Topic 4: Financing/Funding Flashcards
Financing
Who pays the cost of the plan
Financing Options
- ER pays full cost of the plan: Non Contributory
- Contributory: ER and EE share cost
- Fully Contributory: EE pays entire cost
- Voluntary Benefits
Funding
- Who is the risk bearer?
- Claims/Losses
- Adm Costs - Who Guarantees the payment of the benefits?
- Insurer; Private/Government
- ER if self funded - Managed Care Plans the provider is at risk: HMO, ACO, Staff Model HMOs
What Is The Costs of a Guaranteed Cost Arrangement?
Premium
Guaranteed Cost Arrangement
- Guaranteed cost to ER
- Fixed or Unknown cost of risk to the ER is represented by the premium
Who Assumes All Claims and Admin Costs and Risks with a Guaranteed Cost Arrangement
Insurer
What are Manual and Community Rating Systems Used For?
Used by Insurers to determine the premiums
Who Bears The Risk In A Fully Self insured Arrangement?
- ER; Assumes all of the claims and administrative costs
What is Experience Rating?
- Claims or losses; “loss experience” for a given time period is used to determine a rate or a cost of coverage
Retrospective Experience Rating
- Premium is the initial cost to the ER
- Takes Place at the end of the coverage period
Balance Formula For Retrospective Experience Rating
- Balance = Premiums Earned - Claims/Losses - Admin Costs
- Premiums earned as opposed to premiums written
Positive Balance For Retrospective Experience Rating
- Refund
- Carry Forward to future year (Paid Interest)
- Surplus Balance
Underwriting Profit
- Positive balance after claims and admin costs are paid
Negative Balance For Retrospective Experience Rating
- Deficit
- Pay it immediately
- Make up from previous surplus
- Carry it forward; charge interest
Cost of Risk If ER has Guaranteed Cost Arrangement
Premium Paid
Cost of Risk If ER is totally and Completely Self Insured
- Cost of Claims and Admin Costs
Cost of Risk Under Retrospective Experience Rating Arrangement
- Premium for 2013 adjusted for the end of year 2013 balance
- Current year loss experience influences current year cost of risk
Prospective Experience Rating
Takes place at the rate renewal process
- If balance is (+) rate decreases
- If balance is (-) rate increases
- If balance is (0) rate stays the same??
What Is The Current Cost of Risk Influenced By In A Prospective Experience Rating?
Current cost of risk is influenced by the past loss experienced
Prospective Experience Rating Formula
Balance = Premiums Earned - Claims/Losses - Admin Costs
Loss Experience Credibility Types
- Fully Credible
- Partially Credible
- Not Credible
Credibility Factor Formula
[ (ER’s Loss Experience) x CF ] + [ (Expected Loss Experience For The ER Manual Rate) x (1- CF) ]
What Is Fully Credible Company
- Large ER
- 1000 + covered
- Disability Insurance; lower frequency and less exposure
- More years to get higher credibility rating
Zero Credible Company
- New Account
- Smaller ER
Alternate Funding Arrangements
- Insurance Company Environment
- Take advantage of predictable losses
Minimum Premium Arrangement
- ER large Medical Plan
- Expected Total Claims = 2 million + 100% credible
- High Deductible Plan
- Insurer provides for claims exceeding 2 million; catastrophic coverage
Minimum Premium Arrangement Premium
Premium = Expected Loss + Admin Costs + Risk Charge
- Premium is substantially reduced
- Premium taxes increase
- Potential cash flow advantage as well
