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If I want my plan to fail (pt.2): June 2, 2012

Posted by medvision in Chronic Disease, health data, Healthcare Costs, Insurance Plans, Risk Management, Rx Costs, Uncategorized.

Health Costs, Rx Costs“I won’t question nationally published cost statistics and wonder if these “industry averages” apply to my member population.  When I read an article stating an average family of four incurs health claims in excess of $20,000, my mind closes”.  http://www.marketplace.org/topics/your-money/makin-money/family-health-care-costs-breach-20000

What does “family of four” typically denote? Most would think, mom, dad and two kids? Look outside of your house, condo/apartment and notice a family on a stroll. How many think the average family walking by incurs $20K per year in claims? So, how could Milliman publish such a high average, or high “Milliman Medical Index, MMI”?  

From a pure mathematical perspective I’d never question the validity of their result. They took millions of values (family claims) came to a total and then divided by the number of values to obtain the average or mean. We should be asking, “is this average a reasonable representation of the “central tendency” or essence of the data”? Another way to think of the Milliman average is what does this number/average tell us about health care risk?

When thinking of families of four, I find it hard to comprehend the average claims expense is in excess of $20 thousand dollars, annually? Could both be correct? The answer is yes, however I hope to convince the audience the Milliman average is unrepresentative of the “central tendency” of the values (family of 4 health claims) as this average is obviously calculated including huge claim values (high) outliers.  Here’s a very clear video explaining the manner outliers change our perception of data sets.  http://www.statisticslectures.com/topics/outliereffects/#video

Huge average claim values tend to “breed” stagnation concerning intelligent plan management actions!

When looking at “average per member per year plan cost” why let consultants define average in a different manner than the financing of the plan? Most plans re-insure specific member claims to a “specific” deductible amount and receive reimbursements for amounts over this deductible. However, when computing the annual per member/employee cost, these amounts reimbursed are included grossly inflating the average cost! In fact the top 1% of members, by claims cost, incur approximately 30% of all plan assets. Removing these as outliers would provide managers a more accurate “central tendency” of their claims data.



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