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Old 11-16-2017, 08:10 PM
doodlebug050 doodlebug050 is offline
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Default Estimating runout

Hi, I have a client who switched providers a couple of years ago. We have paid claims for the new provider. Naturally, these look low for the first few months of the first year as they are missing run-out from the prior provider. What is the best way to estimate the run-out? Thanks so much!

Last edited by doodlebug050; 11-16-2017 at 09:08 PM.. Reason: .
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Old 11-16-2017, 08:26 PM
Dr T Non-Fan Dr T Non-Fan is offline
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Here's an idea (not the best, but...)

1. You have completed claims from, say, two years ago?
2. Trend them forward (PMPM).
3. Adjust each month for seasonality (based on prior provider patterns).

OK, now you have what should be decent claims by incurred month estimates.
4. Subtract what has been incurred and paid each month.

5. Voila. Runout.

Now, before showing anyone, look for yourself to see if it looks right. You might have some negative runouts for some months, as the claims have come in hotter than expected. Or the runout for a particular month is positive but looks low. You should have an idea of what it should be (say, $20 PMPM for the fifth month out, or something like that),but if it's $10 PMPM or $40 PMPM, you should think harder about disclosing.
One would hope that the months are systematically hotter or colder, so as to reflect something going on.

To answer your actual question: look at claims from providers separately, cut off from the incurred month when the new provider started to pay claims.

DISCLOSURE/DISCLAIMER ('cause professional area): Not a Valuation Actuary, but I like to dabble. As such, no charge, and you get what you pay for.
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Old 11-16-2017, 08:47 PM
doodlebug050 doodlebug050 is offline
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Thank you! I will try this approach.
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