Medical procedure cost him $150,262.87 while his benefit earned is $1,314.35 producing a loss ratio of 0.0087……………….
By Norman Holtenbrunner, ASC, CPA, MD
Underwriting medical risk on a +65,000,000 member group is easy peasy when you know how. First, incorporate a 47 year waiting period. Second, charge premiums each of the 564 months that make up the waiting period. Premiums go in and no claims go out, a Premium Paying Plan vs a Claim Paying Plan. So far so good.
At the end of the waiting period this Premium Paying Plan changes into a Premium Paying & Claim Paying Plan – coverage begins and premiums continue. Average duration of coverage is 13 years, ending when the insured turns room temperature.
In the example shown above, the self-employed plan beneficiary paid hundreds of thousands of dollars for coverage over the course of his waiting period. After a review of his health history and number of medical encounters since coverage took effect, his contributions versus paid losses produces a loss ratio unmatched by most underwriters.
His out-of-pocket expense to date, including contributions made to the plan over the past 56 years approximates $150,000 (net of the $262.87 patient responsibility shown above).
Therefore his medical procedure cost him $150,262.87 while his benefit earned is $1,314.35 producing a loss ratio of 0.0087. Unfortunately coverage is not insured through a participating contract. If it were dividends could be reinvested in a new tractor in time for the next hay harvest season.