionable items that should follow the guiding principles: 1. The new medical benefit structure should be close to cost neutral to the current separate programs a) Limit year over year trend in employer cost share for medical benefits to X% b) Limit total benefits spend to a given cost on a per employee basis 2. Maintain current competitive position to comparator groups with respect to overall company subsidy for medical benefits 3. Offer medical benefits that cover the same percentage of charges as local employers along with similar payroll contributions 4. Minimize provider disruption, particularly disruption of member relationships with their PCP 5. Retain the parent companies salary banded contribution structure to increase affordability for lower paid employees 6. Phase out old plan designs that are less prevalent 7. Retain a highly efficient staff model HMO plan (considered best-in-class) 8. Complete a vendor selection process to identify the best-in-class medical carrier with the lowest cost of care for the combined population 9. Minimize the number of employees who would be negatively impacted by benefits changes 10. Manage the impact of adverse selection 11. Implement medical plan designs that foster participation in HSAs

Risk classification schemes

These are the criteria that can be used to classify risks 1. Demographics - age, gender, family status, or geographic location 2. Utilization measures or claim expenditures - these are generally viewed as inappropriate for health risk adjustment because they could reward an insurer for high historic costs resulting from inefficiencies 3. Diagnosis and pharmacy codes - these codes are commonly used in health risk assessment 4. Medical information or history - based on biomedical measurements (such as blood pressure, cholesterol, height, and weight) or medical history questionnaires (to determine prior medical conditions) 5. Perceived health status - based on answers to a health questionnaire 6. Functional health status - based on ability to perform activities of daily living 7. Lifestyle and behavior factors - such as smoking, fitness level, substance abuse, or diet 8. Multiple classification criteria - it is common to use more than one of the above criteria simultaneously (common diagnosis and demographic information)

Reasons for health risk adjustment

These are the major goals and policy arguments for requiring risk adjustment 1. Require health plans and providers to compete on the basis of efficiency and quality, not on risk selection 2. Preserve choice for consumers 3. Have consumers pay an appropriate price for their choice of insurer or provider 4. Under certain reforms (such as guaranteed issue and rating limitations), a health risk adjuster is needed to compensate the plans with higher-than-average risks through transfer payments from plans covering lower-than-average risks

Major physician remuneration models in Canada

These are the major ways in which physicians are paid for their services 1. Traditional FFS - the physician bills for each service provided. Each province establishes a schedule of benefits that lists the fees paid for the different services. 2. Enhanced FFS - most provinces offer bonuses and fee schedule enhancements for family physicians and some specialties. Enhancements include bonuses for chronic disease management, additional funds for treating special-needs populations, and an increase in fees in qualifying rural or remote areas. 3. Alternative payment plans (APPs) - these methods are an alternative to traditional FFS payment 4. Salary - a regular payment which is specified in an employment contract. Remuneration is often done through "time-based payments," such as annual salaries or hourly rates

Criteria used for underwriting large groups

These criteria are used to screen, approve, and classify large groups 1. Age and gender - age is highly correlated with 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 - in the past, insurers used minimum participation requirements. But with the ACA requiring guarantee issue, many insurers have added participation and contribution levels to their rating formulas. 7. Carrier persistency - due to competitive considerations, setup costs for new groups are not commonly recouped in the first or second contract year

Coverage options for groups that have kept transitional coverage

These groups must choose one of the following in 2018 once transitional relief expires 1. Purchase ACA-compliant coverage 2. Drop coverage 3. Find some way to be defined as a large group 4. Enter into a self-funding arrangement, such as ASO, ASO with stop loss, a minimum premium arrangement, or coverage administered by a third party administrator with or without stop-loss

Considerations in contracting for bundled payments

These include the key financial, operational, and quality issues 1. Defining the episode - what is the trigger date and when does the case end? Which services are included? 2. Evaluating catastrophic risk - need to do an outlier risk analysis that includes a classical stop loss analysis 3. Financial stability for low case loads - random fluctuation may be greater for provider groups with low case loads 4. Determining provider allocation of funds - the allocation should consider financial incentives for physicians to encourage them to promote more cost-effective care 5. Distinguishing case severity - could limit risk by removing higher-severity patients from the bundled payment approach 6. Quality outcome requirements - minimum thresholds may be needed to ensure quality is not compromised as services are reduced 7. Administrative complexity of supporting the contract 8. Risk-sharing alternatives - contracts that share financial risk between the provider and the payer may be more viable than pure bundled payments 9. Potential for increased utilization - contracts for individual providers should not give them incentives to increase utilization to get a larger share of the bundled rate

Types of living benefits for life insurance

This benefit (also called accelerated death benefits) pays a portion of the face amount prior to death, with the remaining benefit paid at death 1. LTC benefits - provides a monthly benefit of 2% of the face amount, beginning when the insured is permanently confined to a nursing home 2. Critical 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

Basic credibility formula for group medical insurance

This formula was created using a least squares credibility model z = [k_1 + (n-1)k_2] / [1 + (n-1)k_3] 1. n is the number of individuals in the group 2. k_1 is the credibility of a group of one individual. It equals the regression coefficient of an individual's claims in the current year based on the prior year. It is typically around 25%. 3. k_2 is the regression coefficient of claims for individuals in the current year based on the claims of others in the same group in the prior year. It is difficult to estimate, so it is often set equal to k_3. 4. k_3 is a measure of how the claims of each individual are related to others within the same group. It is commonly set equal to 1%.

Disclosures required in an actuarial report

This report states the actuarial findings and identifies the methods, procedures, assumptions, and data used 1. The intended users of the report 2. The scope and intended purpose of the assignment 3. The acknowledgment of qualification as specified in the Qualification Standards 4. Any cautions about risk and uncertainty 5. Any limitations or constraints on the use or applicability of the findings 6. Any conflict of interest 7. Any information on which the actuary relied that has a material impact on the findings and for which the actuary does not assume responsibility 8. The information date (date through which data and other information has been considered) 9. Subsequent events (may have a material effect on the actuarial findings) 10. If appropriate, the documents comprising the actuarial report

Typical basic group term life plan designs

To minimize adverse selection, none of these designs allow individual selection of insured amounts. 1. Flat dollar plans - such as $10,000 for all employees 2. Multiple of earnings plans (most common design) - such as 1 or 2 times earnings 3. Salary bracket plans - salary ranges are established and benefits vary by range 4. Position plans - benefits vary based on the employee's position in the company (e.g., hourly vs. non-officer management vs. officers)

Approaches for setting employee contribution levels for an employer health plan

Two basic approaches: 1. Defined benefit - such as setting the employee's contribution equal to a specified percentage of premium 2. Defined contribution - the employer provides a defined dollar subsidy regardless of plan choice Other levers (or strategies) the employer may use: 1. Income-based contributions - require higher contributions from higher-paid employees 2. Dependent subsidy or spousal surcharge - require a greater level of contribution to cover dependents 3. Health incentives - implement wellness incentive programs where employees receive a premium reduction for healthy behaviors, such as completing a health risk assessment or receiving preventive services

