Each individual is assigned a joint claims distribution based on his or her risk profile (risk cell membership for each claim type) and the respective estimated distribution. This joint claims distribution can be mapped to a distribution of out-of-pocket expenditures, which applies the individual’s insurance characteristics. Family-level distributions of out-of-pocket expenditures can be formed by aggregating individual distributions and coverage characteristics.

Steps and Criteria for an MCER

Meier outlined three steps for implementation of the suggested framework for an MCER measure:

  1. Baseline measurement of medical expenditure risk at the individual level.
  2. Adjustment of individual expenditure risk for risk protection (insurance), followed by aggregation of individual risk measures to form a family-level measure of medical care expenditure risk.
  3. Measurement of family economic resources, which preferably would include an annuitized value of financial assets. This process would conclude with an examination of the relative affordability of a family’s premium costs and its medical expenditure risk, given its economic baseline.

Prior to detailing the specifics of each step (see Meier and Wolfe in Part III of this volume), Meier highlighted some of the important criteria for the design of a measure of MCER that have been specified in prior literature. As stated previously, the 1995 NRC report recommended a prospective measure of medical expenditure risk, as well as a family-level measure, using the official poverty measure or SPM definition of family.

After the panel’s report was published, a paper by Doyle (1997) outlined additional important criteria for a well-designed MCER index:

  • The index must reflect risk;
  • It must reflect resources and medical need (insurance adequacy, subsidized care, and affordability);
  • It must be quantifiable;
  • It requires a well-defined accounting period; and
  • It must be defined by available data.

Meier went on to identify seven design considerations as particularly relevant to the framework she and Wolfe suggest.

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