Froogle | ASOP 5 | Section 3.2

The actuary should include items associated with the estimation that, in the actuary’s professional judgment, are applicable, material, and are reasonably foreseeable to the actuary at the time of estimation.

In determining which items to include in the estimation of incurred claims, the actuary should consider items including but not necessarily limited to those described below, and may rely on others as described in sections 3.6 and 3.7.

3.2.1 Health Benefit Plan Provisions and Business Practices

The actuary should consider the health benefit plan provisions and related business practices, including special group contract holder requirements and provider arrangements, which in the actuary’s judgment may materially affect the cost, frequency, and severity of claims. These include, for example, elimination periods, deductibles, preexisting conditions limitations, maximum allowances, and managed-care restrictions.

The actuary should make a reasonable effort to understand any changes in plan provisions or business practices made since the last estimate of incurred claims. The actuary should consider how such changes are likely to affect the estimation of claim costs and claim liabilities.

3.2.2 Economic and Other External Influences

The actuary should consider items such as changes in price levels, unemployment levels, medical practice, managed care contracts, cost shifting, provider fee schedule changes, medical procedures, epidemics or catastrophic events, and elective claims processed in recessionary periods or prior to contract termination.

3.2.3 Behavior of Claimants

The actuary should consider reasonably available information regarding claimant behavior, such as pent-up demand for new benefits, or impending benefit changes, which may impact incurred claims.

3.2.4 Organizational Claims Administration

The actuary should consider items that may affect claims administration practices, such as staffing levels, variable claim processing and investigation time (for example, for complicated claims or claims submitted on paper), computer system changes or downtime, seasonal backlogs of claims submitted, increased electronic submission of claims by providers, governmental influences, and cash flow considerations. The actuary should also be aware that the administration practices of external contracted parties (for example, pharmacy benefit managers and third party administrators) can affect the unpaid claims liability. The actuary should make reasonable efforts to obtain information from appropriate personnel and evaluate whether there have been material changes in operational practices that impact the incurred claim estimate and, if so, make appropriate adjustments.

3.2.5 Claim Seasonality

The actuary should understand how seasonality may impact the estimation of incurred claims and make appropriate adjustments. Claim seasonality may be exhibited in the pattern of claims incurral and submission, or in the manner that costs actually emerge within the health benefit plan provisions, such as plans with high deductibles.

3.2.6 Credibility

The actuary should consider how the credibility of the data affects the development of incurred claim estimates and refer to ASOP No. 25, Credibility Procedures, for further guidance.

3.2.7 Risk Characteristics and Organizational Practices by Block of Business

The actuary should consider how marketing, underwriting, and other business practices can influence the types of risks accepted, and how the pattern of growth or contraction and relative maturity of a block of business can influence incurred claims.

3.2.8 Legislative Requirements

The actuary should consider relevant legislative and regulatory changes as they pertain to the estimation of incurred claims. For example, governmental mandates can influence the provision of new benefits; risk characteristics; rating, reserving, and underwriting practices; methods used to estimate incurred claims; or claims processing practices.

3.2.9 Carve-Outs

The actuary should consider the pertinent benefits, payment arrangements, and separate reporting of those benefits subject to carve-outs in incurred claims estimates.

3.2.10 Special Considerations for Long-Term Products

The actuary should consider the variety of benefits available in long-term products, such as lump-sum, fixed, or variable payments for services; provisions such as cost of living adjustments and inflation protection; payment differences based on institutional or home-based care; social insurance integration; and the criteria for benefit eligibility.

Comment	Response
One commentator suggested clarifying the relationship between “plan provisions” and “business practices.”	The reviewers agree and made a clarifying change by adding the word “related.”
One commentator suggested adding “benefit periods” and “lifetime maximums” to the list.	The reviewers believed these items are generically covered by “maximum allowances” and did not include them.
One commentator suggested that a high standard is being set for the actuary regarding identifying differences between business practices and plan provisions.	The reviewers removed the language related to identifying differences between business practices and plan provisions, and clarified that “reasonable effort” is the appropriate standard to apply to the understanding of changes in business practices.

Comment	Response
One commentator suggested adding “for example” to the beginning of this list.	The reviewers agree and made the change.
One commentator suggested referring to developing regulatory provisions regarding estimation of incurred claims for certain long-term products.	The reviewers note, as described in section 1.2, that this standard does not address interpretation of statutory or generally accepted accounting principles, and added “methods used to estimate incurred claims” to the list of example influences of government mandates.

user comments

thank you, come again!
Froogle 1.1.1.7

ASOP 5 | §3.2 | CONSIDERATIONS FOR ESTIMATING INCURRED CLAIMS