Group Flashcards
Group Term Life Insurance
Types of Plans
- Flat dollar plans $
- Multiple of earning plans x (most common)
- Salary bracket plans {$} (e.g., EEs salaries within $20,000 - $40,000 receives $40,000 FA)
- Position plans (amounts based on EE job level)
Such plans exclude individual selection of amounts to minimize anti-selection
Many plans include age related reductions in FA, the reductions must be actuarially cost justified under the Age Discrimination in Employment Act (ADEA)
Group Term Life Insurance
List Plan Provisions
- Eligibility Provisions
- Disability Provisions
- Conversion Rights / Continuity of Coverage Provisions
- Benefit Payment Provisions
Group Term Life Insurance
Plan Provisions
Eligibility Provisions
- Full time EEs (working more than a min number of hours)
- Actively-at-work before the policy becomes effective
- Contributory plans require minimum 75% participation
- Evidence of insurability for large amounts (e.g., medical questionnaire)
- Maximum amount of insurance (to avoid disproportionate amounts of coverage on a single life)
Group Term Life Insurance
Plan Provisions
Disability Provisions
1. Waiver of Premium
- Prem is waived if EE is disabled
2. Total and Permanent disability
-Provide monthly installments when EEs are totally disabled, upon death, FA will be reduced by the installments paid
3. Extended death benefit
- Death benefit is payable if insured died within one year of termination date and being continuously totally disabled from termination date to date of death
Group Term Life Insurance
Plan Provisions
Conversion Rights
- Insured’s right to convert group term to individual policy upon termination
- Almost all states require a conversion provision
- Prem rates are based on the standard individual policy based on insured’s age at conversion
Group Term Life Insurance
Plan Provisions
Benefit Payment Provisions
- Benefits are payable to the designated beneficiary
- ER may not be the beneficiary
- Settlement options: LS, monthly installments, money market like account
- Accelerated Benefit Provisions for terminally ill (usually 50%-75% of FA paid if terminally ill, upon death, FA will reduced by the paid amount)
Group Term Life Insurance
Federal Income Tax Implications
- Prem paid by ER are tax deductible on ER’s income tax for most life and AD&D in US and Canada
- Benefits paid to Beneficiary are excluded from their gross income in US and Canada, applies to most life and AD&D
- Benefits paid for acceleration is excluded from gross income given proof of death expected in 24 months
- Taxable income to Employees
-US, EEs are taxed on the value of ER provided term in excess of $50,000
-Canada, EEs are taxed on all ER payments including sales taxes, except AD&D only taxed in Quebec
Group Term Life Insurance
Regulatory Considerations
- Federal Regulation
-ERISA: Laws govern all types of employee benefits
-ADEA: Age Discrimination Employment Act requires any age related reductions in coverage to be actuarially cost justified - State and Provincial Regulation
-Common requirements to protect insurers from anti-selection and promote a fair environment
* Do not permit individual selection of FA
* Maximum EE contribution requirements
* Minimum participation requirements
-Other regulations based on NAIC model laws may apply
Medical Benefits in the US
Types of Benefits
- Service Benefits - provide medical benefits directly, restrictions of provider selection, assure no additional cost to insureds beyond ded, copay, coins, plans pay periodic prepayment if services received at the designated providers
- Indemnity Benefits - pays for incurred upon to a predetermined level, may charge beneficiaries the remaining, limited or no provider restrictions, claims are adjudicated for payment
3 Dimensions of Medical Plans
- Definition of Covered Services and under what Conditions they are covered
- Degree of Insured Cost Sharing
- The Relationships between Providers and Plan, breadth of the provider network and the degree of how providers share in the cost in terms of reimbursement
Describe 3 Dimensions of Medical Plans
List 2 Example for each Dimension
1. The definition of covered services and under what conditions they are covered
* Definition of incurred date
* Covered services (limitations and exclusions)
* Covered Facilities
* Covered Professional services
* Other Covered Benefits
2. The degree of insureds share in the costs of medical services (commonly known as cost sharing)
* Deductible
* Coinsurance
* Copay
* UCR (Usual, Customary, and Reasonable charge)
* Limit on number of days covered
* Annual maximums
* Vary cost sharing for in-network and out-of-network
3. The relationship between the health plan and the providers in terms of breadth of provider network and how providers share in the costs (reimbursement)
* Discounts for billed charges
* Fee Schedules
* Per diem reimbursements
* Hospital DRG reimbursements, Ambulatory payment classification (commonly used for Medicare fee for service)
* Capitation
* Bonus Pool based on utilization or quality
* Integrated delivery system
Managed Care Plans
Insurer manage the care insureds get
HMO
* Minimal insured cost sharing
* Most restrictive network, insureds need to follow specific guidelines, only in-network are covered
* Significant provider sharings in costs, physicians/hospitals agree to conform with utilization protocols, and reduced fee
* PCP required
* Benefit Plan
EPO
* Similar design to HMO, No PCP required
* Primary diff: EPO is regulated as insurance contract or for self-funded plan from ERISA, but HMO is regulated by more strict regulations and may subject to different regulatory requirements
Point of Services (POS)
* Open panel HMO, insureds could seek care out-of-network at additional cost sharing
PPO
* Both in-network and out-of-network are covered but at different cost sharing
* Indemnity plan focus more on acute care than preventive care
Dental Benefis in the US
Considerations of Dental Plan Design
- Enphasis on Preventive Care
- Dental Claims are typically Smaller than Medical. Claim Costs are more predictable
- Dental Services are more Elective than Medical
-Plan Design Provisions and underwriting requirements should guard against this elective nature
-Cost Sharings ensure participants use care appropriately
Medical Claim Cost Trend
Key Purposes
What are the 3 Key Purposes we use Medical Claim Cost Trend for?
