Calculated Risk

Question 1

Total Risk Components

Answer 1

Projection risk and Random Variation risk

Question 2

RV risk

Answer 2

measured using normal distribution using coefficient of variation; Total risk - weighted avg of RV risk over entire universe of possible scenarios

Question 3

Projection Risk Components

Answer 3

1. Model risk (infrastructure of model) - Design Risk (model/process doesnt serve the intended purpose), Data, Errors
2. Parameter risk (incorrect assumptions) - Starting value (from raw data), Assumptions (predicting underlying assumptions)

Question 4

Key Findings of 5/50 Research Paper on TRA

Answer 4

1. 5/50 Principle - 50% of US healthcare spend attributed to 5% of the population
2. Consistency - cost distributions, transition probabilities and source distributions were consistent year over year in the study
3. Coefficient of Variation - standard deviation divided by mean was relatively stable for Commercial population and for Medicare Advantage. Key element in determining Random Variation risk
4. Leveraging - healthcare costs increase every year, thus % of costs above or below a fixed dollar amount changes every year

Question 5

Reasons High-Cost Claimants Play Important Role in Analyzing Health Care Costs

Answer 5

1. Relatively easy to identify and explain
2. Correspond to risk transfer techniques, such as specific stop-loss
3. Most of the variance attributed to these claimants (depending on the trigger)

Question 6

Reasons for the Importance of Transition Probabilities and Source Distributions in TRA

Answer 6

1. Support assumption that experience of a group is a random sample from the larger population
2. Valuable methodology for measuring impact of care management techniques

Question 7

Types of Beginning of Life and End of Life Care, Discussed in Context of TRA

Answer 7

1. Diagnostic Care
2. Curative Care
3. Palliative Care - Medicare provides most of these if life expectancy is less than 6 months and patient foregoes curative care
4. Activities of Daily Living - Medicare covers limited benefits, but cost is mostly borne by Medicaid, private insurance or out of pocket

Question 8

risk measures

Answer 8

1. expected budget excess/shortfall - how much actual PMPM costs will be over or under the budget=budgeted PMPM- expected PMPM
2. probability of exceeding budget- understanding whether PAD is adequate or not (value is the complement of achieving the budget)
3. probability of exceeding budget by More than $X Million- previous budget used PAD of 5% (current 2.5%), want to understand how much more risk are taking

Question 9

Describe the key findings in the Total Risk Analysis research results.

Answer 9

The 5/50 principle - similar to the Pareto principle in that spend is concentrated in a relatively small percentage of the population. Several published studies have shown that for the overall population about 50% of U.S. health care spend can be attributed to roughly 5% of the population. This study shows that the 5/50 principle applies, but the concentration percentages vary by population. In 2017 the top 5% accounted for 63% of the spend for the Commercial population and 43% for the Medicare Advantage population
Consistency - The cost distributions, transition probabilities and source distributions for a specific population were consistent year over year during the study period. That said, the data may not be as consistent in the future because of changes in reimbursement methodologies, treatment patterns and the COVID-19 pandemic.
Coefficient of Variation - defined as the standard deviation divided by the mean, is relatively stable for both the commercial and Medicare populations. The coefficient of variation is a key element in determining the RV risk.
Leveraging - Health care costs increase every year, so the percentage of costs above or below a specified dollar amount changes every year. This concept is referred to as leveraging or the iceberg effect.