Chapter 35 Exercises: Insurance and Government Systems

These exercises are organized into five tiers of increasing difficulty. They cover insurance data structures, premium calculation, claims processing, government benefits computation, and regulatory reporting. Work through them sequentially to build mastery, or jump to the tier that matches your current skill level.

Tier 1: Foundation (Exercises 1-6)

These exercises test your understanding of insurance and government data structures, basic premium calculations, and the COBOL constructs used in these domains.

Exercise 1: Insurance Policy Data Structure

Define a WORKING-STORAGE group item for an auto insurance policy record with the following fields:

1. Policy number (10 characters, alphanumeric)
2. Policyholder name (30 characters)
3. Effective date (8 digits, YYYYMMDD)
4. Expiration date (8 digits, YYYYMMDD)
5. Vehicle information group: - VIN (17 characters) - Year (4 digits) - Make (15 characters) - Model (15 characters) - Vehicle class code (2 characters) with 88-level conditions for SEDAN, SUV, TRUCK, SPORT
6. Coverage group: - Bodily injury limit per person (PIC S9(7)V99 COMP-3) - Bodily injury limit per accident (PIC S9(7)V99 COMP-3) - Property damage limit (PIC S9(7)V99 COMP-3) - Collision deductible (PIC S9(5)V99 COMP-3) - Comprehensive deductible (PIC S9(5)V99 COMP-3)
7. Driver information group (OCCURS 4 TIMES for up to 4 drivers): - Driver name (25 characters) - Date of birth (8 digits) - License number (15 characters) - Years licensed (2 digits) - Accident count last 3 years (1 digit) - Violation count last 3 years (2 digits)
8. Annual premium (PIC S9(5)V99 COMP-3)
9. Policy status code (1 character) with 88-levels for ACTIVE, CANCELLED, EXPIRED, SUSPENDED

Exercise 2: Basic Premium Calculation

Write a program that calculates a basic auto insurance premium using a simple formula:

Base premium: $800.00

Apply the following multipliers (multiply sequentially): - Driver age under 25: 1.45 - Driver age 25-65: 1.00 - Driver age over 65: 1.20 - Vehicle class SEDAN: 1.00 - Vehicle class SUV: 1.10 - Vehicle class TRUCK: 1.05 - Vehicle class SPORT: 1.35

Test with a 22-year-old driver of a SPORT vehicle and a 40-year-old driver of a SEDAN. Display the base premium, each multiplier applied, and the final premium. Use COMP-3 fields and ROUNDED.

Exercise 3: Claims Record Structure

Define a complete claims record structure for a health insurance claim with:

1. Claim number (12 characters)
2. Policy number (10 characters)
3. Patient information (name, DOB, member ID)
4. Provider information (name, NPI number, tax ID)
5. Service date (YYYYMMDD)
6. Diagnosis codes (OCCURS 4 TIMES, PIC X(7) for ICD-10 codes)
7. Procedure codes (OCCURS 6 TIMES): - CPT code (5 characters) - Modifier (2 characters) - Billed amount (PIC S9(7)V99 COMP-3) - Allowed amount (PIC S9(7)V99 COMP-3) - Paid amount (PIC S9(7)V99 COMP-3)
8. Claim totals: - Total billed (PIC S9(9)V99 COMP-3) - Total allowed (PIC S9(9)V99 COMP-3) - Total paid (PIC S9(9)V99 COMP-3) - Patient responsibility (PIC S9(7)V99 COMP-3)
9. Claim status (1 character) with 88-levels for PENDING, APPROVED, DENIED, APPEALED

Exercise 4: Deductible and Copay Calculation

Write a program that calculates patient responsibility for a health insurance claim:

• Billed amount: $2,500.00
• Allowed amount: $1,800.00 (the insurer's contracted rate)
• Annual deductible: $500.00
• Deductible met year-to-date: $350.00
• Copay: $40.00
• Coinsurance: 20% (patient pays 20% after deductible)

Calculate: 1. Remaining deductible ($500 - $350 = $150) 2. Amount subject to coinsurance ($1,800 - $150 remaining deductible = $1,650) 3. Patient coinsurance ($1,650 * 20% = $330) 4. Total patient responsibility (remaining deductible + copay + coinsurance) 5. Insurance payment (allowed amount - patient responsibility) 6. Provider write-off (billed amount - allowed amount)

Display each component of the calculation.

