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Learning Objective 2 Flashcards

1
Q

Components of gross premium [Card 55]

A

Acronym - Claims + Retention

Claims Cost
Admin expense
Taxes/Fees
Commissions
CTR
Less and investment earnings
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2
Q

Considerations in developing administrative expense assumptions [Card 56]

A

Acronym - Allocation

How are expenses allocated by PRODUCT??

a. Activity Based - Based on some measure of use
b. Functional - How time is allocated to tasks (billable hrs)
c. Multiple - Combination of both activity and functional

How are admin expenses allocated to GROUPS??

a. Should differentiate between new and renewal groups
b. Different ways to calculate them (% prem, claims etc)

What does the COMPETITION include as expenses in their pricing?

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3
Q

Types of bases used for allocating expenses [Card 57]

A

Acronym - 2(PC) vs. EC (2Pac vs. East Coast)

Percent of premium
Percent of claims

Per policy
Per Claims

Per Employee
Per Case

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4
Q

Common rating characteristics included in manual rates for GH insurance [Card 58]

A

Acronym - LA LIGHTS

Location
Age

Length of premium period - LTC could have multi yr period, which increases risk
Industry
Gender
Health Status
Tier
SIC (Industry)
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5
Q

Common rating tiers for group health insurance [Card 59]

A

Acronym - Five Tier

One Tier: composite
Two Tier: EE only, family
Three Tier: EE only, EE + 1 dep, family
Four Tier: EE only, EE + 1 dep, EE + Children, Family
Five Tier: EE only, Couple, EE + Child, EE + Children, Family

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6
Q

Considerations in developing manual claim table for life insurance [Card 60]

A

Acronym - AMERCA TM (America’s Team)

Antiselection issues
Mortality changes
Experience data or other sources (SOA)
Reinsurance - net cost 
Conversions to individual policies 
Age/Gender mix

Manual claim tables
a. Premium tables - calc manual prem rate, then adjust for group size. Reflects margin, profit, expenses appropriate for the group size, relative to the averages in the table

b. Claim tables - calc manual claim rate, then add the appropriate margin, profit and expenses

Manual adjustments are made for group-specific traits

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7
Q

Use of general population data for pricing life insurance [Card 61]

A

Acronym - AGE Improvements

Determining ratios of mortality by AGE bracket
Comparing mortality by GENDER
Developing rates for those not EMPLOYED (very young/old)

Estimating annual IMPROVEMENTS in mortality

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8
Q

Manual claim tables adjustments for group life [Card 62]

A

Acronym - PED CLAIMS

Plan options - additional coverage
Effective date adjustment - If not July 1
Disability factors - manual tables usually assume waiver of premium is totally disabled. Need to adjust if different

Contribution schedule - 100% contribution limits antiselection and could get a 5% discount
Lifestyle factors - i.e. smoking
Area factor
Industry factor
Marketing considerations - added charges for guarantees
Size factor and volume adjustments

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9
Q

Types of living benefits (accelerated death benefits) for life insurance [Card 63]

A

Acronym - Time to get ILL

Terminal illness - single amount upon diagnosis with 6 to 12 months to live (25% - 50% face)

Critical illness - single amount upon diagnosis (25% face)

LTC - monthly benefit of 2% face amt up to a % of DB

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10
Q

Steps in developing claim costs for use in a rate manual [Card 64]

A

Acronym - DNT

Collect DATA for a 12 month period

NORMALIZE the data for important rating variables

TREND data from the experience period to the rating period

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11
Q

Important rating variables when normalizing data for use in the rate manual [Card 65]

A

Acronym - Use AIRBAGS when normalizing

Utilization management programs - adjust for changes

Age
Industry
Reimbursement arrangements - adjust for changes
Benefit options - adjust data to reflect a common plan
Area
Gender
Size

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12
Q

Methods of adjusting manual rates for specific benefit plans [Card 66]

A

Acronym - Continuance Cost Models

Continuance tables (CPD) - typically used to estimate impact on claims cost of deductibles, coinsurance, OOP Max and annual benefit max

Actuarial Cost Models - Build estimated claim costs by developing a new claim cost for each service and summing them

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13
Q

Data sources for estimating disability claim costs [Card 67]

A

Acronym - Public Experience Studies

Public rate filings
Research publications
In-house experience data
Data from consulting firms or reinsurers
Insurer studies (Loss ratio, A/E)
Industry Data (NAIC, SOA, CGDT)
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14
Q

Types of disability income experience studies [Card 68]

