Multiple Choice Environment

Question 1

Multiple Choice Environment

Favorable vs. Unfavorable Selection

Answer 1

• Favorable = low risk EE choose plan option
• Unfavorable = high risk EE choose plan option

Question 2

Multiple Choice Environment

Why is Multiple Choice More Expensive than Single Choice?

Answer 2

• Individuals minimize their costs at expense of insurer or ER
• Less economy of scale and negotiating leverage
• Communications = complex
• Higher admin expenses

Question 3

Multiple Choice Environment

How Insurers and Employers take advantages of MC?

Answer 3

• Introducing new option
• Taking advantage of favorable selection
• Encouraging consumerism
• Implementing defined contribution concept
• Offering choice distinguishes an insurer or ER as leading-edge

Question 4

Multiple Choice Environment

What Factors Influence EE Choice?

Answer 4

• Inertia
• Plan provisions and cost
• EE and dependent demographics
• ER actions and attitudes
• Eligibility for other health insurance coverage
• Information available about options
• Provider network attributes
• Insurer and administration issues

Question 5

Multiple Choice Environment

Common Multiple-Choice Scenarios

Answer 5

• Medical coverage vs. no coverage (creates antiselection)
• Choice between:
  
  • ER plan and other coverage
  • Member cost-sharing
  • Provider networks
  • Rx formularies
  • Insurers
  • Optional riders
  • Consumer-directed or traditional plans

Question 6

Multiple Choice Environment

Underwriting Techniques in Multiple Choice Situation

Answer 6

• Additional premium margin
• EE contributions or plan design limits
  1.Limit spread in EE contributions from lowest cost option to highest
  2.Limit spread in benefits between richest and lowest option
  3.Mix favorable provisions among options
  4.Avoid options with selection potential for specific issues
• EE participation requirements if there is one insurer/multiple insurers offer MCs

Question 7

Multiple Choice Environment

Pricing Strategy

Answer 7

• Step1- determine actuarial value of each benefit option ignoring impact of selection
• Step2-estimate the enrollment mix by plan option
• Step3-estimate relative health status factor for each option based on the expected enrollment mix from step2
• Step4-calculate the preliminary selection adjusted rates for each option=step1*step3
• Step5-calculate the avg selection load=ratio of the avg of step4/avg of step1
• Step6-calculate blended selection adjusted rates. Step1*step5 for single insurer environment. Step4 rates more appropriate for multi-insurer environment

Question 8

Multiple Choice Environment

Monitoring Results

Answer 8

• Loss ratios for each option
• Actual to expected selection patterns
• Changes in health status by options over time
• Competitor pricing and UW
• Market research what influences insureds choices