Objective 2 Flashcards
Types of individual health insurance
- Major medical
- Limited benefit medical
- Group conversions
- Medicare Supplement and Medicare Select
- Medicare Advantage
- Disability income
- Business protection coverage
- LTC
- Dental
Types of limited benefit medical insurance
- Hospital indemnity
- Other scheduled benefits
- Dread disease
- Critical illness
Methods used by disability income policies to adjust for the cost of living
- Guaranteed insurability - automatically offers increased coverage to active insureds at specified intervals
- Automatic increases
- Increase benefit payments over time for those on disability
Major types of business protection coverage
- Keyperson coverage
- Disability buyout coverage
- Business overhead expense
Benefits that may be covered by LTC policies
- Nursing home care
- Assisted living facility care
- Home and community-based care
- Hospice care
- Respite care
- Home modifications and equipment (aka independence support services)
- Care management services
- Bed reservation benefit
- Caregiver training
- Death benefit
- Cash alternative benefit
Methods of providing inflation protection on LTC policies
- Automatic inflation protection
- Simple inflation protection
- Periodic increase offers
Components of gross premiums
- Claim costs
- Administrative expenses
- Commissions and other sales expenses
- Premium tax
- Other taxes and assessments
- Risk and profit charges
- Investment earnings
Considerations in developing administrative expense assumptions
- How expenses are allocated to the product - allocation methods include:
a. Activity based allocation
b. Functional expense allocation
c. Multiple allocation methods - How admin expenses should be allocated to groups - should differentiate between first year and renewal expenses
- What the competition includes as expenses in its pricing
Types of bases used for allocating expenses
- Percent of premium
- Percent of claims
- Per policy
- Per employee (certificate)
- Per claim administered
- Per case (some expenses are charged directly to the case for very demanding groups)
Common rating characteristics included in manual rates for group health insurance
- Age
- Gender
- Health status
- Rating tiers
- Geographic factors
- Industry codes
- Group size
- Length of the premium period
Common rating tiers for group health insurance
- One tier: composite
- Two tier: employee only, family
- Three tier: employee only, employee and one dependent, family
- Four tier: employee only, employee with one dependent, employee with children, family
- Five tier: employee only, couple, employee with child, employee with children, family
Considerations in developing a manual claim table for life insurance
- Two approaches can be used:
a. Manual premium tables - calc manual premium rate and adj for group size.
b. Manual claim tables - calc manual claim rate, then add appropriate margin, profit, and expense - Data sources - SOA studies, industry mortality tables, population statistics, or own company experience
- Changes in mortality - to reflect future improvements
- Reinsurance - net cost should be factored into claim table or expenses
- Conversions to individual life policies - associated antiselection should be reflected in manual rates
- Manual adjustments are made for group-specific traits
- Rates for the group are based on age/gender mix but groups typically charge composite rate to all employees
Use of general population data for pricing life insurance
- Estimating annual improvements in mortality
- Determining ratios of mortality by age bracket
- Comparing male and female mortality
- Developing rates for the non-working population
Manual claim table adjustments for group life
- Disability factors
- Effective date adjustment
- Industry factors
- Regional factors
- Lifestyle factors
- Marketing considerations
- Contribution schedules
- Case size factors and volume adjustments
- Plan options
Types of living benefits for life insurance
This benefit pays a portion of the face amount prior to death, with the remaining benefit paid at death
- LTC benefits
- Critical illness benefits
- Terminal illness benefit
Steps in developing claim costs for use in a manual rate
- Collect data (at least 12 months)
- Normalize the data for important rating variables
- Project experience period costs to the rating period
Important rating variables when normalizing data for use in the rate manual
- Age and gender
- Geographic area
- Benefit plan
- Group characteristics
- Utilization management programs
- Provider reimbursement arrangements
- Other risk adjusters
Methods of adjusting manual rates for specific benefit plans
- Claim probability distributions - used to estimate impact of deductibles, coinsurance, OOP maximums and annual benefit maximums.
- Actuarial cost models - build estimated total claim costs by developing a net claim cost for each detailed type of service and summing to get the total
Data sources for estimating disability claim costs
- A company’s own data is the best source if reliable and credible
- Intercompany experience studies
- Rate filings of competitors
- Research of governmental and business publications
- Data from consulting firms and reinsurers
Types of disability income experience studies
- Calendar year loss ratio study
a. Compute ratio of incurred claims to earned premium for a given calendar year
b. Incurred claims = paid claims + increase in claim reserves
c. May not provide a clear picture of historical trends because results are affected by reserve changes - Incurral year loss ratio study
a. Compute ratio of incurred claims to earned premium for a given incurral year
b. Incurred claims = present value of claim payments made to date + present value of the current claim reserve
c. Shows historical trends because the full cost of a claim is attributed to the year the claim was incurred - Study of actual-to-expected incidence or termination rates: ratios of a company’s actual claim incidence or term rates compared to expected rates
Formula for disability income net monthly premium
Net monthly premium = IncidenceRate * SUM(Benefit(t) * Continuance(t) * InterestDiscount(t))
The summation runs for the entire length of the benefit period
Group characteristics that impact disability income claim costs
- Age and gender
- Occupation:
a. Hourly vs. salaried
b. Blue collar vs. grey collar vs. white collar
c. Union vs. non-union
d. Commissioned sales personnel - Industry (more appropriate than occupation for group insurance)
- Average earnings per employee
- Area
- Size of group
Data sources for developing dental claim costs
- Own company data
- Outside databases: Prevailing Health Care Charges System, MDR Payment System, National Dental Advisory Service, ADA “Survey of Dental Fees”
- Consulting firms
- Rate filings of other carriers
- Third party administrators
- Reinsurers
Plan characteristics that impact dental claim costs
- Covered benefits
- Cost sharing provisions
- Waiting period
- Period of coverage
Network and care management practices that impact dental claim costs
- Provider reimbursement levels:
a. FFS reimbursement may be based on UCR
b. PPO networks contract for reduced fees from limited providers
c. Capitation is common with DHMO - Care management practices - including preauthorization and self-management
Insured characteristics that impact dental claim costs
- Age and gender
- Geographic area
- Group size
- Prior coverage and pre-announcement
- Employee turnover
- Occupation or income
- Contribution and participation
Major effects of the year 2000 changes in the NAIC LTC Model Act
- Requires disclosure of rating practices at time of application
- Requires an actuarial certification at the time of initial rating
- Eliminates minimum loss ratio requirements in the initial rate filing
- Places limits on expense allowances in the event of a rate increase - if a rate increase is requested, the lifetime loss ratio must not be less than a weighted average of 58% of the initial premium and 85% of the premium increase
- Requires reimbursement of unnecessary rate increases
- For policies in a rate spiral, guarantees policyholders the right to switch to currently-sold insurance without underwriting
- Authorizes the commissioner to ban companies for 5 years if they persist in filing inadequate initial premiums