While rooted firmly in well-established and accepted mathematical theories and formulas, there is always an element of subjectivity when it comes to underwriting claims and future plan projections. This is the “art” of underwriting and can be an important component of effectively managing your plan. Having a consultant/broker/actuary (C/B/A) partner that is effective in bringing a depth of knowledge of your plan, the broader market conditions, and localized considerations into projecting your plan cost is of paramount importance. A strong partner in this practice will enable you to be informed and allow for a proactive and strategic approach to managing your plan and reserves for the future. This “art” of underwriting will be increasingly necessary as trustees seek to plan for the future among the many unknowns resulting from the Covid-19 crisis.
As we are now over 5 months into the crisis, it’s becoming increasingly clear that for many plans, 2020 will prove to be a lower costing year than expected, as evidenced in this Milliman report: https://us.milliman.com/en/insight/Estimating-the-impact-of-COVID19-on-healthcare-costs-in-2020. The picture gets murky when looking forward to 2021 and beyond considering we don’t have a crystal ball into when (or if) a vaccine will be available, the duration of the second wave and whether other waves will occur, the behavioral impact on healthcare utilization and use of alternatives services such as telehealth, long term cost impact of avoided care, etc.
What should trustees do?
1) Insist on detailed supporting information from your C/B/A regarding the assumptions and adjustments used in your claims projections.
2) Collaborate with your C/B/A on your fund’s tolerance for risk and the appropriate level of conservatism to build in for the unknowns
3) Request the use of predictive modeling (specific to your fund’s experience) to determine claims projection confidence thresholds on status quo, and make adjustments from there based upon results of #2 above
4) Insist on continual updates of plan specific, and broader market changes in utilization patterns and spend