All GH Specialty Flashcards

Question

Conditions that would exclude a member from a disease management program

Answer 1

1. End-stage renal disease (ESRD): this condition is excluded because management of the condition may delay cost, but it cannot ultimately reduce or postpone those costs 2. Transplants: claims are high up to a period shortly after the transplant, at which point the claims are reduced and stabilized 3. HIV, AIDS, mental health: privacy issues make it difficult or impossible for a vendor to receive complete data feeds, or manage the member 4. Members who are institutionalized: these members may not be reachable, or may not benefit from disease management interventions 5. Members with catastrophic claims: these members are not manageable by the DM program, and are often subject to management by another program 6. Members who are eligible for other management programs Duncan Ch. 12

Answer 2

1. Applying the proper trend rate: the trend of the non-chronic population is typically used because the chronic trends are impacted by the disease management efforts. This non-chronic trend must be adjusted for the average risk of the population 2. Demonstrating equivalence between the baseline and measurement periods: must account for the change in the mix of new, continuing, and terminating members and any changes in conditions and co-morbidities. This can be done by re-weighting the claim costs that are used in the savings calculations. Duncan Ch. 13

Answer 3

1. [I]dentification, stratification, and targeting (outreach) 2. Program [E]nrollment and use of tools 3. Continuing engagement or program [C]ompletion 4. [B]ehavior change 5. [B]ehavior maintenance 6. [P]rocesses of care 7. Medication [A]dherence 8. Achieving clinical [T]argets 9. Patient [A]ctivation 10. [S]atisfaction with EHM 11. [W]ell-being TWAS BIB CAPE GHS-125-19

Answer 4

1. Functional [S]tatus 2. Quality of life and [W]ell-being 3. [A]bsenteeism and presenteeism 4. [M]orbidity 5. [H]ealthcare claims costs WHAMS GHS-125-19

Answer 5

1. Directly-monetized claim savings - one of the following metrics should be selected > Cost trend compared with industry peers: compares trend to peers without EHM > Adjusted-expected compared to actual cost trend: compares observed and expected trends. The adjusted-expected trend is the product of: -- trend components that are impactible by EHM (util and risk net of demographics) these are forecasted before the year -- Trend components that are non-impactible by EHM (demographics, price per unit, and plan design) > Chronic vs. non-chronic trend comparison: used for disease management. Compares expected trend (from the non-chronic population) to observed trend (from the chronic population) > Cost or trend comparison of program participants vs non-participants: compares cost trajectories of the two groups, after neutralizing the impact of non-EHM differences > Comparison with matched controls in a non-exposed population: compares cost trajectories of members who meet criteria for EHM program targeting in the employer's population with members who meet criteria in a comparison population that does not have an EHM program 2. The monetized impact on utilization that is potentially preventable by EHM: monetizes a downward trend in ER and hospital visits and procedures that can be prevented by EHM 3. Financial impact based on a model that links to what occurred during the program and characteristics of program participants 4. Reduction or prevention of lifestyle-related health risk factors: relates reduction in or prevention of lifestyle-related health risk factors to published evidence on the economics of preventing and reducing such risk factors GHS-125-19

Answer 6

1. Modeled savings are estimated by multiplying factors from published studies by the utilization reductions or other results of the EHM program > The use of a savings model is strongly recommended for organizations who do not have the population size and funds required for a valid claims savings measurement study 2. Measured savings are estimated by comparing actual claims to what claims would have been without EHM GHS-125-19

Answer 7

1. Measured savings are not accurate for small populations, so models should be used for them. A common cutoff point is 25,000 members 2. Measured savings calculations require full-adjudicated claims data. But savings models require only data typically generated through the program, such as demographics, participation, risk factors, disease, or gaps in care 3. Measured savings are generally calculated annually, while modeled savings can be run with any desired frequency 4. Measured savings inherently incorporate the organization's specific data. Modeled savings calculations must incorporate this data to be as accurate 5. Measured savings are validated (or audited) by a third party. Modeled savings are developed based on published evidence or studies GHS-125-19

Answer 8

1. Do we have enough baseline claims data and is it of high enough quality 2. Do we have fully-adjudicated claims? If not, a dollar-based analysis is not possible? 3. Is our membership size more than approximately 25,000? 4. Do we have the analytic resources available to use a sophisticated methodology? 5. Which EHM components are we implementing? 6. Is the structure of our EHM program reasonably close to those in published savings literature? 7. Does our consultant have a large benchmarking database that includes employers in our industry? 8. Do our leading indicators indicate the program has achieved enough initial success to make it plausible ot detect a sizable enough savings to demonstrate ROI? GHS-125-19

Answer 9

1. Company Action Level (ratio between 150% and 200%) - requires that a company submit a corrective action plan 2. Regulatory Action Level (ratio between 100% and 150%) - allows the commissioner to examine the company and issue an order specifying corrective actions 3. Authorized Control Level (ratio between 70% and 100%) - allows the commissioner to place the company under regulatory control if deemed to be in the best interest of policyholders and creditors 4. Mandatory Control Level (ratio less than 70%) - requires the commissioner to take regulatory control of the company Due to a trend test, insurers who have an RBC ratio between 200% and 300% and a combined ratio greater than 105% could trigger a company action level event CRAM Skwire Ch. 39

Answer 10

1. RBCAC = H0 + (H1^2 + H2^2 + H3^2 + H4^2)^.5 > H0 is the Asset Risk for Affiliates: the risk that a stock investment in an affiliate may lose value > H1 is the Asset Risk for Other Assets: the risk that investments may default or decrease in value > H2 is the Underwriting Risk: the risk of having inadequate premiums in the future > H3 is the Credit Risk: the risk of not recovering the amounts owed to the insurer > H4 is the Business Risk: includes several miscellaneous types of risk, such as administrative expense risk and excessive growth risk 2. Authorized control level capital + RBCAC/2 3. Health RBC ratio = total adjusted capital/authorized control level capital Skwire Ch. 39

Answer 11

1. Underwriting Risk = Claim Experience Fluctuation Risk + Other UW Risk 2. Claim Experience Fluctuation Risk is the sum of risk charges for five product groupings (comprehensive, Med Supp, dental and vision, Med PD, and other) > For each grouping, the risk charge = premium * ratio of incurred claims to premium * risk factor * managed care risk adjustment factor 3. Other UW Risk includes: > Coverages not included in claim experience fluctuation risk, such as -- Disability income -- LTC -- Miscellaneous coverage types, such as stop loss, hospital indemnity, and AD&D > Adjustments for rate guarantees and premium stabilization reserves Skwire Ch. 39

Answer 12

Risk factors are part of the formula for Claim Experience Fluctuation Risk charge 1. The factor is based on the type of coverage and the amount of annual underwriting revenue 2. For each coverage type, a weighted average of the following factors is calculated based on the amount of revenue in each tier Coverage Type $0-3 M $3-25 M $25 M + Comprehensive 15% 15% 9% Med Supp 10.50% 6.70% 6.70% Dental and Vision 12% 7.60% 7.60% Medicare PD 25.10% 25.10% 15.10% Other 13% 13% 13% Skwire Ch. 39

Answer 13

The risk charege is the sum of: 1. A factor multiplied by earned premium. The factors vary by coverage Coverage Type $0-50 M $50 M + Non-Canc. Ind 35% 15% Other Ind 25.00% 7.00% Group LT 15% 3.00% Group ST 5.00% 3.00% > In applying factors, both individual products are combined and both group products are combined, but the individual and group products are not combined with one another > For each of individual and group, the largest factor is applied first 2. 5% of claim reserves Skwire Ch. 39

Answer 14

The risk charge is the sum of: 1. For earned premium, 10% of the first $50M, 3% of the excess, and an additional 10% for non-cancelable premiums 2. For incurred claims, one factor (usually 25%) for the first $35M, and another factor (usually 8%) for the excess 3. 5% of claim reserves Skwire Ch. 39

Answer 15

1. For health insurance, if H2 is the dominant risk, then RBC can be shown to be equal to H2 > At the limit, as the other risks go to 0, the RBC will be equal to H2 2. A result of this is: when H2 is dominant, and the other risks are negligible: RBC Ratio^new ~ RBC Ratio^prior * [H2^prior/H2^new] > While not precise, one can quickly determine the outer limit of any changes to future RBC ratios with the use of simplified assumptions 3. Midyear estimates of RBC changes can be easily made 4. The estimation can be used to quantify (or reconcile) various changes > Material emerging information > Asset mix changes > Customer portfolio changes > Income gains and losses > Unmet assumptions GHS-128-19

Answer 16

1. [M]arket risk: the risk inherent from exposure to capital markets (e.g. fluctuations in value of assets held) 2. [E]conomic risk: e.g. price and salary inflation 3. [I]nterest rate risk: the risk arising from unanticipated changes in the overall level of interest rates or in the shape of the yield curve 4. [F]oreign exchange risk: risk when cash flows received are in a currency different from the cash flows due 5. [C]redit risk: default risk (e.g. a default on loans or a reinsurer failure) 6. [L]iquidity risk: risk that a firm cannot easily trade its assets or that it cannot raise additional financing when required 7. [S]ystemic risk: risk of a failure of a financial system 8. [D]emographic risk: > Mortality risk: risk that a portfolio will suffer from mortality being greater than expected (neg. for life) > Longevity risk: risk that a portfolio will suffer from mortality being less than expected (neg. for pension/annuity) 9. [N]on-life insurance risk: risk related to the incidence of claims and their intensity 10. [E]nvironmental risk: the risk that a firm's activities will have an adverse effect on the environment 11. [O]perational risk: risk of loss resulting from inadequate or failed processes, people, and systems, or from external events 12. [R]esidual risks: risks that remain once action has been taken to treat a risk, e.g. if an interest rate swap is used to reduce exposure to changes in interest rates, residual risk is that the bank will not be able to make its payments on the swap 13. [B]asis risk: e.g. risk of an imperfect hedge in an interest rate swap D FILM SCENE BRO Sweeting Ch. 7

Answer 17

1. [F]inancial infrastructure: e.g., a bank unable to pay back loans from other banks 2. [L]iquidity risk: can become systemic if run on banks occurs 3. [C]ommon market positions: feedback risk is the risk that a change in an investment's price will result in further changes in the same direction. This could impact all investors who have a common investment position 4. [E]xposure to a common counter-party: risk that a relatively small failure will cascade through several layers of investors CLEF Sweeting Ch. 7

Answer 18

1. Level risk (for life insurance) or underwriting risk (for non-life insurance): risk that the average level of claims of a particular population will differ from what was assumed 2. Volatility risk: risk of claims differing from assumed due to volatility in a small population 3. Catastrophe risk: risk of large losses due to some significant event (such as natural disaster) 4. Trend risk: risk that claims rates will change unexpectedly from current levels Sweeting Ch. 7

