Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Is the CBO being Overworked?

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Another embarrassing gaffe has surfaced in this memo from the over-worked health staff at the CBO.  The problem is the parenthetical after the opening sentence:

(A medical loss ratio, or MLR, is the proportion of premium dollars that an insurer spends on health care; it is commonly calculated as the amount of claims incurred plus changes in reserves as a fraction of premiums earned.)

Ahem.  The medical loss ratio is simply the amount of estimated claims incurred as a fraction of premiums earned.  They are getting way too clever by half.  What they suggest is a meaningless calculation.

One typical way you calculate incurred claims is to take paid claims and then add the change in reserves.  That would result in an estimate of claims incurred which could be used in the loss ratio calculation.  But if you already have claims incurred, there’s no point to adding the change in reserves.

Regardless, putting the CBO nonsense on an actuarial exam would warrant a failed paper and a well-deserved one year delay on the road to Fellowship.

My lesson is not that they are ignorant, but that they need more sleep.  After missing the CLASS Act premiums by 20-ish percent, and other recent problems, I think we have sufficient reason to be worried that they are being over-worked.

(note: they might be referring to active-life reserves.  This would not be something I would get into in a parethetical to talk about what is “typical” in healthcare, however, also suggesting overwork)

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Written by Victor

December 19, 2009 at 2:40 am

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