Pricing Medicare Supp Benefits

Question 1

Rating approaches for Medicare Supplement (3)

Answer 1

1. Attained age
2. Issue age
3. Community rates - all participants pay the same rate

Question 2

Medicare Supp pricing assumptions (10)

Answer 2

1. Morbidity - past clm cost need to be trended forward to the rating period
2. Mortality - not significant assumption and it’s frequently combined with persistency
3. Persistency - based on company’s experience
4. Investment earnings
5. Selection factor/UW - for underwritten policies, selection factors may be used for the first 1-3 years
6. Age and sex distribution
7. Smoker vs non-smoker
8. Area factors - from rating manuals or gov stats
9. Expenses and taxes
10. Other - modal factors and policy fees

Question 3

NAIC Model Regulation for Medicare Supp (5)

Answer 3

1. Annual filing and approval of rates and documentation supporting the rates is required
2. Loss ratio standards for annual or re-rating filing
3. Min loss ratio requirements - group is 75% and individual is 65%
4. States differ on level of review for rate increases
5. Changes in rating structure or methodology when annual rates are filed

Question 4

NAIC loss ratio standards for filing (3)

Answer 4

1. Lifetime LR - (AV of past clms and PV future clms)/(AV of past premiuma dn PV of future prem) >=LR standard
2. Future LR - (PV of future clms)/(PV of future prem) >= LR standard. This standard limits a carrier from recovering past losses from future premiums.
3. 3rd yr LR - Expected 3rd year LR >=LR standard

Question 5

NAIC loss ratio standard (1)

Answer 5

LR standard = max(original expected LR (company filing), statutory minimum)

Stat min for grp is 75% and for ind is 65%

Question 6

NAIC filing requirements for changes in rating structure or method (3)

Answer 6

1. Changes in rate structure must be made within the existing policy form as only one policy is allowed for each plan type
2. Actuarial memo must indicate how the revised rates differ
3. New rates must be actuarially equivalent to prior rates

Question 7

Methods to project experience for Medicare Supp policy (2)

Answer 7

1. Project experience from midpoint of exp to midpoint of rating period.
   
   • include other adj (ex. aging, wear-off UW)
   • current avg prem and avg clm cost in force can be calced as basis. This avoids adjusting past prem to be on current rates
   • alternative proj can be performed to improve estimates (i.e by isse age, duration)
2. Project based on asset share model - clm costs modeled based on factors (i.e by age, duration, plan). Model can incorporate changes in distrib over time

Question 8

Profit studies for Medicare Supp Policies (1)

Answer 8

1. Actual to Expected analysis
   
   • Compare actual claims to expected claims
     - compare actual claims to expected LR x actual premium
     - adj expected clms or LR based on A/E analysis to arrive at an initial starting value for proj
   • A/E analysis can include other pricing assumptions (i.e. lapse, expense)

Question 9

Reserves for Medicare Supp policies (3)

Answer 9

1. Clm reserves - est for clms that are incurred byt not paid
2. Active life reserve - required for non-cancellable or guaranteed renewable policies with pre-funding of premiums (Medicare supp are required to be guaranteed renewable)
3. Premium Deficiency Reserve (PDR) - required if premiums not adequate.

Question 10

Determining premium adequacy for Medicare Supp benefits (4)

Answer 10

1. Rate increases should be submitted if prem not adequate
2. Rate increase based on analysis of incurred LR, Clm to prem ratio, and incurred PMPM claim cost
3. RBC calcs include premium, claims, and reserves
4. Account for cost of cap req