# Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

## The AV Calculator’s Magic \$297.06

The first AV Calculator was published prior to the 2014 benefit year.  Deep in the bowels of the calculator were a series of continuance tables.  In these tables, you could add up all the parts that make up health insurance claims — in-patient claims, ER claims, drug claims — and compare that to the total expected cost per member.  If you do that comparison, you will find that the pieces are \$297.06 short of the total, for all “combined” continuance tables.

That’s true for the platinum tables that have higher expected costs.  It’s true for the bronze tables that have lower expected costs.  That’s true of the silver and gold tables that are somewhere in between.  To be clear, it’s not just true that all have a gap.  All have the exact same size of gap, \$297.06.

Then along came 2015, when CMS introduced something called an “effective coinsurance rate” calculation its draft calculator.  All of the continuance tables were identical to the 2014 calculator, so the magic \$297.06 appeared again, repeatedly.  More interestingly, somewhere around line 3200 of the code inside Excel, you will find the following:

eff_coins = (eff_coins + 297.06 * coins) / (Worksheets(Sheetstr).Cells(88, “C”).Value)

Suddenly, the magic \$297.06 that was fixed for any benefit tier in 2014 becomes a function of the underlying coinsurance for the benefit plan (the variable “coins”).  The draft 2015 calculator was never approved for use, so no harm, no foul, but set the seeds for …

… the 2016 Calculator , the odd code that appeared in the draft 2015 calculator appears again, this time around line 3300 (search for “+ 297.06”).  This time, the calculator goes into production.

Even worse, for 2016 ER costs in the continuance tables were increased by more than 13% (6.5% per year for two years).  IP costs went up similarly.  Physician costs went up similarly.  In fact, every component of health spending for every benefit tier went up by about that same amount … except for the poor, lonely, uncategorized \$297.06.  This is why when you measure annualized trend by category from the continuance tables, you will see roughly a 6.5% rate applied to each category … but the total increases by something lower than that, 6.2% and change, depending (see below).

And now, at long last, we have a draft 2017 Calculator .  Again, each component of the continuance tables went up 6.5%.  So, naturally, the first thing I check in the new calculator is the magic \$297.06.  Would it survive another wave of trend?  Would it remain constant across benefit plans?  Would they continue to apply coinsurance to it in the macro, despite not allowing the underlying richness of the benefit tier to impact it?

Yes, YES, and YESSS!

This, my friends, is why you don’t set your premiums based upon the AV calculator.  Because outside of Washington DC bureaucracy, there is nothing magic about \$297.06 that makes it work for every benefit, every year, where you can simultaneously *apply* coinsurance (within the effective coinsurance rate calculation in the macro) and *not apply* coinsurance (the same gap exists in each metallic tier).

And in case anyone is interested, there’s a parallel issue within the separate medical/rx portion of the calculator.  Perhaps that will be fun in a post I’ll do for 2018.

A summary of all of the relevant continuance tables, trend values, and the calculation of this magic \$297.06 are below the fold.

P.S.  Despite the sarcastic tone in this post, in all seriousness if there’s a rational explanation for what this \$297.06 represents, I would like to hear about it.  If there is such a rationale, it should be a prominent part of the documentation.

Apologies in advance for the rough formatting … been more than a year since my last post; just going to push this out there.

 Platinum Continuance Table Comparisons, AV Calculator versions Category 2017 (P) 2016 2015 (P) 2014 16 to ’17 Trend 15 to ’16 Trend* ER \$369 \$347 \$306 \$306 1.065 1.065 IP \$1,371 \$1,288 \$1,135 \$1,135 1.065 1.065 PCP \$275 \$258 \$228 \$228 1.065 1.065 SCP \$236 \$221 \$195 \$195 1.065 1.065 MH \$110 \$103 \$91 \$91 1.065 1.065 Imaging \$244 \$229 \$202 \$202 1.065 1.065 Speech Therapy \$4 \$4 \$4 \$4 1.065 1.065 OT & PT \$223 \$210 \$185 \$185 1.065 1.065 Preventive (Combined) \$250 \$235 \$207 \$207 1.065 1.065 Lab \$227 \$213 \$188 \$188 1.065 1.065 X-rays (Combined) \$306 \$287 \$253 \$253 1.065 1.065 SNF \$9 \$8 \$7 \$7 1.065 1.065 Unclass \$1,564 \$1,469 \$1,295 \$1,295 1.065 1.065 Generic \$243 \$228 \$201 \$201 1.065 1.065 PB \$937 \$880 \$776 \$776 1.065 1.065 NPB \$119 \$112 \$99 \$99 1.065 1.065 Specialty \$164 \$154 \$136 \$136 1.065 1.065 TOTAL \$6,652 \$6,246 \$5,507 \$5,507 1.065 1.065 Avg Enrollee \$6,949 \$6,543 \$5,804 \$5,804 1.062 1.062 Difference \$297.06 \$297.06 \$297.06 \$297.06 * Square Root (P) = Proposed

