CHA contracted with Milliman to conduct the actuarial analysis for the CARE Award. Milliman developed this white paper as part of their analysis. This paper explores the number of members required to take downside risk in a payment model for children with complex medical conditions. The level of volatility in a cohort’s claims per member per month (PMPM) decreases as the number of members in the cohort increases. High volatility in a cohort makes taking downside risk on the cohort undesirable. How many members are required to sufficiently mitigate volatility? The minimum number of members can be estimated using the statistical concept of
confidence intervals. Ultimately, the minimum number of members needed depends on the risk tolerance of the entity taking the risk.