Answer 19

1. [I]nternal fraud: acts which involve at least one internal party and that are intended to defraud, misappropriate property, or circumvent the law 2. [E]xternal fraud: acts by a third party that are intended to defraud misappropriate property, or circumvent the law. Examples include theft and fraudulent insurance claims 3. Employment practices and [W]orkplace safety: the risk related to employee relations workplace safety, and diversity and discrimination 4. [C]lients, products, and business practices: losses may arise from a failure to meet a professional obligation to specific clients. The firm must ensure that products sold are suitable for the clients to whom they are sold 5. [D]amage to physical assets: the risk that an organization will suffer financial losses due to some form of physical damage to its property 6. [B]usiness disruption and system failures: the risk that an external event will affect the physical ability of a firm to carry on business at its normal place of work 7. [E]xecution, delivery, and process management: the risk of a failure in a process. This might lead at best to embarrassment, and at worst to litigation WEB DICE Sweeting Ch. 7

Answer 20

1. Crime risk: results from the dishonest behavior of individuals (e.g. internal or external fraud) 2. Technology risk: risk of a technology failure, including loss or disclosure of confidential information, data corruption, and computer system failure 3. Cyber risk: failure of information technology systems, typically where there is online activity (e.g. theft of client lists) 4. Regulatory risk: risk that an org. will be negatively impacted by a change in legislation or regulation, or that it will fail to comply with current legislation or regulation 5. People risk 6. Legal risk: risk arising from poorly-drafted legal documents 7. Model risk: risk that financial models used to assess risk or otherwise help make financial decisions are flawed 8. Data risk: risk of using poor data 9. Reputational risk: failures related to other risks can lead to a loss of confidence in the organization and a subsequent loss of business 10. Project risk: various operational risks in the context of a particular project 11. Strategic risk: risk that the organization will not make a conscious decision of what its strategy is and how it intends to implement it. Sweeting Ch. 7

Answer 21

1. [I]ndirect employment-related risks: the risk that the wrong people are employed, retained, or promoted 2. [A]dverse selection: the risk that the demand for insurance will be positively correlated with the risk of loss 3. [M]oral hazard: the risk that people who are insured will be less likely to avoid risk 4. [A]gency risk: the risk that a party that is appointed to act on behalf of another will instead act on its own behalf 5. [B]ias: type of systemic risk > Deliberate bias can arise if key risks are intentionally omitted or downplayed > Unintentional bias may occur due to overconfidence in one's ability to complete a difficult task AB AMI Sweeting Ch. 7

Answer 22

1. Risk identification tools 2. Risk identification techniques 3. Assessment of the nature of the risks > Quantifiable risks can be modeled > Unquantifiable risks can often be analyzed by the groups that identify them 4. Recording risks in a risk register: the register details all of the risks faced by the organization. It should be constantly updated to reflect the changing nature of risks and the evolving environment Sweeting Ch. 8

Answer 23

1. SWOT analysis: identifies organization's: > Strengths (e.g., market dominance, economies of scale, and effective leadership) > Weaknesses (e.g., high costs, lack of direction, and financial weaknesses) > Opportunities (e.g., innovation, additional demand, and cheap funding) > Threats (e.g., new competitors, price pressure, falling liquidity, and increased regulation) 2. Risk checklists: lists that are used as a reference for identifying risks in a particular organization or situation 3. Risk prompt lists: similar to checklists, but rather than seeking to pre-identify every risk, they simply identify categories of risk that should be considered 4. Risk taxonomy: more detailed than a prompt list, containing a description and categorization of all risks that might be faced 5. Risk trigger question: lists of situations or areas in an organization that can lead to risk 6. Case studies: can suggest specific risks to consider, particularly if there are similarities to the organization in the case study 7. Risk-focused process analysis: involves constructing flow charts for every process used by the organization and analyzing the points at which risks can occur Sweeting Ch. 8

Answer 24

1. [B]rainstorming: this is an unrestrained or unstructured group discussion 2. [I]ndependent group analysis: without collaboration, all participants write down ideas on risks that might arise. These ideas are aggregated and there is a discussion. Risks are then anonymously ranked 3. [S]urveys: participants are given a list of questions about different aspects of the organization to try to draw out the risks faced 4. [G]ap analysis: consists of a survey that asks two types of questions: the desired level of risk exposure and the actual level of exposure 5. [D]elphi technique: begins with an initial survey of experts who comment on risks anonymously and independently. Is followed by subsequent surveys that are based on earlier responses. Continues until there is a consensus or stalemate. 6. [I]nterviews: individuals are interviewed independently to identify the organization's risks 7. [W]orking groups: comprised of a small number of individuals who have familiarity with the risks identified. They investigate more fully the risks which have been identified already. WIGDIBS Sweeting Ch. 8

Answer 25

1. A unique identifier 2. The category in which the risk falls 3. The date of assessment for the risk 4. A clear description of the risk 5. Whether the risk is quantifiable 6. Information on the likelihood of the risk 7. Information on the severity of the risk 8. The period of exposure to the risk 9. The current status of the risk 10. Details of the scenarios where the risk is likely to occur 11. Details of other risks to which this risk is linked 12. The risk response implemented 13. The cost of the responses 14. Details of residual risks 15. The timetable and process for review of the risk 16. The risk owner 17. The entry author Sweeting Ch. 8

Answer 26

1. To determine how much [C]apital a firm should hold to protect it against adverse events 2. To [P]rice new products and decide how to allocate capital across business lines 3. To assess the amount of [E]conomic capital that should be held over time 4. To assess the impact of changes in [I]nvestment strategy and capital structure 5. To look at how an organization copes in the face of [E]xtreme events 6. To help measure [P]erformance 7. To carry out [D]ue diligence for corporate transactions 8. To provide information on the financial state of the organization to a [R]egulator DICE PREP Sweeting Ch. 18

Answer 27

1. Must agree on what the model will be used for 2. Must agree on what risks will be modeled 3. Must decide which approach to use > Factor table: requires a certain amount of capital to be held for each unit of a particular activity > Deterministic approach: stress test that considers the amount a firm would lose under different scenarios > Stochastic approach: use a stochastic, parametric, or empirical model to produce a large number of simulated results 4. Decide whether the model will be run on an enterprise-wide basis, or whether individual models will be run for each business line with the results being combined later 5. Consider what output is required from the model UR BOA Sweeting Ch. 18

Answer 28

Definition of economic capital: the additional value of funds needed to cover potential outgoings, falls in asset values, and rises in liabilities at some given risk tolerance over a specified time horizon 1. Risk-adjusted return on capital (ra) = risk-adjusted return / economic capital. Is well suited for comparing different lines of business within a firm 2. Economic income created (EIC) = (ra - rh) * EC, where rh is the hurdle rate of return and EC is the economic capital. Is the rate of return that each unit of a product sold must earn to cover the additional amount of risk it generates 3. Shareholder value (SV) = EC * (ra - rg) /(rh - rg), where rg is the rate of growth of the cash flows. Represents the discounted present value of all future cash flows 4. Shareholder value added (SVA) = EC * [(ra - rg) /(rh - rg) - 1] = SV - EC Sweeting Ch. 18

Answer 29

1. Allocating the full stand-alone capital requirement to each line and retaining the diversification benefit centrally 2. Giving the full benefit of diversification to the new line of business that triggers the benefits 3. Allocate the benefit in proportion to the stand-alone capital requirements by LOB 4. Euler capital allocation principle: consider the marginal contribution of each additional unit of business to the overall capital required. For example: if the required economic capital is proportional to the SD of a loss, then allocate risk capital for a given line of business in proportion to the following ratio: > The cov. between the loss in that line and total loss > Divided by the SD for the total loss Sweeting Ch. 18

Answer 30

1. Risk identification and [P]rioritization 2. Risk [M]easurement 3. Articulation of risk [A]ppetite and tolerances 4. Implementation of risk [L]imits and controls 5. Development of risk mitigation [S]trategies 6. Capital [A]dequacy assessment 7. [G]overnance and risk reporting GLAM ASP Understand ORSA Before Implementing It

Answer 31

1. Definition: a confidential internal self-assessment of the risk associated with an insurer's current business plan and the sufficiency of capital resources to support those risks 2. Requirements for an insurer subject to ORSA: > Conduct an ORSA at least annually to assess the adequacy of its risk management framework and solvency position > Internally document the process and results of the assessment > Provide a confidential high-level ORSA summary report annually to the lead state commissioner if the insurer is a member of an insurance group and, upon request, to the domiciliary state regulator 3. Primary goals of ORSA: > Foster an effective level of ERM at all insurers, through which each insurer identifies, assesses, monitors, prioritizes, and reports on its material and relevant risks, using appropriate techniques and in a manner that is adequate to support risk and capital decisions > Provide a group-level perspective on risk and capital as a supplement to the existing legal entity view DRG GHS-116-19

Answer 32

Section 1: Description of the insurer's risk management framework > Describes how the insurer identifies, categorizes, and manages risk > Describes risk-monitoring processes and methods, provides risk appetite statements, and explains the relationship between risk tolerances and risk capital > Identifies assessment tools used to monitor and respond to any changes in risk profile > Describes how the insurer incorporates new risk information in order to monitor and respond to changes in risk profile Section 2: Insurer's assessment of risk exposure > Provides a high-level summary of the quantitative and/or qualitative assessments of risk exposure in both normal and stressed environments for each material risk category in Sect 1 > Includes descriptions of risk-mitigation activities and outcomes of any plausible adverse scenarios assessed Section 3: Group assessment of risk capital and prospective solvency assessment > Group assessment of risk capital: the goal is to provide an overall determination of risk capital needs and to compare that to available capital to assess capital adequacy > Prospective solvency assessment: should demonstrate that the insurer has the financial resources necessary to meet regulatory capital requirements and execute its multi-year business plan in both normal and stressed environments. FER GHS-116-19

Answer 33

1. The basis of accounting and the date or time period that the numerical information represents 2. The scope of the ORSA conducted 3. A short summary of material changes to the ORSA from the prior year GHS-116-19

Answer 34

1. Risk [C]ulture and governance > A governance structure that clearly defines roles, responsibilities, and accountabilities > And a risk culture that supports accountability in risk-based decision-making 2. Risk [I]dentification and prioritization process: the risk management function is responsible for ensuring that the process is appropriate and functioning properly at all organizational levels 3. A formal risk [A]ppetite statement and associated risk tolerances and limits: understanding of the risk appetite statement ensures alignment with risk strategy by the board of directors 4. Risk [M]anagement and controls: managing risk is an ongoing ERM activity, operating at many levels within the organization 5. Risk [R]eporting and communication: provides key constituents with transparency into the risk-management processes. Facilitates active, informal decisions on risk-taking and management MICRA GHS-116-19

Answer 35

1. How the insurer defines solvency for the purpose of determining risk capital and liquidity requirements 2. The accounting or valuation basis for measuring risk capital requirements and available capital 3. The subset of business included in the analysis of capital 4. The time horizon over which risks were modeled and measured 5. The risks modeled in the measurement of risk capital 6. The method used to quantify the risk exposure 7. The risk capital metric used in determining aggregate risk capital 8. The defined security standard used in determining risk capital requirements 9. The method of aggregation of risks and any diversification benefits considered GHS-116-19

