000
500
3 75% 10%
90%
1,000
500
You are also given the following additional information:
%26#8226;%26#61472;%26#61472;7 years of claims history for one individual
Year Claims
1 -
2 500
3 -
4 -
5 1,000
6 1,000
7 -
%26#8226;%26#61472;%26#61472;Expected Value of the Process Variance = 133,581
%26#8226;%26#61472;%26#61472;Target Loss Ratio = 80%
%26#8226;%26#61472;%26#61472;Ignore the impact of trend
(a) Calculate the expected gross premium for this product. Show your work.
(b) Calculate the credibility. Show your work.
(c) Calculate the credibility weighted total premium for this individual. Show
your work.
COURSE 8: Fall 2003 - 9 - GO ON TO NEXT PAGE
Managed Care Segment
Afternoon Session
12. (4 points) ABC Company is considering acquiring ITSA, a managed care organization
that services a number of major cities. You are the head of the claims department in the
Major Medical division and you’ve been asked to evaluate claims operations at ITSA,
including systems used to process the claims.
(a) Describe measures of claims quality.
(b) Outline basic steps you would expect to find in the ITSA claims adjudication
process.
(c) Describe specific internal data sources you should include as part of your claims
review.
(d) Describe issues that should be considered in performing an audit.
13. (4 points) You have been asked by your client at BEST HMO to create a presentation that
will enable her to convince management to establish new methods for physician
compensation.
(a) Describe traditiona l and new, alternative forms of capitation and their suitability
for specific types of physicians.
(b) Describe traditional and new, alternative forms of incentive plans.
COURSE 8: Fall 2003 - 10 - GO ON TO NEXT PAGE
Managed Care Segment
Afternoon Session
14. (5 points) You are a consultant hired by TeethFerry.com, a company hoping to use the
Internet to market dental plans. They have created a marketing communication to be sent
to companies that do not currently have a benefits program.
From: TeethFerry
.com
Subject: Quality Dental Coverage with 3 Months at No Charge
Affordable Dental Coverage
%26#8226;%26#61472;%26#61472;save up to 60% on all your dental needs
%26#8226;%26#61472;%26#61472;choose from 15 of the finest nationwide and regional plans
%26#8226;%26#61472;%26#61472;pay premiums, submit claims, get the latest information, all on your desktop!
(a) List the general types of delivery systems for dental plans and their major
features.
(b) Outline plan provisions and claim practices that dental insurers can use to
limit cost and anti-selection.
(c) Describe challenges that e-commerce companies must overcome to be
successful.
COURSE 8: Fall 2003 - 11 - GO TO NEXT PAGE
Managed Care Segment
Afternoon Session
Questions 15 - 18 pertain to the case study
15. (4 points) The Bedford Group is exploring alternatives to acute inpatient care. A study
by Bedford’s Medical Director indicates the MCO might benefit from a program to
encourage patients with conditions requiring less intensive treatment to be moved from
acute care facilities to a Skilled Nursing Facility (SNF). The initiative would transfer
acute care patients to the SNF at Hospital ID1 and is expected to result in the following
changes:
Reduction in
Medical Acute Days
Reduction in
Surgical Acute Days
Hosp ID1 1.0% 0.5%
Hosp ID2 2.0% 2.0%
Hosp ID3 1.5% 1.0%
(a) Assuming the above reductions are realized, and based on Table MC-2, calculate
the expected change in medical, surgical and SNF days/1000 and the change in
medical/surgical length of stay in 2002 for the MCO. Show your work.
(b) Describe behavioral health channeling mechanisms available to direct individuals
to the appropriate type of care.
COURSE 8: Fall 2003 - 12 - GO TO NEXT PAGE
Managed Care Segment
Afternoon Session
Questions 15 - 18 pertain to the case study
16. (4 points) You are a consulting actuary for Hospital ID1. The Bedford Group is
proposing to capitate Hospital ID1 for inpatient hospital services incurred by its
members. You have been asked by Hospital ID1 to develop capitation targets for
negotiations with the Bedford Group.
In addition to information provided in Tables MC-2 and MC-7, you have made the
following assumptions:
%26#8226;%26#61472;%26#61472;administrative expenses: 8% of capitation
%26#8226;%26#61472;%26#61472;risk charges: 6% of capitation
%26#8226;%26#61472;%26#61472;the 2002 hospital experience is credible
(a) Using an actuarial cost model based on your current provider contract with
Bedford Group, calculate the base pmpm cost. Show your work.
