Medical Credibility

Question 1

Medical Credibility

Credibility-Related Consequences of the Group Medical Insurance Environment

Answer 1

• Individuals within group who have high claims this year tend to have high claims next year
• When estimate of claims based on experience is significantly different than manual rates, credibility can have significant effect
• Insurers using inappropriate credibility overprice less expensive and underprice more expensive
  
  • Can be driven by premium competition (bad)

Question 2

Medical Credibility

Multiple Years of Experience Credibility Formula

Answer 2

Question 3

Medical Credibility

Impact of Pooling Points on Group Medical Credibility

Answer 3

• Optimum pooling point increases with group size
• Typically pooling point = 5-15%
• At some point decreasing the pooling point will lead to decrease in credibility

Question 4

Medical Credibility

Fractional Years of Experience Credibility Formula

Answer 4

• Optimum pooling point increases with group size
• Typically pooling point = 5-15%
• At some point decreasing the pooling point will lead to decrease in credibility

Question 5

Medical Credibility

Adjustment to Group Medical Credibility for Variance of Member Claims

Answer 5

Accounts for the fact that younger EEs don’t add much to build-up of credibility because Older EEs have higher claim volume

Question 6

Medical Credibility

Adjustments to Group Credibility Formula for Turnover

Answer 6

• P = probability that each individual will stay in group

Question 7

Medical Credibility

Basic Group Medical Credibility Formula (Define Variables)

Answer 7

• N = # of people in group
• K1 = Credibility of 1 individual = 25%
  
  • How well can you estimate 1 person’s claims next year based on last year experience?
• K2 = Regression coefficient of claims for individuals based on claims of others in same group in prior year = Same as K3
• K3 = Measure how claims of each individual are related to others within same group = .1%