Answer 36

1. To [T]ransfer risk (primary) 2. To enable an insurer to [O]ffer products in a specific market in which it lacks expertise. This allows the insurer to provide a broad range of products 3. To share the financial [L]oad. This is sometimes done for products that require large amounts of capital such as individual LTC LOT GHS-117-16

Answer 37

1. Coinsurance: the reinsurer accepts the ceding company's reinsurance premium and pays its share of benefits. The reinsurer pays a ceding allowance to cover a portion of the ceding company's commission and expenses > Fixed or excess share: ceding company retains a fixed, level amount of risk > Quota share: ceding company retains fixed percentage of each risk 2. Modified coinsurance: works just like coinsurance, except the assets backing the reserves are held by the ceding company 3. Funds withheld coinsurance 4. Risk premium reinsurance CoMoRF GHS-117-16

Answer 38

1. [E]xtended wait (aka extended elimination period or extended deductible): reinsurance benefits begin only after the claims have reached a specified duration or amount 2. [E]xcess reinsurance or stop loss reinsurance: provides coverage for claims in excess of a defined level > Individual excess or specific stop loss: provides payment if the total benefits on a single individual exceed a specified attachment point or deductible > Aggregate stop loss: provides a benefit if total retained claims on the entire group or portfolio exceed a specified attachment point. For medical insurance, the attachment point is typically defined as a percentage (e.g. 125%) of expected claims 3. Specified benefits or [C]arve out, such as premature births, transplants, and trauma. Disability income policies occasionally carve out accidental benefits 4. Claim takeover reinsurance and [R]unoff blocks: reinsurer assumes risk on future runoff of a known block of claims 5. [C]atastrophe covers: provides coverage in the event of a catastrophe CERCE GHS-117-16

Answer 39

1. The method of determining the retention: the insurer may retain a max amount per month or it may set a limit on the total benefit paid for the entire benefit period 2. The amount of the maximum claim: the insurer might set limits for disability income that would produce present values of benefits approximately the same as the max retention for life insurance GHS-117-16

Answer 40

1. [T]raditional insurers offering both first dollar insurance and excess of loss coverage 2. [E]mployers providing self-insured benefits to employees 3. [H]MOs providing services 4. Certain providers that offer prepaid [B]enefit plans BETH GHS-117-16

Answer 41

1. "Losses occurring during": claims are covered only if they occur during the agreement year, regardless of the effective date of risks accepted by the insurer. It is most commonly used for excess arrangements 2. "Risk attaching": provides that the reinsurance period for each underlying risk from the insurer coincides with the insurer's policy year. Is commonly used for proportional reinsurance GHS-117-16

Answer 42

Coinsurance is rarely used today, stop loss is common 1. Quota share coinsurance 2. Specific stop loss or excess 3. Aggregate stop loss or excess: reinsurance is usually not for 100% of excess claims. The ceding company is required to keep a portion of claims to ensure appropriate claims handling 4. Combined specific and aggregate stop loss or excess > Ceding companies often purchase specific and aggregate stop loss as a single package > The cost of each coverage is affected by the other. For example, a lower specific attachment point will result in lower aggregate reinsurance claims 5. Carve out coverages GHS-117-16

Answer 43

1. [F]ixed benfits medical and surgical products: reinsurance is rarely purchased for claims protection, but quota share coinsurance may be purchased to support growth 2. [S]pecific or dread disease products: reinsurance is rarely used since most insurers retain all the risk on these policies 3. [A]ccident and AD&D coverages: except for very large coverages, reinsurance is rarely used. Some reinsurers offer coverage for accidents on a portfolio basis, similar to catastrophe reinsurance 4. [M]edicare Supplement: reinsurance is attractive for an insurer that no longer wants to retain the risk or manage the product. Quota share coinsurance is sometimes used because this product is relatively capital intensive. Fronting is also used 5. [C]ritical illness: coinsurance has been used, with the reinsurers providing expertise and product design advice 6. [D]ental and vision coverages: many group insurance plans offer these coverages and then use coinsurance to transfer the risk to reinsurers that specialize in these coverages 7. [O]ther uses of reinsurance include captive reinsurers for employee benefits, stop loss for providers, securitizations of health insurance, and capital relief provided by a portfolio reinsurance agreement MOC FADS GHS-117-16

Answer 44

1. Annual and lifetime benefit limts for major medical plans were removed. Reinsurance solutions to this lack of limits are: > An insurer may purchase separate layers of stop loss reinsurance. Each layer other than the top layer would have limits > The insurer could retain the excess risk (have no unlimited layer) > A reinsurer may accept the unlimited risk, but then purchase unlimited retrocession coverage 2. The requirement for unlimited benefits and the inclusion of certain mandatory benefits led to cost adjustments 3. Reinsurance of limited benefit medical policies is now seldom needed 4. Reinsurance has been provided to plans on the ACA exchanges 5. There has been little effect on the reinsurance of medical benefits, other than to increase demand GHS-117-16

Answer 45

1. The S&P analysis examines whether insurers execute risk management practices in a systematic, consistent, and strategic manner across the enterprise in order to limit future losses within an optimal risk/reward framework 2. The analysis is tailored to each insurer's risk profile 3. Five main areas (subfactors) are scored as positive, neutral, or negative 4. Then the insurer's ERM is scored based on the assessment of the five subfactors. GHS-121-18

Answer 46

1 -- Very Strong -- positive score for all subfactors and economic capital model is assessed either good or superior 2 -- Strong -- the risk management culture, risk controls, and strategic risk management subfactors are scored positive, one or both of the other two subfactors is scored neutral, no subfactor is scored negative 3 -- Adequate with strong risk control -- the risk control subfactor is scored positive, the strategic risk management subfactor is scored neutral, and no subfactor is scored negative 4 -- Adequate -- the risk controls and risk management culture subfactors are scored at least neutral, but overall the insurer doesn't satisfy the requirement for adequate with strong risk control 5 -- Weak -- one or both of the risk controls and risk management culture subfactors are scored negative GHS-121-18

Answer 47

1. Risk management [C]ulture: the analysis of this subfactor focuses on the importance of ERM in all key aspects of the insurer's business operations and corporate decision-making 2. Risk [C]ontrols: this subfactor analyzes the processes and procedures insurers employ to manage their key risk exposures within certain general categories 3. [E]merging risk management: this subfactor analyzes how the insurer addresses risks that are not a current threat to creditworthiness, but could become a threat in the future. it also assesses the insurer's level of preparedness if those emerging risks materialize 4. Risk [M]odels: the analysis of this subfactor focuses on assessing the robustness, consistency, and completeness of the insurer's risk models 5. [S]trategic risk management: this subfactor assesses the insurer's program to optimize risk-adjusted returns and to evaluate and prioritize strategic options on a level playing field MC SEC GHS-121-18

Answer 48

1. Risk management culture: ERM is well-entrenched in the organization with a formal ERM framework, an independent and well-staffed ERM department, and active Board participation 2. Risk controls: the insurer has identified all material risks from all sources and frequently monitors its risk exposures with multiple metrics 3. Emerging risk management: the insurer has well-established processes for identifying and monitoring emerging risks, analyzing their significance, and preparing for and/or mitigating them 4. Risk models: the insurer's risk models capture all material risks and risk interrelations in aggregating exposures 5. Strategic risk management: the insurer has a track record of consistently using a risk v. reward decision-making framework to optimize risk-adjusted returns at an enterprise level GHS-121-18

Answer 49

1. Risk management culture: ERM is not practiced, or is practiced inconsistently, across the enterprise, with limited Board participation 2. Risk controls: the insurer does not consistently identify and monitor its key risk exposures 3. Emerging risk management: the insurer doesn't have processes for identifying and evaluating emerging risks 4. Risk models: the insurer doesn't use risk models or the risk models fail to capture major risks 5. Strategic risk management: the insurer does not optimize risk-adjusted returns, and risk/reward analysis is not adequately reflected in decision making GHS-121-18

Answer 50

1. Risk governance and organization structure: a positive risk management culture is typically characterized by a well-defined and independent ERM governance structure that supports effective risk management at an enterprise level 2. Risk appetite framework: insurers should have a well-defined risk appetite framework that supports the effective selection of risks. Insurers must have the ability to limit their risk exposure within their chosen risk tolerances 3. Risk reporting and communication: a positive score typically is consistent with extensive and clear communications around the insuerer's risk exposures and ERM practice 4. Incentive compensation structures: a positive score is associated with a compensation structure that is aligned with metrics that encourage long-term goals, rather than incentivizing excessive risk taking GHS-121-18

Answer 51

1. The risk controls of each of the insurer's material risks are scored first. The major risks, which each receive an individual risk control score, are the following general categories: > Credit risk > Interest rate risk > Market risk > Insurance risk > Operational risk 2. The individual risk controls scores then determine the overall risk controls score, as follows: > Positive: risk controls of material risks are predominantly scored positive, and no risk controls of an individual risk is scored negative > Negative: one or more risk controls of material risks is scored negative > Neutral: all other combinations 3. Each risk's relative importance to the insurer's overall risk profile determines its weight in the overall score GHS-121-18

Answer 52

1. Risk appetite: the framework that establishes the risks that the insurer wishes to acquire, avoid, retain, and/or reduce 2. Risk preferences: qualitative risk appetite statements that guide the insuerer in the selection of risks 3. Risk tolerances: quantitative risk appetite statements that guide the insurer in the selection of risks. These statements typically specify maximum acceptable losses and are often probabilistic in nature 4. Risk limits: quantitative boundaries that constrain specific risk-taking activities GHS-121-18

Answer 53

1. Risk identification: insurer has a comprehensive process of identifying all risk exposures 2. Risk measurement and monitoring: insuerer monitors all significant risks on a regular basis, using multiple measures 3. Risk standards and limits: insurer has clearly documented comprehensive risk limits, risk standards, and early warning systems for risk taking and risk management 4. Risk management: insurer has formal programs in place and uses multiple strategies to proactively manage the risks within tolerances 5. Risk limit enforcement: insurer has clear processes to correct a breach of risk limits and to respond to early warning limits within a prescribed time limit 6. Risk learning: insurer has a defined process to analyze and learn from past losses, near-misses, and successes GHS-121-18

Answer 54

1. This program was created by the ACA with the intent of increasing competition among health plans and giving consumers the option of a nonprofit insurer 2. The ACA requires that a majority of each CO-OP's board be composed of plan members. And profits must be reinvested to the benefit of the members 3. The ACA created the following loan programs, which were critical for these start-up plans to compete with established insurers: > Start-up loans to help CO-OPs create the infrastructure necessary to operate > Solvency loans to help CO-OPs establish sufficient capital to meet state solvency standards GHS-122-18