Exercise 5: Government Benefit Eligibility Check

Write a program that determines eligibility for a simplified public assistance program with the following rules:

• Household size: 1-8 members
• Maximum monthly income thresholds by household size:

Store the thresholds in a COBOL table. Accept a household size and monthly income. Determine eligibility and, if eligible, calculate the benefit amount as the difference between the threshold and the income (up to a maximum benefit of $800).

Test with three households: - Size 2, income $1,900 - Size 4, income $3,500 - Size 3, income $2,000

Exercise 6: Insurance Premium Tax

Write a program that calculates the insurance premium tax owed by an insurer based on premiums written in three states:

For each state, calculate: 1. Premium tax amount 2. Fire marshal surcharge (0.50% of premium, IL and MN only) 3. Total tax including surcharges

Display a formatted table and the grand total across all states. Use COMP-3 for all monetary fields.

Tier 2: Skill Building (Exercises 7-13)

These exercises require applying insurance and government system patterns to practical scenarios involving table-driven calculations and multi-step processing.

Exercise 7: Table-Driven Age Rating

Write a program that uses a table-driven approach to calculate life insurance premiums by age. Define a rate table with the following monthly rates per $1,000 of coverage:

Calculate the monthly and annual premium for: - Age 30, $250,000 coverage - Age 50, $500,000 coverage - Age 70, $100,000 coverage

Use SEARCH or PERFORM VARYING to look up the rate. Display the rate per $1,000 and the total premium for each case.

Exercise 8: Multi-Factor Auto Premium Rating

Write a program that calculates auto insurance premiums using five rating factors, each looked up from a table:

Factor 1 - Territory (by ZIP code prefix): | ZIP Prefix | Factor | |-----------|--------| | 600-606 | 1.30 | | 607-609 | 1.15 | | 610-619 | 0.95 | | 620-629 | 0.85 |

Factor 2 - Vehicle Age: | Age | Factor | |--------|--------| | 0-2 | 1.20 | | 3-5 | 1.00 | | 6-10 | 0.85 | | 11+ | 0.75 |

Factor 3 - Driver Age: | Age | Factor | |--------|--------| | 16-19 | 2.10 | | 20-25 | 1.45 | | 26-65 | 1.00 | | 66+ | 1.15 |

Factor 4 - Accidents (last 3 years): | Count | Factor | |-------|--------| | 0 | 1.00 | | 1 | 1.25 | | 2 | 1.55 | | 3+ | 2.00 |

Factor 5 - Coverage Level: | Level | Factor | |------------|--------| | Liability | 0.60 | | Standard | 1.00 | | Full | 1.35 | | Premium | 1.65 |

Base premium: $1,200.00

Final premium = Base * Factor1 * Factor2 * Factor3 * Factor4 * Factor5

Test with: ZIP 60601, vehicle age 4 years, driver age 35, 0 accidents, Full coverage. Display each factor and the computed premium.

Exercise 9: Workers Compensation Premium

Write a program that calculates workers compensation insurance premium for a business with three employee classes:

For each class: 1. Manual premium = (Payroll / 100) * Rate 2. Apply experience modification factor of 0.92 (lower than 1.0 means better-than-average loss history)

Then calculate: 3. Modified premium for each class 4. Total modified premium 5. Premium discount (5% for premiums over $10,000) 6. Expense constant: $250.00 7. Final premium = modified total - discount + expense constant

Exercise 10: Social Security Tax Calculation

Write a program that calculates Social Security (OASDI) and Medicare taxes for a bi-weekly payroll with three employees:

Rules: - Social Security: 6.2% on earnings up to $168,600 (2024 wage base) - Medicare: 1.45% on all earnings - Additional Medicare: 0.9% on earnings over $200,000

For each employee: 1. Determine remaining SS taxable wages (wage base - YTD) 2. Calculate SS tax (may be partial if approaching the cap) 3. Calculate Medicare tax 4. Calculate additional Medicare tax if applicable 5. Display each component and total FICA tax

