Policy Calculation Period Based
This method of calculation for premiums, adjustments and surcharges applies when the calculation period is a policy calculation period. In order to use the policy calculation period method, the 'Policy Calculation Periods' indicator on the collection settings must be set.
The calculation logic for determining the amount for a calculation period segment is described in the image below:
This calculation method supports two variants:
-
The per day amount is computed and is then multiplied by the number of enrolled days in the policy calculation period to which the calculation period segment in context belongs (referred to as Calculation Period Days) - this is referred to as amount distribution Daily
-
The per day amount is computed and is then multiplied by the number of Days factor setting on the policy calculation period. The premium is thus evenly spread over the policy calculation periods in the calendar year period when the days factor is set accordingly. This is referred to as amount distribution Evenly.
The table below explains the calculations:
| Circumstances | Amount Distribution Daily | Amount Distribution Evenly |
|---|---|---|
Full Enrollment |
Daily Amount[1] # No. of days in the Policy Calculation Period |
Daily Amount[1] # Value of Days setting on the Policy Calculation Period |
Partial Enrollment |
Daily Amount[1] # Actual Enrolled Days |
|
Last Split calculation |
Amount for the full policy calculation period span - Charged value |
|
The first step in the calculation process is to identify if the calculation period for which the calculations are intended is the last calculation period split in the context of the policy calcuation period span or not.
The system detects that split policy calculation period is the last when the policy calculation period end date is equal to the policy calculation period span end date.
The next step is to determine whether the policy enrollment is full or partial. For this, the system takes into account the overlap in time validity of the policy enrollment with the policy calculation period.
In case of the enrollment product premium, adjustment and surcharge calculations, the system performs checks to determine if the enrollment is partial or full for the policy enrollment product (or add-on for add-on premium). If the enrollment is partial then the system charges the value (and surcharges and adjustments) only for the days that the person or objects is enrolled irrespective of the partial period resolution setting on the enrollment product. The amount is computed by multiplying the daily amount by the actual number of days the person or object is enrolled.
Next, if the enrollment is for the fully enrolled then the system checks for the applicable calculation variant (Daily or Evenly) which is given by the amount distribution setting on the enrollment product, group account product, group account or group client. Based on this setting, the system then charges either the daily based or evenly based amount for the calculation period.
In order to calculate daily or evenly based amounts, the system must first determine the applicable daily amount.
The table below explains the daily amount logic amount when evenly based method is applied.
| Amount Interpretation | Yearly | Specific | ||
|---|---|---|---|---|
Collection Cycle |
Not Monthly |
Monthly |
Not Monthly |
Monthly |
Daily Amount |
Yearly premium amount divided by days in a year |
Yearly premium amount divided by days in a year |
Specific Premium Amount/ no of days setting on the schedule |
Compute applicable monthly premium amount by multiplying the exact daily amount with days in a year and then dividing it by 12, rounded up to two decimals. Applicable monthly amount from the previous step multiplied by 12 and then divided by days in a year |
The table below explains the daily amount logic amount when daily based method is applied.
| Amount Interpretation | Yearly | Specific | ||
|---|---|---|---|---|
Collection cycle |
Not Monthly |
Monthly |
Not Monthly |
Monthly |
Daily Amount |
Yearly premium amount divided by days in a year |
Yearly premium amount divided by days in a year |
Specific Premium Amount/ no of days setting on the schedule |
Specific Premium Amount/ no of days setting on the schedule |
Exact Daily Amount
Exact daily amount is given by the configured premium amount divided by the no.of days setting on the premium schedule.
Days in a Year
For a contracted policy days in a year is considered 365 unless the policy calculation period starts in the contract period that includes Feb 29, in which case it is considered as 366
For a non contracted policy days in a year is considered 365 unless the policy calculation period starts in an annual period as set out from the leap year start month (system property) that includes Feb 29, in which case it is considered as 366. If the system property is not specified, days in a year is considered as 365.
