5. (9 points) You are an underwriter with Wonderful Life preparing the renewal for
Group 4.
Assume that the retrospective formula balance in Table MM-3a is as of the end of the
experience period and that pricing factors as shown in Table MM-2a and MM-2b have
not changed.
(a) Calculate Group 4’s projected retrospective formula balance as of December 31,
2003 using the same assumptions as would be used for rating. Show your work.
(b) Calculate the EE only and EE and Dependents monthly renewal premiums for
2004. Show your work.
(c) Discuss the pros and cons of various funding arrangements, both from an
employer’s point of view and specifically for Group 4,
i. prospective experience rating,
ii. retrospective experience rating,
iii. self- insurance, and
iv. minimum premium plans.
6. (5 points) You are evaluating Wonderful Life’s reserves using Non-Hospital claims paid
in Tables MM-4c and MM-4d. Assume that the July 2002 completion pattern is
representative of all months.
(a) Calculate the incurred claims for incurred months July 2003 through December
2003 using age-ultimate development factors. Show your work.
(b) Calculate the IBNR as of December 31, 2003 for incurred months July 2003
through December 2003. Show your work.
(c) Recommend adjustments to this approach which might produce reasonable IBNR
results.
COURSE 8: Fall 2004 - 5 - GO TO NEXT PAGE
Health, Group Life & Managed Care
Morning Session
7. (7 points) You are the health actuary reviewing the pricing assumptions and the first
three years of experience for a given product. The following information is given:
Classical Pricing Assumptions
Product Duration: 5 Years
interest rates: 0.0%
annual lapse rate: 20.0%
target loss ratio: 60.0%
tabular claims cost
Duration Tabular Claims Cost Selection Adjustment
0 10.0 .05
1 11.0 1.1
2 12.0 1.1
3 13.0 1.1
4 14.0 1.1
Experience Data
Duration Mbrs Actual Claims
0 1,000 6,000
1 770 10,000
2 650 11,000
3 500 -
4 350 -
Cumulative Antiselection Theory Assumptions
K1 = -
K2 = 4
u 0.10
(a) (1 point) Describe how CAST differs from classical (select and ultimate) theory.
(b) (2 points) Calculate the gross premium using the classical pricing assumptions.
Show your work
(c) (4 points) Calculate the gross premium using CAST assumptions. Show your
work.
COURSE 8: Fall 2004 - 6 - GO TO NEXT PAGE
Health, Group Life & Managed Care
Morning Session
8. (5 points) LMN Company employees currently utilize two different networks. Both
networks use the same pharmacy benefits manager, and detailed pharmacy claims data
are available. Network A has additional detailed health claims information. The per
capita claims cost for Network A is twice as high as in Network B. You have been asked
to determine if the higher costs are caused by differences in the enrollee health status.
(a) Describe criteria used for health risk classification.
(b) Describe risk assessment models currently available.
(c) Recommend a risk assessment method for LMN Company.
9. (7 points) You are an actuary who recently accepted a non-traditional role as claims
manager for a health carrier. You are concerned about the new inventory standards, as
measured by turn-around time (TAT) and their impact on quality. Additionally, you are
concerned about common claims problems and the lack of documented procedures and
guideline for working with other departments.
(a) Regarding TAT:
i. Define TAT.
ii. Describe considerations used when establishing TAT goals.
iii. Describe the tools used for tracking and monitoring TATs.
(b) Regarding quality:
i. Define the measures of claim quality.
ii. List the steps of claim quality review process.
iii. Describe the major issues to consider when performing a quality audit.
(c) Describe common claims and benefit administration problems.
(d) List the items requiring procedures and guidelines for coordination of the claim
department with the following departments:
i. Enrollment and billing
ii. Provider relations
iii. Utilization management
iv. Member services
v. Finance
COURSE 8: Fall 2004 - 7 - STOP
Health, Group Life & Managed Care
Morning Session

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