Exercise 11: Health Insurance Claims Adjudication

Write a program that adjudicates (processes) a health insurance claim with three line items:

Plan parameters: - Annual deductible: $1,000.00 - YTD deductible met: $850.00 - Copay: $30.00 (applies to office visit only) - Coinsurance: 80/20 (plan pays 80%, patient pays 20%) - Out-of-pocket maximum: $5,000.00 - YTD out-of-pocket: $1,200.00

For each line item, calculate: 1. Write-off (billed - allowed) 2. Deductible applied 3. Copay applied 4. Coinsurance (plan and patient portions) 5. Plan payment 6. Patient responsibility

Display a detailed Explanation of Benefits (EOB) report.

Exercise 12: Government Tax Withholding

Write a program that calculates federal income tax withholding for a monthly payroll using the percentage method. Annualize the monthly gross pay, apply the following simplified tax brackets, then de-annualize to get the monthly withholding:

Monthly gross pay: $7,500.00 Pre-tax deductions (401k + health): $1,200.00 Filing status: Single, 1 allowance (reduce annual taxable by $4,300 per allowance)

Calculate: 1. Monthly taxable pay (gross - pre-tax deductions) 2. Annualized taxable income (monthly * 12) 3. Adjusted for allowances 4. Annual tax using brackets 5. Monthly withholding (annual tax / 12)

Exercise 13: Property Insurance Replacement Cost

Write a program that calculates property insurance replacement cost and premium for a commercial building:

• Building value: $2,500,000
• Contents value: $750,000
• Business income coverage: 12 months estimated income of $1,200,000
• Territory factor: 1.15
• Construction type factor (fire-resistive): 0.80
• Protection class factor (class 3): 0.90

Rates: - Building rate: $0.45 per $100 of value - Contents rate: $0.55 per $100 of value - Business income rate: $0.35 per $100 of coverage

Calculate: 1. Building premium = (value / 100) * rate * territory * construction * protection 2. Contents premium (same formula structure) 3. Business income premium (same formula structure) 4. Total premium before discounts 5. Multi-policy discount: 10% 6. Final premium

Tier 3: Analysis and Problem Solving (Exercises 14-19)

These exercises require analyzing complex insurance scenarios, handling edge cases, and working with government benefit formulas.

Exercise 14: Experience Rating Calculation

Write a program that calculates an employer's workers compensation experience modification rate (EMR). This is a simplified version of the NCCI formula:

Given: - Expected losses (from industry tables): $85,000 - Actual losses (3-year average): $62,000 - Ballast factor: 1.15 - Weighting factor: 0.30

Formula: EMR = [(Actual Losses * Weighting) + (Expected Losses * (1 - Weighting)) + (Ballast * Expected Losses)] / [(Expected Losses) + (Ballast * Expected Losses)]

An EMR below 1.00 means better-than-average loss experience (lower premiums). An EMR above 1.00 means worse-than-average (higher premiums).

Calculate the EMR and determine the premium impact on a manual premium of $120,000. Display the EMR, the modified premium, and the savings (or surcharge) compared to unity (EMR = 1.00).

Exercise 15: Medicare Part B Premium Calculation

Write a program that calculates Medicare Part B premiums based on income using 2024 Income-Related Monthly Adjustment Amount (IRMAA) brackets:

Test with incomes of $85,000, $115,000, $175,000, and $550,000. For each, display the monthly premium, the annual premium, and the IRMAA surcharge above the base premium ($174.70).

Exercise 16: Loss Ratio Analysis

Write a program that calculates the loss ratio for an insurance company across five lines of business:

For each line, calculate: 1. Loss ratio = Incurred Claims / Earned Premium * 100 2. Expense ratio = Expenses / Earned Premium * 100 3. Combined ratio = Loss Ratio + Expense Ratio 4. Underwriting result = Earned Premium - Incurred Claims - Expenses

A combined ratio over 100% means the line is unprofitable. Display a formatted analysis identifying which lines are profitable and which are not.