Large group program design considerations due to the ACA

Underwriters must consider the impact on large group medical plans of the following changes 1. Groups with more than 50 full-time equivalent employees are subject to employer penalties if health benefit offerings do not meet minimum value requirements, including that the plan's actuarial value must be at least 60% and certain classes of benefits must be covered 2. Benefit plans must allow the employee the option to cover dependents (but the ACA's definition of dependent does not include spouses) 3. The maximum waiting period before benefits must be offered to eligible new employees was shortened 4. Plans must be affordable (cost less than 9.5% of income for single coverage) to avoid employer penalties 5. Penalties will apply to health plans with very rich benefits, starting in 2018

Advantages of voluntary benefits

Voluntary benefits are offered by the employer but employees purchase them on their own Employer advantages: 1. More benefits can be offered without significant added cost 2. Can supplement or replace employer-sponsored benefits that have been reduced or eliminated 3. Can act as an employee recruitment or retention tool 4. Can offer to employees that meet performance targets Employee advantages: 1. Can get the employer's group discount 2. In some cases, can purchase with pretax dollars 3. Convenience of obtaining benefits through the workplace (not having to shop around) and during work time 4. They are often portable (employees can keep them upon changing jobs)

Types of disability income experience studies

1. Calendar year loss ratio study a) Compute the ratio of incurred claims to earned premium for a given calendar year b) Incurred claims are calculated as paid claims plus the increase in claim reserves c) May not provide a clear picture of historical trends because results are affected by reserve changes 2. Incurral year loss ratio study a) Compute the ratio of incurred claims to earned premium for a given incurral year b) Incurred claims are calculated as the present value of claim payments made to date plus the present value of the current claim reserve c) Shows historical trends because the full cost of a claim is attributed to the year the claim was incurred 3. Study of actual-to-expected incidence or termination rates - ratios of a company's actual claim incidence or termination rates compared to expected rates from published industry tables or company data

Types of health insurers and MCOs

(these plans make up the managed care continuum) 1. Indemnity - indemnifies the beneficiary from the financial cost of health care. There are few controls for managing cost. 2. Service plans - similar to indemnity, but adds contracting with providers as a way to manage costs 3. Managed indemnity - overlays some manage care features onto indemnity plans 4. PPOs - contract with a network of participating providers who agree to accept the PPO's payment structure and levels. Members who see PPO providers have higher levels of coverage (lower cost sharing). 5. Exclusive provider organizations - similar to PPOs, but care received by nonparticipating providers is not covered (except for urgent or emergency care) 6. POS plans - combine an HMO with indemnity-type coverage for care received outside the HMO. Members decide at the point of service whether to use the HMO or go out of network. 7. HMOs - provide basic and supplemental health services in the manner prescribed by the HMO Act 8. CDHPs - combine a high-deductible health plan with some form of individual pretax savings account (HRA or HSA) 9. Third-party administrators - administer benefits for self-funded employer groups, but do not assume risk 10. Consumer operated and oriented plans (CO-OPs) - member-run health insurers created to offer coverage to small groups and individuals through the ACA exchanges

Main approaches used to develop premium rates for critical illness insurance

1. "Costing" - calculating premium rates based on all of the related costs, usually the help of commercial product modeling software. Uses assumptions for the expected costs for all elements, including profit objectives and limitations on capital available for new business. 2. "Pricing" - premium rates are positioned relative to the company's major competitors to achieve the desired level of sales. A commercial premium rate quotation service is typically used. Both pricing approaches are used concurrently, with assumptions and target rates being adjusted until a good balance between financial objectives and competitiveness is found

Data sources for estimating disability claim costs

1. A company's own data is the best source if it is reliable and credible 2. Rate filings of competitors 3. Research of governmental and business publications 4. Data from consulting firms and reinsurers 5. Insurer studies - such as loss ratio studies and actual-to-expected incidence or termination rates 6. Industry data and tables (typically based on intercompany experience studies) a) 1987 Commissioners Group Disability Table - adopted by the NAIC as the statutory minimum reserve basis for LTD. Is still the most recent intercompany incidence rate study. b) SOA 2008 GLTD Experience Table - provides considerable detail on claim termination rates c) 2012 GLTD Valuation Table - will be replacing the 1987 CGDT for use in developing minimum statutory reserves d) TSA reports - contain exposure and actual to tabular ratios by industry classification e) 1985 Commissioners Individual Disability Table A (CIDA) - the basis of active life and claim reserves for individual policies f) SOA Individual Disability Experience Committee 1990-2006 Study

Types of reserves in disability income insurance

1. Active life reserve - exists for policies priced on a level-premium basis. Consists of the excess premiums charged in early years to cover the premium shortfall in later years. 2. Disabled life reserve - established to cover each disability claim and its projected length

Types of disability income claim experience studies

1. Actual-to-expected morbidity - this is the most preferable method of examining disability income experience, but there is often not enough data for morbidity studies. Morbidity consists of: a) The rate of disability - the number of disabled lives per thousand lives exposed b) The rate of recovery - measures the length of disability. The number of disabled lives that will recover at different points in time per thousand disabled lives. 2. Loss ratios - due to the limited amount of data, most studies are based on claims ratios: a) Cash claims ratio - claims dollars paid out divided by earned premiums b) Incurred claims ratio (preferred) - claims plus active life reserve plus claims reserve, divided by earned premium

Functions performed by PBMs

1. Administer prescription drug benefit programs 2. Negotiate rebates with manufacturers 3. Negotiate discounts with pharmacies 4. Manage relationships with third-party payers 5. Perform utilization management 6. Run drug-adherence programs 7. Integrate drug benefits with medical 8. Establish a formulary of drugs 9. Build a network of pharmacies

Steps in the Medicare Advantage and Part D bid submission process

1. Advance notice of payment policies and draft call letter - CMS publishes these early in the year, outlining proposed changes for the next year 2. Announcement of MA capitation rates and the final call letter - CMS publishes this in early spring 3. Submission of initial bid - the plan sponsor submits a bid for each plan by no later than the first Monday in June. This bid projects the expected cost of providing benefits and is certified by a qualified actuary. 4. Desk review - the bids are reviewed by CMS and third-party actuaries contracted by CMS. This review is usually completed by late July. 5. Rebate reallocation process - Part D bids must be adjusted once the national average bid amounts and member premiums are known. Plan sponsors do this in early August. 6. Finalize the bid, including a second actuarial certification 7. Bid or financial audit - after bids are approved, the plan may be selected for this more detailed review

Group characteristics that impact disability income claim costs

1. Age and gender 2. Occupation - may need to adjust claim costs for: a) Hourly vs. salaried b) Blue collar vs. grey collar vs. white collar c) Union vs. non-union d) Commissioned sales personnel 3. Industry - for group insurance, it is more appropriate to rate based on industry than on occupation 4. Average earnings per employee - claim rates decrease as average earnings increases 5. Area - claim costs vary due to the legal environment and the general attitude and culture of the area 6. Size of group - claim costs follow a "U" shaped curve, with higher costs for the largest and smallest employers

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, professionals, and groups who are more aware of their benefits have higher costs 7. Contribution and participation - groups with less than 100% participation will have higher costs due to antiselection. The level of participation is inversely related to the required contribution level.

