Experience Rating and Manual Rating Are Two Rating Methods That

question 73

Multiple Choice

Experience rating and manual rating are two rating methods that the Cheshire health plan uses to determine its premium rates. One difference between these two methods is that, under experience rating, Cheshire

• A) Uses a purchaser's actual experience to estimate the group's expected experience, whereas, under manual rating, Cheshire uses its own average experience-and sometimes the experience of other plans-to estimate the group's expected experience
• B) can establish rates for groups that have no previous plan experience, whereas, under manual rating, Cheshire cannot establish rates for groups with no previous plan experience
• C) charges each group in the same class the same premium whereas, under manual rating, Cheshire charges lower premiums to groups that have experienced lower utilization rates
• D) can use group demographics to help determine the rate for a block of business, whereas, under manual rating, Cheshire cannot use group demographics when determining the rate for a block of business

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Definitions:

Return on Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated as the ratio of net profit to the initial cost of the investment.

Controllable Margin

The portion of profit or margin over which management has control, usually excluding fixed costs.

Operating Assets

Assets that are used for the day-to-day operations of a business, intended to generate revenue.

Return on Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated by dividing net profit by the initial cost of the investment.