A

Acronym - Loss Ratio A/E

Calendar Year Loss Ratio Study
a, Compute the ratio of incurred claims to earned premium for a given CY
b. Consistent w Financial Statement reporting
c. Interest earned on reserves

Incurral year loss ratio study

a. Compute the ratio of incurred claims to earned premium for a given incurral period
b. No interest on reserves since incurred in same yr

Actual-to-Expected incidence or termination rates

a. 1987 Commissioners Group Disability Table (CGDT)
b. SOA 2000 Basic Experience Table
c. SOA Group LTD Experience Committee

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15
Q

Formula for disability income net monthly premium [Card 69]

A

Disability Income Net Monthly Premium

= Incidence Rate * ∑ ( Benefit * Continuance * v^t )

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16
Q

Group characteristics that impact disability income claims cost [Card 70]

A

Acronym - Allowable Earnings

ALLOWABLE rating factors

Age and Gender
Occupation
     a. Hourly vs salary
     b. Blue vs white collar
     c. Union vs non-union
Industry
Area
Group Size

Average EARNINGS per employee

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17
Q

Data sources for developing dental claim costs [Card 71]

A

Acronym - Outside Public CARD

Outside databases

Public Rate Filings

Consulting firms - have manuals containing utilization data
3rd Party Administrators
Reinsurers
Data from inside the company

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18
Q

Plan characteristics that impact dental claims costs [Card 72]

A

Acronym - BC WP

Benefits covered - plans often have a missing tooth provisions and limit the replacement of dentures to once every 5-7 yrs

Cost sharing provisions - deductibles, coins, copay are important bc dental procedures are typically elective

Waiting period - used to discourage members from enrolling to treat an issue then drop

Period of coverage - need to project past experience into the future since medical and dental trend differ

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19
Q

Network and care management practices that impact dental claim costs [Card 73]

A

Acronym - Provide Care

Provider reimbursement levels

a. FFS - Based on UCR rates
b. PPO - contract reduced fees with dentist
c. Capitation is common for Dental HMOs

Care Management Practices

a. Preauthorization
b. Self management under capitation - providers recommend less expensive procedures bc of incentives

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20
Q

Insured characteristics that impact dental claim costs [Card 74]

A

Acronym - Allowable PUT

Allowable rating factors

Age
Gender
Area
Industry
Group Size

Participation % - higher claims with lower participation %
Utilization is pent up for new members
Employee turnover - new members have high utilization

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21
Q

Major effects of the year 2000 changes in the NAIC LTC Model Act [Card 75]

A

Acronym - CRADLES

Commissioner can ban insurers for 5 years if they consistently file inadequate rates

Reimbursements of unnecessary rate increases

Actuarial certification is required when filing rates

Disclosure of rating practices when filing rates

Limits expense allowances in the event of a rate increase

Eliminates minimum loss ratio requirements
a. Lifetime loss ratio must not be less than a weighted average of 58% initial premium and 85% premium increase

If in rate SPIRAL, policyholders can switch to currently sold insurance without underwriting

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22
Q

Major effects of HIPAA on LTC [Card 76]

A

Acronym - DOS 2 TAX

Defined qualified plans

Standardized benefit triggers

Clarified taxation of premium and benefits
a. LTC insurance is treated as an accident and health insurance contract for tax purposes

Allowed tax reserves are calculated on a one year preliminary term basis for qualified plans

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23
Q

Major stakeholders in the group LTC policy design process [Card 77]

A

Acronym - I BEE

Insurance company

a. Concerned with up front costs, risk of low enrollment
b. Costs vary greatly by participation level

Brokers - opens door to new markets for them

Employer groups

a. LTC is low cost with stable pricing
b. compliments other offerings

Employees
a. Not yet aware of what’s even covered by LTC

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24
Q

Assumptions needed for a LTC asset share pricing model [Card 78a & 78b]

A

Acronym - IMPROVES Claims Cost

Interest rate on assets
Mortality - 1994 GAM Table
Profit targets
Reserve basis - What's the margin?
Other assumptions
Voluntary lapses = Total Termination Rate - Mortality Rate
Expenses - Start up expenses are usually high
Selection factors - reflects UW wear off

Morbidity/Claims Cost Variables:

a. Marital status
b. Gender
c. Benefit trigger
d. Area
e. Case managers - Leads to lower claims