Data fields included in pharmacy data files

1. Age, gender, and date of birth of the patient 2. Fill date - this is the incurred date for the claim 3. Claim ID 4. Prescribing provider ID 5. Pharmacy provider ID 6. Drug name - use a consistent source so the data does not have two different names for the same drug 7. Tier - the category for the drug, as defined in the plan design 8. National Drug Code (NDC) - an eleven-digit code used to identify a specific form of a drug. A mapping of NDCs to drug names can be obtained from data vendors. 9. Days supply - scripts are generally grouped into 30-day, 60-day, or 90-day categories 10. Units - the number of pills or a measurement of volume for liquid medications 11. Allowed amount - sum of discounted ingredient cost, dispensing fee, vaccine fee, and sales tax 12. Refill indicators - for prescriptions that allow refills, this shows which fill the current claim is for 13. Member and plan cost - these fields show how much of the allowed cost is paid by each party 14. Therapeutic class - categorization based on the conditions that the drugs are intended to treat 15. Other types of drug codes - RxNorm Concept Unique Identifier (RxCUI) and Generic Product Identifier (GPI) 16. Average wholesale price and wholesale acquisition cost

Categories of essential health benefits (EHBs) under the ACA

1. Ambulatory patient services 2. Emergency services 3. Hospitalization 4. Maternity and newborn care 5. Mental health and substance use disorder services 6. Prescription drugs 7. Rehabilitative and habilitative services and devices 8. Laboratory services 9. Preventive and wellness services and chronic disease management 10. Pediatric services, including dental and vision care

Payment mechanisms for prescription drugs

1. Average manufacturer price (AMP) - the price manufacturers use to sell to wholesalers. In Canada, is called the manufacturer's list price (MLP) and is regulated to ensure prices charged are reasonable and in line with prices of alternative treatments. 2. Wholesale acquisition cost (WAC) - the manufacturer's suggested list price, which may also be used as a sale price to the wholesaler 3. Average wholesale price (AWP) - is based on data obtained from manufacturers and distributors, but it's not an average nor is it based on any actual prices paid by anyone a) WAC and AWP are the most widely accepted mechanisms. For brand drugs, WAC must be 83.33% of AWP in the US, due to legislation. 4. Actual acquisition cost (AAC) - the price retailers pay to wholesalers, negotiated between the two parties. In some cases, pharmacies buy drugs directly from manufacturers in which case AAC = AMP. 5. Usual & customary (U&C) retail price - the price consumers pay to retailers. It includes the retailer's AAC plus a markup. 6. Maximum allowable cost (MAC) - is typically used for generic drugs and can be viewed as a fee schedule

Types of group life insurance benefits

1. Basic group term life (most common) - provides employees a common level of basic insurance protection 2. Group supplemental (or optional) life - provides additional insurance beyond basic group term life. Typically employee-pay-all with unisex rates in 5-year age brackets. 3. Group accidental death and dismemberment (AD&D) - typically offered as a companion to group term life and with the same face amount. 100% of the face amount is paid upon death or loss of more than one member (hand, foot, sight of an eye). 50% is paid upon loss of one member. 4. Dependent group life - multiple coverage options are usually provided, offering coverage up to $100,000 on the spouse and $10,000 on each child 5. Survivor income benefits - provides a monthly payment in lieu of a lump sum death benefit. Benefit is typically a percentage of monthly earnings, such as 25% for a spouse and 15% for a child. 6. Group permanent life - plan types are single-premium group paid-up life, group ordinary life, and group term and paid-up 7. Group universal life (GUL) - consists of a term life component and a side fund that accumulates with interest to provide tax-favored savings and long-term insurance protection 8. Group variable universal life - same as GUL except several investment options (including equities) are available 9. Living benefits

Plan provisions on LTC insurance policies

1. Benefit triggers 2. Elimination or waiting period - a time period during which the insured must remain disabled and benefit eligible before benefits are paid (commonly 90 days) 3. Covered services 4. Alternate plan of care - allows the insurer to pay benefits (at its discretion) for services not explicitly covered by the contract 5. Benefit limits - enrollees select a daily benefit maximum for institutional care. Other benefits are tied to this daily benefit. Lifetime maximum is administered as a pot of dollars = daily amount * 365 days * years of benefit purchased 6. Inflation protection - increases the benefit limits as LTC costs increase over time 7. Nonforfeiture benefits - sold as an optional benefit. Provides a reduced, paid-up benefit to insureds who lapse coverage 8. Spousal riders and discounts - some plans offer a premium discount for individuals who are married 9. Restoration of benefits - many plans restore the lifetime maximum benefit if an insured recovers before exhausting the plan's benefits 10. International coverage - some plans provide limited benefits for care received abroad 11. Shared lifetime maximum benefit pools - some plans allow an insured who uses all of his or her benefits to tap into any remaining benefits of a spouse's policy 12. Policy exclusions - examples include pre-existing conditions or diseases, alcoholism and drug addiction, and treatment covered by other policies or Medicare

Typical plan design for dental insurance

1. Benefits are divided into the following classes: a) Preventive and diagnostic (Class I) - oral exams, cleanings, fluoride, sealants, x-rays b) Basic (Class II) - fillings, extractions, endodontics (root canals), periodontics (treatment of gum disease), and oral surgery c) Major (Class III) - inlays, onlays, crowns, bridges, and dentures d) Orthodontics (Class IV) - sometimes added to dental plans, with a lifetime maximum 2. Reimbursement varies by class, such as 100% for Class I, 80% for Class II, and 50% for Class III. Less cost sharing is required on preventive services to encourage their use. 3. Calendar year deductible - such as $50 or $100, often waived for Class I services 4. Annual plan benefit maximum - ranges from $1,000 to $2,500 per person 5. No annual out-of-pocket maximum. An exception is that the ACA-compliant pediatric dental coverage must have an out-of-pocket maximum.

