One In A Million? More Like A Million To One
The 1994 movie Dumb and Dumber had one scene that still comes to mind. Jim Carrey (Lloyd Christmas) meets Lauren Holly (Mary Swanson), and immediately falls in love with her. Later on in the movie, after becoming more and more desperate for her affection, he boldly asks her:
“What are my chances?”
Mary shakes her head and replies, “Not good.”
Lloyd pauses with concern and says “Like one in a hundred?”
Mary replies, “More like one in a million.”
Jim is extremely upset but after thinking about Lauren’s response, exclaims “So you’re telling me there’s a chance. Yeah!”
National Prosperity is now working with many brokers and administrators to implement their new, groundbreaking, IRS Sec 105 medical reimbursement account product for self-funded employers clients that is fully ERISA compliant. The more they learn about the Health Matching Reimbursement Account (HMRA™), the more they will be comfortable with it.
I would guess that the initial reaction, though, after learning of the unique, patent-protected, crediting system that awards between 8-10% compounding to individual member’s accounts following the monthly employer contribution in medical benefits to pay for first-dollar claims would typically be: “How can you do that? “How can you credit 8-10% per month compounding all the way up to 300% into individuals members’ medical reimbursement account balances?”
This is how the world works sometimes. If not one person could not consider analytical evidence like this worthy of exploring, then, collectively, no one is being objective.
In its purest form, insurance pays out a multiple of dollars compared to the premiums paid in. Those with infrequent claims may get 10% of their premiums returned in benefits. Intermittent and larger claimants may get 80% of their claims returned. To return 300% in one month is a 3 to 1 payout of claims to contributions, or a multiple of 3 to 1.
This eventual payout is possible for many reasons, but here are two important ones: First, the monthly payout builds to 300% over time. Second, claims reduce the individual member’s account balance and resets the multiple lower for the corresponding lower balance. For frequent claimants, the employer assumes more risk, and NPHM™ assumes less risk. This lower risk protects the NPHM reserves and allows them to credit accounts at the 8-10% per month compounding rate.
Through working with a well-established, reputable actuarial firm, NPHM knows that they can even guarantee this crediting for at least the first five years, which is unheard of in this industry. Each member’s account balance is segregated from everyone else thereby limiting the NPHM exposure because they are only liable to pay first-dollar claims up to each members’ HMRA account balance at the time a claim is filed.
The NPHM actuaries have used the Monte Carlo simulation system, known throughout the industry, to forecast HMRA claims frequency. They have run the numbers millions of different ways to ensure NPHM can meet their projections and product guarantees. If 20% of the group incurs 80% of the claims as is the industry norm, then about 80% of the individual accounts are growing every year. Over time, NPHM assumes an increased amount of risk from the first dollar of claims, for the vast majority of employees, spouses, and dependents. This is perfectly reasonable however, because of how the funds are pooled and segregated inside of the members’ HMRA account balances. I look forward to seeing this actuarial reality becomes a mathematical certainty for the NPHM customer base.
About 50 years ago Jimmy Charles recorded a song A Million to One. In the song, the parents said that the chances of their love lasting was “one in a million.” Jimmy’s reply was, “But we’ll forgive them because we love them. After all is said and done, dear one, in a million, a million to one.”
As far as the HMRA is concerned, the chances of it crediting 8-10% per month is somewhere between one in a million and a million to one. Join NPHM as I have in their movement to bring down the cost of employer health care and witness first hand the HMRA actuarial certainty as it becomes a mathematical reality.
Don Levit, CLU,ChFC