Calculated Risk: Driving Decisions Using the 5/50 Research

January 2024

Authors:

Joan C. Barrett, FSA, MAAA
Consulting Actuary
Axene Health Partners, LLC

Achilles Natsis, FSA, MAAA
Research Fellow
Society of Actuaries

Tony Pistilli, FSA, MAAA, CERA
Consulting Actuary
Axene Health Partners, LLC

Description

In today’s business world, many financial decisions undergo considerable analysis before the decision is made and the decision-maker is often held accountable for the outcomes. The purpose of this research is to introduce the concept of total risk analysis (TRA), which is designed to help the decision-maker answer key questions at the time the decision is made. This paper will focus on a specific example of a typical healthcare decision: setting a budget for claims in the upcoming year. In addition to explaining TRA and providing a case study, this paper presents quantitative research regarding cost distributions for health care costs.

Materials

Calculated Risk: Driving Decisions Using the 5/50 Research

Companion File to Calculated Risk Paper

Podcast

Driving Decisions Using the 5/50 Research

Acknowledgments

The authors’ deepest gratitude goes to those without whose efforts this project would not have come to fruition: the many people who generously shared their wisdom, insights, advice, guidance and arm’s length review of this report prior to publication.

Project Oversight Group members:

Madhuri Bhatia, ASA
Nathan Cornwell, ASA, MAAA
Kevin E. Dotson, FSA, MAAA, FCA
Yucheng Feng, FSA, MAAA
James Lescoe, FSA, MAAA
Wendy Kwan, FSA, MAAA
Jim Mange, FSA, MAAA
Brian Pauley, FSA, MAAA
Pei Pei, ASA
Jason Reed, FSA, MAAA
Margie Rosenberg, Ph.D., FSA
Eric Viney, ASA, MAAA, FCA
Junjie Zhang, FSA, MAAA
Yue Zhang

At the Society of Actuaries Research Institute:
Erika Schulty, Research Administrator

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