Methods in which accelerated death benefit riders are typically financed per NAIC Model Regulation

1. Charge an explicit premium - also called the "dollar for dollar" method a) The death benefit is reduced by the same dollar amount from the accelerated benefit b) In many jurisdictions, including the IIPRC, the 10% incidental value test must be passed c) Any separate premiums must also have a reserve for this benefit 2. Discount the benefit using an actuarial present value approach a) Accounts for the time value of money the company forgives by providing the death benefit early b) When the benefit is triggered, a set of factors is applied to the accelerated amount, discounting it c) This method may be popular because of its zero-dollar premium 3. Establishing a lien on the base policy - the policyholder will pay an interest rate on the loan

Methods of adjusting manual rates for specific benefit plans

1. Claim probability distributions (CPDs) - these are typically used to estimate the impact on claim costs of deductibles, coinsurance, and out-of-pocket 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 formulary design

1. Closed - only formulary drugs are covered. But plans must have a process to cover non-formulary drugs for individual patients based on medical necessity. 2. Open - all eligible drugs are covered, but cost sharing may vary by tier 3. Tiered (incentive) - separate formulary tiers are established, with copays or coinsurance varying by tier

Steps in developing claim costs for use in a rate manual

1. Collect data - data should be collected for an incurral 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 3. Project experience period costs to the rating period - the trend rate should reflect changes in utilization of services, changes in the average cost per service, and other factors, such as regulatory impacts and cost shifting among payers

Criteria for provincial Medicare plans to quality 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).

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 therefore leads 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

Types of cost sharing plans for pharmacy benefits

1. Copay plans - often seen with managed care plans. Copays typically vary by tier. 2. Coinsurance plans - coinsurance will increase by tier. Will typically include a deductible, either integrated with a medical plan or a separate deductible if the plan is not integrated. 3. Combination of copay and coinsurance - options include: a) Cost sharing equal to the larger of a copay or a percentage coinsurance b) A coinsurance percentage with a dollar maximum

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. Waiting period - used to discourage individuals from enrolling for one year to treat significant dental problems and then dropping coverage 4. 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.

Major effects of HIPAA on LTC

1. Defined qualified plans 2. Clarified taxation of premium and benefits - established that a qualified LTC insurance contract shall be treated as an accident and health insurance contract for tax purposes 3. Standardized benefit triggers 4. Allowed tax reserves to be calculated on a one-year preliminary term basis for tax-qualified plans

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. The breadth of the network and the degree to which the provider participates in the risk related to the cost of the service

Benefit provisions for group disability income

1. Definition of disability 2. Elimination period - the period of time the employee must be disabled before collecting disability benefits. Commonly 3 months or 6 months for LTD. For STD, commonly 8 days and may be shorter for accidents than for sicknesses. 3. Benefit period - commonly 2 years, 5 years, or to age 65 for LTD. For STD, typically 13 or 26 weeks to coordinate with the LTD elimination period. 4. Benefit amounts - benefits paid monthly for LTD and weekly for STD. Replaces a percentage of pre-disability earnings (such as 60% for LTD and less for STD). A maximum benefit amount may further limit payments. 5. Benefit offsets - benefits are reduced by income from other sources, such as Social Security, retirement benefits, workers' compensation, and part-time work 6. Limitations and exclusions - benefits for mental illness and substance abuse are usually limited to the first 2 years of disability. Disabilities resulting from an act of war or intentionally self-inflicted injury are usually excluded. 7. Optional benefits

Important rating factors for pharmacy benefits

1. Demographics - such as age and gender 2. Area 3. Benefit design - changes in benefits may cause changes in drug use. This is referred to as induced utilization. 4. Formulary - costs are impacted by: a) The list of covered drugs and tier placement of drugs b) Formulary management programs, such as prior authorization, step therapy, and quantity limits c) Brand patent expirations 5. Contracting - PBMs negotiate with pharmacies regarding dispensing fees and discounts off the average wholesale price 6. Other factors - these include changes in mail order utilization, changes in the generic dispensing rate, and changes in utilization management or cost management programs

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 rate_x,g,e,w = I_x,g,e * RSV_x,g,e,0 / 12 (RSV is the reserve at time 0, I is the probability of claim) b) STD: Base rate_x,g,e,w = I_x,g,e * D_x,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 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 and 250 for STD) 4. Final case premium = blended rate / target loss ratio

Steps for calculating premiums for pharmacy benefits

1. Develop an allowed cost trend, which includes: a) Unit cost change b) Utilization change c) Mix change - such as a shift between generics and brand name drugs 2. Calculate adjustment factors for important rating variables - factors that are already accounted for in the allowed cost trend should not be included as a separate rating factor adjustment, in order to avoid double counting 3. Estimate member cost sharing based on the projected allowed cost - if the plan design uses copays, use the average effective copay, rather than the nominal copay stated in the plan design 4. Calculate net plan liability and premium a) Projected allowed amount = base period allowed amount * trend factor * other adjustment factors b) Net plan liability = projected allowed amount - member cost sharing - rebates c) Premium - net plan liability + expenses + profit margin

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 - based on industry codes such as SIC codes 4. Regional factors 5. Lifestyle factors - e.g., adjustments based on the percentage of employees that smoke 6. Marketing considerations - e.g., added charges for rate guarantees 7. Contribution schedules - e.g., a 5% discount if the employer pays the entire premium 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

Types of provider reimbursement

1. Discounts from billed charges 2. Fee schedules and maximums 3. Per diem reimbursements - a negotiated amount per day of hospital stay. Varies by level of care. 4. Hospital diagnosis related groups (DRGs) - a set payment based on the patient's diagnosis, regardless of the length of stay or level of services 5. Ambulatory payment classifications - similar to DRGs. Used for outpatient charges. 6. Case rate or global payments - a single reimbursement is negotiated to cover all services associated with a given condition. Commonly used for maternity and transplant cases. 7. Bonus pools - pays the provider a bonus if utilization is below target or quality-of-care criteria are met. Funded through withholds. 8. Capitation - the provider performs a defined range of services in return for a monthly payment per enrollee. Variations include global and specialty capitation. 9. Integrated delivery system - the insurer employs the providers of care (common in staff model HMOs)

Major stakeholders in the group LTC policy design process

1. Employer group a) LTC is appealing because it complements other products (such as disability and life coverages) and relative to medical is a low-cost benefit with stable pricing b) May not be able to offer guaranteed issue to all active employees, since this could make the premiums more expensive than similar individual policies 2. Insurance company a) Concerned with up-front acquisition costs, the risk of low enrollment, and the need to sell to both the employer and employee b) Costs vary significantly by participation level, making this a key assumption 3. Employee a) May not yet be aware of the risk covered by LTC insurance b) Concerned with the significant cost, which may even exceed the cost of individual policies 4. Insurance brokers - have found that group LTC insurance provides the opportunity to open the door to competitive life and disability markets

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 very young and the very old (the non-working population)

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

Common types of managed care overlays

1. General utilization management (UM) - offering a menu of UM activities that can be selected by employers or insurers 2. Large case management - includes identifying catastrophic cases, notifying reinsurers, monitoring the treatment, and negotiating payments for high-cost cases 3. Specialty UM - focuses on utilization review for specialty services, such as behavioral health care 4. Disease management (DM) - focuses on common chronic diseases, such as diabetes 5. Rental networks - networks of contracted providers within individual markets 6. Workers' compensation UM - addresses standard UM and some unique aspects involved with workers' compensation benefits

