Distribution of HDHP Claims Experience

[RANGERS684]

I have a client who recently rolled out a high deductible HSA plan and I am trying to price the 2010 renewal based on the emerging experience. Obviously the first few months' claims experience will be artificially low as employees are accruing towards their deductible. My questions is what is the distribution by month of annual claims under a standard HDHP? I would appreciate a monthly breakdown (i.e Jan - 5.4% of annual claims, Feb - 6.6%....November - 11.2%, December - 12.4% etc.). I am looking to mature the initial experience.

Thanks for your help

[FormLetter]

You could develop an approximation by looking at data for groups with lower value deductibles and do some extrapolation.

[Not Mike]

Obviously a lot depends on the deductible (is it 1200? 1500? 2500?).... I looked at the experience for a couple of clients and say it's not unreasonable to have 1/3 in the first 6 months and 2/3 in the second half of the year. That does seem a little skewed to my brain, though. Maybe around 33-40% of the claims in the Jan-Jun timeframe would be a good range.

Was it full replacement or slice business? If slice, I'd argue you don't even want to use experience (you will way underestimate plan value and create some serious migration risk).

[Dr T Non-Fan]

If the experience is not there, then you shouldn't use it. You can use it in the future when it's more credible.
Will it be the end of the world if you don't get this right?

[JMO]

This early, the best thing to do is to follow your pricing assumptions. Next year at this time you may have enough data to start adjusting from pricing, but maybe still not enough to apply much credibility. (If you know the way your company approaches pricing in general, you might have a preconceived pricing "fudge factor" to use.)

[RANGERS684]

I have credible experience from the last 9 months of 2008 (standard PPO plan) and want to incorporate the first 3 months of 2009 (HDHP) plus some adjustment factor for those months. I was thinking that the impact the deductible would have on the annual claims due to the first 3 months being under the HDHP could be around 10%. In other words the average first 3 months experience when annualized would produce a suppresion of actual annual claims by around 40%. Based on your experiences, what do you think of that assumption? My company has a small book so I don't have much to go on.

[marsBlackmon]

What is the plan design? What was the plan design last year? from the last 9 months of last year you coud probably estimate what the first 3 months were

Then value the plan design change and project your expected 2009 claims, compare that to data you have and make any adjustments

Don't lose sight of what they are doing under the HDHP (ie. MERP, HRA, HSA and what it covers) in valuing the plan designs impact on cost and utilization

[Dr T Non-Fan]

Same as JMO: use your original pricing assumptions.

What you really need to do is create a model of claims by calendar month.

If you have 12 months of your PPO data, you can "repay" the claims assuming the new benefit design, and see what pattern emerges. Take that (plus trend), align it with your three months of 2009, and project the rest of the calendar year.

That's what I'd do, knowing upfront that it's very speculative. Positive trend on costs, possibly negative trend on utilization due to the higher deductible. Makes for a wide range of conclusions.

[FormLetter]

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