group 33 Medical Claim Costs

Question 1

How to collect, normalize, and project data when creating medical manual rates
Part 2 of 2

Answer 1

1. Normalizing data for rating variables
   
   1. 1 Age and Gender: Variation can be substantial
      
      1. 1.1 May adjust historical costs to a standard population: in the past, manual rate adjusted to reflect group being rated
   2. 2 ACA eliminates gender specific rates and restricts prem variation due to age factors to 3:1 for individuals and small groups
   3. 3 Geographic area: claim costs vary widely
      
      1. 3.1 Company claims lack volume to study by zip code
      2. 3.2 Use area factors from competitor or consultant
   4. 4 Benefit Plan
      
      1. 4.1 Cost sharing provisions, wellness, prescriptions, covered services, high ded + HSA or HRA
   5. 5 Group characteristics
      
      1. 5.1 ACA allowable: family status (individual vs family), geographic area, age (3:1 variation permitted); tobacco use (1:5:1 variation permitted)
   6. 6 Utilization Management Programs
   7. 7 Provider Reimbursement Arrangement
   8. 8 Other risk adjusters based on claim, diagnosis, encounter data and pharmacy

Question 2

How to collect, normalize, and project data when creating medical manual rates
Part 1 of 2

Answer 2

1. Collecting Data for Manual rates
   
   1. 1 Best source is company’s own experience if credible
   2. 2 Financial information
      
      1. 2.1 Define type of claim dollars to be collected; Define treatment of reinsurance recoveries and COB recoveries
   3. 3 Experience Period: 12-month period ensures a complete seasonal cycle - claims may be analyzed on incurred or a paid basis; Incurred basis claims should be completed
   4. 4 Exposure basis: # of employees, contracts, subscribers, covered persons
   5. 5 Frequency of data collection

Question 3

Projecting Experience Period costs to rating period

Answer 3

1. Trend: changes in cost per service, utilization, mix of services, provider reimbursement, tech, drugs, plan design
2. Secular trends = percent change from factors affecting 1st dollar, 100% benefits
3. Deductibles and copayment create leverage

Question 4

Methods of adjusting manual base rates

Answer 4

1. ACA limits allowable rating variables in small group market
2. Claim Probability Distribution (CPD)
   
   2. 1 useful for comprehensive or major med, where there is deductible, coins, out of pocket limit
3. Actuarial Cost Models
   
   3. 1 useful where copays and limits apply to specific services
   4. 2 Gross benefit cost quoted as PMPM calculated as
      
      3. 2.1 1/12annual freqavg allowed charges
      4. 2.2 Reduced by value of any copayments
      5. 2.3 Total net benefit cost PMPM is then derived
   5. 3 Provider arrangements should be recognized
4. Using cost models to estimate the impact of plan changes