Regulatory bodies that commonly apply to life insurance accelerated death

1. NAIC Accelerated Benefits Model Regulation 620 - better known as AB Model Regulation 2. NAIC Long-Term Care Model Regulation 640 3. Interstate Insurance Product Regulation Commission (IIPRC) Additional Standards for Accelerated Death Benefits

Types of drugs

1. Generic - typically the lowest cost and most commonly dispensed. A generic equivalent drug is a generic version of a brand drug, creating once a brand drug's patent expires. 2. Brand name - multi-source brand drugs have a generic equivalent while single-source brand drugs do not 3. Specialty - high-cost drugs, many of which require special treatment and delivery (e.g., temperature controlled and administered by a health care provider) 4. Biologic - derived from living organisms and are usually very expensive. Generally considered to be specialty drugs. 5. Biosimilars, or follow-on biologics - subsequent versions of biologic drugs developed by different manufacturers. May not be therapeutically equivalent to biologics. 6. Compound - drugs mixed by a pharmacist. Can deliver a customized strength and dosage to meet a beneficiary's specific needs. 7. Over-the-counter - do not require a prescription to purchase 8. Supplies - such as diabetic test strips and alcohol pads

Underwriting and rating parameters for dental

1. Group size - minimum group size of 5 is usually enforced to avoid antiselection 2. Eligible individuals and groups - plans usually cover active employees and dependents. Some insurers don't cover groups from certain industries. 3. Participation - many plans allow for participation as low as 25% of eligible employees 4. Employer contributions - most non-voluntary plans require a minimum employer contribution of 50% of the single employee premium 5. Other coverages - if dental is packaged with other insurance options it helps to prevent antiselection 6. New business - plans may charge higher rates to groups who are offering dental coverage for the first time, due to pent up demand for dental services by employees in those groups 7. Geographic location - area factors vary by state, service area, or zip code 8. Demographics - claim costs are higher for females and older ages. Common family structures are 2-tier, 3-tier, and 4-tier. 9. Waiting and deferral periods - may have a waiting period before a new employee can join the plan 10. Incentive coinsurance - may be used on plans with no prior coverage. Start with low coinsurance for classes II and III and raise the level each year as the individual utilizes preventive services. 11. Transferred business - if the plan is a replacement, then it may pay for claims incurred in the prior year

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 70-75% of the cost of private medical plans. Various plan designs exist, but they generally cover all drugs prescribed by a physician. 3. Health professional practitioners - eligible expenses are usually subject to inside limits (such as one treatment per day and 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. Vision care - eye examinations by an optometrist are usually included in the medical plan, while glasses or contact lenses may be included in either the medical plan or on a stand-alone basis 6. 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 - provides 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 (e.g., $250 per ICU day or $20 per x-ray) 3. Dread disease - provides coverage only for a specified list of medical conditions (such as cancer) 4. Critical illness - provides a lump sum benefit in the case of a heart attack, stroke, heart surgery, cancer (except skin cancer), or diagnosis of specified conditions

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 care, drugs, and supplies 2. Physician services - includes services of a general practitioner, specialist, psychiatrist, and others 3. Services of other professionals, such as optometrists, chiropractors, osteopaths, and podiatrists 4. Services of a physiotherapist if in a hospital facility 5. Prescription drugs for social assistance recipients and residents over age 65 in most provinces 6. Prostheses and therapeutic equipment 7. Other diagnostic services, such as laboratory tests and x-rays performed outside a hospital 8. Dental care - medically-required oral and dental surgery performed in a hospital 9. Out-of-province coverage - includes expenses incurred in other provinces and outside Canada

Dental reimbursement models and delivery systems

1. Indemnity - traditional FFS reimbursement. Plan members may use any dentist, but the dentist will bill the patient for the balance remaining after the plan makes its maximum payment. a) Scheduled indemnity plans b) UCR (usual, customary, and reasonable) plans 2. PPO - a contracted network of dentists agree to discounted FFS reimbursement arrangements. Discounts are only available in network, and in-network providers may not balance bill the patient a) Managed indemnity plans (passive PPOs) b) Exclusive provider organization (EPO) plans 3. Dental HMO - uses prepaid or capitated arrangements. Members must use the network. a) Independent Provider Association (IPA) plans b) Staff model dental HMO plans 4. Point of service - a hybrid of the indemnity, PPO, and dental HMO concepts 5. Discount dental plans - members receive discounts from preferred providers (this is not insurance)

Organizations that sell dental insurance

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

The natural hedging that is formed by combining life and health benefits into one product

1. LTC insurance is "lapse-supported" - claims paid in the later durations for a few policyholders are supported by premiums paid early on by many policyholders 2. For the life insurance policy, there is a hedge in the inverse scenario, when persistency is greater than anticipated, more premium than expected is collected 3. These hedges reduce the volatility of earnings across a range of adverse scenarios in the combo product relative to the stand-alone policies

Formula for disability income net monthly premium

1. Net monthly premium = IncidenceRate * Σ(Benefit_t * Continuance_t * InterestDiscount_t) 2. The summation runs for the entire length of the benefit period

Typical definitions of disability for group disability income

1. LTD - as a result of sickness or accidental injury, an employee is unable to perform some or all of the material and substantial duties of an occupation, and has a loss of a percentage of pre-disability earnings a) During the first 24 months after the elimination period, the occupational duties are based on the employee's own occupation, and the loss of income percentage is 20% b) After the first 24 months, the occupational duties are based on any gainful occupation for which the employee is reasonably suited by education, training, and experience, and the loss of income percentage is 40% 2. STD - the employee is unable to perform all the duties of his or her own occupation. Coverage is typically for only non-occupational (occurring outside of the workplace) accidents or sicknesses to avoid overlap with workers' compensation.