Answer 55

ACA provisions: > CO-OPs are prohibited from using federal funds for marketing > "Substantially all" business must be derived from the individual and small-group markets. This makes it harder for CO-OPs to enter the large employer market, which tends to be a bigger and more stable source of revenue Decisions made by federal policymakers during implementation of this program > Budget agreements with Congress slashed the program's $6 B allotment down to $2.4 B > States were allowed to permit individuals and small employers to remain enrolled, for a transitional period, in their pre-ACA policies. As healthy enrollees stayed on their plans, a sicker risk pool was left for insurers selling on the marketplaces 3. Another budget agreement late in 2014 disabled the ACA's risk corridor program by requiring it to be budget neutral. As a result, payouts to insurers with losses were only 12.6% of what had been expected GHS-122-18

Answer 56

1. Some were unable to sign up a sifficient number of customers to enable them to cover their fixed costs 2. For most CO-OPs, enrollment was relatively strong, but revenue was insufficient to offset higher-than-expected claims costs 3. For CO-OPs with very high enrollment, they lacked the capacity to provide good service and they had cash flow problems. They had to rely on federal solvency loans to pay claims, but these loans were limited after Congress slashed program funding 4. Payments from the ACA premium stabilization programs came much later than when costs were incurred. The payments for the 2014 plan year didn't come until September 2015, which was too long to wait for one CO-OP that therefore went insolvent 5. Lower than expected payments from the risk corridor program was the breaking point for one CO-OP GHS-122-18

Answer 57

1. To meet regulatory requirements on short deadlines, CO-OPs had to outsource critical functions such as claims adjudication, customer call centers, and provider networks 2. CO-OPs had to decide whether to offer platinum-level coverage, which has lower cost sharing and therefore attracts consumers with significant health needs. Half of the CO-OPs studient offered these plans initially, but then later reversed this decision 3. CO-OPs were at a pricing disadvantage since they did not have historical claims data with which to price. And many of them did not have experienced actuaries on staff 4. CO-OPs may also be at a disadvantage in the risk adjustment program. To be successful with risk adjustment, an insurer must record every diagnosis of every member, but this is a challenge for CO-OPs who have not yet built the data capacity needed GHS-122-18

Answer 58

Definition: ERM is a structured analytical process that focuses on identifying and eliminating the financial impact and volatility of a portfolio of risks, rather than focusing on risk avoidance alone. It is integrated risk management Essential principles of ERM 1. ERM recognizes a broad range of risks confronted by the organization and acknowledges that those risks represent either sources of capital or potential losses 2. A comprehensive or "holistic" approach is critical for managing diverse risks. An enterprise-wide view recognizes all of the potential threats to the organization's objectives and recognizes that risks are not isolated GHS-123-18

Answer 59

1. [O]perational: risk related to the organization's core business, including its systems and practices. Examples include clinical services and outpatient care 2. [F]inancial: risks related to the organization's ability to earn, raise, or access capital, as well as costs associated with its transfer of risk. Examples include bonds and insurance premiums 3. [H]uman: risks related to recruiting, retaining, and managing the organization's workforce. Examples include employee turnover and absenteeism 4. [S]trategic: risks related to the ability of the organization to grow and expand. Examples include joint ventures and customer satisfaction 5. Legal or [R]egulatory: risks related to health care statutory and regulatory compliance, licensure, and accreditation. Examples include HIPAA compliance and OSHA regulations 6. [T]echnological: risk associated with biomedical and information technologies, equipment, devices, and telemedicine. Examples include clinical information systems and off-site monitoring of critical care units FROTHS GHS-123-18

Answer 60

1. Traditional health care risk management examines risks individually > This approach maintains that risks are best managed within functional silos and that shareholder value is maximized through risk transfer > But this approach fails to appreciate relationships among risks. And it lacks the optimization of collective risk management through an enterprise approach 2. ERM uses common metrics across risk domains to determine the effectiveness of risk management approaches. With an integrated enterprise-wide view of risk, the risk manager focuses on opportunities as well as risks GHS-123-18

Answer 61

1. Assessment: educate all appropriate staff about the ERM concept and why it is the right approach 2. Define the organization's goals and objectives 3. Define the organization's risk tolerance, which is the amount of risk exposure the organization is willing to bear. 4. Event identification: identify all events that could affect the achievement of goals. Differentiate between risks (with potential for a negative impact) and opportunities (may have a positive impact) > Causes of risk include people, processes in place, and management decisions > Risk events include a loss of assets, business interruption, and fraud and abuse 5. Risk assessment: evaluate all potential events to determine their impact and likelihood of occurrence. Prioritize risks based on their potential impact 6. Risk response: identify, evaluate, and develop options to deal with risk. The categories of risk handling solutions are risk avoidance, acceptance, reduction, and sharing 7. Take a portfolio view of risk. This allows leadership to catalog all risks and look at the totality of organizational risk. It also involves understanding how corporate objectives and risks interrelate and affect the achievement of goals GHS-123-18

Answer 62

1. [C]hief risk officer (CRO) [separate list] 2. [B]oard of directors: should provide oversight of ERM, regularly discussing organizational risks and risk responses with senior management 3. [C]hief executive officer (CEO) or president: mold the corporate culture and make sure the ERM functions effectively, including: > Assess the organization's ERM capabilities > Communicate the organization's risk philosophy and risk tolerances > Communicate regularly with the CRO and CFO to track the implementation and success of the ERM model > Report on ERM to the board of directors > Continuously reevaluate risks facing the organization and modify strategy accordingly 4. [C]hief financial officer (CFO) > Provide the analytical insight to determine the organization's risk appetite > View the prioritized list of risks and determine what resources and financing options are available to address them > Communicate with the CRO as new risks become apparent 5. Health care risk [M]anager: focus on daily operations, developing strategies in line with business goals and objectives 6. Middle managers and [O]ther employees: manage risks within the entity's approved risk tolerances C3 MOB GHS-123-18

Answer 63

1. [I]dentifying and quantifying risks 2. [M]anaging the ERM process 3. [A]nalyzing risk strategically 4. Facilitating the [A]ctivities of the risk management team 5. Being a [L]iaison for the CEO, CFO, senior management, and middle management 6. Developing organizational [P]&Ps 7. Working on [C]oncept development and implementation 8. [T]racking key risks 9. Facilitating continuous risk [A]ssessment CAT IMPALA GHS-123-18

Answer 64

1. Setting management [O]bjectives: these should relate to organizational strategy, operations, reporting, and compliance 2. Achieving [S]tructure and organization: the risk committee should be formed, responsibilities should be defined, and performance metrics should be established 3. Employing [M]ethods, information, and reports: this includes the event identification process and the enhancement of risk response decisions 4. Establishing the [I]nformation technology infrastructure to ensure prompt communication throughout the organization 5. [R]ecognizing roles and responsibilities: determining who is responsible for responding to risks, mitigating risk, and carrying out the strategic plan 6. [M]onitoring: this ongoing activity is undertaken at all levels of the organization to ensure early identification of risk MM... SORI GHS-123-18

Answer 65

This is a visual aid to depict the frequency of occurrence and possible severity of an organization's risks 1. [I]dentify the risks to be analyzed and their correlation to all other risks 2. [D]evelop the threshold of acceptable exposure: this often varies based on the specific risk. And it relates to risk appetite 3. [E]valuate the [s]everity of impact if a risk event occurred and identify what percentage of the organization would be impacted IDEs GHS-123-18

Answer 66

1. CROs come from various disciplines, including legal, auditing, strategic planning, investor relations, line-operation management, and hazard risk management 2. For insurance organizations, insurance, actuarial, and accounting backgrounds are assets 3. Excellent communication skills are important 4. Key background skills center on math, statistics, finance, and accounting 5. A recent survey rated the ability to understand business issues as the most important skill 6. A broad health care and business background is also important GHS-123-18

Answer 67

1. Coordinates all risk management activities 2. Introduces an integrated framework 3. Improves risk communication with internal and external partners 4. Chairs the ERM committee 5. Develops a framework for the organization's risk management activities 6. Ensures that the organization is in full compliance with regulations 7. Policy assessment 8. Assures business continuity through risk assessment, planning, financing, and risk transfer 9. Identifies and monitors emergent risks 10. Extends risk principles into the wider business strategy 11. Develops the data strategy required to build an accurate picture of operational risk 12. Educates the investment community on the organization's risk management strategy 13. Disclosures (internal and external) 14. Informs the board of significant risk issues 15. Delivers an integrated picture of risk across the enterprise 16. Determines the organization's tolerance for risk 17. Evaluates insurance coverage 18. Develops alternative risk strategies 19. Trains and communicates with the workforce on risk management policies and structures GHS-123-18

Answer 68

1. The [B]oard or a board risk review committee: the board expects the CRO to identify and review the major areas of risk. The CRO will usually report directly to the board or a committee 2. Executive [R]isk committee: may be chaired by the CRO, and includes the CEO and CFO. IT provides oversight of risk, reviews compliance with risk policies, and monitors breaches of risk tolerance limits. 3. [E]RM committee: consists of the CEO, COO, chief nursing officer, CFO, CRO, CMO, chair of the investment committee, and chair of the audit committee. Is responsible for ongoing identification and assessment of risk 4. [O]rganization risk leaders (such as risk management, legal, and finance leaders): the CRO is responsible for training and, in some organizations, supervision of some members of this group BORE GHS-123-18

Answer 69

1. Lapse rates: when the policyholder voluntarily stops paying premiums, rates were lower than expected > [L]apse rate assumptions for LTC insurance was mostly based on history of lapses on annuities which turned out to be too high 2. [M]ortality: death either before or during receipt of LTC benefits. Mortality was lower than expected > Assumptions were based on general population data, and not adjusted for the healthier people that were choosing to purchase the insurance (anti-selection) 3. [I]nterest rates: premiums invested and accumulate interest. Interest rates have been low since the '08 financial crisis > Assets that were intended to coincide with the lapse and mortality assumptions matured too early relative to the intended risk they would cover. This also led to lower rates 4. Claim [I]ncidence: likelihood that a policyholder will require LTC 5. Benefit utilization: what % of the daily limit does the insured use while receiving LTC 6. Claim [T]ermination: likelihood of recovery for a policyholder already receiving LTC benefits (The last 3 assumptions led to claim costs that were significantly higher than expected) U LIMIT GHS-127-19

Answer 70

1. Policyholders face the risk of their insurer becoming insolvent > This risk becomes greater with LT products with little historical data 2. Consumers should consider both price and capital strength when purchasing such products 3. Policyholders should be aware that guaranty funds may be short should an insurer fail GHS-127-19

Answer 71

1. Data that is completely [A]ccurate, appropriate, and comprehensive is frequently not available, so the actuary should use available data that allows the actuary to perform the analysis 2. [C]onsiderations 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 [A]ppropriate data 5. [R]eliance 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. [C]onfidentiality: the actuary should handle data containing confidential information consistent with Precept 9 of the CoPC 7. [L]imitation of the actuary's responsibility: the actuary is not required to audit the data or determine whether the data supplied by others is intentionally misleading CAR CARL ASOP #23