 Gold Continuance Table Comparisons, AV Calculator versions Category 2017 (P) 2016 2015 (P) 2014 16 to ’17 Trend 15 to ’16 Trend ER \$375 \$352 \$310 \$310 1.065 1.065 IP \$1,362 \$1,279 \$1,128 \$1,128 1.065 1.065 PCP \$249 \$234 \$206 \$206 1.065 1.065 SCP \$221 \$208 \$183 \$183 1.065 1.065 MH \$74 \$69 \$61 \$61 1.065 1.065 Imaging \$228 \$214 \$188 \$188 1.065 1.065 Speech Therapy \$5 \$4 \$4 \$4 1.065 1.065 OT & PT \$166 \$156 \$138 \$138 1.065 1.065 Preventive (Combined) \$225 \$211 \$186 \$186 1.065 1.065 Lab \$215 \$202 \$178 \$178 1.065 1.065 X-rays (Combined) \$282 \$265 \$234 \$234 1.065 1.065 SNF \$6 \$5 \$5 \$5 1.065 1.065 Unclass \$1,461 \$1,372 \$1,210 \$1,210 1.065 1.065 Generic \$235 \$221 \$195 \$195 1.065 1.065 PB \$776 \$728 \$642 \$642 1.065 1.065 NPB \$148 \$139 \$123 \$123 1.065 1.065 Specialty \$139 \$130 \$115 \$115 1.065 1.065 TOTAL \$6,168 \$5,791 \$5,106 \$5,106 1.065 1.065 Avg Enrollee \$6,465 \$6,088 \$5,403 \$5,403 1.062 1.062 Difference \$297.06 \$297.06 \$297.06 \$297.06

 Silver Continuance Table Comparisons, AV Calculator versions Category 2017 (P) 2016 2015 (P) 2014 16 to ’17 Trend 15 to ’16 Trend ER \$357 \$336 \$295 \$295 1.063 1.066 IP \$1,346 \$1,257 \$1,104 \$1,104 1.071 1.067 PCP \$255 \$240 \$211 \$211 1.064 1.065 SCP \$184 \$173 \$153 \$153 1.065 1.065 MH \$64 \$60 \$52 \$52 1.068 1.067 Imaging \$210 \$197 \$173 \$173 1.066 1.067 Speech Therapy \$4 \$4 \$3 \$3 1.095 1.081 OT & PT \$132 \$124 \$109 \$109 1.065 1.066 Preventive (Combined) \$206 \$193 \$170 \$170 1.065 1.065 Lab \$200 \$187 \$165 \$165 1.066 1.066 X-rays (Combined) \$256 \$240 \$212 \$212 1.065 1.065 SNF \$4 \$3 \$3 \$3 1.067 1.063 Unclass \$1,371 \$1,286 \$1,130 \$1,130 1.066 1.067 Generic \$254 \$238 \$210 \$210 1.064 1.065 PB \$735 \$690 \$608 \$608 1.064 1.066 NPB \$171 \$161 \$141 \$141 1.066 1.065 Specialty \$132 \$124 \$109 \$109 1.063 1.067 TOTAL \$5,879 \$5,513 \$4,850 \$4,850 1.067 1.066 Avg Enrollee \$6,176 \$5,810 \$5,147 \$5,147 1.063 1.062 Difference \$297.06 \$297.06 \$297.06 \$297.06

 Bronze Continuance Table Comparisons, AV Calculator versions Category 2017 (P) 2016 2015 (P) 2014 16 to ’17 Trend 15 to ’16 Trend ER \$347 \$325 \$286 \$286 1.068 1.065 IP \$1,327 \$1,247 \$1,101 \$1,101 1.064 1.064 PCP \$222 \$208 \$184 \$184 1.066 1.065 SCP \$179 \$168 \$148 \$148 1.065 1.065 MH \$66 \$62 \$54 \$54 1.066 1.065 Imaging \$213 \$200 \$177 \$177 1.064 1.063 Speech Therapy \$6 \$6 \$5 \$5 1.063 1.066 OT & PT \$138 \$129 \$114 \$114 1.064 1.065 Preventive (Combined) \$208 \$196 \$173 \$173 1.065 1.065 Lab \$195 \$183 \$162 \$162 1.064 1.064 X-rays (Combined) \$246 \$231 \$204 \$204 1.065 1.064 SNF \$3 \$3 \$3 \$3 1.062 1.067 Unclass \$1,368 \$1,285 \$1,135 \$1,135 1.065 1.064 Generic \$215 \$202 \$178 \$178 1.066 1.065 PB \$645 \$605 \$534 \$534 1.066 1.065 NPB \$143 \$134 \$118 \$118 1.065 1.065 Specialty \$125 \$117 \$103 \$103 1.068 1.068 TOTAL \$5,647 \$5,302 \$4,680 \$4,680 1.065 1.064 Avg Enrollee \$5,944 \$5,599 \$4,977 \$4,977 1.062 1.061 Difference \$297.06 \$297.06 \$297.06 \$297.06