Features that differentiate HMOs from health insurers

1. Licensed under different laws than health insurers 2. Must provide adequate access to providers within their service areas 3. Must require "no balance billing" clauses in all provider contracts that are stronger than those found in non-HMOs 4. Must allow direct access to primary care physicians (PCPs) and ob/gyn physicians 5. Must have written policies and procedures for physician credentialing, utilization management, and quality management 6. Must maintain defined minimum levels of capital reserves 7. Usually share some financial risk with physicians 8. Most require members to see a PCP for routine services and to access specialty care 9. Most are accredited by an accrediting organization

Types of individual health insurance

1. Major medical 2. Limited benefit medical - don't cover enough services to meet the definition of major medical 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 and Part D - private managed care plan plans that 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. LTC - covers services for individuals who need assistance performing basic ADLs or who are cognitively impaired 9. Dental - not usually sold in the individual market due to antiselection concerns

Layers (participants) within the prescription drug distribution channel

1. Manufacturers produce drugs and typically sell them to wholesalers based on AMP or WAC 2. Wholesalers act as middlemen because retailers generally prefer to purchase drugs from one source rather than negotiating with hundreds of individual manufacturers. They sell to retailers based on WAC plus a markup or a discount off AWP. 3. Retailers (pharmacies) dispense prescription drugs to consumers, charging a U&C retail price. But if insurance is involved, the retailer will negotiate pricing with the insurer or its contracted pharmacy benefit manager (PBM). 4. Consumers purchase drugs at the U&C price if there is no insurance. If insurance is involved, consumers typically pay a copayment or coinsurance and the insurer pays the rest of the negotiated price. 5. PBMs and insurers are not involved in distributing drugs except for PBMs who own mail service or specialty pharmacy facilities

Sources of internal data

1. Medical claim systems data - includes billed claims, eligible claims, allowed amounts, and paid amounts 2. Pharmacy benefit manager (PBM) data - organizations that use third-party PBMs to administer prescription drug claims will need to collect this data from them 3. Premium billing and eligibility data - includes exposure information that is needed to convert claims data into a per member or employee basis 4. Provider contract system data - includes files of contractual reimbursement rates

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 plan - 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

Misconceptions regarding LTC rate increases

1. Misconception 1: these products are annually renewable a) LTC is guaranteed renewable and priced on an issue age basis b) Premiums are expected to remain level and cover all future costs 2. Misconception 2: using historical loss ratios to determine performance is appropriate a) Claims and loss ratios are low in early policy years, but this does not mean the product is profitable b) A large portion of early premiums need to be set aside as contract reserves to pre-fund future claims c) This can be addressed by including the change in contract reserves in the claims calculation 3. Misconception 3: companies have time to wait and see how experience will unfold a) As more time passes without a rate increase, the future premium base to which the rate increase would be applied shrinks b) This results in much larger increase needs in order to produce the targeted lifetime loss ratio

LTC pricing assumptions that often drive the need for a rate increase

1. Morbidity - misses on this assumption may not become apparent for many years because of the gap between the average issue age and the average age of LTC claimants 2. Persistency - higher persistency leads to significantly higher claims because more policyholders remain in later years when claim costs are extremely high 3. Interest - investments are key to ensuring that the contract reserves grow enough to support the company's future liabilities. The recent economic recession has resulted in investment earnings that are much lower than what was assumed.

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

Parameters to consider in a disability income claims or persistency study

1. Occupation class - there are significant differences in morbidity and underwriting approaches from one occupation class to another 2. Occupation - each class is made up of many occupations, and each occupation may perform somewhat differently based on socioeconomic trends 3. Policy form - a study by policy form is needed to determine whether pricing assumptions were correct for new forms 4. Extra benefits - some optional benefits (such as cost of living) require significant reserves 5. Age - changes in medical treatment and technology will affect age experience 6. Duration - due to the wear off of underwriting selection, loss ratios will be higher on older blocks of business and extremely low on new blocks 7. Elimination period - changes in experience may occur at one elimination period and not at another 8. Benefit period - to-age-65 and lifetime benefits may affect the election of early retirement 9. Indemnity - some studies have shown that the larger the indemnity, the poorer the experience 10. Income - studies have shown that higher replacement ratios (benefit amount divided by income) lead to higher morbidity 11. Geography - densely populated areas may have higher morbidity than less populated areas 12. Agent and agency - data by agent can provide information on the ability of the agent to select good risks 13. Sex - higher morbidity for women has been demonstrated at least up until the mid-50 age grouping 14. Mode of premium payment - the annual premium payment mode generates more favorable experience, while the quarterly mode is the least favorable 15. Smoking status - nonsmokers have lower disability costs than smokers 16. Combinations of the above parameters - to determine interactions

Mortality assumptions to be considered for life health combo products

1. One option is to assume that there will be no material impact on the future overall mortality rates a) This is a common approach, and it is referred to as the "conservation of mortality" b) First, estimate mortality for the disabled lives c) Then estimate the future mix of active and disabled lives d) Solve for the resulting active life mortality such that the total mortality of the base policy is conserved 2. If overall mortality rates need to be adjusted, an adjustment, such as a scaler, can be applied 3. The disabled life mortality assumption can be estimated by starting with LTC continuance tables a) Adjustments will need to be made for terminations from death and recovery in the LTC tables 4. The mix of active and disabled lives is determined by the frequency of the acceleration of benefits a) Once the policyholder triggers the acceleration of benefits, they are in the disabled state b) Multistate transition modeling can be used for longer benefit periods, but it is complex

Types of HMOs

1. Open-panel - the HMO contracts with private physicians who agree to its terms and conditions and who meet its credentialing criteria a) Independent practice association (IPA) model - the HMO contracts with an IPA. Physicians are not employees of the HMO or the IPA, and they continue to see their non-HMO patients. b) Direct contract model - the HMO contracts directly with independent physicians or medical groups 2. Closed-panel - most of the care is provided through either a single medical group associated with the HMO or through physicians employed by the HMO. Closed to private physicians. a) Group model - the HMO contracts with a multi-specialty medical group practice to provide all physician services to the HMO's members. The physicians are employed by the group practice. b) Staff model - physicians are employed by the HMO and are paid by salary plus bonus or incentives 3. True network model - the HMO contracts with more than one large medical group or physician organization 4. Mixed model HMOs - most commonly occurs when a closed-panel HMO adds open panel components 5. Open-access HMOs - the member selects a PCP and gets the most benefits by using the HMO system. Can bypass the PCP to get in-network specialty care directly, but with less coverage. Only services provided in network are covered.

Provisions included in medical plans (In addition to provisions related to the key dimensions of medical plans)

1. Overall exclusions 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. COBRA continuation - employers with at least 20 employees must offer continued coverage for 18 to 36 months beyond a person's normal termination date

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

Key characteristics of patient-centered medical homes

1. Patients have an ongoing relationship with a personal physician 2. Patients receive care from a team of individuals led by the personal physician 3. Personal physicians take responsibility for providing or arranging all of the care for the patient 4. The patient's care is coordinated or integrated across all elements of the health care continuum 5. Quality and safety are key parts, enhanced by evidence-based medicine 6. Patients have enhanced access to care through open scheduling and expanded hours 7. Payment should appropriately recognize the added value provided to patients

Entities in the pharmacy benefits system in the US

1. Pharmaceutical manufacturers - they research, obtain approval for, produce, and distribute prescription drugs. They sell drugs to wholesalers and also directly to pharmacies. They also negotiate with PBMs, offering rebates in exchange for favorable formulary placement. 2. Pharmaceutical wholesalers - they purchase prescription drugs from manufacturers and distribute drugs to pharmacies 3. Pharmacies - they dispense prescription drugs directly to beneficiaries, and purchase drugs either from wholesalers or directly from manufacturers 4. Pharmacy benefit managers (PBMs) 5. Third-party payers (insurance companies, employers, government programs) - they fund the prescription drugs benefit and in some instances assume the claims risk 6. Beneficiaries - they are the consumers of prescription drugs 7. Prescribing health care providers - they diagnose beneficiaries and prescribe drugs for them