Calculation for the Last Split of Policy Calculation Period
If the system detects that the policy calculation period is the last split, it calculates the target total premium for the full enrolled policy calculation period span given by the span start and end dates. Next, the system retrieves all past calculation results of the other splits that belong to the same policy calculation period span, to determine what has already been charged. Finally, the system determines the premium, adjustments and surcharges for the last split period segment, such that the aggregated result of all calculations in the policy calculation period span equals the target premium amount.
Whether reconciliation for a line will apply or not further dependents on the following:
-
The retrieved value from the schedule: The system compares the retrieved value for the schedule definition for the previous calculation results that belong to the policy calculation periods within the span with the value retrieved for the current (split) policy calculation period. This value must be the same for all the (split) policy calculation periods in the span.
-
The nature of the enrollment - full or partial over the policy calculation period span (without split), in combination with the schedule definition type:
-
Product Premium: The member must be enrolled over the full policy calculation period span on the product for the product premium to be reconciled.
-
Add-on Premium: The member must be enrolled for the full policy calculation period span on the add-on for the add-on premium to be reconciled.
-
Percentage based Adjustment: Depends on the scope of adjustment:
-
When the scope is a total premium, then the member must be enrolled for the full policy calculation period span on the product, and add-ons
-
When the scope is a specific add-on premium, then the member must be enrolled for the full policy calculation period span on the add-ons
-
When the scope is a specific product, then the member must be enrolled for the full policy calculation period span on the enrollment product
-
-
Amount based Adjustment: The member must be enrolled over the full policy calculation period span on the product for the adjustment to be reconciled.
-
Percentage based Surcharge: Depends on surcharge rule evaluation:
-
When a surcharge is on premium, then the member must be enrolled for the full policy calculation period span on the product and the add-ons.
-
When a surcharge is after adjustment, then surcharge reconciliation applies only if all the adjustments are reconciled by the system
-
-
Amount based Surcharge: The member must be enrolled over the full policy calculation period span on the product for the surcharge to be reconciled.
-
Rounding Behavior
This calculation method enables you to calculate premium for irregular periods of time. As a result, the calculated premium amounts for each of these periods are especially susceptible to rounding differences. While the application calculation logic is based on very precise amounts, going up to 12 digits behind the decimal point, the end result is always rounded to the precision used on the invoice, which is only 2 digits behind the decimal point. This means rounding errors are inevitable.
To clarify, consider a product that costs a 100 dollars for 30 days. Now suppose the member purchases 30 days of coverage, split up into three 10-day periods. In this scenario, the application calculates the cost for a 10-day period as 33.333333333333 dollars. This is susequently rounded down to 33.33 dollars, so that it can be billed.
This creates an inconsistency when all 3 periods are calculated separately, as the sum total is 99.99 dollars, while the listed cost suggests it should be 100 dollars.
Alternatively, if the coverage period is split up in two periods, for example a 10-day period and a 20-day period, the application calculates a cost of 33.33 dollars for the first period and 66.67 dollars for the second. This then sums up to an even 100 dollars.
Both examples have the exact same number of covered days (30) and the exact same cost (100 dollars per 30 days), but depending on the split, the results are different.
The application addresses this scenario by changing the calculation method when it detects that it is calculating the last sub-period in a predefined overarching period. Going back to the example with three 10-day periods, this means the application detects that it is calculating for the last 10 days, and subsequently switches to a different calculation: it calculates the premium for the full 30 days and subtracts the results from the first two 10-day periods. This results in the following calculation: 100 - 33.33 - 33.33 = 33.34 dollars.
This feature only applies to expected rounding differences. In other words, the application has to know that it is anchoring the calculation results to 30 day periods, so that it can adjust for the rounding differences. In scenarios where there no preset period, the application is unable to adjust for rounding differences consistently. This can lead to unexpected results.
To clarify, consider a product that costs 30.51 dollars per 30 days. This amounts to a daily premium of 1.017 dollars. Suppose a member pays 5 dollars. The application calculates a cost of 4.068, which is rounded up to 4.07. The remaining 93 cents are returned to the member.
