GBA 3 - Assignment 2 Exam Questions and Answers (Solved Papers) If the pure premium is $1,000 and the loading percentage is 40%, what is the gross premium? - Correct Answers ✅While pure premium is simply the expected claim experience, gross premium is the pure premium divided by 1 minus the loading percentage. In this case, the gross premium is $1,000 divided by .60, or $1,666.67. Stated differently, 60% of the gross premium ($1,667 x .60 = $1,000) would be allocated for losses (this would be the loss ratio) and 40% of the gross premium ($1,667 x .40 = $667) would be allocated for loading (known as the expense ratio) What is included in the loading percentage? - Correct Answers ✅The loading percentage includes a markup the insurer charges to cover its objective risk, profit and costs of marketing, adjudicating and processing claims, coordinating benefits and providing access to its network. In other words, all costs, other than losses and loss adjustment expenses, are included in the loading percentage. These costs are reduced by any investment earnings when premiums are calculated.What are two major factors that determine the size of the loading percentage? - Correct Answers ✅The loading percentage differs greatly between group and nongroup markets. For example, in one study the loading percentage was about 10% in group markets and about 50% in individual markets. The loading fee also varies greatly by firm size, with smaller loading percentages for larger groups. In addition, the size of the loading percentage is going to depend not only on the actual marginal costs of running the insurance plan but also on the nature of the competition the insurer faces. 1 / 2
GBA 3 - Assignment 2 Exam Questions and Answers (Solved Papers) The Patient Protection and Affordable Care Act requires that medical loss ratio for small groups of up to 100 workers and nongroup plans be no less than 80%. For fully insured large groups, the medical loss ratio cannot b less than 85%. If an insurer has a medical loss ratio below these thresholds, it is required to refund a share of its premiums back to purchasers. - Correct Answers ✅The Patient Protection and Affordable Care Act requires that medical loss ratio for small groups of up to 100 workers and nongroup plans be no less than 80%. For fully insured large groups, the medical loss ratio cannot b less than 85%. If an insurer has a medical loss ratio below these thresholds, it is required to refund a share of its premiums back to purchasers.What is carve-out coverage? Provide an example - Correct Answers ✅Coverage that may have been provided as part of a particular plan but is now provided separately is carve- out coverage. Prescription drug and mental health benefits are often carved out.Explain in words, not numbers, the concept of objective risk in health insurance. - Correct Answers ✅Objective risk is dispersion (which is often measured by standard deviation, variance or range) in losses related to some measure of expected losses and the number of covered lives. As the law of large numbers states, objective risk will decrease as the number of covered lives increases. Objective risk also declines as the size of expected losses increases. In simpler
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