Exercise 17: Unemployment Insurance Tax

Write a program that calculates state unemployment insurance (SUI) tax for a small business with five employees. Each state has a taxable wage base and an employer rate based on experience:

• State: Illinois
• Taxable wage base: $13,590 per employee
• Employer rate: 3.175% (based on experience rating)
• New employer rate: 3.950%

Calculate: 1. Remaining taxable wages for each employee (wage base - YTD, minimum 0) 2. SUI tax due per employee 3. Total SUI tax liability 4. Compare the experienced rate versus new employer rate to show the savings from a good experience rating

Exercise 18: Auto Insurance Claim Settlement

Write a program that calculates an auto insurance claim settlement with multiple coverages:

Accident scenario: - Insured's vehicle damage: $12,500 - Other party's vehicle damage: $8,200 - Insured's medical bills: $35,000 - Other party's medical bills: $22,000 - Insured at fault: Yes (60% comparative negligence)

Policy coverages: - Bodily injury: $100,000/$300,000 - Property damage: $50,000 - Collision: $500 deductible - Medical payments: $10,000 (no-fault, per person) - Uninsured/underinsured: $100,000/$300,000

Calculate: 1. Collision payment (insured's vehicle damage minus deductible) 2. Medical payments coverage (up to limit, regardless of fault) 3. Liability exposure for other party's damages (applied based on fault percentage) 4. Property damage liability payment 5. Bodily injury liability payment 6. Total claim payment across all coverages 7. Subrogation potential (amount recoverable from other party based on their 40% fault)

Exercise 19: SNAP Benefit Calculation

Write a program that calculates Supplemental Nutrition Assistance Program (SNAP) benefits using a simplified version of the federal formula:

1. Gross income test: Monthly income must be at or below 130% of the Federal Poverty Level
2. Net income calculation: - Start with gross monthly income - Subtract standard deduction ($198 for household of 1-3, $208 for 4+) - Subtract 20% earned income deduction - Subtract excess shelter deduction (shelter costs exceeding 50% of net income after other deductions, capped at $624 for non-elderly/disabled)
3. Benefit calculation: Maximum allotment minus 30% of net income

Maximum monthly allotments (2024): | Household Size | Max Allotment | |---------------|--------------| | 1 | $291 | | 2 | $535 | | 3 | $766 | | 4 | $973 |

Test with: household of 3, gross monthly income $2,100, earned income $1,800, monthly shelter costs $950.

Tier 4: Design and Implementation (Exercises 20-25)

These exercises require you to design complete insurance or government system components.

Exercise 20: Policy Rating Engine

Design and implement a complete homeowner's insurance rating engine that calculates the annual premium based on the following factors:

Base rate by dwelling amount: - $0 - $200,000: $4.50 per $1,000 - $200,001 - $400,000: $3.80 per $1,000 - $400,001 - $750,000: $3.20 per $1,000 - Over $750,000: $2.75 per $1,000

Rating factors (all multiplicative): - Construction type: Frame (1.00), Masonry (0.85), Fire-resistive (0.70) - Protection class (fire dept proximity): 1-3 (0.90), 4-6 (1.00), 7-8 (1.25), 9-10 (1.60) - Age of dwelling: 0-5 years (0.90), 6-15 (1.00), 16-30 (1.10), 31+ (1.25) - Claims history: 0 claims (0.95), 1 claim (1.00), 2 claims (1.15), 3+ claims (1.40) - Deductible credit: $500 (1.00), $1,000 (0.92), $2,500 (0.82), $5,000 (0.72)

Store all rating factors in COBOL tables. Process three test policies with different characteristics. Display a detailed rating worksheet for each showing the base premium, each factor, and the final premium.