Answer 72

1. The [S]cope of the assignment and the intended use of the analysis 2. The desired data [E]lements and possible alternative data elements 3. Whether the data is [A]ppropriate and sufficiently current 4. Whether the data is internally [C]onsistent 5. Whether the data is [R]easonable given relevant external information that is readily available 6. The degree to which the data is [S]ufficient for the analysis 7. Any known significant [L]imitations of the data 8. The availability of [A]lternative data, and the benefit and practicality of obtaining this data 9. [S]ampling methods that were used to collect the data CRASS SEAL ASOP #23

Answer 73

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 ASOP #23

Answer 74

1. The [S]ource of the data 2. Any [L]imitations on the use of the actuarial work product due to uncertainty about data quality 3. Whether the actuary [R]eviewed the data, and any limitations due to data that was not reviewed 4. A summary of [U]nresolved concerns the actuary may have about questionable data values 5. A summary of any significant steps the actuary has taken to [I]mprove the data 6. A summary of significant judgmental [A]djustments or assumptions the actuary applied to the data or to the results 7. The existence of results that are highly uncertain or potentially [B]iased due to the quality of the data 8. The [E]xtent of the actuary's reliance on data and other information supplied by others 9. [D]isclosures in accordance with ASOP #41 if: > Any material assumption or method was prescribed by law > The actuary relies on other sources and thereby disclaims responsibility for any material assumption or method > The actuary has otherwise deviated materially from the guidance of this ASOP ABSURD LIE ASOP #23

Answer 75

1. Actuarial communications should meet the following [R]equirements: > The form and content of the communication must be appropriate for the given circumstance > The communication should be clear > Each communication should be issued within a reasonable time period > All actuaries responsible for the communication should be clearly identified 2. The actuary should complete an actuarial report if the actuary intends the findings to be [R]elied upon by any intended user 3. Some circumstances (such as regulations) may [C]onstrain the content of an actuarial report. In these cases, the actuary should follow the guidance of this standard to the extent reasonably possible 4. The actuary should recognize the risk of unintended [U]sers misusing an actuarial document, and should take reasonable steps to ensure it is clear and presented fairly CURR ASOP #41

Answer 76

This report states the actuarial findings and identifies the methods, procedures, assumptions, and data used 1. The intended [U]sers of the report 2. The [S]cope and intended purpose of the assignment 3. The [A]cknowledgement of qualification as specified in the Qualification Standards 4. Any caution about risk and [U]ncertainty 5. Any [L]imitations or constraints on the use or applicability of the findings 6. Any [C]onflict of interest 7. Any information on which the actuary [R]elied that has a material impact on the findings and for which the actuary does not assume responsibility 8. The information [D]ate (date through which data and other information has been considered) 9. [S]ubsequent events (may have a material effect on actuarial findings) 10. If appropriate, the [D]ocuments comprising the actuarial report DAD CURLS US ASOP #41

Answer 77

1. The communication should identify the party [R]esponsible for each material assumption and method 2. If the assumption or method is prescribed by [L]aw, 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: > If it does not [C]onflict with the actuary's professional judgment, no disclosure is needed > If it significantly conflicts with the actuary's professional judgment, then disclose this fact > 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 the party, rather than the actuary CLR ASOP #41

Answer 78

ERM is the discipline by which an organization in any industry assesses, controls, exploits, finances, and monitors risks from all sources for the purpose of increasing the organization's short- and long-term value to its stakeholders ASOP #46

Answer 79

1. Risks are [I]dentified 2. Risks are [E]valuated 3. Risk appetites are [C]hosen 4. Risk [L]imits are set 5. Risks are [A]ccepted or avoided 6. Risk [M]itigation activities are performed 7. Actions are taken when risk limits are [B]reached ICE BALM ASOP #46

Answer 80

1. Information about the financial strength, risk profile, and risk environment of the organization. For example, the nature and complexity of the risks faced by the organization, and the degree to which the organization's different risks interact with one another 2. Information about the organization's risk management system, including: > The risk tolerance of the org > The risk appetite of the org > The components of the org's ERM control cycle > The knowledge and experience of management and the board of directors regarding risk assessment and risk management > The actual execution of the org's ERM control cycle 3. The relationship between the organization's financial strength, risk profile, and risk environment and the organization's risk management system 4. The intended purpose and uses of the actuarial work product ASOP #46

Answer 81

Whether models are fit for the purpose: 1. The degree to which the models need to be reproducible and [A]daptable to new risks 2. The [S]ophistication of the models in proportion to the materiality of the risks they cover 3. The practical considerations for the models, including [U]sability, reliability, and cost efficiency 4. The statistical and theoretical [L]imitations of the models 5. The quality of the [D]ata underlying the models 6. The appropriateness of the methodologies used for the model validation and [C]alibration 7. The appropriateness of the methodologies used for modeling [D]ependencies among risks 8. The appropriateness of the [C]ash flow and discounting methods used in the models Whether the assumptions are appropriate: 1. Whether the assumptions are [S]upportable and appropriately documented 2. Whether the assumptions are regularly [R]evisited to determine their appropriateness 3. Whether the assumptions regarding anticipated [M]anagement actions are supportable and appropriately documented CUD SCALD MRS ASOP #46

Answer 82

1. The [A]ppropriateness of the selected time frame, basis of measuring loss, and risk metric underlying the organization's definitions of economic capital 2. The degree to which the model reflects the significant [R]isks of the organization and their interdependencies 3. The appropriateness of the [M]ethod used to model each risk RAM ASOP #46

Answer 83

1. The extent to which various stress tests reflect similar or different degrees of [A]dversity 2. Any items in the organization's business plan that describe how the organization will function during an [E]xtreme event 3. That an extreme event scenario may be a single event or a [S]eries of events 4. How actions of various stakeholders and markets during extreme events may differ from those during "[N]ormal" times 5. Whether assumed [I]nterdependencies are appropriate under the stress or scenario testing assumptions 6. How to define situations that result in a [N]on-quantifiable risk 7. Some stress and scenario tests will be [H]ypothetical situations for which the actuary will not need to determine whether the scenario is realistic HI DANES ASOP #46

Answer 84

1. The potential impact of emerging risks across various time horizons 2. The potential secondary effects from an organization's assumed actions in light of the onset of an emerging risk ASOP #46

Answer 85

1. The results of the [E]Conomic capital model, their intended use, and any known limitations of the model 2. The results of the [S]tress and scenario tests, their intended use, and any known limitations of these tests 3. The methodologies and [S]ources of information for identifying and evaluating emerging risks 4. Any material [C]hanges in the system, process, methodology, or assumptions from those previously used 5. Significant [A]ssumptions used in the risk evaluation and interdependencies among risks and statistical distributions 6. The [R]isks included in the risk evaluation and their relative significance, as well as known material risks not included and the rationale for not including them 7. Whether and how the modeled future economic conditions have been reviewed and tested for [R]easonableness SCARERS ASOP #46

Answer 86

1. Definition of risk treatment: the process of selecting actions and making decisions to transfer, retain, limit, and avoid risk 2. Aspects of risk treatment: > Determining risk [T]olerance > Choosing risk [A]ppetites > Setting risk [L]imits > Performing [R]isk mitigation activities > Optimizing organizational [O]bjectives relative to risk TORAL ASOP #47

Answer 87

1. Information about the financial strength, risk profile, and risk environment of the organization. This includes various items such as: > The financial flexibility of the organization > The nature, scale, and complexity of the risks faced by the organization > The organization's strategic cgoals > The degree to which the organization's different risks interact with one another 2. Information about the organization's own risk management system. This also includes various items, such as: > The risk tolerance and risk appetite of the org > The components and execution of the org's ERM control cycle > The knowledge and experience of management regarding risk assessment and risk management 3. The relationship between the org's financial strength, risk profile, and risk environment and the org's risk management system 4. The intended purpose and uses of the actuarial work product ASOP #47

Answer 88

1. The financial and non-financial benefits associated with each risk-taking activity 2. The degree of concentration of the risks of the organization 3. The opportunities available to mitigate breaches of risk limits and risk tolerance, and the cost and effectiveness of such mitigation strategies 4. Regulatory or accounting constraints that may affect the risk environment 5. The relationship between the risk tolerance, risk appetite, and risk limits 6. The historical volatility of the org's results in the context of its current risk profile VAC BRO ASOP #47

Answer 89

1. Information relating to qualitative aspects of the organization, such as: > The resilience of the organization under duress > The operational capabilities of the organization > The potential risk to the organization's reputation 2. Information relating to the cost of, effectiveness of, and constraints upon risk mitigation activities. This includes various items such as: > The availability of risk mitigation instruments > The counterparty credit risk inherent in the risk mitigation instruments > The degree of confidence that the risk mitigation process can be maintained or repeated over time > The variability of outcomes after risk mitigation > Regulatory constraints on risk mitigation options ASOP #47

Answer 90

1. Information relating to qualitative aspects of the organization, such as: > The resilience of the organization under duress > The operational capabilities of the organization > The potential risk to the organization's reputation 2. Information relating to the cost of, effectiveness of, and constraints upon risk mitigation activities. This includes various items, such as: > The availability of risk mitigation instruments > The counterparty credit risk inherent in the risk mitigation instruments > The degree of confidence that the risk mitigation process can be maintained or repeated over time > The variability of outcomes after risk mitigation > Regulatory constraints on risk mitigation options ASOP #55

Answer 91

1. The insurer's risk [P]rofile and capital 2. The business and risk [D]rivers 3. The insurer's plans and [S]trategies 4. The timing and variability of projected liability and asset related cash [F]lows 5. The timing and [I]ntensity of future calls on capital, and the ability to replenish capital 6. [E]xisting or accessible resources 7. The effect of [C]hanges in the risk profile 8. Correlation, concentration, diversification, and interdependence between risks ([R]elationships) 9. Projections of future [E]conomic conditions 10. Parameter [U]ncertainty 11. The [M]ethodology used to assess the adequacy of capital 12. The insurer's specifics regarding risks [I]dentified: definition of, metrics used, identification process, relevant reports, and limitations of tools to evaluate 13. The insurer's risk [A]ppetite and tolerance 14. Prior capital [A]dequacy assessments, including underlying assumptions UP FIR ACADEMIES ASOP #55

Answer 92

1. [V]aluation bases 2. Principal's [O]bjectives for capital 3. Normal and adverse [E]nvironments 4. Time [H]orizon over which the capital is assessed 5. [M]ethods used to aggregate results: including diversification of benefits and interdependence among the risks 6. Alignment with any existing risk [A]ppetite and risk tolerance 7. Approach used to determine "[S]ufficient" level of capital 8. Merits of using a [R]ange for the risk capital targets versus a single number 9. Whether the insurer will be able to [A]ccess additional capital if and when needed 10. The [R]elationship of risk capital targets or risk capital thresholds relevant to the current capital and risks HER SAMOVAR ASOP #55