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25
Reasons for experience rating [Card 79]
Acronym - WANTS GROUPS want it INSURERS want to quote and charge premiums that are as competitive as possible INSURERS wants to avoid antiselection
26
Theoretical considerations in determining credibility levels [Card 80]
Acronym - (FSCL)^2 [Fiscal squared] Frequency needs to be high enough to minimize volatility, otherwise you need a larger exposure base Varying severity and claim volatility Confidence interval chosen by the insurer Longer experience periods can be used to increase exposure and therefore credibility Squared => statistical fluctuations vary inversely with the square root of the number of claims/lives. a. So, it will take 4x the exposure to double the credibility
27
Practical considerations in determining credibility levels [Card 81]
Acronym - APE CCC Ability of management and admin to handle experience rating Philosophy on experience rating (management) Effect on existing business if credibility level is changed Competitive pressures Cost/Benefit analysis of experience rating and new cases Consistency among classes of business
28
Steps in prospective experience rating [Card 82a]
SAME PROCESS AS URRT 1. Develop past incurred claim experience 2. Pool data as necessary 3. Calculate NET premium by trending claims 4. Apply retentions to get GROSS premium 5. Add loads for antiselection risk, other financial impacts Small group considerations a. Formula based methods (10+) - a group is assigned to a rate class then reassigned at renewal if experience is good b. Re-Underwriting method - look at outlier cases to see causes of bad experience to determine prospective rates
29
Pooling Methods [Card 83]
Acronym - 5C Catastrophic claim pooling Credibility weighting Combining several years of experience data Capping loss ratio used in pricing, rate increase or claims Combination of methods
30
Loadings on the net premium (retentions) [Card 84]
Acronym - MIDGET PC ``` Margin Investment income Deficit recoveries Covering guarantees Expense loadings Termination risk charges ``` Pooling charges CTR
31
Typical retrospective refund formula [Card 85]
Policyholder account balance = ``` Prior year balance carried forward + Premium + Investment income - Charged claims - Expenses - Risk charge - Change in rate stabilization reserve - Profit ``` Charged Claims = ``` Claims Paid + Increase in claim reserves - Pooled claims + Pooling charge + Conversion charge + Claims margin ```
32
Considerations in deciding whether to use retrospective experience rating [Card 86]
Acronym - GF CF Group size must be credible Financial situation of the company Company policies and practices Funding arrangement (some funding arrangements will replace the experience rating formula)
33
Special funding arrangements for group insurance [Card 87]
Acronym - MIS 2R (Mister) Minimum premium contracts - FI plan that uses a trust to pay claims Insured (Fully and Self) Stop Loss Reserveless plan - deferred premium plan, where insurer forgoes premium equal to part or all of reserves Retrospective premium arrangement - policyholder pays a % of premium upfront and pays an additional amount later
34
Components of medical trend [Card 88]
Acronym - PRICED Provider contract changes Random fluctuations Initiatives that have an effect on trend Cost sharing changes Economic factors like inflation - FORCE OF TREND Demographic changes
35
External sources of trend information [Card 89]
Acronym - PMPM G'S Proprietary databases Medicare PPI (Producer Price Index) Medical CPI Health portion of GDP Surveys on trend - typically from consultants
36
Micro-economic variables for modeling health care consumption [Card 90]
Acronym - HAAA Health status of the individual Availability of insurance Access to care Actions of the PCP
37
Macro-economic variables that affect health care cost trends [Card 91]
Acronym - SWAMI'S T Supply of doctors - (more doctors = lower prices) Wealth Aging population Managed Care - shift from IP to OP care Inflation More Specialists - use more tech and intense therapy Third party payers - decreases cost sensitivity and increases consumption
38
Trend Analysis Techniques [Card 92]
Acronym - Model ALEX ARIMA Actuarial models - project util and cost by typeof service based on historical experience Linear regression models of historical claim cost External indicator models - rely on causal modeling techniques ARIMA Models - only good for short periods bc they don't work for cyclical changes that affect trend
39
Common challenges in trend analysis [Card 93]
Acronym - CLOMPS Change in prior period estimates - base period may not be complete Legislative changes One-time events Margins Processing of claims and payment patterns may have changed Seasonality
40
Steps of the product development cycle [Card 94]
