5. (7 points) You are the actuary for the Major Medical Division of Wonderful Life. You
have been asked to develop a forecast for the major medical line.
You are given the data in Tables MM-3, MM-6, and MM-7.
(a) Describe the major projection elements governing the design of a financial
forecast.
(b) Identify additional information you would need to develop a forecast and any
concerns about the information you have been provided.
6. (6 points) Wonderful Life is examining various methods of smoothing age-to-age
development factors.
(a) (4 points) Calculate the first lag month’s development factor for Wonderful Life
using the most recent four months of experience from Table MM-4b under the
following averaging approaches:
(i) Without Hi and Lo
(ii) Geometric Mean
(iii) Dollar-Weighted
(iv) Per Member Age-to-Age Ratios
(b) (2 points) Describe other methods that could be used to smooth age-to-age
development factors.
COURSE 8: Fall 2002 -6- GO ON TO NEXT PAGE
Health, Group Life & Managed Care
Morning Session
Questions 3 – 8 pertain to the Case Study
7. (9 points) You are the pricing actuary for Wonderful Life. You have been asked to
evaluate the expected cost trend for Group 6. You have been given the following data in
addition to Tables MM-2 and MM-3.
Option 1 Option 2
%EE’s Avg Cost %EE’s Avg Cost
Sub-group 1 80% 5% Higher 90% 5% Lower
Sub-group 2 20% 20% Lower 10% 45% Higher
(a) (2 points) Calculate the expected claim cost per employee per month (PEPM) for
the next renewal period beginning March 1, 2002 based on the current enrollment
mix.
(b) (5 points) At open enrollment, employees in sub- group 2 of each option choose
the other option. Calculate the expected trend for each option and determine the
impact on the overall expected trend.
(c) (2 points) The employer is currently paying 70% of the cost of Option 1 and
Option 2.
(i) Calculate the amount the employer and employee would pay PEPM based
on the current rates and enrollment mix if the employer were to pay an
equal amount under a fixed dollar cost scheme.
(ii) Describe the potential concerns associated with a fixed dollar cost scheme.
COURSE 8: Fall 2002 -7- GO ON TO NEXT PAGE
Health, Group Life & Managed Care
Morning Session
Questions 3 – 8 pertain to the Case Study
8. (10 points) You are an underwriter at Wonderful Life and have been given the following
information:
•Tables BI with the following assumptions:
¾The experience shown is for July 1, 2000 to June 30, 2001
¾Amount of claims greater than $50,000 totals $540,000
•Tables MM-2
•Table MM-3a
(a) (3 points) Calculate the retrospective refunds for Group 4 and for Group 5. Show
your work.
(b) (5 points) Wonderful Life is quoting its most popular $250 deductible plan to
Bailey Industries for a March 1, 2002 effective date. Assume the quote will cover
existing PPO employees with a fully insured plan and that quoted benefits are the
same as their current plan. Calculate the composite, employee only, and
employee plus dependent rates. Show your work.
(c) (2 points) Explain considerations in using past experience data for projecting
future experience.
COURSE 8: Fall 2002 -8- STOP
Health and Group Life Segment
Morning Session
9. (3 points) Your consulting firm is hosting a roundtable breakfast for business leaders.
The topic of your presentation is “Recent Managed Care Trends Affecting Employers.”
Most attendees will be large, local employers.
(a) Describe general considerations related to this topic affecting all employers.
(b) Describe other relevant factors specific to the size of the employer.
**END OF EXAMINATION**
MORNING SESSION
COURSE 8: Fall 2002 -9- GO ON TO NEXT PAGE
Health and Group Life Segment
Afternoon Session
**BEGINNING OF EXAMINATION 8**
HEALTH AND GROUP LIFE SEGMENT
AFTERNOON SESSION
Beginning With Question 10
10. (4 points) Senator Ima Crook from Anystate, USA has proposed a bill requiring
Medicare to provide a prescription drug benefit.
This plan would be separate from medical benefits and would be the primary plan for
purposes of coordination of benefits.
The plan would offer the following benefits:
•90% of generic drugs after a $50 annual deductible.
•80% of brand drugs after a $100 annual deductible.
•Unlimited annual benefit.
ACME Widget Company currently pays the entire cost of a retiree prescription drug plan
with the following copayments per prescription:
•$10 on generic drugs
•$20 on brand drugs
Jill Pill is a retiree of ACME anticipating the following monthly drug usage:
Number of
Prescriptions
Average
Cost/Prescription
Generic 5 $20
Brand 5 $100
If this bill is adopted:
(a) Describe the different coordination of benefit (COB) approaches an employer
could consider in relation to the new plan.
(b) For each COB approach, calculate the total annual cost to ACME in connection
with Jill’s anticipated claims.
COURSE 8: Fall 2002 -10- GO ON TO NEXT PAGE
Health and Group Life Segment
Afternoon Session

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