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#1
07-02-2012, 10:57 AM
 jone2219 Member SOA Join Date: Sep 2011 Location: MI Studying for something Posts: 178
medical rating process

For those with experience using benefit relativities - I was hoping to have a small brainstorming session about some things.

At my work, we have been discussing a change in our methodology lately, which would take us to a BRV system. I understand the reasoning behind the vast majority of it, but I am getting stuck on a few parts. To me, it doesn't seem fair, or correct to use a BRV approach to ALL adjustments during the rating process. For example, do you think it is correct to use a BRV adjustment on a change in PCP OV Copays for 2 different plans?

Assume the base plan assumption includes a \$10 OV copay.

Plan A is an HMO and has a PMPM of \$300 and plan B is a PPO with a PMPM of \$350. They both want to change the standard \$10 OV Copay to a \$30 OV Copay.

If we assume that this should be handled with a BRV, maybe of 0.95 (overestimated to help make my point), then plan A's PMPM now becomes \$285, a \$15 reduction, and plan B's PMPM becomes \$332.5, a \$17.5 reduction.

In my eyes, the reduction for both plans should be the same \$ amount. If we were looking at something like a change in OOPM or deductibles, then I can see how a BRV would be the better approach.

Thoughts?
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#2
07-02-2012, 12:13 PM
 FormLetter Member Join Date: Feb 2006 Posts: 37,113

I'm assuming BRV means "benefit relativity value" or "benefit richness value". Correct me if I'm wrong.

Overall I think you're correct to the extent that IF the plans are the same (meaning that their expected utilization levels across benefit categories are the same), then the same changes should lead to the same \$ amount change in expected costs.

I think what you're seeing, where the \$ value is different, reflects that those plan designs aren't the same in the first place.

For example, that HMO plan might have on average 3 OVs per person per year. With the PPO design you have 4 OVs per person per year. So changing the copay from \$10 to \$30 on each plan definitely should not have the same \$ value impact on expected costs.
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#3
07-02-2012, 02:00 PM
 LifeIsAPoissonProcess Member SOA Join Date: Aug 2010 Studying for C Posts: 3,389

Using a BRV is usually just an approximation. There is always some leveraging to take into account when copays and deductibles come into play. You also have to take into account the utilization that may be augmented due to a change in the benefit design. If the OVs had a \$10 copay and you wanted to reduce the copay to \$0, then you would not only have to calculate the cost of the extra \$10 per visit from your historical data, but also figure out how many more visits might have occurred if the service had been free. The PMPM cost when varying OV copays can depend on the deductible, network, and even the demographics of people on the plan.
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#4
07-02-2012, 03:50 PM
 jone2219 Member SOA Join Date: Sep 2011 Location: MI Studying for something Posts: 178

Yes by BRV I meant Benefit Relativity Value. Thanks for the responses...I've been in the industry for 13 weeks now, so there are tons of things I don't understand, and variables that come into play that I have yet to hear about. I understand, for the most part, the premise of your point about utilization and different plan designs. I don't know what you mean by leveraging in regards to the copays and deductibles though....
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#5
07-02-2012, 05:03 PM
 Dismal Science Member Join Date: Jun 2009 Posts: 17,301

It is funny to me to see the disparity between carriers when they are asked to report the benefit relativity between identical plans. They can be very far apart from each other...
#6
07-02-2012, 06:47 PM
 FormLetter Member Join Date: Feb 2006 Posts: 37,113

Quote:
 Originally Posted by Dismal Science It is funny to me to see the disparity between carriers when they are asked to report the benefit relativity between identical plans. They can be very far apart from each other...
All kinds of things go in that.

Sometimes time constraints mean whomever is calculating an adjustment might just ignore some particular benefit change. Or their data is defined different from another's or they are from different time periods. They can have very different reimbursement methodologies too.
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#7
07-02-2012, 06:52 PM
 LifeIsAPoissonProcess Member SOA Join Date: Aug 2010 Studying for C Posts: 3,389

Quote:
 Originally Posted by jone2219 I don't know what you mean by leveraging in regards to the copays and deductibles though....
Deductible leveraging (at least from my experience) refers to the unequal percentage increase costs between the member and the insurer when all costs increase by a fixed percentage. It is a big reason why stagnant plan designs can seem to have extraordinarily high trend.

For example, my deductible is \$1,000 and my expected claims are \$1,100. The average cost to the insurance company is then \$1,100 - \$1,000 = \$100. Then lets throw in a medical trend of 10%. My plan design is stagnant, so my deductible is still \$1,000, but now my expected claims are \$1,100 * 1.1 = \$1,210. The average cost to the insurance company is now \$1,210 - \$1,000 = \$210, creating a needed premium increase of 110%.

A similar thing happens with copays(although I'm not sure what it's called). If you have an OV copay of \$75, and all of your office visits cost \$100, then on average you will pay \$75 for an OV and the insurance company will pay \$25 per visit. But now assume half your office visits cost \$50 and half cost \$150. For half of the office visits you are paying \$50, and the other half you are paying \$75, which means insurance is paying \$0 and \$75 respectively for an average of \$37.5 per visit. Even though you have the same average utilization with the same average cost per visit, the costs paid by the member and the costs paid by the insurer can vary greatly.
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#8
07-03-2012, 10:22 AM
 FormLetter Member Join Date: Feb 2006 Posts: 37,113

It's called 'copay leveraging'.
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#9
07-03-2012, 10:27 AM
 Not Mike Member Join Date: Oct 2001 Posts: 8,823

The change in copay has to be viewed in the context of the entire design, not viewed in isolation. In your example, within the rich design, the change might be worth 0.96, but in the lesser design it's 0.95 - the dollar amount needs to be the same.
#10
07-03-2012, 11:14 AM
 NBran Member SOA Join Date: Nov 2010 College: 2010 Favorite beer: Jameson Posts: 617

Quote:
 Originally Posted by LifeIsAPoissonProcess A similar thing happens with copays(although I'm not sure what it's called). If you have an OV copay of \$75, and all of your office visits cost \$100, then on average you will pay \$75 for an OV and the insurance company will pay \$25 per visit. But now assume half your office visits cost \$50 and half cost \$150. For half of the office visits you are paying \$50, and the other half you are paying \$75, which means insurance is paying \$0 and \$75 respectively for an average of \$37.5 per visit. Even though you have the same average utilization with the same average cost per visit, the costs paid by the member and the costs paid by the insurer can vary greatly.
I consider copay leveraging to be similar to the deductible leveraging you described in the respect that your \$25 OV copay will cover less of next year's OV claims costs than it covered in this year's OV claims.

What you are describing sounds more to me like the effective copay - situations where a full copay value is not taken or a copay is not taken at all.

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