IHS 4504 Lecture Notes - Lecture 6: Guaranteed Issue, Loss Ratio, Community Rating
30 Jun 2018
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Chapter 6- Underwriting & Rate Making
Overview
- Premium computations
- Medical Loss Ratio under the ACA
- Underwriting
- Rate Making
oCommunity rating
oExperience rating
oSelf-insuring
- Combining dissimilar groups
Premium Computations & Loading Fees
- Gross premium= Pure premium (1-loading percentage)
oPure premiums the expected loss
oLoading percentage is the markup to cover objective risk, profit and costs of
marketing, adjudicating and processing claims, coordinating benefits and
providing access to networks.
- Pauly & Percy estimated that the loading percentage was about 10% for groups and 50%
for non-group coverage
- Karaca-Mandic et al. used data from the MEPS-IC and concluded that loading fees were:
oSimilar for firms with <100 workers at about 34%
oFirms with 100 to 10,000 workers had loading fees of about 15%
oFirms with >10,000 workers had loading fees of about 4%
Loading Fees & Loss Ratio
- Traditionally insurers have used their own approaches to define which costs were claims
and which belonged in the loading fees.
oUnless there were state insurance regulations to the contrary, it made little
difference, the market was usually concerned with the gross premium.
- The ACA changed this with a requirement for a minimum loss ratio.
Underwriting
- Identifying the determinants of claims experience
- Establishing risk pools with known expected losses and minimum variance
- Matching new members to the appropriate risk pool.
Rate Making
- Community Rating
- Manual Rating
oAdjusted Community Rating
oCommunity Rating by Class
- Experience Rating
oProspective Rating
oRetrospective Rating
Community and Manual Rating
- Community Rating
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Rate making: community rating, experience rating, self-insuring. Gross premium= pure premium (1-loading percentage: pure premiums the expected loss, loading percentage is the markup to cover objective risk, profit and costs of marketing, adjudicating and processing claims, coordinating benefits and providing access to networks. Pauly & percy estimated that the loading percentage was about 10% for groups and 50% for non-group coverage. The aca changed this with a requirement for a minimum loss ratio. Establishing risk pools with known expected losses and minimum variance. Matching new members to the appropriate risk pool. Manual rating: adjusted community rating, community rating by class. Community rating: all covered lives are in the same risk pool. Manual rating: individuals are placed in risk pools based upon common characteristics. Credibility factor: weight of pool vs. group claims experience. Risk borne by the insurer: rate is quoted for the forthcoming period. Basic premium covers administration, claims adjudication, and any stoploss features.
