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Old 08-21-2019, 06:38 PM
monkeyunited monkeyunited is offline
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Default Estimating Risk Transfer Amount

Not an actuary, but stumbled upon this problem that an actuary would know a lot more about than I do.

I work in consulting with clients in ACA market. Our services improve care experiences and as an effect makes risk transfer more favorable to our clients (pay less/receive more). One example would be a member did an annual assessment because of our program and identified HCC's that would otherwise not be captured, which drives up "risk".

The problem is, I have no way of knowing how our program helped. Because ACA is a zero-sum game, the variable changes and it's difficult to get a good estimate. I'm looking at the risk transfer formula and there are just too many unknown variables (Si or market share for example).

So here's my question, when doing pricing, how do you know how much you should be charging? How do you arrives at an estimation for the final risk transfer amount?

Really appreciate you time and help!

Last edited by monkeyunited; 08-21-2019 at 07:30 PM.. Reason: typo
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Old 08-21-2019, 06:48 PM
selectstar selectstar is offline
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You probably want to talk to DrNo. I'm not sure if this article would be at all helpful, but it came up on google results when I searched coding improvement...

http://www.milliman.com/insight/2016...arket-effects/
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Old 08-21-2019, 09:42 PM
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DoctorNo DoctorNo is offline
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Thanks, selectstar!

Yeah, this is a tricky business given the zero-sum nature, and there's not an obvious answer. Happy to talk over PM if you'd like and I will keep it as confidential as you'd like me to.

Unless you're Milliman, in which case just Skype me.
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Old 08-22-2019, 08:56 AM
WhosOnFirst WhosOnFirst is offline
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Quote:
Originally Posted by monkeyunited View Post
Not an actuary, but stumbled upon this problem that an actuary would know a lot more about than I do.

I work in consulting with clients in ACA market. Our services improve care experiences and as an effect makes risk transfer more favorable to our clients (pay less/receive more). One example would be a member did an annual assessment because of our program and identified HCC's that would otherwise not be captured, which drives up "risk".

The problem is, I have no way of knowing how our program helped. Because ACA is a zero-sum game, the variable changes and it's difficult to get a good estimate. I'm looking at the risk transfer formula and there are just too many unknown variables (Si or market share for example).

So here's my question, when doing pricing, how do you know how much you should be charging? How do you arrives at an estimation for the final risk transfer amount?

Really appreciate you time and help!
I second selectstar, DoctorNo is the one you want to talk to. However, if you want some more pedestrian advice I'll add two cents worth. You can estimate the transfer amount by using the actual values that went into the transfer formula and adjusting them based on whatever assumptions make sense. For example, you know both the risk score for your client and the market average risk score. Is there any reason that those values might have changed? In general, you won't be able to make any good argument that rationalizes changing the market risk. You may be able to justify changing the average company level risk by showing that your services increase the average risk score of the block by 10%. Pretending that those are the only changes for the moment, the rest of the formula is plug and chug at this point.

You definitely want to trend forward the market average premium as that will have a large impact on the total dollar change. If there are large changes anticipated in things that impact the rest of the formula, say the market share for the carrier is anticipated to increase, this simple method breaks down pretty fast. It will be difficult to get regulators to believe some of those assumptions. Like if the carrier goes from being a net payer to a net receiver, you better have some pretty good evidence to back that up.
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Old 08-22-2019, 11:57 AM
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I will third that DoctorNo is a resource in this area.

From a pricing perspective, it depends on the level of detail. Some markets have significant participation in a third party proxy that provides more granular details around HCC's and allowable rating factors. Other markets only have insight based upon the official CMS reports.

Or the other pricing tactic, use the entire market cost via public filings to set the index rate and assume a risk transfer of $0.
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Old 08-22-2019, 01:23 PM
cincinnatikid cincinnatikid is offline
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If you use the state average factors and hold things constant, you should be able to get an approximate value for the expected change in risk as a function of market share.

Unfortunately the zero-sum nature means that market share is a critical component; a carrier with 90% market share gets much less value out of improving their risk score relative to a carrier with 10% market share. You'd probably want to model out various scenarios and use that as a consideration for where your pricing makes sense and which customers it would make sense to target.

https://www.cms.gov/CCIIO/Programs-a...ams/index.html
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Old 08-22-2019, 06:38 PM
monkeyunited monkeyunited is offline
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Quote:
Originally Posted by selectstar View Post
You probably want to talk to DrNo. I'm not sure if this article would be at all helpful, but it came up on google results when I searched coding improvement...

http://www.milliman.com/insight/2016...arket-effects/
this report is incredible. Thank you so much.
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Old 08-23-2019, 05:33 PM
Pamela Wells Pamela Wells is offline
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So many things I want to say... But so many things I want to hold close to the vest because I don't want to jeopardize a competitive edge.
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Old 08-28-2019, 05:10 PM
monkeyunited monkeyunited is offline
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So many things I want to say... But so many things I want to hold close to the vest because I don't want to jeopardize a competitive edge.
What if, I order Starbucks coffee and pepperoni pizza delivery straight to your desk?

Honestly just knowing that this is an industry-wide problem and many highly-talented professionals are working on this already makes me feel much better.
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Old 09-04-2019, 04:22 PM
Pamela Wells Pamela Wells is offline
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At heart, the ACA individual market is inherently unstable. There are methods for estimating risk transfer, but they all rely on the assumption that prior years market dynamics hold true going forward.

This is a very delicate assumption.

The overall population risk level changes relatively slowly. It is not as stable as I'd like it to be, but it isn't horribly bad. Similarly, in aggregate, I have reason to believe that the risk level of the entire market by metal level is moderately stable. But the distribution between carriers is not at all stable.

If the market is stable, then risk adjustment can be estimated based on assumed metal level distribution, market share, and to a small degree, efforts made to improve risk coding. But if a new carrier enters the market, or an existing carrier makes substantial changes to their rates, it can all fall down.

Projecting risk adjustment in a dynamic market is dependent upon being able to project consumer behavior and the elements that drive selection among carriers. And that means that actuaries involved in ACA need to think a lot more like marketers than we've been trained to do.

Last edited by Pamela Wells; 09-04-2019 at 04:31 PM..
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