After several years of decline, the market for handmade acoustic guitars is making a

comeback. These guitars are usually made in small workshops employing relatively few highly skilled

luthiers. Assess the impact on the equilibrium price and quantity of handmade acoustic guitars as a

result of each of the following events. In your answers indicate which curve(s) shift(s) and in which

direction.

a. Environmentalists succeed in having the use of Brazilian rosewood banned in the United States,

forcing luthiers to seek out alternative, more costly woods.

b. A foreign producer reengineers the guitar-making process and floods the market with identical

guitars.

c. Music featuring handmade acoustic guitars makes a comeback as audiences tire of heavy metal and

grunge music.

d. The country goes into a deep recession and the income of the average American falls sharply.

(10 points) Insurer ABC provides Health, Specific Stop Loss, and Long Term Disability (LTD) coverage for the individual and employer group markets. (a) (2 points) Describe considerations for determining credibility levels for: (1) Health Insurance (ii) Specific Stop Loss (iii) LTD (b) (/ point) Describe considerations in establishing selected variance factors for LTD claim credibility. You are given the following for a small employer group health insurance benefit: Employee Gender Age 1 F 27 2 M 35 3 F 59 4 F 40 5 M 66 Age-Sex factors for the group: Age Band Female Male 18 - 25 0.80 0.70 26 -35 0.90 0.80 36 - 45 1.00 0.90 46 - 65 1.25 1.10 65+ 1.50 1.40 Turnover rate - 20% kl - 0.25 k2 - k3 -0.01 (c) (3 points) Calculate the credibility factor for this group. Show your work.You are given the following information for a LTD product: LTD Claim Duration Selected Variance Factor 4 to 24 Months 4.0 25 to 60 Months 3.0 61 to 120 Months 2.5 Greater Than 120 Months 2.0 750 terminations expected with maximum of 2 years benefit period The average expected claim is $50,000 The standard deviation is $25,000 (d) (/ point) Describe reasons why LTD claim experience tends to be more volatile in early durations. (e) (/ point) Determine if this block of business is fully credible for valuation purposes. Show your work. (f) (/ point) Calculate the minimum number of claims needed to be considered fully credible for manual ratemaking. Show your work. (g) (/ point) Explain why the credibility level is different in (e) versus (f).(10 points) You are the actuary on the network contracting team for a health insurer. (a) ( / point) Describe the importance of network access. (b) (2 points) Describe various provider payment models. You have been asked to address concerns regarding the cost volatility of certain procedures in the insurer's network of three hospitals. Your first focus is cardiac stent procedures. You are given for cardiac stent procedures: Hospital A Hospital B Hospital C Admits 20 40 30 Average Length of Stay (Days 3.5 2.4 3.1 Allowed Cost per Day $4.000 $4.500 $6.000 Paid Cost per Day $3.400 $3.825 $5.100 (c) (3 points) Calculate a bundled payment. State your assumptions. Show your work. (ii) Recommend which hospital(s), if any, should be re-contracted for this procedure. Justify your answer. Company leadership elected to present bundled payment proposals to all three hospitals. The CEO of Hospital C is a renowned cardiologist and has threatened to terminate their contract with the insurer over this proposal. The insurer's compliance department expressed network adequacy concerns regarding several specialties. You have been asked to consider alternative strategies to remediate the issue with Hospital C. Strategy Terms Rental Network 105% of Hospital C Allowed Tiered Payment System 10% Member Coinsurance for Hospital C Shared Savings Arrangement Set the benchmark equal to the originally proposed bundled rate. Share 50% of savings or deficit. (d) (2 points) Describe how each strategy could remediate the issue, including pros and cons. (e) (2 points) Calculate the per member per admit financial impact to the insurer of cach alternative relative to the bundled payment proposal. Show your work