Numbers Can Lie – An Audit Can Mislead – Fuzzy Math Reigns

Numbers don’t lie! Or do they?

Two things to remember about numbers: first, the semantic premise imposed upon the calculation determines, in the eye of the unsuspecting, the “truth” which “supports” one’s contentions, i.e. “see I told you so, the audit proves we are getting screwed.” Second, numbers based on one methodology can be made to appear to change under a different methodology. And, multiple numerical entries can appear to skew a single numerical entry when totaled and compared as a percentage.

Consider three school district employees traveling to San Antonio on district business. They get off to a late start and arrive in the evening. They look frantically for a hotel, but all are booked. A national convention is in town, and there are no vacancies available.

But, finally, they get lucky. Tired, disheveled, they spot a “Room Available” neon blinking sign in front of the Blue Bonnet Motor Inn in South San Antonio. They ring for the attendant who finally appears and says “I have only one room left and the price is $30 cash.”

Relieved to find a temporary home for the evening, and resigned to the fact that all three would have to share the same room (what will the husband think of this Molly?” )  each plunked down $10 to pay the $30 daily rate – $10 X 3 = $30.

Shortly after encamping in their room, the hotel clerk realized he over-charged the three. The room was only $25 for the night, not $30. He called the Bell Hop and handed him five one dollar bills and said “Go to room 23 and give them a refund, I over-charged them.”

On the way to room 23, the Bell Hop, being a Democrat, decided requisition $2 and give each a $1 refund.

Here is the math – Each occupant paid $10-$1 = $9………………..$9 X 3 = $27    The Bell Hop Stole $2

Where is the missing $1?

Auditing PPO discounts   and payments can be conducive to a Fuzzy-Math-Out-of-Body-Experience. Careful attention must be made to (1) premise/s represented, (2) terminology employed and (3) Bell Hops.

And, fuzzy math can take a 25% cost increase down to a 10% increase very easily. It is done quite frequently in the insurance business. Anyone want to know how?

Editor’s Note: A good lawyer can make a bankrupt business look like MicroSoft, or vice versa. It’s done every day.

TRS ActiveCare Rates to Be Increased?

The TRS ActiveCare health insurance program for Texas public school districts has enjoyed stable rates and comprehensive coverage since 2003. Approximately 87% of Texas public school districts have joined the program. Most recently the El Paso Independent School District (+8,000 employees) joined effective January 1, 2011 (http://blog.riskmanagers.us/?p=4824).

A brief review of the TRS ActiveCare financials (TRS 2009 CAFR ActiveCare) indicates an erosion of plan assets. Most recent paid claim experience shows a loss ratio of 98.7%. Last year the trustees of the program raised premium but offset some of the increase by dipping into plan reserves. It does not appear they will have that luxury this year.

A 98.7% loss ratio deserves a rate increase. With ObamaCare mandates in play, and +$20 billion state budget deficit to be addressed in the current legislative session, what will the trustees do this year to ensure the continued solvency of the TRS ActiveCare plan? And where is the money to come from?

Rates for plan year 2011-2012 should be announced in March.