18. (5 points) You are an actuary assigned to develop a cost estimate for Medicare to provide
a prescription drug benefit to Medicare beneficiaries.
You are given the following data and information:
•benefit effective date is 1/1/2003
•all seniors will be covered and any existing drug coverages will be terminated
•annual deductible will be $3,000
•no coinsurance will be charged
•prescription drug per capita spending increases 14.5% per year
•prescription drug spending is uniform within each expenditure range
Expenditure Data for Calendar Year 2000 (amounts in millions)
Seniors with Drug coverage Seniors without Drug coverage
Expenditure
Range
($)
Number
of Seniors
Drug Cost Number
of Seniors
Drug Cost
Carrier Out of
Pocket
Carrier Out of
Pocket
No cost 3 $ 0 $ 0 1 0 $ 0
$0-250 5 $ 403 $ 173 2 0 $ 260
$251-2,000 11 $9,240 $3,960 5 0 $6,250
$2,001-3,000 5 $8,400 $3,600 2 0 $4,820
$3,000+ 3 $7,350 $3,150 1 0 $3,600
(a) Calculate the 2003 expected drug cost:
(i) in total,
(ii) for Medicare.
(b) Outline comments regarding the ability of the proposed plan to control current and future
Medicare drug costs.
COURSE 8: Fall 2002 -16- GO ON TO NEXT PAGE
Managed Care Segment
Afternoon Session
19. (4 points) The 2002 budget for HMO DEF calls for reduced primary care and specialty
physician utilization. An effort is being made to identify the least efficient physicians,
and subsequently to change physician behavior, terminate contracts, or redirect care as
needed.
(a) Describe how you would identify costly practice patterns.
(b) List data sources you might access to support this effort.
(c) Explain how risk share arrangements may influence utilization.
(d) List factors other than utilization patterns that you should consider before
requesting termination of a physician.
20. (4 points) You are a consulting actuary to an insurance company that is considering
creating an HMO subsidiary.
(a) Describe managed care regulation governing insurance company operations that
the company may encounter.
(b) Describe obligations to perform medical management activities and consequences
of non-compliance with such obligations.
COURSE 8: Fall 2002 -17- STOP
Health, Group Life & Managed Care
Afternoon Session
21. (5 points) You are the Valuation Actuary for an HMO. Yo u are developing your
12/31/2001 reserves for a block of business acquired from another company on July 1,
2001. Your company is not responsible for runout on claims incurred prior to July 1,
2001. You use the authorization method for developing the hospital inpatient IBNR
reserve component. Your company has the following reimbursement schedules through
September 2001:
Average Per Diem Pct of Days
Hospital A $1,000 25%
Hospital B $1,100 50%
Hospital C $1,200 25%
Effective October 1, 2001, Hospitals A and B increased their per diems by 10% and
Hospital C increased its per diem by 20%. Your system reports have provided the
following information for inpatient services:
Authorized
Hospital Days
Incurred and
Paid Claims
Completion
Factors
Authorization
Credibility
Jul 2001 2,205 $2,475,000 1.00 0
Aug 2001 2,200 $1,950,000 .85 0
Sep 2001 2,225 $2,150,000 .80 .25
Oct 2001 2,050 $1,700,000 .60 .50
Nov 2001 2,025 $1,070,000 .35 . 75
Dec 2001 1,950 $247,500 .10 1.00
(a) (1 point) Create a checklist of managed care issues that you will need to consider
in preparing your annual Statement of Opinion.
(b) (3 points) Calculate the IBNR reserve as of 12/31/2001 based on the information
provided. Show your work.
(c) (1 point) List reasons why the authorized hospital days may differ from the
incurred days.
**END OF EXAMINATION**
AFTERNOON SESSION

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