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  #11  
Old 09-07-2012, 07:18 PM
Not Mike Not Mike is offline
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Originally Posted by brandeeno View Post
I almost always deal with self funded groups. Would you not have those same adjustments when dealing with claims on an incurred basis as well?
You would, but they are much easier to apply. The problem with, say, 2011 paid claims is that there are 2011 incurred claims in there, 2010 incurred claims, and even some older ones. So, when you "adjust" for the design change from 2009 to 2010 and to 2011 and you are trying to figure out what factor to use, you end up having to weight your 2011 paid claims and understand that only a portion of the 2011 paid claims get the 2011 factor, a portion gets the 2010 factor, and a portion gets the 2009 factor. It's way too messy. On an incurred basis, the adjustments apply to the full year of data.

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Originally Posted by Dr T Non-Fan View Post
You don't "price" self-funded groups. You should tell them how much liability they should be holding, though. And you tell them how much to pay you for your services.
You absolutely price self-funded groups. You can't rely on the underwriters to do a good job, so you collect the claims and enrollment experience and set up a projection to develop the premium equivalent rates, employee contributions, etc. The IBNR is a very minor part of what we do for self-funded groups.
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  #12  
Old 09-07-2012, 07:35 PM
Wasp Wasp is offline
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Originally Posted by Not Mike View Post
Essentially, it's a trend adjustment. There is a lag from incurred to paid, so you are theoretically capturing claims that need to be trended forward to the experience period. For medical, if we think it's 1.5 months and trend is 9%, then the adjustment should be something like (1+ 1.5/12*.09).

In any case 3% seems awfully high.

In reality, you should be using incurred claims, not paid claims to do the underwriting. It's much cleaner.
Yeah 3% is high. Or conservative as the carrier might want to call it. Some of it may be because underwriting factors are slow to change. They don't understand why they use 3%, it's just the same adjustment they used for the last 30 years. And it is not in their best interest to change it.

Maybe 3% made sense 20 years ago when a lag was 3 months instead of 1.5 and trend was 12% and not 9%.

Code:
Months	Trend	Adj.
1.5	9%	1.011
2	11%	1.018
3	11%	1.026
3	12%	1.029
Here I'm just making the simplifying assumption and doing (1+trend)^(lag mo / 12) which is just a set back of paid claims per the assumed lag.
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  #13  
Old 09-11-2012, 03:40 PM
OldGuy OldGuy is offline
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The difference between paid claims and incurred claims is time. Incurred = paid iff you are absolutely sure you have no claims hiding out in the wild.

The difference you're talking about may be "loss adjustment expenses" which is reported in the incurred claims for statement purposes (unless the reporting form lists it separately). LAE is an estimate of the cost of paying out the claims already incurred (reported or not), as if the company went away as of the valuation date. Not technically correct, but close.
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  #14  
Old 09-12-2012, 02:15 PM
brandeeno brandeeno is offline
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Thank you to everyone for your input!!!
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  #15  
Old 09-07-2017, 09:19 PM
psp-fifa-fan psp-fifa-fan is offline
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I do think using incurred claims for pricing makes more sense and cleaner, but my firm uses paid claims and lag the enrollment for pricing self insured groups.
Example: (1/2016-12/2016 paid claims) / (12/2015-11/2016 enrollment) = experience PEPM. Then use the experience PEPM for projection.

This method isn't making a whole lot sense to me, can anyone explain it?

Thanks!
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  #16  
Old 09-07-2017, 09:33 PM
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I've never seen this done in practice (so can't tell you why the people purportedly doing it are doing it), but it seems to be predicated on an assumption that an average claim (dollar-weighted) is paid one month following incurral.

Which doesn't seem like too far off from the truth.
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  #17  
Old 09-07-2017, 10:28 PM
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I've never seen this done in practice (so can't tell you why the people purportedly doing it are doing it), but it seems to be predicated on an assumption that an average claim (dollar-weighted) is paid one month following incurral.

Which doesn't seem like too far off from the truth.
Yep. Saw it alot in benefits consulting when I was there (which I assume is the case here since he's using PEPM instead of PMPM). I've seen one month or two month lagged enrollment. Why? A shortcut I assume. I prefer using incurred claims though.
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  #18  
Old 09-12-2017, 09:30 PM
psp-fifa-fan psp-fifa-fan is offline
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Yep. Saw it alot in benefits consulting when I was there (which I assume is the case here since he's using PEPM instead of PMPM). I've seen one month or two month lagged enrollment. Why? A shortcut I assume. I prefer using incurred claims though.
Yeah definitely a benefits consulting thing. Never saw it when I was with a carrier.
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  #19  
Old 09-22-2017, 05:34 PM
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How far out are you defining claims as "Mature." Claims can be paid very late, especially large contested claims. It depends on both the sophistication of the provider and the insurer.

Usually FI renewals are down on a 12 month incurred paid in 13-14 months. 2%-4% is not unreasonable IBNR for this amount of runout, depending on the items above. Add a margin for deviation and you are easily there.
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  #20  
Old 09-25-2017, 10:30 AM
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Quote:
Originally Posted by psp-fifa-fan View Post
I do think using incurred claims for pricing makes more sense and cleaner, but my firm uses paid claims and lag the enrollment for pricing self insured groups.
Example: (1/2016-12/2016 paid claims) / (12/2015-11/2016 enrollment) = experience PEPM. Then use the experience PEPM for projection.

This method isn't making a whole lot sense to me, can anyone explain it?

Thanks!
So that paid period approximately matches that incurral period... I guess... and then you trend the incurred period to projection.

It's fudge-y indeed, and not better than using incurred claims. Some people believe that more recent claims are always better, regardless of the quality and necessary assumptions, and they'd be wrong.
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