Lee Jek Ann

Executive Summary

For our project, we need to calculate pre-reform and post-reform premium

for year 2016. In order to preserve the accuracy, we use Alans columns as our

primary data because the data covers all of the rating factors we need. However, we

need to concern of the inflation rate since we have to calculate premium 2 years after

2014. Therefore, we use US health care inflation data to estimate our inflation rate so

we can keep on track with the market rate. Inflation rate is not the only problem. We

also need to think about the Affordable Care Act, which includes the 80-20 rule. The

rule states that if the companies spend less than 80% on the payment of premium,

they have to rebate any excess of the premium. It means that we need to keep our

payment of premium higher in a certain amount in order to avoid the rule. For that

purpose, we calculate that we need $25 for our distribution cost. For overhead

expense, we just need to add $2 yearly.

There are differences in premiums of pre-reform and post-reform.

Remember, we use the assumption from the first paragraph as our assumption, which

include the Affordable Care Act. For younger people around age 25, they need to pay

more after reforming the premium. They even get the same charges of premium with

the people with higher risk score. For the older people, they need to pay less after

reforming the premium even though they have more risk logically. We can see that

old people can get benefit from the adjusted Age/Sex Factors that were implemented

which saw a more gradual grading in the later years of life, whereas young people

may get unfair charges.

 From above, we know that a lot of companies find hard to get profit from

selling insurances due to the Affordable Care Act. Most of the time, companies get

profit from the young people because they think about their future life. However, the

Act makes younger people to pay more than expected. Some of them do not even

consider to buy insurances because of the high premium charges. With the loses of

healthier individuals, insurance companies have to charge more on people with higher

risk.