Exercise 21: Batch Claims Processing System

Write a batch COBOL program that reads a sequential file of health insurance claims and processes each claim. The input file contains:

Claim Number     (12)
Member ID        (10)
Provider ID      (10)
Service Date     (8)
CPT Code         (5)
Billed Amount    (7V99)

Processing rules: 1. Look up the allowed amount from a fee schedule table (define at least 10 CPT codes with allowed amounts) 2. Check if the provider is in-network (define a small provider table) 3. Out-of-network providers: pay 60% of allowed amount 4. In-network providers: pay 80% of allowed amount after deductible 5. Track member deductible (start at $1,000, reduce as claims apply) 6. Write paid claims to an output file 7. Write denied claims (invalid CPT codes) to an error file 8. Produce a summary report showing total billed, allowed, paid, and denied counts

Exercise 22: Social Security COLA Adjustment

Write a program that calculates the effect of Cost-of-Living Adjustments (COLA) on Social Security benefits over 20 years. Start with a monthly benefit of $1,800.00 and apply the following historical/projected COLA percentages:

For each year, calculate: 1. COLA increase amount 2. New monthly benefit (round to nearest dollar per SSA rules) 3. Annual benefit (monthly * 12) 4. Cumulative increase from original benefit

Display a 20-year projection table. Calculate the total benefits received over 20 years and the total that would have been received without any COLA.

Exercise 23: Insurance Reserve Calculation

Write a program that calculates loss reserves for an insurance company using three methods:

Claims data (5 recent claims): | Claim | Incurred Date | Paid to Date | Estimated Total | |-------|--------------|-------------|----------------| | C001 | 2024-01-15 | $15,000 | $45,000 | | C002 | 2024-03-20 | $8,500 | $22,000 | | C003 | 2024-06-01 | $3,200 | $18,500 | | C004 | 2024-08-10 | $0 | $35,000 | | C005 | 2024-09-30 | $0 | $12,000 |

Calculate reserves using: 1. Case reserves: Estimated total - paid to date (per claim) 2. Bulk reserves: 15% additional over total case reserves for IBNR (Incurred But Not Reported) 3. Loss development: Apply a development factor of 1.25 to claims less than 6 months old

Display each method's reserve, the total required reserve, and compare the three approaches.

Exercise 24: Government Payroll Tax Return (Form 941)

Write a program that generates a simplified quarterly federal tax return (Form 941) for a business with 8 employees. Process three months of payroll data:

For each month, provide: - Total wages paid - Federal income tax withheld - Employee Social Security tax - Employee Medicare tax

Calculate: 1. Total wages for the quarter 2. Total federal income tax withheld 3. Total Social Security wages (subject to wage base limit) 4. Total Social Security tax (employee + employer = 12.4%) 5. Total Medicare wages 6. Total Medicare tax (employee + employer = 2.9%) 7. Total tax liability for the quarter 8. Monthly deposit schedule compliance check

Display the completed form in a formatted report.

Exercise 25: Insurance Policy Renewal Processing

Write a batch program that processes policy renewals for an auto insurance book of business. Read a sequential file of policies due for renewal and apply the following:

1. Rate increase: 4.5% base rate increase for all policies
2. Claim surcharge: 15% surcharge per at-fault claim in the past 3 years (maximum 2 surcharges)
3. Good driver discount: 10% discount for 0 claims and 0 violations in 5 years
4. Multi-policy discount: 8% if the customer also has a homeowner's policy (indicated by a flag)
5. Loyalty discount: 3% per year of continuous coverage, up to 15%

Apply discounts and surcharges to the base premium (surcharges first, then discounts). If the renewal premium exceeds 125% of the expiring premium, cap it at 125%.

Process at least 5 policies and generate a renewal register showing the expiring premium, each adjustment, and the new premium.

Tier 5: Advanced Challenges (Exercises 26-30)

These exercises present complex, real-world scenarios requiring multiple interacting systems and sophisticated business logic.