Acronym - MIN(novate) & I Don't Believe in Stopping At Rentschler Innovate a. Does a market exist? b. Idea screening - does it fit corporate goals c. Development of new ideas d. Strategic perspective of the company Design the product Build the product Sell the product Assess the product Revise the product
41
Common drivers of product ideas [Card 95]
Acronym - SLICED C FML ``` Social need Leveraging insurer capabilities Innovation Consumer demand Economic reasons Demographic changes ``` Competitive advantages Follow other carriers Marketing and sales recommend it Laws changed
42
Questions answered by market assessment [Card 96]
Acronym - CORPSE B What.... is the reaction from COMPETITORS? is the product OBJECTIVE for the consumer? is the REGULATORY environment for this product? is the PRICE target? is the SALES team's reaction to it? EXISTS in the market today? are the BENEFITS of this product to the consumer?
43
Steps for building a new product [Card 97]
Acronym - Every Product Fails In Armageddon Enrollment projections Price the product Financial assessments to determine if the product can hit profit targets Implementation process Approval from senior management
44
Key players in the product development cycle [Card 98]
Acronym - SPACIOUS as a MF ``` Senior management Product development team Actuarial Compliance IT Operations Underwriting Sales ``` Marketing Finance
45
Desired characteristics of premium rates [Card 99]
Acronym - ACE Adequate enough to generate an acceptable ROE Competitive in the market Equitable - to avoid an unreasonable amount of cross-subsidization among groups
46
Information gathered during underwriting for managed health care [Card 100]
Acronym - HAHA Health Status Ability to pay premium Historical persistency Availability of other coverages for COB
47
Steps in the rate formula for managed health care [Card 101]
THINK OF URRT 1. Develop projection period base rate PMPM by trending historical experience 2. Apply group specific additive adjustments 3. Apply group specific multiplicative adjustments 4. Add retentions 5. Convert to a contract rate (per EE or Sub)
48
Rate setting approaches [Card 102]
Acronym - Renewing TBS Fundamentals Renewing or Rerating based on experience Fundamental Pricing a. Tabular method - uses tables for morbidity (LTC) b. Build up method - develop expected claims c. Simulation
49
Major considerations in the rate setting process [Card 103]
Acronym - DERMS Distribution system - compensation system, level of company control Expectations based on existing products Regulatory situation - limitations may exist that impact rates Market - competitor pricing sets expectations for the consumer Strategic plan and profit goals
50
Major Rating variables [Card 104]
Acronym - SHADOW GIMPS ``` Smoking Health status Age Duration Other coverages Weight ``` ``` Gender Industry Marital status Past claim history Situational factors ```
51
Types of age rating structures [Card 105]
Acronym - Vowels (AEU) Attained age rating - age at renewal Entry age rating - age at issue Uni-age rating - doesn't recognize age at all, so younger people subsidize older ones
52
Tabular method formulas for calculating net premiums [Card 106]
Net Premium = ∑ Pr(Claim) * Avg Cost of Claim * v^t * Original lives still alive Avg Cost of Claim = ∑ Claim @ s * P(Claimant @ 0 is disabled @ s) * v^s
53
Using the buildup and density function approach for pricing [Card 107]
Acronym - URRT and CPD Buildup is like the URRT Each claim type has it's own claim cost projection and they are summed together Density function uses continuance tables Distribution of expected annual claims for an individual and is helpful when calculating the impact of deductibles and out of pocket limits
54
Steps of the rerating approach for pricing [Card 108]
Acronym - GRP CR (Group Conference Room) GATHER experience on existing business RESTATE experience PROJECT past results to the future COMPARE the projection against desired results Apply REGULATORY adjustments
55
Adjustments needed for using past claims to project future claims [Card 109]
Acronym - BC OLDD Changes in.... Benefits Claims cost Other - antiselection, UW, business practices Leveraging Duration Demographics Projected Claims = Claims cost PMPM x # of members x ( 1 + leveraging claim cost trend )^(t-s) ) x ( Durational factor @ t / Durational factor @ s ) x ( 1 + Antiselection factor due to lapses ) x ( 1 + adjustment factor for other changes )
56
Reasons for management adjustments in pricing [Card 110]
Acronym - CRSPP (Crisp) Competitiveness of premiums for new business Relationship with the public and sales force Social policy Profitability on other lines of business Phasing in large rate increases
57
Methods for calculating gross premiums [Card 111]
Acronym - Block the Asset Block rating approach a. How BCBS calculates gross premiums b. Claims / (1 - Retentions) Asset approach a. Involves long term projections of various items, in order to determine necessary premium