(b) List key assumptions that should be considered when determining the utilization,
average cost and pmpm targets in an actuarial cost model.
(c) Describe additional considerations that Hospital ID1 should consider when
evaluating a capitation proposal.
COURSE 8: Fall 2003 - 13 - GO TO NEXT PAGE
Managed Care Segment
Afternoon Session
Questions 15 - 18 pertain to the Case Study
17. (12 points) You are an actuary for the Bedford Group. In a meeting with the VP of
Provider Contracting, you are told that a large physician specialty group that provides
15% of all specialty services has left IPA1 and joined IPA2.
Assume that:
%26#8226;%26#61472;%26#61472;Physician risk share arrangements for 2002 and 2003 do not change.
%26#8226;%26#61472;%26#61472;For PCP’s in IPA1, the 2002 actual claim cost equals the t
arget claim cost.
Using Tables MC-5, MC-7, and MC-8, and based on 2002 experience:
(a) Adjust the 2003 risk share arrangements for IPA1 and IPA2 to reflect the
provider change. Show your work.
(b) Calculate the expected 2003 payments to IPA1 and IPA2 based on the
specialty group shift to IPA2, including any risk share adjustments and
ignoring trend. Show your work.
(c) Excluding any risk share arrangements, calculate the new percent of
Medicare reimbursement to IPA2 to maintain pmpm costs for the Bedford
Group at the 2002 level. Show your work.
(d) In case IPA2 does not accept a change to their Medicare reimbursement
level, you would consider offering a specialty capitation arrangement.
Discuss the advantages and disadvantages of a specialty capitation
arrangement.
COURSE 8: Fall 2003 - 14 - GO TO NEXT PAGE
Managed Care Segment
Afternoon Session
Questions 15 - 18 pertain to the case study
18. (6 points) You are the pricing actuary for the Bedford Group and have been asked by the
Marketing Director to develop new pharmacy premiums. She is interested in having a
more competitively priced product. Yo ur CFO has indicated that your profit goal is 2.5%
of premium.
Assume the HMO and POS plans have identical plan formularies with the following
copays:
%26#8226;%26#61472;%26#61472;Generic $10
%26#8226;%26#61472;%26#61472;Formulary Brand $20
%26#8226;%26#61472;%26#61472;Non-Formulary $40
Using 2003 budgeted experience from Table MC-4, information provided on Table MC-7,
and assuming AWP = $80, then:
(a) Calculate the premium if Bedford:
(i) retains all rebates.
(ii) uses all rebates to reduce premiums.
(b) Describe the purposes of rebates, issues surrounding rebates, and actions which
can be taken to increase rebates.
COURSE 8: Fall 2003 - 15 - GO TO NEXT PAGE
Managed Care Segment
Afternoon Session
19. (5 points) You are a consulting actuary for an HMO that wishes to control utilization, yet
maintain high quality of care.
(a) Describe traditional approaches to quality assessment.
(b) Review regulatory issues relating to quality assurance and their impact on HMOs.
(c) Describe managed care methods used to control medical utilization and the types
of services impacted by each method.
(d) Review state regulations that may limit an HMOs ability to manage utilization
and costs.
20. (4 points) You serve on a professional task force advising a State Senator on health
insurance reform issues. New health reform legislation is being proposed which is
intended to meet the following objectives:
%26#8226;%26#61472;%26#61472;Promote a reduction in the working uninsured population
%26#8226;%26#61472;%26#61472;Promote job mobility
%26#8226;%26#61472;%26#61472;Facilitate the ability of individuals and small employers to compare insurance
policies offered by different health carriers
%26#8226;%26#61472;%26#61472;Reduce variation in, and volatility of premium rates charged to different groups
(a) Describe key recommendations regarding the above objectives to be included in
reform legislation.
(b) The legislature is also reviewing risk adjustment mechanisms for Medicaid HMO
plans. Compare and contrast methods of risk adjustment and recommend a
method to be included in the legislation. Justify your recommendation.
COURSE 8: Fall 2003 - 16 - STOP
Managed Care Segment
Afternoon Session
21. (5 points) You are a consulting actuary retained by Capitalized Health Plan, a licensed
HMO in a state that has passed the NAIC Risk-Based Capital For Health Organizations
Model Act (RBC Model). The CFO is unfamiliar with risk-based capital and has asked
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