Exercise 26: Complete Auto Insurance Rating and Quoting System

Design and implement a comprehensive auto insurance quoting system that handles:

1. Multiple vehicles (up to 4) on one policy
2. Multiple drivers (up to 4) assigned to vehicles
3. Driver-to-vehicle assignment (youngest driver to most expensive vehicle for rating)
4. All five rating factors from Exercise 8, applied per vehicle
5. Multi-vehicle discount (10% per additional vehicle)
6. Package discounts for bundling with home insurance
7. Payment plan options: annual (0% surcharge), semi-annual (3%), quarterly (5%), monthly (8%)

Generate a complete quote showing: - Per-vehicle premium breakdown - Per-coverage premium breakdown (liability, collision, comprehensive) - All discounts and surcharges - Payment options with installment amounts - Six-month and annual premium totals

Exercise 27: Disability Insurance Benefit Calculation

Write a program that calculates short-term and long-term disability insurance benefits:

Employee information: - Monthly salary: $8,500.00 - Short-term disability benefit: 60% of salary for first 90 days, 40% for days 91-180 - Long-term disability benefit: 60% of salary, reduced by Social Security disability benefit ($2,200/month) - Maximum monthly benefit: $6,000 - Elimination period: 14 days (no benefit for first 14 days)

Calculate benefits for a disability lasting 365 days: 1. Days 1-14: No benefit (elimination period) 2. Days 15-90: Short-term at 60% 3. Days 91-180: Short-term at 40% 4. Days 181-365: Long-term at 60% minus SS offset

For each phase, calculate the daily benefit, phase total, and cumulative total. Account for the monthly benefit maximum. Display a complete benefit schedule.

Exercise 28: Medicare Claims Processing with DRG

Write a program that processes Medicare inpatient hospital claims using the DRG (Diagnosis Related Group) payment system:

DRG payment formula: Payment = Base Rate * DRG Weight * Wage Index * (1 + DSH Adjustment + IME Adjustment)

Given: - National base rate: $6,300.00 - Hospital wage index: 1.0845 (urban hospital) - DSH (Disproportionate Share) adjustment: 0.0425 - IME (Indirect Medical Education) adjustment: 0.0587

Process three claims with different DRGs: | DRG | Description | Weight | LOS | Trim Point | |-----|--------------------------|--------|-----|------------| | 470 | Hip replacement | 1.9845 | 3 | 5 | | 291 | Heart failure | 0.9876 | 4 | 7 | | 871 | Sepsis with MV 96+ hours | 4.2531 | 12 | 18 |

For each claim: 1. Calculate the base DRG payment 2. Apply outlier payment if Length of Stay (LOS) exceeds the trim point (additional $1,500 per extra day) 3. Calculate the total payment 4. Display a Medicare remittance advice

Exercise 29: State Insurance Regulatory Filing

Write a program that generates data for an Annual Statement filing (simplified). Process the following for an insurance company:

Premium and loss data by state and line:

Calculate for each state and line: 1. Loss ratio 2. LAE (Loss Adjustment Expense) at 12% of losses 3. Combined loss and LAE ratio 4. Earned premium growth (compare to prior year: IL +5%, IN +3%, WI +7%) 5. Reserve adequacy check (reserves must be at least 110% of estimated unpaid claims)

Generate a formatted regulatory summary report suitable for filing.

Exercise 30: Pension Benefit Calculation

Write a complete pension benefit calculation program for a defined benefit pension plan:

Employee data: - Date of birth: 1962-04-15 - Date of hire: 1990-06-01 - Final average salary (highest 5 consecutive years): $95,000 - Years of service: 34

Benefit formula: - 1.5% of final average salary per year of service - Normal retirement age: 65 - Early retirement age: 55 with 10 years of service

Calculate: 1. Normal retirement benefit (monthly and annual) 2. Early retirement benefit with actuarial reduction (6% per year before age 65, up to 10 years) 3. Joint and survivor benefit options: - 100% J&S: 85% of single life benefit - 75% J&S: 90% of single life benefit - 50% J&S: 95% of single life benefit 4. Lump sum equivalent using a 5.5% discount rate and mortality factor of 18.5 years

Display all benefit options in a retirement election form format.

How to Submit

For each exercise: 1. Write complete, compilable COBOL programs 2. Include appropriate comments explaining insurance/government business rules 3. Use proper fixed-format column alignment 4. Use COMP-3 for all monetary and rate fields 5. Include ROUNDED and ON SIZE ERROR on all financial COMPUTE statements 6. Use table-driven designs wherever rating factors or bracket schedules are involved 7. Test your programs with the specified test data 8. Verify results manually for at least one test case

Solutions to selected exercises are provided in code/exercise-solutions.cob.