Now suppose that for some reason the results are recalculated and the second calculation splits the 4-day period into two 2-day periods. For two days, the application calculates a cost of 2.034 dollars, which is rounded down to 2.03 dollars. Two 2-day periods cost 4.06 and 94 cents are returned to the member.
This illustrates that even when the coverage periods and cost are unchanged, the way a coverage period is split up directly affects the calculated result. In this scenario the application cannot make up for the rounding difference, because there is no anchor period. The 4-day coverage period is arbitrarily determined as a result of the member paying 5 dollars.
Examples
Consider some examples to understand the calculations for this method.
Configuration
The system property 'leap year start month' is set to January.
The premium schedule lines that are associated to BASIC PLAN and COPAY PLAN are defined as:
| Premium Schedule Lines - BASIC PLAN (Yearly) | |
|---|---|
Default Time Period |
Premium |
2019 - 2020 |
1200 |
| Premium Schedule Lines - COPAY PLAN (Specific 7 days) | |
|---|---|
Default Time Period |
Premium |
2019 - 2020 |
10 |
Amount Interpretation Yearly and Daily Based Calculation
Consider the situation when the policy is enrolled for the enrollment product from Apr 21, 2019 to Mar 10, 2020. The calculations in this scenario are spanning over two calendar year 2019 and calendar year 2020
| Contract Start Date | Contract End Date | Contact Reference Date |
|---|---|---|
- |
- |
- |
Enrollment Product |
Policy Enrollment Product Start Date |
Policy Enrollment Product End Date |
BASIC PLAN |
Apr 21, 2019 |
Mar 10, 2020 |
The premium calculations for the year 2019 and 2020 that apply to the policy in this situation when policy calculation periods are set out for monthly collection cycles are as shown in the table below.
| Policy Calculation Period | Premium | Calculation |
|---|---|---|
April'19 |
32.88 |
1200/365*(10) |
May'19 |
101.92 |
1200/365*(31) |
June'19 |
98.63 |
1200/365*(30) |
July'19 |
101.92 |
1200/365*(31) |
Aug'19 |
101.92 |
1200/365*(31) |
Sep'19 |
98.63 |
1200/365*(30) |
Oct'19 |
101.92 |
1200/365*(31) |
Nov'19 |
98.63 |
1200/365*(30) |
Dec'19 |
101.92 |
1200/365*(31) |
Jan'20 |
101.65 |
1200/366*(31) |
Feb'20 |
95.08 |
1200/366*(29) |
Mar'20 |
32.79 |
1200/366*(10) |
The amount for each full calculation period is calculated based on the number of days in the policy calculation period.
May'19 = Daily Amount * Calculation Period Days= 1200/365*(31)
June'19 = 1200/365*(30) and so on.
From the Jan'20 calculation period onward the premium amount changes as the 'No.of days in the calendar year' changes from 365 to 366 as given by number of days in the annual period starting Jan 2016, that is, the year in which the calculation period Jan'20 starts. Therefore, for Jan'20 the amount is given by 1200/366*(31) and for Feb'20 the amount is 1200/366*(29).
For the Mar'20 the amount is prorated to 1200/366*(10).
Amount Interpretation Yearly and Evenly Based Calculation
The policy is enrolled for the enrollment product BASIC PLAN from Oct 1, 2019 to Apr 15, 2020.
