{"id":576,"date":"2006-09-19T00:36:17","date_gmt":"2006-09-19T08:36:17","guid":{"rendered":"https:\/\/systematichr.com\/?p=576"},"modified":"2006-09-26T06:32:02","modified_gmt":"2006-09-26T14:32:02","slug":"tco-measuring-risk","status":"publish","type":"post","link":"https:\/\/systematichr.com\/?p=576","title":{"rendered":"TCO: Measuring Risk"},"content":{"rendered":"

In a prior post<\/a> I wrote about the Total Cost of Ownership (\u201cTCO\u201d) in the context of risk.\u00a0 Today I would like to write about techniques to measure the cost of risk, particularly in the case of administering benefit plans.<\/p>\n

The shortfall of TCO modeling for administrative functions is that typically, quantifying the costs of poor administration is difficult to accomplish.\u00a0 Just as with investment returns \u201cpast performance is not an indicator of future returns,\u201d if poor administration in the past resulted in additional costs, we don\u2019t know that it will in the future.\u00a0<\/p>\n

We can, however, quantify those past costs from penalties, fines, lawsuit settlements etc., and include them in a TCO calculation.\u00a0 Unfortunately, when it comes to benefits administration, the potentially biggest cost of poor administration is typically never known.\u00a0 That\u2019s the cost of overpayment of medical, dental or pharmacy claims.<\/p>\n

Companies attempt to ascertain these \u201cclaims leakage\u201d costs through a traditional claims audit conducted by a benefits consulting firm such as Mercer, Hewitt or Watson Wyatt.\u00a0 (Now, now, if you work for Towers, PwC, Deloitte or some other firm and do claims audit, don\u2019t get upset.\u00a0 I just used those firms as examples.\u00a0 Fact is there are brokerages and other \u201cindependents\u201d that do this work as well.\u00a0 More on them later and next week.)<\/p>\n

A \u201ctraditional\u201d claims audit will follow a common methodology:<\/p>\n