Healthcare cost trend rate requires a named plan, population, date, and evidence owner. The healthcare cost trend rate estimates future per-capita changes in covered healthcare costs. Preserve the initial rate, decline pattern, ultimate rate, year reached, covered cost base, and actuarial model.
Apply it
A one-percentage-point sensitivity supplied by the actuary shows the conditional effect on APBO and service-plus-interest cost. It does not mean every medical claim rises by one percent.
Common mistake
Do not assume that the healthcare trend rate is a single permanent inflation rate. The assumption can follow a stated path to an ultimate rate and must reflect the plan's covered costs and cost sharing. That error would misstate benefit cash flows by ignoring the supported path to an ultimate rate.
Keep the boundary clear
Participant cost sharing, caps, subsidies, utilization, and government-program interactions can change the result. Accounting reviews the evidence but does not select the trend path.
Authority
Read ASC 715-60-35-99 for the healthcare cost trend assumption.
Put the concept to work
Apply this concept
- Explain and apply healthcare cost trend rate within a reconciled employer benefit-plan workpaper using supplied authoritative and actuarial facts.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Other postretirement benefit plan — Apply
To apply this concept: Required. This prior concept supplies the terms, date, or measurement needed here.