| Contract Start Date | Contract End Date | Contact Reference Date |
|---|---|---|
- |
- |
- |
Enrollment Product |
Policy Enrollment Product Start Date |
Policy Enrollment Product End Date |
BASIC PLAN |
Oct 1, 2019 |
Apr 15, 2020 |
The premium calculations for the enrolled policy calculation period set out for monthly collection cycles in 2019 and 2020 will be as depicted in the table below:
| Policy Calculation Periods | Days (factor) | Daily Premium | Premium |
|---|---|---|---|
Oct'19 |
365/12 |
1200/365 |
100 |
Nov'19 |
365/12 |
1200/365 |
100 |
Dec'19 |
365/12 |
1200/365 |
100 |
Jan'20 |
366/12 |
1200/366 |
100 |
Feb'20 |
366/12 |
1200/366 |
100 |
Mar'20 |
366/12 |
1200/366 |
100 |
Apr'20 |
366/12 |
1200/366 |
49.18 (1200/366)*(15) |
The premium amount 1200 applies for the policy calculation periods from Oct'19 up to and inclusive April'20. an evenly distributed premium amount for the policy calculation period from Oct'19 to Mar'20 is calculated as Days (factor) multiplied by daily premium. The amount for Apr'20 is prorated to (1300/366)*(15) as the enrollment is partial.
Amount Interpretation Specific and Evenly Based Calculation (Monthly Periods)
The policy is enrolled for the enrollment product COPAY PLAN from Oct 1, 2019 to Apr 15, 2020.
| Contract Start Date | Contract End Date | Contact Reference Date |
|---|---|---|
- |
- |
- |
Enrollment Product |
Policy Enrollment Product Start Date |
Policy Enrollment Product End Date |
COPAY PLAN |
Oct 1, 2019 |
Apr 15, 2020 |
The premium calculations for the enrolled policy calculation period set out for monthly collection cycles in 2019 and 2020 will be as depicted in the table below:
| Policy Calculation Periods | Days (factor) | Daily Premium | Premium |
|---|---|---|---|
Oct'19 |
365/12 |
Round((10/7)*365/12,2) multiplied by (12/365) |
43.45 |
Nov'19 |
365/12 |
Round((10/7)*365/12,2) multiplied by (12/365) |
43.45 |
Dec'19 |
365/12 |
Round((10/7)*365/12,2) multiplied by (12/365) |
43.45 |
Jan'20 |
366/12 |
Round((10/7)*366/12,2) multiplied by (12/366) |
43.57 |
Feb'20 |
366/12 |
Round((10/7)*366/12,2) multiplied by (12/366) |
43.57 |
Mar'20 |
366/12 |
Round((10/7)*366/12,2) multiplied by (12/366) |
43.57 |
Apr'20 |
366/12 |
10/7 |
21.43 |
The premium amount 10 applies for 7 days. An evenly distributed premium amount for the policy calculation period from Oct'19 to Mar'20 is calculated as Days (factor) multiplied by daily premium. The amount for Apr'20 is prorated to (10/7)*(15) as the enrollment is partial.
Amount Interpretation Specific and Evenly Based Calculation (Weekly Periods)
The policy is enrolled for the enrollment product COPAY PLAN from Oct 1, 2019 to Apr 15, 2020.
| Contract Start Date | Contract End Date | Contact Reference Date |
|---|---|---|
- |
- |
- |
Enrollment Product |
Policy Enrollment Product Start Date |
Policy Enrollment Product End Date |
COPAY PLAN |
Oct 1, 2019 |
Feb 5, 2020 |
The premium calculations for the enrolled policy calculation period set out for weekly collection cycle in 2019 and 2020 will be as depicted in the table below:
| Policy Calculation Periods | Days (factor) | Daily Premium | Premium |
|---|---|---|---|
Oct 1, 2019 to Oct 8, 2019 |
7 |
10/7 |
10 |
… |
… |
…. |
… |
Jan 6, 2020 to Jan 13, 2020 |
7 |
10 |
|
… |
… |
… |
… |
Jan 30, 2020 to Feb 6, 2020 |
7 |
10/7 |
(10/7)*(6) |
The premium amount 10 applies for 7 days. An evenly distributed premium amount for the policy calculation periods from Oct'19 to 29th Jan'20 is calculated as Days (factor) multiplied by daily premium. The amount for the policy calculation period starting on 30th Jan'20 is prorated to (10/7)*(6) as the enrollment is partial.