Module 1
The Language of Risk-Based Finance
PMPM, medical loss ratio, trend, and member months: the units and identities every risk-based financial calculation is built from.
By the end of this module, you will be able to:
- Convert between PMPM, member months, and total dollars in either direction
- Explain what the medical loss ratio protects against and what it does not reward
- Describe how unit cost and utilization combine into medical trend
- PMPM: The Atom of Population Payment Per member per month is the basic unit of risk-based finance. This lesson shows how it is built and why everything is expressed in it. About 5 min
- Medical Loss Ratio: Where the Money Goes The MLR splits every premium dollar between care and everything else. This lesson covers the math, the regulatory floors, and what it does and does not do. About 5 min
- Trend: Why Next Year Costs More Medical trend is the growth rate baked into every rate and benchmark. Misjudge it and a good contract turns into a loss. This lesson breaks it down. About 4 min
- Membership and Member Months Headcount lies; member months tell the truth. This lesson explains the denominator that makes population finance work. About 4 min
Module quiz
Answer all questions to see your score.
1. Multiplying a PMPM rate by member months gives you:
PMPM times member months is the fundamental identity of population finance: a per-unit rate multiplied by the number of units equals total dollars.
2. What is the minimum medical loss ratio for Medicare Advantage and Medicaid managed care?
Both require at least 85 percent. ACA large-group plans also require 85 percent, while ACA individual and small-group plans require 80 percent.
3. A trend assumption that is set too low in a benchmark means:
Whoever bears the risk eats the gap between assumed and actual trend, and because trend compounds, a small annual miss becomes a large cumulative one.