14. Continued
(i) Calculate the manual premium rates by tier for Bailey Industries using HMO
rate relativities in the table above and the total premium you calculated in
(a) (ii) above. Show your work.
(ii) Bailey Industries requires that the HMO premium rates be recalculated
using the POS rating relativities. Develop revised rates to meet this
requirement. Explain why offering HMO premium rates that mirror the
POS rating slope may or may not be in Bailey Industries’ best interest.
Show your work.
(iii) Describe the documentation you would include in your files to demonstrate
that Actuarial Standards of Practice concerning HMOs or other managed
care health plans were followed in your work.
(c) (3 points) Outline a report for Bailey Industries explaining the potential impact of
adverse selection resulting from the following types of market reform:
(i) Insurer Rules of Issue,
(ii) Government mandated benefits and laws,
(iii) Rating methodologies, and
(iv) Marketing practices.
COURSE 8: November 2001 -12- GO ON TO NEXT PAGE
Managed Care
Afternoon Session
Questions 14 through 16 pertain to the Case Study
15. (14 points) You are an actuary for The Bedford Group. A meeting has been called to
address spiraling costs in two areas: behavioral health/chemical dependency and
radiology services.
Radiological Services
Your CEO also has concerns regarding the increase in radiology costs even though
utilization has decreased. The VP of Provider Contracts is predicting a 25% increase in
2001 in physician radiology average charges. None of the benefit plans sold require any
member cost sharing for physician radiology benefits.
Behavioral Health and Chemical Dependency (BH/CD)
Your CEO is considering carving-out all BH/CD services due to increasing costs and
increased regulatory pressures. Total claims for BH/CD services in 2000 were $24
million for both HMO and POS products.
Lighthouse Behavioral Services (LBS), a managed behavioral health company, has
approached The Bedford Group to provide the full continuum of care for BH/CD
services. LBS will provide all BH/CD services on a capitated basis. After reviewing The
Bedford Group’s 2000 BH/CD claims, LBS believes they can affect BH/CD claim costs
under the following assumptions:
•LBS uses The Bedford Group provider contracts
•Utilization of services in Hospital ID1 will not change
•Utilization of services at Hospital ID2 and ID3 will be reduced by 50%
•80% of the reduced Hospital ID3 services will then be moved to Hospital ID2
•Outpatient utilization will increase by 15%
•Hospital ID1 and ID3 costs/admission will not change
•Hospital ID2 costs/admission will increase by 50%
•Outpatient charges/services will go down by 25%
•LBS will add an administrative charge of $1.10 PMPM
(a) (2 points) Discuss differences between BH/CD and radiology services in how
access to care is obtained and utilization is controlled in a managed care
environment.
(b) (2 points) Describe mechanisms The Bedford Group can use to reduce provider
reimbursement costs for BH/CD and for radiology services.
COURSE 8: November 2001 -13- GO ON TO NEXT PAGE
Managed Care
Afternoon Session
15. Continued
(c) (2 points) Outline issues you would consider in determining whether carve-out is
preferable to carve-in strategies for both BH/CD and for radiology services.
(d) (1 point) Calculate the capitation rate for physician radiology services for the year
2001 using the case study data and assuming the VP of Provider Contracts’
prediction is correct. Show your work.
(e) (7 points) Calculate the capitation LBS would have charged in 2000 based on
The Bedford Group’s actual utilization experience. Determine the financial
impact to The Bedford Group in 2000 if LBS’ assumptions had been true. Show
your work.
COURSE 8: November 2001 -14- GO ON TO NEXT PAGE
Managed Care
Afternoon Session
Questions 14 through 16 pertain to the Case Study
16. (4 points) As the Actuary for The Bedford Group, you have been discussing the hospital
inpatient utilization with the Medical Director. The table below shows the unmanaged
and optimal utilization levels reflecting The Bedford Group’s demographic mix and
geographic location.
Assume the table below applies for both 2000 and 2001.
Admits /1,000 Days /1,000
Unmanaged 75 345
Optimally Managed 55 180
(a) Calculate the actual 2000 and budgeted 2001 degree of healthcare management
for The Bedford Group using data from Table MC-4. Outline factors to consider
when evaluating the hospital utilization and cost data. Show your work.
(b) Outline a report to the Medical Director that describes medical management
approaches that may be used to meet budgeted utilization for 2001.
COURSE 8: November 2001 -15- GO ON TO NEXT PAGE
Managed Care
Afternoon Session
17. (4 points) You are a consulting actuary for an HMO evaluating a prescription drug
benefit program for its health plans. You will be making a presentation to the Board and
will need to include the following:
(a) Describe the three general categories of prescription drugs as distinguished by
manufacturers’ patents.
(b) Outline plan features used to control prescription drug average charges and utilization.
(c) Describe functions performed by a Pharmacy Benefit Manager (PBM) and how a PBM can
manage drug costs.
COURSE 8: November 2001 -16- STOP
Managed Care Segment
Afternoon Session
18. (7 points) You are the financial actuary for PDQ HMO and have been asked by your
CFO to develop an operating statement forecast for 2002. PDQ sells exclusively
commercial group business. PDQ is considering the financial impact of several changes
which are targeted to occur on July 1, 2002.
(a) Describe the components of an operating statement. Discuss assumptions needed
for forecasting an operating statement for PDQ.
(b) The claim administration system will become more automated to increase
efficiency. Describe the impact of this change on your forecast assumptions.
(c) PDQ has a staff model HMO subsidiary, DOX. Market pressures may force DOX
to move to an IPA model. Describe how this change might impact your forecast
assumptions for DOX.
(d) Your Medical Director will implement stricter utilization management controls
and initiate a Disease Management (DM) program. To accomplish this, she will
be contracting with an outside vendor for disease management services. Describe
the impact of these initiatives on your forecast assumptions. Discuss how your
assumptions would differ if the DM program were developed in-house.
(e) The jurisdiction in which PDQ is domiciled is implementing a premium tax, a
high risk pool charge, and mandated benefits covering services previously
excluded from your policies. Describe how these reforms will impact your
forecast assumptions.
**END OF EXAMINATION**

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