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Chapter 2 of TAP 15: Forecasting the Cost of Chemical Dependency Treatment Under Managed Care: The Washington State Study

Chapter 2—Overview ofActuarial Studies

Before delving into the details of the Washington State plan, it may help to describe actuarial studies in general and define a few key concepts. An "actuarial study" is an estimate of the cost of providing a specific package of insurance benefits to a defined group of individuals. It is the basic tool used by insurance firms to determine the amount of a premium— that is, how much to charge per individual for a policy that would provide such benefits.

Actuarial studies can estimate costs for many kinds of insurance benefits: life, fire, malpractice, or other risks for which one can buy insurance. Chemical dependency treatment falls within the domain of health insurance, so actuarial studies of the cost of chemical dependency treatment follow the methods used to estimate health policies in general. In this report, "actuarial studies" are health studies—in particular, those that estimate the cost of chemical dependency treatment services.

The professional who conducts an actuarial study is an "actuary." The persons defined in the study as the group eligible for services may be referred to individually as "insureds" or "insured lives"; this report refers to them collectively as the "covered population." The covered population may also be referred to as "enrollees" or "members." Note that the covered population includes anyone who is eligible to use the services, not just those who will actually use those services. The specific services that the covered population may receive are "benefits," and the whole collection of services is the "benefit package." "Eligible providers" are the organizations or individuals who may provide one or more benefits to the covered population. Together, the benefit package, eligible providers, and covered population may be called a "plan."

For reasons of cost and expertise, specifying the plan is the task of the client (in this case, the State). The actuary's main job is to estimate the cost of the plan that the State has defined. An actuary may assist the State in defining the covered population and the benefit package, mostly by clarifying the exact extent of the covered population, eligible providers, and benefits.

Last Updated 11-7-02