Practical Applications

The Menu of Work-Products offers the User numerous practical applications that have been either not considered or deemed to be impractical:

Claim Reserves
User-produced claim reserves that are obtained quarterly (or even monthly) are most helpful (a) in meeting accounting or regulatory requirements and also (b) in serving as effective and ongoing claims experience monitoring indices. The claim reserve is (a) probabilistic (shows potential plus/minus swings in a statistical manner) thereby satisfying any enterprise risk management demands, (b) adjustable by a separate amended claim reserve work-product that identifies (i) specific safety margins, (ii) in course of settlement claims that are out-of-the-ordinary (lawsuits, larger claims for COB, network settlements,
etc.). Statistical sampling theory is used.

Claim Fluctuations and Economic Value of Stop-Loss
This Work-Product shows for projected plan claims and also the potential plus/minus swings, in a statistical manner, both with and without stop-loss coverage.  The difference in projected costs is the economic value of the stop-loss. This work-product typically is useful in (a) understanding the basic nature of the risk, (b) setting reasonable stop-loss terms and (c) measuring the economic value of and the gross premiums for such stop-loss.  This exercise satisfies common risk management disciplines. Monte Carlo simulations are used.

Economic Value of Plan Benefits and Managed Care Arrangements
This measure of plan benefits is required by PPACA and is referred to as the Actuarial Determination of Plan Benefits.
Two formats are available: (a) per calendar deductibles and (b) per occurrence deductibles.  Blending of the two formats are to be commonly found. What is particularly useful is for the User to take the results of this Work-Product and compute the quotient of the (i) economic value divided by the (ii) participant contribution (a measure of such participant’s ROI).  This ROI index becomes a factor in performing discrimination testing for medical reimbursement plans.  Monte Carlo simulations are used.

Discrimination (Appraisal and Testing)
While the law requires that plans meet all appropriate discrimination tests, the meeting such requirements by the employers and the enforcement thereof by the regulators have both been tepid at best.  Such compliance is not a reportable item on the Form 5500. This casual practice of the employers and the regulators is in transition, however.  Even so, the reasoning is persuasive that if such compliance can be established (a) as an internal audit matter and (b) at little cost of effort, there is little or justification for not so doing.

Annual Actuarial Report (Contribution and Funding Rates)
The practice of actuarially determining such rates is well-established and needs no comments.  What is new and now practical with such computer-generated rates is this: establish new plan funding and COBRA rates on a monthly basis gaining these advantages: (a) such procedure is the ultimate in ongoing claims experience monitoring, (b) the resultant funding rates serve the best in employer financial discipline and (c) the resultant COBRA rates are most equitable to both the employer and the COBRA beneficiary. The Reader will note that monthly-determined COBRA rates affect new COBRA beneficiaries only because of the statutory requirement that such rates may be changed no more frequently than annually.

Medicare Part D
Two Work-Products are available: (a) the Attestation that provides the feasibility analysis
by which the employer can elect, or reject, the subsidy and (b) the Certificate of
Creditable Coverage.

Government Entity Certification
Work-Products for Iowa and Ohio are now online; that for Florida is in the process of preparation.  Other states have a variety of requirements but do not require a dedicated work-product.

Alternatives to Retiree Reserves
The need to establish retiree reserves as required by FAS106 and GASB43/45 is removed by doing the following: (a) amend the plan so as to treat early retirees as COBRAs and (b) make the coverage for other retirees employee-pay-all with the COBRA contribution actuarially-determined so as to be at parity with the benefits offered.