58
Items included in asset share projection [Card 112]
Acronym - C CREPE (si crepe) Claim values Capital values - model cost of capital Revenue values - premium, investment income Exposure values - policies, members Profit targets - Percent of premium, ROE, ROI Expense targets
59
Steps for manual rating of disability coverage [Card 113]
Acronym - BOD PREP (Similar to Medical) Calculate the BASE rates/premium a. Base premium = Base Rate * Benefit Amount b. LTD Base Rate = Incidence Rate * Reserve @ 0 ÷ 12 c. STD Base Rate = Incidence Rate * Duration (weeks) ÷ 12 Deduct OFFSET credits - to get Net base premium a. Offset Credit = Expected amount of offset * Benefit amt DEMOGRAPHIC adjustments - to account for rating factors Make PLAN provision adjustments Add RETENTIONS Add PROFIT
60
Steps for experience rating of disability coverage [Card 114]
Acronym - Blend! 1. Calculate manual claim rate (less profit/expenses) 2. Calculate experience period claim rate a. Paid claims and reserves are discounted to midst of experience period 3. Credibility weight the manual and experience claims ``` C = N ÷ (N + K) K = constant ``` Final case premium = Blended Rate ÷ Target Loss Ratio
61
Steps in the claim process for disability [Card 115]
Acronym - ED in your PP Determine ELIGIBILITY for coverage - is the person actively working? Are there pre-existing conditions? Is the DEFINITION of disability met? What's the PAYMENT amount? a. PMT = Pre-disability income * Benefit % - Offsets Get PROOF of disabilities a. STD - often b. LTD - annual
62
Tools of the claim process for determining and handling disabilities [Card 116]
Acronym - MR MFFS (Mr. Muffs) Medical evaluation Rehabilitation plans Managed disability - to help get back to work Financial evaluation of the client - pre and post disability Fraud review Settlements
63
Use of health insurance loss ratios [Card 117]
Acronym - CT PEP COMPARE insurers and MCOs TEST against minimum MLR standards PROJECT future earnings growth of HMOs EVALUATE an organizations performance PROVIDE consumers with info on competing health plans
64
Users of loss ratios [Card 118]
Acronym - LIR RIC (Lyric) Legislators Insurers Regulators Rating agencies Investors Consumer advocates
65
Payment mechanisms for perscription drugs [Card 119]
Average Manufacturer Price (AMP) a. Price to sell to wholesalers Wholesale Acquisition Cost (WAC) a. Manufacturer's suggested list price Average Wholesale Price (AWP) a. WAC is 80% of AWP b. Most common - based on data from manufacturers Actual Acquisition Cost (AAC) a. What the retailers (pharmacy) pays the wholesaler Usual & Customary (U&C) a. Retail price consumers pays to retailers b. AAC + Markup Maximum Allowable Cost (MAC) a. typically used for generics, kind of like a fee schedule
66
Layers (participants) within drug distribution channels [Card 120]
Acronym - MR CW Manufacturers Wholesalers Retailers Consumers
67
Actuarial standards for the use of data [Card 121]
Acronym - SR RUD L (Sir Rude L) SELECTION of data RELIANCE on data from others REVIEW data is reasonable and consistent USE of data - must decide it's sufficient DOCUMENTATION of data quality LIMITATIONS of responsibility - not required to audit data
68
Considerations in selecting data for an actuarial analysis [Card 122]
Acronym - LASAR LIMITATIONS of the data APPROPRIATENESS for the intended purpose SAMPLING methods used to collect data Cost of getting ALTERNATIVE data in reasonable time Cost and benefit of using ALTERNATIVE data REASONABLENESS and consistency of data elements
69
Required documentation related to data quality [Card 123]
Acronym - A PD & SU41 LB (A POD & Sum41 Luau Brunch) ADJUSTMENTS made to the data PROCESS actuary followed to evaluate data DEFECTs the actuary believes are in the data SOURCES of the data UNRESOLVED concerns about the data Disclosures in accordance with ASOP 41 LIMITATIONS on work product due to data quality issues BIASED results due to data quality issues
70
Situations in which ASOP #25 applies [Card 124]
Acronym - Legally Credible When the actuary... 1. Is required by law to evaluate credibility 2. Chooses to evaluate credibility of subject experience 3. Is blending subject experience with other experience 4. is representing the data as statistically credible
71
Recommended practices for using credibility procedures [Card 125]
Acronym - JUDGEMENT 1. Select an appropriate credibility procedure (full or not?) 2. Exercise professional judgement in selecting relevant experience to blend with 3. Use professional judgement when selecting, developing and using credibility procedure 4. Consider homogeneity of both the subject experience and the relevant experience

GH Core US (7 decks)

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