2022 Flashcards
Data integrity issues with long-term benefits
missing data
misstated age or gender
inaccurate EP or BP
incomplete or inaccurate info on benefit integration
inaccurate or inconsistent determination of the incurred date
inaccurate information on cause of disability
incorrect coding of claim status (open, closed, pending)
Describe 4 types of regulatory benchmarks that you must adhere to in your filing
Rate adequacy - Rates may be considered adequate if they exceed the rate needed to provide for payment of claims, administrative expenses, taxes, regulatory fees, and reasonable contingency and profit margins
Rates not excessive - Rates may be considered excessive if they exceed the rate needed to provide for payment of claims, administrative expenses, taxes, regulatory fees, and reasonable contingency and profit margins
Rates not unfairly discriminatory - rates may be considered unfairly discriminatory if the rates result in premium differences among insureds within similar risk categories that: 1) are not permissible under applicable law or 2) in the absence of an applicable law, do not reasonably correspond to differences in expected costs
Projected loss ratio - a projected loss ratio may be considered unreasonable if it does not meet or exceed a threshold under applicable law
Issues with authorization reports and how to add Conservatism
Not all days that are authorized happen, so you may need to adjust for differences
Not all days that happen are authorized, so you may need to adjust for differences
COB may result in actual days being less than authorized
Appeals may be why actual days are more than authorized
Combine data with another block of business with similar payment patterns to increase data credibility
Add conservatism to the cost per day to compensate for the variance in costs caused by combining more than one type of plans (contractual provisions, benefit structures, etc. may differ)
Be conservative in selecting credibility assumed of lag data to provide implicit margin in variability patterns
Be conservative in selecting completion factors used in lag approach to provide implicit margin for variability in patterns.
Methods of modifying reserve factors
Reserve factors should be developed recognizing any anticipated increase in benefit costs that results from the aging of the insured individual as well as cost increases that are projected to arise from inflation, general changes in utilization, etc. If that is not done or if actual cost increases diverge from projected levels, it will be necessary to modify reserve factors
Do nothing approach: No action is taken to modify reserve factors and assume there will be a premium increase to offset the increased claims cost. Only use when consistent with the policy rating structure and the company has demonstrated a proven ability of increasing rates in future years commensurate with the cost increases.
Proportional approach: Assumptions and reserves are increased proportionally to the increase in claims. Done my multiplying the reserve by a factor that represents the cost increase since the factors were developed.
Benefit rider approach: Add a benefit rider contract reserve that represents the increased cost from the claims increase. This is added to the original reserve.
New Factor approach: Use a new set of factors to calculate the reserve.
-Violates GAAP’s lock-in principle
Assume benefits increase initially approach:
Loss ratio approach: Use the loss ratio (claims/premium) to increase the reserve factors when there is an expected increase in claims cost. The reserve is the difference between expected incurred claims (using pricing target loss ratio) and actual incurred claims.
-Not often used for SAP.
-Can be used until there is enough historical experience to calculate factors.
Simple vs Complex regulation
Simple:
-where other complex standards already exist
-there is a general understanding or agreement on standards that already exist
Complex:
-when markets are complex
-when simplicity has not worked in the past
auto-correlative model and reasons to use
one that recognizes the dependence nature of individual claims between the experience period and the projection period
-example: if someone has a major claim in one year, they are more likely (than someone who has not) to have a sizable claim in the next year
Reasons:
-Focus care management efforts. Insurers or clinicians may want to make such predictions in order to focus care management efforts where they are likely to do the most good.
-Needed for setting up reserves for potential future cash flows under ACA premium stabilization programs (such as risk adjustment
considerations when accounting for physician withholding
-monthly accounting to estimate liabilities and match costs against revenue
-since max payout is the withhold, could book withhold as a reserve until experience develops. useful in early months of the year
-adjustments for data errors, reduce claims for internal stop loss arrangements, and account for fully incurred claims
-disputes over incurred claims estimates are typically minimized by paying claims run-out for a period after the contract date
claim stabilization reserves
contracts designed to minimize risk charges to ERs by sharing the risk of emerging claims cost experience
-favorable experience creates a surplus that is retained for the benefit of the ER as a partial offset to future losses or to reduce future rate increases
–these amounts may be paid out to the ER in the form of rate credits
-ER groups are entitled to the entire CSR if the account terminates after all claims run-out has been paid
Tax implications for contract reserves
-contract reserves are tax deductible if certain conditions are met
-lapse assumptions are those used to compute statutory reserves
- the method to calculate them must be the 2YFPT method with 1Y for LTC & G life WOPR
-value of the tax reserve must never be higher than the value of the reserve itself
-PDRs are not tax deductible
