An IW incurred $600 in medical in 2004, $1,200 in 2005 and $800 in 2006. How would you reserve for the medical expense?

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Prepare for the California Self‑Insurance Plans (SIP) Exam with our interactive quiz. Benefit from multiple-choice questions, detailed explanations, and essential tips to enhance your knowledge and succeed in your exam!

Multiple Choice

An IW incurred $600 in medical in 2004, $1,200 in 2005 and $800 in 2006. How would you reserve for the medical expense?

Explanation:
Reserve for medical expenses is often based on a three-year rolling average to smooth year-to-year fluctuations. Take the incurred medical costs from the last three years: 600, 1200, and 800. Add them up: 600 + 1200 + 800 = 2600. Divide by 3 to get the average: 2600 / 3 ≈ 866.67. Rounding to the nearest ten gives 870. Therefore, setting aside about 870 per year best reflects the average medical cost over the period. The other options either use a single year, which ignores variability, or don’t reflect the averaged value.

Reserve for medical expenses is often based on a three-year rolling average to smooth year-to-year fluctuations. Take the incurred medical costs from the last three years: 600, 1200, and 800. Add them up: 600 + 1200 + 800 = 2600. Divide by 3 to get the average: 2600 / 3 ≈ 866.67. Rounding to the nearest ten gives 870. Therefore, setting aside about 870 per year best reflects the average medical cost over the period. The other options either use a single year, which ignores variability, or don’t reflect the averaged value.

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