Member Month Overview Calculations Examples
Member Month: Overview, Calculations, Examples
What Is Member Month?
Member month refers to the number of individuals participating in an insurance plan each month. It is calculated by taking the number of individuals enrolled in a plan and multiplying that sum by the number of months in the policy. Member months help insurance companies calculate the average monthly premiums needed to be charged to their customers.
Key Takeaways
– Member month refers to the number of individuals participating in an insurance plan each month.
– Member month is calculated by multiplying the total number of individuals enrolled in a plan by the number of months in the policy.
– One individual who has a policy that lasts one year creates twelve-member months.
– Member months help insurance companies calculate the average monthly premiums needed to be charged to their customers.
Understanding Member Month
Member month statistics are most commonly found in the reports of group insurance companies, such as group health plans. Determining how many individuals are enrolled in an insurance plan requires dividing the total number of member months by the number of months in the year. For example, if an insurer indicates that its member months total 1500, then the total number of individuals covered is around 125. The calculation is an approximation because some members may have policies that last a shorter duration. For example, 1,500 member months could mean 125 members on annual policies or it could mean 100 members on twelve-month policies and 50 members on six-month policies.
One individual who has a policy that lasts one year creates twelve-member months. If that policy has a duration of six months, a single-member will generate six-member months. For policies with multiple members, such as a family on a health insurance policy, the number of member months is larger because each family member counts. For example, a family of four enrolled in a twelve-month health insurance policy generates 48 member months.
Member Months and PMPM
Member months can also be used to calculate the average monthly premiums. This is done by dividing the revenue generated by a group policy by the total member months, which gives an approximation of the average cost of a policy.
The member month statistic can also be used to determine the cost per member per month (PMPM). The PMPM calculation is often used by health insurance companies to determine the average cost of health care for each of their members. PMPM is also used outside the healthcare industry by companies that offer healthcare benefits to their employees. PMPM helps companies estimate how much each individual member should be charged for coverage.
How to Calculate PMPM
To calculate PMPM, choose the year to calculate PMPM, determine the number of people covered under the plan for that year, and determine the member months by multiplying the number of people covered (for all 12 months of the year) by 12. Then, determine the total cost of healthcare benefits for all members under the plan for this year. Divide the total cost of healthcare benefits for all members by the number of member months to arrive at the PMPM for the year.
Example of Member Months and PMPM
A business has 50 employees with an insurance plan through a local insurance company. All of the employee’s policies are 12-month policies. As a result, the business has 600 member months with the insurance company. The insurance company wants to calculate its cost per member per month (PMPM). The insurer determines that the total cost for providing the coverage to all employees equals $500,000 annually. The PMPM would equal $833.
The insurance company would need to work with the business to determine the percentage paid by the business on behalf of the employees and the employee’s responsibility.