Claim administration procedures used by dental plans

1. Predetermination of benefits - the plan wants members to submit expensive treatment plans for review before service 2. Least expensive alternative treatment 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 to the lesser of: 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

Comparison of dental reimbursement models

1. Premium - HMOs are the least expensive and indemnity plans are the most expensive 2. Patient access - any dentist can be used for indemnity plans and PPO plans, but members must use the network in an HMO 3. Benefit richness - HMOs typically cover the same benefits as PPOs and indemnity plans but with less out-of-pocket expense 4. Cost management - indemnity plans use some cost controls. PPOs use those controls and a credentialing process to find cost-effective providers. HMOs add a gatekeeper approach. 5. Utilization - indemnity plans and PPOs may overutilize due to FFS. HMOs may underutilize due to capitation. 6. Quality assurance - unlike indemnity plans, PPOs and HMOs have credentialing processes to help assure quality care 7. Fraud potential - detecting fraud will be based on the insurer's efforts, rather than the particular plan type 8. Provider contracting - PPOs and HMOs have contracts with dentists, who agree to accept discounted charges

Factors that influence prescription drug costs

1. Prescription drug pipeline - manufacturers want to recover their investments in research and development of new drugs 2. Brand patent protection - patents protect a drug's original manufacturer from competition for a period of time 3. Specialty drugs - have relatively higher cost than other brand name drugs 4. Biologics - these are very expense ($2,000 to $500,000 per patient per month) and are not easily replicated, so generics will not be produced for most of them 5. Direct to consumer advertising - marketing of high-cost drugs has been effective, resulting in many patients requesting the new drugs 6. Member cost sharing offsets - many manufacturers offer to cover member out-of-pocket costs for expensive drugs. This removes the member's incentive to use preferred products and generics. 7. Faster approval process by the FDA - that has increased the number of high-cost drugs coming to the market 8. Aging population - leads to more demand for drug therapies 9. Increase in awareness of and testing for disease - often results in drug therapies to avoid acute illnesses 10. Personalized medicine - genetic tested sometimes leads to unnecessary medication use

Methods for reducing benefits for income earned during a disability

1. Proportionate loss formula - calculates the percentage of lost earnings due to disability and applies it to the benefit otherwise payable 2. 50% offset - reduces the benefit by $1 for every $2 of work earnings 3. Work incentive benefit - ignores all earnings during an initial period (such as 12 months), except benefits are capped so that work earnings plus benefits do not exceed pre-disability earnings. After the initial period, either the proportionate loss formula or 50% offset is used.

Network and care management practices that impact dental claim costs

1. Provider reimbursement levels a) FFS reimbursement may be based on usual, customary, and reasonable levels (UCR) b) PPO networks contract for reduced fees from a limited number of dentists. The dentist may not bill above those levels. c) Capitation is common with dental HMO plans 2. Care management practices - these will depend on the reimbursement method used. Practices include preauthorization and self-management (for capitated providers).

Major effects of the year 2000 changes in the NAIC LTC Insurance Model Act

1. Requires disclosure of rating practices at the time of application - e.g., including a statement that the policy may be subject to future rate increases 2. Requires an actuarial certification at the time of initial rating - must include a statement that the initial rates are sufficient to cover anticipated costs under moderately adverse experience 3. Eliminates minimum loss ratio requirements in the initial rate filing 4. Places limits on expense allowances in the event of a rate increase - if a rate increase is requested, the lifetime loss ratio must not be less than a weighted average of 58% of the initial premium and 85% of the premium increase 5. Requires reimbursement of unnecessary rate increases - this could result if the revised premium schedules are more than double the initial rates 6. For policies in a rate spiral, guarantees policyholders the right to switch to currently-sold insurance without underwriting 7. Authorizes the commissioner to ban companies for 5 years if they persist in filing inadequate initial premiums

Stages of the prescription drug lifecycle

1. Research and development by manufacturers - includes initial drug discovery, preclinical testing, clinical trials, and review by the FDA. Typically lasts 15 years. 2. Brand patent protection period - the manufacturer is awarded the exclusive right to product the drug. Typically lasts 12 years. 3. Generic exclusivity period - immediately follows the patent protection period. Only the brand name manufacturer and one additional manufacturer are allowed to sell the generic equivalent. Typically lasts six months. 4. Generic drug lifespan - after the generic exclusivity period, all manufacturers may produce and sell the drug

Methods of prescription drug distribution

1. Retail pharmacies - physical locations where beneficiaries can visit to pick up prescription drugs. Typically dispense a one-month supply. 2. Mail order pharmacies - they send prescriptions through the mail, typically for a three-month supply of maintenance medications for treating chronic conditions 3. Specialty pharmacies - they focus on delivering specialty drugs, which often require special storage and administration 4. Health care providers 5. LTC facilities 6. Hospice facilities 7. Home health professionals

Optional product features on critical illness policies

1. Return of premiums on death 2. Return of premiums on expiry - returns premiums on the policy's expiration date if the policy is still in force 3. Return of premiums on surrender - returns a defined percentage of the premiums upon surrender prior to the expiry date. The percentage may increase to 100% over time. 4. Face amount increasing (to keep up with inflation) or decreasing (to match the declining principal remaining on a mortgage loan) 5. Partial benefits (10-25% of the face amount) payable for some non-life threatening conditions which have been excluded in the policy 6. Assistance benefit - provides medical consulting advice for the diagnosed critical illness 7. Guarantee that premiums will not change

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 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 nonforfeiture benefits on LTC insurance policies

1. Shortened benefit period - the minimum standard for tax-qualified plans. Pays the benefit amount and frequency in effect at the time of lapse. But lifetime maximum is reduced to the sum of premiums paid minus benefits paid. 2. Reduced paid-up - daily and lifetime maximums are reduced and coverage is extended for the life of the insured 3. Extended term - benefit maximums do not change, but only disabilities that commence in a limited time period are covered 4. Contingent nonforfeiture benefit - often provided to those who lapse due to a substantial premium increase and had not purchased a nonforfeiture benefit. Uses the shortened benefit period approach.

Types of critical illness policies

1. Standalone - offers coverage only for critical illness a) Basic - covers only cancer, heart attack, stroke, and sometimes coronary artery bypass graft b) Enhanced - includes 15-20 additional conditions and costs about 30% more 2. Acceleration - combines coverage for both critical illness and death. Pays the face amount on the earlier to occur of critical illness or death. a) An alternative is partial acceleration. Some percentage (25-50%) of the face amount is paid for critical illness, after which the remaining face amount remains in force as death protection only.

