Risk Classification

Question 1

Types of predictive models that are not based on medical conditions (traditional “non-condition risk-based” models) (139)

Answer 1

1. Age/sex - rates are established for a group based on the average age/sex factor of the members in the group (works best for large groups w/ age/sex factors close to 1.0)
2. Prior cost - the prior year’s claims are used to project future costs (is reasonably accurate for large groups, but not for smaller groups)
3. Combination of age/sex and prior cost - often used for rating smaller groups

Question 2

Sources of data for developing risk factors (140)

Answer 2

1. Claims data - for medical condition-related risk factors such as diabetes or cancer
2. Self-reported data - for lifestyle related risk factors such as smoking, stress, lack of exercise, poor nutrition, etc. (see separate list of risk factors identified by a health risk assessment)
3. External data - for lifestyle-related risk factors such as industry, geography, education, and income level

Question 3

Risk factors identified by a health risk assessment (140)

Answer 3

1. Personal disease history
2. Family disease history
3. Health screenings and immunizations
4. Alcohol consumption
5. Injury prevention behavior
6. Nutrition
7. Physical activity
8. Skin protection
9. Stress and well-being
10. Tobacco use
11. Weight management
12. Women’s health (eg, pregnancy status)

Question 4

ASOP 12 - Considerations when selecting risk characteristics to use in a risk classification system (164)

Answer 4

1. The relationship between the risk characteristics and expected outcomes. Rates are considered equitable for a given risk characteristic if differences in rates reflect material differences in expected cost
2. Causality - the risk characteristic should be related to expected outcomes, but it is not necessary to establish a cause and effect relationship
3. Objectivity - select risk characteristics that are capable of being objectively determined
4. Practicality - reflect the tradeoffs between practical and other relevant considerations
5. Applicable law - consider whether the law limits the choice of risk characteristics
6. Industry practices - consider usual and customary risk classification practices for the given situation
7. Business practices - consider limitations created by business practices for the given situation

Question 5

ASOP 12 - Considerations when establishing risk classes (164)

Answer 5

1. Intended use - select a risk classification system that is appropriate for the intended use
2. Actuarial considerations
   a. Adverse selection - may occur if the variation in expected outcomes within a risk class is too great
   b. Credibility - risk classes should be large enough for expected outcomes to be credible
   c. Practicality - must balance the conflicting objectives of accuracy and efficiency
3. Other considerations - should comply with applicable law, consider industry practices, and consider limitations created by business practices
4. The reasonableness of results from using the risk classes