Answer 93

1. [T]ypes of tests would include: > Deterministic or stochastic > Combination of multiple events happening simultaneously or sequentially > Reverse-engineered tests that create an adverse capital event 2. Level of [A]dversity tested: periods of normal volatility, plausible adverse conditions, and tail events 3. Sensitivity testing to determine the applicability of the results of scenario and stress tests under changing [C]onditions CAT ASOP #55

Answer 94

A clinical identification algorithm is a set of rules that is applied to a claims data set to identify the conditions present in the population 1. Where are all the diagnoses recorded? 2. What is the source of the diagnosis (claims, medical charts, etc.)? 3. If the source is claims, what claims should be considered (IP, OP, lab, etc)? 4. If the claim contains more than one diagnosis, how many diagnoses will be considered for identification? 5. Over what time span, and how often, will a diagnosis have to appear in claims for that diagnosis to be incorporated? 6. What procedures may be useful for determining the severity of a diagnosis? 7. What prescription drugs may be used to identify conditions? Duncan Ch. 4 (Risk)

Answer 95

1. The large number of procedure and drug codes 2. Deciding the severity level at which to recognize the condition 3. The impact of co-morbidities for conditions that are often found together 4. The degree of certainty with which the diagnosis has been identified 5. The extent of the data (claims data will cover all members, but self-reported data will not) 6. The type of benefit design that underlies the data Duncan Ch. 4 (Risk)

Answer 96

1. Diagnoses in a medical record: highly reliable, seldom available for actuarial work 2. Medical claims: one of the most common sources 3. Drug claims: the other most common source 4. Laboratory values 5. Self-reported data Duncan Ch. 4 (Risk)

Answer 97

When building clinical identification algorithms the proper balance between sensitivity and specificity must be found 1. Sensitivity: the percentage of members correctly identified as having a condition ("true positives") 2. Specificity: the percentage of members correctly identified as not having a condition ("true negatives") Duncan Ch. 4 (Risk)

Answer 98

1. HEDIS (NCQA) has algorithms for identifying some conditions (e.g., asthma, HBP, and diabetes) 2. The Population Health Alliance: publishes a journal that evaluates many different types of intervention programs. Code sets for identification are frequently provided in these articles 3. CMS: Chronic Conditions Data Warehouse (CCW) provides researchers with Medicare and Medicaid data. A section of the CCW provides condition algorithms for more than 60 chronic or potentially disabling conditions 4. Quality reporting and improvement organizations 5. Grouper models: commercially available models that identify member conditions and score them for relative risk and cost 6. Literature: articles will sometimes report the codes that are used for analysis Duncan Ch. 4 (Risk)

Answer 99

1. National Quality Forum (NQF): has the lead responsibility in the US for determining which heatlh care quality measures should be recognized as national standards. Operates under a three-part mission to improve the quality of healthcare by: > Building consensus on national priorities and goals for performance improvement > Endorsing national consensus standards for measuring and publicly reporting on performance > Promoting the attainment of national goals through education and outreach programs 2. Agency for Healthcare Research and Quality: developed a set of QIs (Quality Indicators) which use hospital data to highlight potential quality concerns. The QIs include IP, prevention, patient safety, and pediatric indicators 3. Joint Commission: the primary accrediting body for hospitals, nursing homes, and other care facilities 4. CMS: works with health care providers to develop measures of quality. Has the ability and the funding to sponsor various quality initiatives 5. Hospital Quality Alliance: formed to develop performance measures of hospital care. One of its products is the "Hospital Compare" website 6. Measures Applications Partnership: a public-private partnership convened by the NQF to provide input on the selection of performance measures for public reporting and performance-based payment programs 7. American Medical Association Physician Consortium for Performance Improvement: a physician-led consortium focused on clinical quality improvement and patient safety Duncan Ch. 4 (Risk)

Answer 100

1. Building algorithms from scratch requires a considerable amount of work 2. Models must be maintained to accommodate new codes, which requires even more work 3. Commercially-available models are accessible to many users. Providers and plans often require that payments be based on a model that is available for review and validation 4. CMS requires the use of specific grouper models for risk adjustment in Medicare Advantage and ACA plans Duncan Ch. 5 (Risk)

Answer 101

These principles guided the development of the Diagnostic Cost Groups, but they are universal and continue to be promoted in other publications 1. Diagnostic categories should be clinically [M]eaningful 2. Diagnostic categories should predict medical [E]xpenditures 3. Diagnostic categories should have adequate [S]ample sizes to permit stable estimates 4. [H]ierarchies should be used to characterize the illness level within each disease process 5. Diagnostic classification should encourage [S]pecific coding 6. Diagnostic classification should not reward coding [P]roliferation 7. Providers should not be penalized for recording [A]dditional diagnoses 8. The classification system should be internally [C]onsistent 9. The diagnostic system should assign [A]ll codes (ICD-9/10) 10. [D]iscretionary diagnostic categories should be excluded SHE'S MADCAP Duncan Ch. 5 (Risk)

Answer 102

1. Diagnosis Related Groups: used extensively by CMS and some commercial payers to ensure consistent reimbursement of hospitals for patients with the same risk profile 2. Hierarchical Condition Categories (HCCs) > CMS_HCCs: developed as a health adjuster for Medicare health plans > HHS-HCCs: developed for risk normalization for ACA plans 3. Clinical Risk Groups: classifies members of the population based on their burden of chronic medical conditions 4. Optum (Impact Pro): primarily used for predicting high risk patients for care coordination 5. Chronic Illness and Disability Payment System: developed for adjusting capitated payments for Medicaid beneficiaries 6. DxCG Intelligence: uses patient-level information to profile the range and intensity of medical problems for a given population 7. Symmetry: the Symmetry Episode grouper technology is the basis for Optum's predictive and risk adjustment models 8. The Johns Hopkins Adjusted Clinical Groups System: patient demographics merged with diagnoses and pharmacy information to produce a series of risk factors and scores. Primarily used for care management 9. Milliman Advanced Risk Adjusters (MARA): developed by actuaries and healthcare consultants to provide a set of risk adjustment models that predict risk at a more detailed level than was traditionally available 10. SCIO Prospective Financial Risk Model: all-encounter model used to predict risk scores prospectively 11. Risk- and severity-adjustment methodologies for measuring inpatient quality care (Truven Health Analytics): created to address mortality, complications, readmissions, and length of stay 12. Wakely Risk Assessment model: a transparent, high-performance, and open-code risk assessment model for a commercial population 13. Agency for Healthcare Research and Quality (AHRQ) Clinical Classification Software (CCS): diagnosis and procedure categorization scheme Duncan Ch. 5 (Risk)

Answer 103

1. Comprehensive set of risk scores by service category: 6 per individual 2. Inpatient and emergency room scores correlate strongly with the probability of admission and emergency room events 3. Individual condition profiles 4. Recency of care: identification of the most recent month of treatment of each condition 5. Persistency of care: the number of instances of care for each condition 7. Chronic and non-chronic mapping of each condition group to accommodate easier cohort analysis 8. Identification of issues related to frailty Duncan Ch. 5 (Risk)

Answer 104

Episode grouper models group all services that are associated with a particular diagnosis or procedure into a single group 1. [M]edicare Episode Grouper Model: developed by CMS for organizing administrative claims into information about resource use that can be used to support various program objectives 2. [E]pisode Treatment Groups: a case-mix adjustment system that combines IP, ambulatory, and Rx claims to build a complete treatment episode from onset of symptoms to completion of treatment 3. [T]ruven Medical Episode Groups: used by payers and providers to compare medical and surgical options and costs in the treatment of diseases and medical conditions MET Duncan Ch. 5 (Risk)

Answer 105

These are the principles followed for the Truven Medical Episode Groups model 1. An episode of care considers [A]ll care for one medical condition for one patient 2. An episode should be described by the [C]ondition for which the patient was diagnosed, not the treatment the patient received 3. Different levels of [S]everity within a condition should be accounted for by an episode grouper 4. Over time, a patient's diagnosis may [E]volve, and the episode grouper should accommodate this within a single episode of care 5. An episode classification system should be clinically [M]eaningful to providers 6. An episode of care system should be [C]omprehensive, yet parsimonious and transparent MECCAS Duncan Ch. 5 (Risk)

Answer 106

1. Therapeutic class groupers: group drugs into a hierarchy of therapeutic classes, e.g. American Hospital Formulary Service and Generic Product Identifier 2. Drug-based risk adjustment models: infer the member's diagnosis from the therapeutic class of drugs the member uses, and generate a relative risk score, e.g. Medicaid Rx, Pharmacy Risk Groups, and Rx Groups Duncan Ch. 5 (Risk)

Answer 107

1. A system of [A]verages: providers cannot expect to make a profit on each case, but efficient providers can make a reasonable return on average 2. Increased [C]omplexity: DRGs are more complicated than a system based on per diem payments 3. [R]elative weights: associated with each patient group to reflect the average resources used by efficient providers 4. Conversion [F]actor (base price): the dollar amount for a unit of services. Is multiplied by the relative weight to determine payment 5. [O]utliers: unusual cases that require above-average resources and receive extra payments 6. [U]pdates: the conversion factor and relative weights are adjusted annually to reflect new technologies and changing practice patterns 7. Access and [Q]uality: policymakers monitor PPSs and survey patients to ensure that beneficiaries have adequate access to high quality care and that providers are compensated adequately QUA CORF Duncan Ch. 6 (Risk)

Answer 108

1. Need for new [D]RGs: due to new diseases and new procedures 2. ICD [C]oding: some codes may not be sufficiently precise as diseases and procedures are refined 3. [U]pcoding: providers may be tempted to exaggerate a patient's secondary diagnoses to get paid more 4. New coding [S]ystems: adopting the new ICD-10 systems will be a major challenge for hospitals and CMS SCUD Duncan Ch. 6 (Risk)

Answer 109

1. Align [P]ayment with the relative health risk of members at each health plan 2. Be accurate and unbiased > [A]ccurate: should be a relatively high correlation between the projected cost of the population and the actual cost > [U]nbiased: the methodology should not overcompensate for some risk factors at the expense of others 3. Be as [S]imple as possible while accomplishing other goals 4. [M]inimize the administrative burden of developing and implementing the methodology 5. Be [B]udget neutral BUS MAP Duncan Ch. 13 (Risk)

Answer 110

1. Model selected: Symmetry's Episode Risk Groups (ERG) model 2. Type of data used: diagnosis codes and procedural information from medical data and NDC codes from pharmacy data 3. Data timing: three months of claim run-out was used 4. Eligibility groups: risk adjustment was applied to prospective, non-reconciled risk groups 5. Model calibration: the model was recalibrated by developing risk weights through a linear regression model based on Arizona Medicaid data, and then credibility weighting those rates with the model's original risk weights 6. Geographic issues: risk adjustment will take place at the geographical service area and risk group level 7. Individual approach: risk scores calculated during the experience period will follow the individual during the rating period. This will accurately reflect movement of individuals between health plans 8. Risk factors are updated once per year 9. Risk factors for new members: members with at least six months of enrollment ("long" cohort) during the experience period will be given a claims-based risk factor. Other members ("short" cohort) will be given a risk factor that is the average of an age-gender factor and an adjusted plan factor > Adjusted plan factor = (average ERG risk score of long cohort / pure age-gender factor of long cohort) * pure age-gender factor of short cohort 10. Phase-in: risk adjustment is being phased in such that only 80% of the 2009 rate is risk adjusted 11. Risk factors for newborns: a different approach is needed because newborns have no prior year claims from which to develop condition-based risk scores. Claims of the prior cohort of newborns in the experience period are used to project newborn experience in the rating period Duncan Ch. 13 (Risk)