Steps for developing critical illness incidence rates

1. Start with general population age-specific incidence rates from government sources and research organizations for the various illnesses covered 2. Adjust these rates to fit the condition definitions in the policy 3. Apply any applicable trends (such as a decrease in heart attack rates) 4. Use ratios of insured lives to population mortality to adjust rates from the general population to an insured population 5. Use ratios of nonsmoker to smoker mortality to segment rates into nonsmoker and smoker rates 6. Use ratios of select to ultimate insured mortality to create select and ultimate rates 7. Compare the rates to any available insurance experience and adjust as deemed necessary 8. Sum the rates for each of the major conditions covered, then add small amounts (about 1%) for each additional covered condition

Considerations in developing a manual 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 7. Rates for the group are based on age and gender mix, but groups typically end up charging a composite rate to all employees

Most common pharmacy benefit tier designs

1. Two tier - generics and brand name drugs 2. Three tier - generics, preferred brands, and non-preferred drugs 3. Four tier - most common is to add specialty drugs to a three-tier design 4. Five tier - start with a four tier design with specialty as tier 4 and then split one of those tiers: a) Split the generic tier into preferred and non-preferred (a common design for Part D) b) Or split the specialty tier into preferred and non-preferred 5. Six tier - options include: a) Generic, preferred brand, non-preferred brand, biosimilars, preferred specialty, non-preferred specialty b) Preferred and non-preferred tiers for each of generic, brand, and specialty

Assumptions needed for a LTC pricing model

1. Voluntary lapses - lapse rates are much lower than for other types of health insurance. Premiums are very sensitive to changes in lapse assumptions, especially for products with inflation protection. 2. Mortality - most companies use the 1994 Group Annuitant Mortality Table 3. Morbidity - the major variables that impact claim costs are: a) Marital status - costs are lower for married individuals because of the presence of a potential caregiver at home b) Gender - females have significantly higher ultimate costs than males c) Benefit triggers d) Area - utilization patterns of LTC services vary by geographic area e) Case management - companies using a case manager usually experience lower claims 4. Selection factors - to reflect underwriting wear-off. Depends on the level of underwriting performed. 5. Expenses - start-up expenses are high relative to other types of business 6. Interest - the investment rate on assets is a key assumption because of the large amount of reserves 7. Reserve basis - important considerations include the level of margins and how these margins are achieved 8. Other assumptions - including the average daily benefit and the premium mode 9. Profit - typically based on lifetime goals for pre-tax profits, post-tax profits, return on investments, or return on equity

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 LTC tend to wait in hospitals because of shortage of beds in LTC 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

Group term life disability provisions

1. Waiver of premium - coverage continues without premium payment when an employee becomes totally disabled, as long as he or she is less than a certain age, typically 60 or 65 2. Total and permanent disability - a monthly benefit is paid when an insured becomes totally and permanently disabled. On death, the original death benefit is reduced by any disability payments made. 3. Extended death benefit - pays the death benefit if the insured's coverage terminates upon total disability prior to age 60 and the insured remains disabled and dies within one year

Advantages and disadvantages of open-panel HMOs

Advantages: 1. More easily marketed and sold due to the large panel of private physicians 2. Easier for members to find a participating physician that is conveniently located 3. In IPA models, routine medical management functions may be delegated to the IPA 4. Easier and less costly to set up and maintain Disadvantages: 1. Because the HMO is not providing medical care itself, it has little ability to manage care 2. Premiums are often higher than those of closed panels

Definition of critical illness insurance

Critical illness is an insurance product that pays the face amount when: 1. The insured is diagnosed with a condition covered in the policy. The diagnosis must be made by a doctor and must be supported by objective evidence. 2. The condition meets the definition in the policy and is not excluded by any other policy provision 3. The insured survives for a specified period (usually 30 days) following diagnosis

Types of integrated health care delivery systems (IDSs)

In IDSs, providers unite to manage health care and contract with health plans 1. IPAs 2. Physician practice management companies - these companies purchased physician practices. Most failed because once physicians sold their practices there was no longer sufficient incentive for them to be productive. 3. Group practice without walls - formed as a vehicle for physicians to organize without being dependent on a hospital for services or support 4. Physician-hospital organizations - an entity through which a hospital and its physicians negotiate with payers 5. Management services organizations - provides a vehicle for negotiating with payers and also provides services (such as billing and administrative support) to support physicians' practices 6. Foundation model - a hospital creates a not-for-profit foundation which purchases physicians' practices. Usually done when there is a legal barrier to a hospital employing physicians directly. 7. Provider-sponsored organizations - groups of providers who contract directly with Medicare on an at-risk basis for all medical services. They failed because they did not properly spread risk, they attracted too many bad risks, and they did not typically conduct utilization management and disease management. 8. Hospitals with employed physicians - the hospital employs PCPs and specialists. This substantially increases the hospital's negotiating leverage.

Types of LTC insurance plans

These are the different approaches for paying benefits 1. Service reimbursement model - pays the cost of LTC services, subject to fixed limits that vary by type of service (e.g., $150 per day for nursing home care and $90 per day for assisted living facility care) 2. Service indemnity model - a fixed benefit is paid for any day or week that formal LTC services are received, regardless of the actual charges incurred 3. Disability or cash model - a fixed benefit is paid for each day an insured is eligible for benefits, whether or not services are actually received

Dental plan cost containment provisions

These are used to limit the antiselection risk resulting from the elective nature of benefits. 1. Frequency limitations - such as two cleanings per year and one set of x-rays per year 2. Pre-existing conditions limitation - prevent the plan from paying for charges incurred prior to the insurance effective date, such as replacement of a missing tooth 3. Least expensive alternative treatment - the insurer reimburses based on the least expensive clinically acceptable treatment plan 4. Waiting periods - must be satisfied before coverage begins. Are generally applied to Class III and Class IV services, and typically range from 3-12 months. 5. Exclusions - such as cosmetic services, experimental treatments, and services that are typically covered by a medical plan 6. Benefits after insurance ends - coverage for work started before termination only continues for 31 days

Conditions covered by critical illness insurance

Typically covered in basic policies: 1. Life-threatening cancer 2. Heart attack - may exclude mild heart attacks that occur within a couple of days following angioplasty 3. Stroke - the definition requires a measurable neurological deficit that persists for 30 consecutive days 4. Coronary artery bypass graft - similar procedures which do not involve grafts are always excluded Covered in enhanced policies: 1. Multiple sclerosis 2. Kidney failure requiring dialysis 3. Major organ transplants 4. Cardiovascular: heart valve replacement and aortic surgery 5. Degenerative: motor neuron disease, Parkinson disease, and Alzheimer disease 6. Brain: coma and benign brain tumor 7. Head: blindness, deafness, and loss of speech 8. Body: loss of limbs, paralysis, major burns, and occupational HIV 9. Loss of independence (covered by only some companies)