- Financial Reporting - determine financial performance during a period
- Pricing - Use trend to project experience to a new time period for premium setting
- Experience Analysis - Look at how experience for a specific book of business changes over the time
Usually use the data from Electronic Data Warehouse (EDW)
Medical Claim Cost Trend
Why does Data from EDW not agree with General Ledger?
Electronic Data Warehouse
- EDW usually only includes payments for a specific claim and not aggregate amounts such as for a lawsuit and provider bonus payments.
- Processing time between EDW and General Ledger will vary (different cut-off and data loading dates )
Medical Claim Cost Trend
Trend for Pricing could be calculated on Eligible, Covered, Net Paid Basis. Explain each.
-
Eligible - billed charges before provider contracts or discounts are applied
* Good to look at underlying patterns without effects of contracts and cost-sharing - Covered/Allowed - eligible claims after provider contracts or discounts but before member cost sharing
- Net Paid - bottom line, after contrating and member cost sharing
Medical Claim Cost Trend
Techniques to incorporate unreported claims into trend analysis (based on reports from EDW)
1. Use Completion Factors from EDW
* pro - factors can be updated as conditions change
* con - maintenance and upkeep are required
2. Use Completion Factors at a later time after in-depth review of completion patterns
3. Equal runoff method
* Compare the incomplete claims to similarly incomplete claims from prior period with the same runoff time
* e.g., incurred in CY 2019 and paid thru 03/31/2020 compared to incurred in CY 2020 and paid thru 03/31/2021
CY - Calendar Year
Medical Claim Cost Trend
Developing Pricing Trends - Component Method (a)
More clear on Objective 2 Note 16
Calculate the trend of each component, which are multiplicative then Add the Leveraging
(1 + Core Cost Trend) * (1 + Core Utilization Trend) * (1 + One time changes) * (1 + Structural Changes) * (1 + Populaition Shift) * (1 + Alternative Payment Models Changes) + Leveraging = Net Paid Trend
The highlighted is Allowed Trend
Core Cost Trend = (1 + unit cost trend) * (1 + severity) * (1 + mix of services) - 1
Describe the components of Core Cost Trend and provide an example for each.
Unit Cost Trend
Severity
Mix of Services
Unit cost trend - year over year changes in the cost of a fixed basket of services, holding utilization constant. For example, a provider increases the fee for schedule for a visit by 5% to keep pace with inflation.
Severity - changes in the intensity level of the treatment. An example is shift from usual15 minute office visits to 30 minutex office visits
Mix of Services - high level changes such as overall change in the distribution of inpatient, outpatient, professional and other services. Due to the complexity of analyze all changes from mix of services, this is often a balancing item. An example is shift from inpatient to outpatient setting.
Medical Claim Cost Trend
Phases of New Technology Curve and impact on health care costs and trends
for example when a new drug or new therapy out of market
- Before introduction
- Start up - utilization increases slowly, patients and providers learn about it
- Catch up - highest utilization, emphasis on treating the existing patients
- Steady State - emphasis on newly diagnosed patients
- Transition - slowly replaced by another new technology or lower cost version
Medical Claim Cost Trend
Rush, Hush, Crush
Rush - People rush to use benefits given upcoming changes to their plans (Note, here the changes are referred to negative changes cutting benefits, changing networks)
Hush - Less utilizations next as people already had the services during Rush period
Crush - Utilization back to normal, but the trend is inflated from the Hush period
Product Development
The Product Development Cycle
- Innovate
* align with strategic perspective
* idea generation
* idea screening
* market assessment - Design
* product structure
* variables in design
* contribution requirements
* regulatory compliance - Build
* project enrollment, price the product
* financial assessment
* implement infrastructure
* management approval - Sell
* test market, then mass market - Assess
* track financials, A/E, consumer feedback - Revise
* product management
Product Development
Innovate Idea Generation
Drivers of Product Ideas
- Innovator or Follower
* Innovators have access to the initial market for a limited time as the only company
* Follower can save costs as learn from innovators - Changes in Laws and Regulations
- Consumer Demand
- Marketing and Sales Demand
- Changing Demographics
- Leveraging insurer’s capabilities (use your strengths)
- Competitive advantage (in certain areas)
- Changing in economy and financial markets (stability of the product, will people stay or lapse during economic downturn)
- Social needs (baby boomers)
Product Development
Innovate Market Assessment
- What products exist in the market today?
- What is the regulatory environment? Any upcoming changes?
- Financial values and benefits to consumers
- Price targets
- Competitors’ reactions
- Sales reactions
Product Development
Teams involved in Product Development
- Senior Management
- Marketing
- Sales
* Works directly with customers, have insights into the price sensitivity and products customers have been requesting - Underwriters
* Quantify the risk, approve the application - IT
* Help you understand the feasibility of the infrastructure needed and estimate the cost of infrastructure - Operations (claims, billing, and admin)
- Compliance
- Actuarial
- Finance (assess if projections meet corporate targets)
3 26 Experience Rating and Funding Methods
Considerations of Credibility Levels for Experience Rating - Theoretical Considerations
- Low Frequency Coverages - more volatile and need larger exposure base
- **Widely Vary Claim Size ** - more volatile
- Confidence Intervals - Chosen by insurer (e.g., 95% confident that the claim level will be within x% of the observed value)
- Experience due to Statistical Fluctuations - varies inversely to the square root of the number of exposures (fluctuation decreases as exposures increases). This could be interpreted as it takes 4 times of the exposure to double the credibility
- Non-zero correlation between experience period and projection period (stochastically dependent)
- Typical Measure - number of lives covered
