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Old 07-31-2006, 05:24 PM
oscar peterson oscar peterson is offline
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Default "Allowed Charge" Equivalent Premiums

For some work that I am doing on group rating, I need to come up with "something like" an "allowed cost" premium - as opposed to the traditional premium based on paid claims.

I have nothing but (a) earned premium for the 12 month period and (b) allowed and paid claims for the same period. The best I came up with is:

[(premium less retention) * (Actual Allowed / Actual Paid)] + retention

How brutal is this? Will it fail miserably? I can say that 90% of the actual allowed to actual paid ratio fall within a 30% range........
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Old 08-01-2006, 02:13 AM
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That sounds like the best you can do with the data you have.

If you need something better, you're going to have to get data that ties the member to their benefit design, and then create a benefit-specific "allowed to paid" ratio. This will probably be a nightmare, depending how many different benefit designs there are in your group business.
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Old 08-01-2006, 01:58 PM
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What an interesting concept! May I ask how you plan to use it?
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Old 08-02-2006, 05:22 PM
Dr T Non-Fan Dr T Non-Fan is offline
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Seems that someone (from the client) wants to pay a full, undiscounted premium, then get some kind of discount (or a pat on the back) for choosing the company with the biggest discount. Maybe it's some way of separating the discount from the premium.

Whatever the reason, it seems pretty stupid to me.



Remember the old adage, "The client is always stupid."
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