COURSE 8: Fall 2003 -1- GO TO NEXT PAGE
Health, Group Life %26amp; Managed Care
Morning Session
**BEGINNING OF EXAMINATION**
HEALTH, GROUP LIFE %26amp; MANAGED CARE
MORNING SESSION
1. (4 points) Your CEO is departing for a meeting to discuss the marketing strategy for a
new managed care product. He has asked you to brief him on the following topics:
(a) With regard to distribution models
(i) Describe traditional and alternative distribution models.
(ii) Describe considerations relative to the major constituent groups that
influence the distribution process.
(b) Describe market segments commonly used for managed care products.
Questions 2 – 8 pertain to the Case Study
2. (9 points) You have been asked to analyze the claim experience for Wonderful Life in
Tables MM-6a and MM-6b of the case study.
(a) Describe the impact on trend of company-specific care management initiatives.
(b) Calculate the year-over- year quarterly rolling trend for 3Q02 and 4Q02.
(c) Recommend baseline trends for Hospital, Non-Hospital and Total Medical Costs.
Assume the last half of 2002 is predictive of future trends. Justify your answer.
(d) Based on the following assumptions:
%26#8226;%26#61472;%26#61472;On January 1, 2003, 50% of the hospitals will accept 10% discount off the
2003 Hospital contracted rate.
%26#8226;%26#61472;%26#61472;These hospitals deliver 1/3 of your facility care.
%26#8226;%26#61472;%26#61472;The remaining hospital contract costs will increase as expected.
%26#8226;%26#61472;%26#61472;Utilizatio n does not change.
Calculate a revised estimate of Hospital and Total Medical Trend. Show your
work.
(e) Marketing has just sold a large group with 5,000 employees (12,000 members).
All of the group members will only use hospitals that accept the 10% discount.
Calculate a revised estimate of Total Medical Trend. Show your work.
COURSE 8: Fall 2003 -2- GO TO NEXT PAGE
Health, Group Life %26amp; Managed Care
Morning Session
Questions 2 – 8 pertain to the Case Study
3. (13 points) You are a consultant for Bailey Industries. Bailey has been struggling to
balance increased medical costs against emplo yee demand for more choice in coverage.
Bailey is considering the adoption of a new medical plan with patient-directed benefits.
In addition to Table B-1, you are given the following claims probability distribution and
proposed benefit options:
Claims Range Percentage of Employees
with claims cost in range
Average claims cost per
employee in range
$0 15% 0
$1 - $1,000 40% $400
$1,000 - $2,000 15% $1,500
$2,000 - $5,000 15% $3,500
$5,000+ 15% $25,000
Option A Option B
Deductible $1,000 $2,000
Coinsurance 10% 20%
Annual Employee
Premium $0 $0
Employer funds placed
in Employees PHA
$500 $1,250
(a) (1 point) Describe problematic aspects of the current employer-sponsored system
for employers and employees.
(b) (3 points) Describe key implementation considerations for an employer adopting a
PDHB approach and how they would apply to Bailey Industries.
(c) (3 points) Describe models used to predict selection costs for the medical options.
Identify and explain why certain models are not appropriate for evaluating costs
for Bailey Industries.
(d) (6 points) Assume a group of all single employees who, absent choice, would be
equally distributed between the two options. Assume PHA (Personal Health
Account) funds are expenses to Bailey Industries.
(i) Construct a choice model for Options A%26amp;B and calculate maximum
adverse selection cost.
(ii) Explain why adverse selection will be less than the amount calculated by a
choice model.
(iii) Describe methods to manage adverse selection in PDHB models.
COURSE 8: Fall 2003 -3- GO TO NEXT PAGE
Health, Group Life %26amp; Managed Care
Morning Session
Questions 2 – 8 pertain to the Case Study
4. (5 points)

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