Answer 111

1. Average ERG risk score for long cohort > An unadjusted risk score is calculated as the sum over all risk factors and demographics of the risk weights multiplied by frequencies. The frequencies are the portion of the cohort with each risk factor or demographic > For the Transitional Aid to Needy Families (TANF) group, the final risk score equals the unadjusted risk score divided by a scaling factor 2. Total average risk score = % of members in long cohort * average ERG risk score for long cohort + % of members in short cohort * risk factor for short cohort > Risk factor for short cohort + 50% * adjusted plan factor for short cohort + 50% * pure age-gender factor of short cohort 3. The above formulas are calculated for the given MCO and for all MCOs in total. The MCO's relative risk score = MCO total average risk score / average risk score for all MCOs 4. Relative risk score with phase-in = 80% * relative risk score + 20% * 1.0000 5. A budget neutrality adjustment may also be applied to get the final relative risk score Duncan Ch. 13 (Risk)

Answer 112

1. Capitation rate to be risk adjusted = base capitation rate - bid risk contingency - bid admin cost - 2% premium tax 2. Risk-adjusted capitation rate (before retention) = capitation rate to be risk adjusted * risk adjustment factor (relative risk score) 3. Final risk-adjusted capitation rate - risk-adjusted capitation rate (before retention) + bid contingency + bid admin cost + 2% premium tax Duncan Ch. 13 (Risk)

Answer 113

Those enrolling in MA plans have been observed to be materially healthier. Theories: 1. Healthy enrollees are less reluctant to change benefit plans, so they are more likely to sign on with MA 2. Managed care organizations restrict access to certain network health care providers. Since less healthy Medicare enrollees generally have established provider relationships, they are more reluctant to leave traditional Medicare and risk losing access to their preferred providers Duncan Ch. 14 (Risk)

Answer 114

1. A member's risk score is the sum of weights that reflect that member's characteristics. This includes: > An age/gender score > A health condition score based on the coefficients attached to 79 different health hierarchical condition categories (HCCs) 2. A member may have multiple HCCs and weights are included for each applicable HCC 3. There are also several weights that result from interactions between HCCs 4. Weights are applied hierarchically. So if a member has multiple HCCs in the same hierarchy, only the weight for the most severe HCC is counted. 5. Condition scores are prospective factors. Diagnoses in the prior year asre used to predict Medicare health claim costs in the current year. 6. For members that are new to Medicare, CMS provides only age/gender factors. These factors are higher than those for ongoing beneficiaries because the full responsibility for predicting future cost is assigned to only the age/gender factors Duncan Ch. 14 (Risk)

Answer 115

1. [A]ge (limited to 3:1) 2. Geographic [L]ocation 3. [F]amily size 4. [T]obacco use (limited to 1.5:1) FLAT Duncan Ch. 21 (Risk)

Answer 116

BPT is an Excel workbook pricing form for each of Part C and D which CMS requires MA plans to use. The following past experience items are projected forward two years from the base to contract year 1. Average population risk score 2. Enrollment level (mem mos) 3. Revenue 4. Claims 5. NBEs 6. Profit Duncan Ch. 14 (Risk)

Answer 117

The revenue transfer process applies the difference between two quantities: premium with risk selection minus premium without risk selection.

Answer 118

1. Increase the quality and affordability of health insurance 2. Lower the uninsured rate by expanding public and private insurance coverage 3. Reduce the costs of healthcare for individuals and the government Duncan Ch. 21 (Risk)

Answer 119

1. Risk adjustment applies to the gross premium, not the cost of insurance or pure premium. So transfers include part of the expense margin 2. The model has been shown to be biased against zero-condition members, particularly at the younger ages 3. There is also a bias against limited network and other lower cost plans. Risk transfers have been observed to exceed net income for some of these plans 4. Risk adjustment operates at the state, rather than regional, level. This also creates a bias Duncan Ch. 21 (Risk)

Answer 120

1. The model is not accurate for adults with [P]artial-year enrollment 2. Lack of [H]istorical data: the ACA uses only one year of claims data in a concurrent model, which fails to properly reflect the risk of chronic members who may not have a claim in some years 3. Only a fraction of members [T]rigger conditions: this could be because a provider fails to code a condition or because the condition present is not mapped to an HCC 4. Because risks cores do not track costs well at the [E]xtremes, high-risk members may experience costs that are disproportionate to their risk scores 5. [P]rospective vs. concurrent models: sufficient data may now exist to move to a prospective model, but CMS has rejected making this change because it believes concurrent model is best for this population 6. Market [S]hare: insurers with small market shares and with premiums that are much different than the statewide averages are likely to see revenue transfers that are unrelated to their own premiums STEPH P Duncan Ch. 21 (Risk)

Answer 121

1. For the [F]irst year of the ACA, most exchange participants were expected to be previously uninsured, so no historical data was available to perform a prospective calculation 2. Prospective risk adjustment models are less [A]ccurate than concurrent models, as demonstrated in different SOA comparative studies 3. The [C]hurn rate of members through the exchanges has been high, so even in later years many plans still will not have claims data on members FAC Duncan Ch. 21 (Risk)

Answer 122

1. Risk transfer models generally assume that risk and cost are correlated, so a 1% increase in risk is assumed to increase costs by 1%. But not all cost-risk relationships are linear. As a result, these models overcompensate some plans and undercompensate others 2. The Medicare Payment Advisory Commission (MedPAC) identified the following issues related to MEdicare HCCs: > Although the CMS-HCC risk adjusters map diagnosis codes to 189 HCCs, only 70 HCCs are actually [U]sed for risk scoring > There is considerable [V]ariation within HCCs in terms of patient severity and experience > Certain [R]acial groups and income levels are likely to be higher consumers of healthcare, but this is not reflected in the model > Because the model only uses [O]ne year of data for determining risk scores, for some chronic conditions the model under-predicts since the patient doesn't have a claim each year > The standard model does not include a factor for the [N]umber of conditions. But MedPAC has found that this factor would lead to more accurate predictions 3. Several issues exist in ACA risk adjustment UV RON Duncan Ch. 21 (Risk)

Answer 123

1. Any DM program needs to employ high-quality data [A]nalytics, as close to real time as possible 2. Medical [R]ecords 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. [S]ystems need to be aggregated before they can usefully support the ACO 4. The importance of [E]conomics: > Changing patient behavior in a way that produces a measurable financial outcome is a long and difficult undertaking > Programs need to be focused on the patients who represent the greatest opportunity for cost reduction 5. The importance of [P]lanning and understanding the opportunity: economically successful programs must be focused, e.g. they must identify what patients and what conditions will be managed PARSE Duncan Ch. 22 (Risk)

Answer 124

1. An ACO is a network that is either physician-practice based or hospital based that shares the responsibility for providing care to patients 2. The MSSP has two models of gainsharing: > One-sided: ACO and CMS share 50/50 in gains > Two-sided: ACO shares in more, but also shares in losses 3. The ACO must meet certain requirements to be allowed to share savings with CMS: > The ACO must meet certain quality standards in the following domains: patient/caregiver experience, care coordination/patient safety, preventative health, and at-risk population > 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 3 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 > The patient is assigned to a PCP who is accountable for providing quality care, reducing util, and convincing the patient not to seek care outside the ACO network Duncan Ch. 22 (Risk)

Answer 125

1. The practice should implement "[C]are coordination" to manage the care of the patients who need additional services 2. [A]ccess to integrated medical records and consistent management by the physician should reduce the need for tests 3. The ACO should develop a [N]etwork of efficient providers and limit the use of less efficient providers 4. The focus on quality should result in fewer [U]nnecessary services and better population health CAN U Duncan Ch. 22 (Risk)

Answer 126

1. The beneficiary must have a record of Medicare [E]nrollment 2. The beneficiary must have at least one month of [B]oth Part A and B enrollment, and cannot have any months of Part A or Part B only enrollment 3. The beneficiary cannot have any months of Medicare [G]roup health plan enrollment 4. The beneficiary must be assigned to only [O]ne Medicare shared savings initiative 5. The beneficiary must live in the [U]S or US territories and possessions 6. The beneficiary must have a [P]rimary care service with a physician at the ACO 7. The beneficiary must receive the largest [S]hare of their primary care services from the participating ACO BEG SOUP Duncan Ch. 22 (Risk)

Answer 127

1. Step 1 - the beneficiary is assigned to a participating ACO when: > The beneficiary has at least one primary care service furnished by a PCP, and > More primary care services are furnished by PCPs 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 PCP, the beneficiary is assigned to the participating ACO if: > The beneficiary received at least one primary care service from a specialist physician utilized in assignment at the participating ACO, and > More primary care services are furnished by specialist physicians utilized in assignment at a participating ACO than from any other ACO Duncan Ch. 22 (Risk)

Answer 128

1. Expenditures are calculated for ACO-assigned beneficiaries separately for the following Medicare enrollment types: > ESRD > Disabled > Aged/dual > Aged/non-dual 2. Expenditures are defined as total Med Part A and B FFS payments from any provider for SSP-eligible months 3. Claims are assessed after three months of run-out. And a CF is applied by CMS 4. Average per capita expenditure = SUM(claims^k * t^k)/SUM(t^k) > The k values represent the different beneficiaries, and t^k is the exposure period of the kth ben > This calc is done separately for each combo of Medicare enrollment type and benchmark and performance year Duncan Ch. 22 (Risk)

Answer 129

1. For newly-assigned beneficiaries: the ACO's CMS-HCC prospective risk scores are recalculated to adjust for changes in severity and case mix 2. For continuously assigned beneficiaries: for each performance year, the risk ratio is calculated as the ratio of the HCC score for that year relative to benchmark year 3. An overall risk ratio is calculated as a weighted average of the ratios for the different Medicare enrollment types > When the risk ratio is greater than one, demo risk scores are used. This is done to negate some of the effect of diagnosis-driven increases in risk scores. > When the risk ratio is less than one, HCC ratios are applied Duncan Ch. 22 (Risk)

Answer 130

1. HHS-HCC risk adjustment model uses in individual's demographic and diagnoses to predict medical expense risk. A risk score is then calculated as a relative measure of how costly that individual is anticipated to be to the plan 2. Risk transfer formula: averages all individual risk scores in a covered plan, makes certain adjustments, and calculates the funds transferred between plans GHS-119-17

