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Rice
04-15-2005, 02:11 PM
In step 2 of Appendix A, they illustrate an adjustment for managed care, where the manged care reduces the cost of each claim by 50%, and they use a \$50,000 deductible. They make two points:

The percent of managed care claims in excess of \$50,000 is equal to the percent of claim in the prior distribution in excess of \$100,000. This makes sense.

However, they also say that the cost of managed care claims which are greater than \$50,000 is exactly 50% of the cost of the claims from the prior distribution which are greater than \$100,000.

In the second point, aren't they reducing the cost by a factor of 4? Shouldn't the cost of managed care claims greater than \$50,000 be equal to the cost of claims from the prior distribution which are greater than \$100,000?

jk
04-15-2005, 04:54 PM
No. Say you have a claim for \$1 million, reduced to \$500k by managed care. Before, \$900k was greater than \$100k. Now, \$450k is greater than \$50k.

Rice
05-03-2005, 12:10 PM
Yet in their example, the pmpm cost is reduced from \$5 to \$1.25, a factor of 4 like I said. Is this just a coincidence?

JustASix
05-03-2005, 01:09 PM
In step 2 of Appendix A, they illustrate an adjustment for managed care, where the manged care reduces the cost of each claim by 50%, and they use a \$50,000 deductible. They make two points:

The percent of managed care claims in excess of \$50,000 is equal to the percent of claim in the prior distribution in excess of \$100,000. This makes sense.

However, they also say that the cost of managed care claims which are greater than \$50,000 is exactly 50% of the cost of the claims from the prior distribution which are greater than \$100,000.

In the second point, aren't they reducing the cost by a factor of 4? Shouldn't the cost of managed care claims greater than \$50,000 be equal to the cost of claims from the prior distribution which are greater than \$100,000?

They say the first dollar cost is 50% of the non managed cost. You are correct with the 4 times effect with a \$50,000 deductible. The reason it is 4 times is that the 50K-100K layer has the same cost as the 100K deductible.
In the example you have a \$2.50 pmpm for the 100K deductible and a \$5.00 pmpm for a 50K deductible. The pmpm for the managed 50K deductible is 1/2 the cost of the unmanaged 100K deductible or \$2.50*1/2=1.25. The effect is then the combination of the cost of the layer from 50K-100K (\$5.00-\$2.50=\$2.50) plus the reduction for the over 100K claims (\$2.50*1/2=\$1.25) for a total savings of \$3.75.
I hope this helps clarify a little.