Measuring Plan Spending and Performance

Evaluating a health plan’s performance goes beyond analyzing the loss ratio. Additional key metrics include average pure premium (claim cost), and the frequency and severity of claims. These indicators provide a more comprehensive view of performance.

For example, different segments may share similar high loss ratios but vary significantly in claim frequency and severity. Likewise, groups might have similar claim costs but arrive there through very different patterns—some with frequent low-cost claims, others with infrequent high-cost claims.

Understanding frequency and severity allows plan sponsors and consultants to pinpoint opportunities. These may guide targeted interventions such as care management programs, mitigation strategies, and other cost-containment efforts.

Interpreting Group D:
Group D claim costs are likely higher than expected, surpassing benchmarks and manual rating assumptions. If their average earned premium is already elevated, simply increasing rates may not be a viable solution and may even trigger a death spiral.

Instead, consider the following approaches:

• Improve participation by Increasing plan attractiveness through tailored messaging and benefit enhancements.

• Adjust current plan design to better align with member needs.

• Offer alternative plan options that might better suit the group’s risk profile.

• Include desirable plan features to encourage broader enrollment and reduce adverse selection.

• Implement cost-containment strategies such as wellness programs, case management and provider steering.