Answer 131

1. Prediction [Y]ear: the CMS-HCC risk adjustment model is prospective, but the HHS-HCC risk adjustment model is concurrent 2. [P]opulation: the CMS-HCCs were developed using data from the elderly and disabled Medicare populations. The HHS-HCCs were modified to reflect medical conditions and cost patterns for commercial poulations 3. Type of [S]pending > The CMS-HCCs are set up to predict non-drug medical spending, while the HHS-HCCs predict the sum of medical and drug spending > The CMS-HCCs predict Medicare provider payments while the HHS-HCCs predict commercial insurance payments SPY GHS-119-17

Answer 132

1. Represent clinically-[S]ignificant, well-defined, and costly medical conditions that are likely to be diagnosed, coded, and treated if they are present 2. Are not especially subject to discretionary diagnostic [C]oding 3. Do not primarily represent poor quality or [A]voidable complications of medical care 4. Identify chronic, predictable, or other conditions that are subject to insurer [R]isk selection, risk segmentation, or provider network selection, rather than random acute events that represent insurance risk SCAR GHS-119-17

Answer 133

1. Model [T]ype: a concurrent model was chosen because no prior year information on health status existed for this population when the model was developed 2. Claims [D]ata from a large national proprietary database sourced from large employers and health plans was used to calibrate the model. Data was used only for enrollees who had coverage comparable to the essential health benefits under the ACA 3. [E]xpenditures: the model predicts expenditures for which plans are liable to create a plan liability risk score (PLRS) 4. [D]emographics and diagnoses: age ranges were created, and only diagnosis codes from sources allowable for HHS risk adjustment are included 5. [S]ubpopulations: due to the clinical and cost differences in the adult, child, and infant populations, separate risk adjustment models were developed for each group. Separate models were also developed for each cost sharing level (cat, bronze, silver, gold, and platinum) 6. Model [E]stimation: weighted least squares regression was used for determining model coefficients 7. Predicted plan [L]iabilities: for each enrollee, a total predicted plan liability is calculated 8. Model [E]valuation > The predictive accuracy at the individual level is measured by R-squared > The performance for subgroups is measured by the "predictive ratio", ratio of predicted to plan liabilities DELETED S GHS-119-17

Answer 134

1. Calculation of predicted plan liabilities for individuals: the total PLRS is the sum of the incremental predicted plan liabilities (coefficients) from the relevant model (based on the enrollee's age and cost sharing level) > For adults and children, this is the sum of the age/sex, HCC, and disease interaction coefficients > For infants, this is the sum of the maturity/disease-severity category and additive sex coefficients > Some individuals are eligible for reduced cost sharing. An induced demand factor is multiplied by the above sum to determine the final PLRS for them 2. Calculation of plan averages PLRS: this is the plan's weighted average of individual PLRSs, where the weights are enrollment months. All plan enrollees are counted in the numerator, but only billable plan enrollees (parents and three oldest children) are counted in the denominator GHS-119-17

Answer 135

1. Improve the accuracy of the model for [P]artial year enrollees > Length of enrollment could be included as a new indicator variable > Or separate models could be produced for different enrollment period groups (months 1-4, 5-8, and 9-12) > The second approach appears to predict more accurately, but it may present false precision when predicting costs for conditions with small sample sizes and it adds to the complexity of the risk adjustment methodology, which already includes separate models by age and metal level 2. Use [P]rescription drug utilization as a predictor in the model 3. [P]ooling of high-cost enrollees 4. Evaluating concurrent and [P]rospective risk adjustment models 4P GHS-120-17

Answer 136

1. [I]mputing missing diagnoses: drug util data may capture the existence of some conditions that are missing in diagnoses entered on medical claims, particularly for chronic conditions 2. [S]everity indicator for a specific diagnosis: the presence of certain drugs can indicate the severity of illness for some HCCs 3. More timely, standardized [D]ata: drug data can be available more quickly than medical data, is often more complete, is often easier to access, and is more standardized because it does not vary with provider coding patterns 4. [M]itigates the financial disincentive to prescribe expensive medications: a risk adjustment model that incorporates prescription drug utilization will compensate plans that cover high-cost medications, reducing the incentive for plans to restrict access to these medications DIMS GHS-120-17

Answer 137

1. Risk adjustment models that use drug information are not as [C]ommon as models based only on medical information, so they are not as well understood or accepted 2. [G]aming, perverse incentives, and discretionary prescribing > Gaming occurs when a drug is prescribed in order to trigger a higher payment. Drug models are particularly susceptible to gaming because some relatively low-cost drugs are linked to high medical costs > Financial incentives may inappropriately influence treatment decisions 3. [S]ensitivity of risk adjustment to variations in prescription drug utilization: many factors other than health status affect drug utilization, and risk adjustment based on drug information will reflect these factors 4. Added [A]dministrative burden (to calibrate and apply the model), operational complexity, and costs (due to data reporting requirements and frequent updates) 5. Availability of [O]utpatient drug data only: some drug models omit drugs provided in a hospital setting, which may make hospitalized patients appear to be less severely ill 6. [M]ultiple indications for most drugs: many drug classes are widely prescribed "off label" for indications that are not FDA-approved, so util of these drug classes does not always indicate the presence of a specific diagnosis GO CAMS GHS-120-17

Answer 138

1. Plan and physician [P]rescribing patterns 2. [C]ost sharing features 3. Drug [U]tilization management features 4. Proclivities of providers for using drug versus non-drug [T]reatments for a medical condition 5. The [I]ncome level of enrollees CUTIP GHS-120-17

Answer 139

1. Clinical face [V]alidity: should be clinical validity in the relationship between the risk markers (diagnoses and drugs) and health care expenditures, and in the relationship between drugs and associated diagnoses 2. Empirical/predictive [A]ccuracy: drugs added to the model should increase the model's accuracy in predicting health expenditures 3. [I]ncentives for prescription drug utilization: adding drugs should be done in a way that minimizes incentives for over-prescription of drugs to maximize risk transfers, but does not discourage needed drugs 4. [S]ensitivity to variations in prescription drug utilization: should incorporate variations in drug utilization that measure differences in enrollee health status, not variation due to other factors 5. Incentives for diagnosis [R]eporting: accurate and complete diagnosis reporting should not be discouraged by reducing predicted expenditures when additional diagnoses are appropriately reported DAVIS GHS-120-17

Answer 140

``` 1. Statistical predictive power approach: drug classes are included in the model on purely statistical grounds: > Advantage: this approach allows for a linkage between a drug and poor health in general > Disadvantage: by omitting clinical considerations it makes interpretation of model coefficients difficult and leads to less clinical face validity 2. Conceptual approaches for adding drug util to a diagnosis model to create a hybrid model > Imputation: using drug data to impute missing diagnoses. The predicted incremental cost is the same regardless of how a health condition is identified, whether by a drug indicator only, a diagnosis indicator only, or both > Severity: using drug data as a severity indicator for a specific diagnosis. Only if the drug class and a specific diagnosis are both present will the model predict incremental costs beyond the diagnosis alone > Rx dominant: individuals taking a drug are assumed to be more severely ill (have higher projected costs) than individuals not taking the drug who have only the associated diagnosis marker > Flexible, generalized empirical framework each drug-diagnosis pair enters the model with three indicator variables: a diagnosis indicator, a drug class indicator, and an interaction indicator. Each indicator has a coefficient that predicts the incremental costs for that indicator.that predicts the incremental costs for that indicator ``` GHS-120-17

Answer 141

1. Select drugs with patterns of [N]on-discretionary prescribing 2. Avoid drugs where there are [I]ncentives for over-prescribing 3. Avoid drugs where there are [V]ariations in prescribing across providers, practices, and areas 4. Carefully consider selection of [H]igh-cost drugs. In some cases, including the drug in the model may reduce the incentives for insurers to strive for greater efficiency 5. Avoid drugs indicated for [M]ultiple diagnoses 6. Avoid drugs indicated for [d]iagnoses not included in the HHS-HCC model 7. Carefully consider selection of drugs in an area exhibiting a rapid rate of [T]echnological change (which could make cost predictions inaccurate when based on previous years of data) MINT PHD GHS-120-17

Answer 142

1. [E]mpirical considerations: a wide range of exploratory data analysis was performed to determine pairs to consider. Then stepwise regression was used to determine which drug classes added the most predictive power to the existing model 2. [C]linical considerations: doctors and pharmacists were consulted to provide deeper insights into the medical links between health conditions and the drug groups being considered, and to identify the potential for gaming for each drug being considered 3. Additional considerations: > Imposing medical [R]estrictions based on days' supply or number of prescriptions in order to trigger a drug indication > Whether to [S]plit certain drug classes or restrict a drug-diagnosis interaction to certain drugs within a class > HHS examined different [M]odels that include imputation-only versus imputation and severity approaches > [P]rophylactic use of drugs: drugs are sometimes used in persons at risk of disease but who do not actually have the disease > Multiple [I]ndications for drugs: drug classes are often indicated for multiple diagnoses ME SCRIP GHS-120-17

Answer 143

1. The [R]elationship between the risk characteristics and expected outcomes. Rates are considered equitable for a given risk characteristic if differences in rates reflect material differences in expected costs 2. [C]ausality: the risk characteristic should be related to expected outcomes, but it is not necessary to establish a cause and effect relationship 3. [O]bjectivity: select risk characteristics that are capable of being objectively determined 4. [P]racticality: reflect the trade-offs between practical and other relevant considerations 5. [A]pplicable law: considers whether the law limits the choice of risk characteristics 6. [I]ndustry practices: consider usual and customary risk classification practices for the given situation 7. [B]usiness practices: consider limitations created by business practices for the given situation CRAP BIO ASOP #12

Answer 144

1. Intended [U]se: select a risk classification system that is appropriate for the intended use 2. Actuarial considerations: > Adverse [S]election: may occur if the variation in expected outcomes within a risk class is too great > [C]redibility: risk classes should be large enough for expected outcomes to be credible > [P]racticality: must balance the conflicting objectives of accuracy and efficiency 3. [O]ther considerations: should comply with applicable law, consider industry practices, and consider limitations created by business practices 4. The [R]easonableness of results from using the risk classes CORPUS ASOP #12

Answer 145

1. Intended [U]se: consider the degree to which the model was designed to estimate what the actuary is trying to measure 2. [I]mpact on program: consider whether th risk adjustment system may cause changes in behavior because of underlying incentives 3. Model [V]ersion: if a new version of a previously-utilized model is used, consider the materiality of changes to the model 4. [P]opulation and program: consider if the population and program to which the model is being applied are consistent with those used to develop the model 5. [T]iming of data collection, measurement, and estimation: consider the impact of timing differences between when the model is developed and when it is applied 6. [T]ransparency: consider whether the model provides an appropriate level of transparency for the intended use 7. [P]redictive ability: consider the predictive ability of the model and the characteristics of the various common predictive performance measures 8. Reliance on [E]xperts: consider whether the individuals incorporating their specialized knowledge into the model are experts in risk adjustment 9. [P]ractical considerations: consider practical limitations, such as the cost of the model, the actuary's familiarity with the model, and its availability PUP PIT VET ASOP #49