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:
•Generic $10
•Formulary Brand $20
•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:
•Promote a reduction in the working uninsured population
•Promote job mobility
•Facilitate the ability of individuals and small employers to compare insurance
policies offered by different health carriers
•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
you to make a presentation to educate him and his staff. In your research, you have
extracted the following information from Capitalized HP’s 2002 Statutory Annual
Statement:
Assets (Non-Affiliated)
U.S. Government Bonds $ 4.6 million
Class 1 Bonds $ 9.8 million
Class 1 Preferred Stock $ 2.2 million
Common Stock $ 2.0 million
Underwriting Revenue/Earned Premium
Comprehensive Medical & Hospital $45.0 million
Dental $16.3 million
ASO Fees $ 5.0 million
Claim Payments under:
capitation (paid directly to providers) $11.0 million
professional fee schedule $22.7 million
hospital case rates $10.2 million
discounted charges $ 8.2 million
Underwritten business administrative expenses
(excludes premium taxes & commissions)
$ 2.1 million
(a) Describe regulatory implications of RBC outcomes.
(b) Describe other uses of RBC measurements.
(c) Review the variables and formula for health RBC after covariance as used in the
RBC Model.
(d) Recommend ways to reduce the amount of RBC that Capitalized HP must hold.
**END OF EXAMINATION**
AFTERNOON SESSION

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