Understanding the value of a first principles modeling approach to LTC insurance

In the past five years, many long-term care (LTC) insurance carriers have moved from a claim cost model approach to a first principles model approach to create business projections and perform cash flow testing.

A first principles approach allows a company to study policyholder behavior in more detail and understand policy migration over time. It breaks down assumptions for policy behavior (e.g., incidence rates, claim termination rates, and utilization) to their components and models them. In contrast, a claim cost model composites these three assumptions before entering them into the model. Although actuaries still develop assumptions in aggregate, this approach allows companies to understand individual policy performance better.

In this paper, Milliman’s Nicole Gaspar, Alyssa Lu, and Juliet Spector discuss modeling and the information that companies can glean from a first principles approach.

Marketplace developments for stop-loss insurance coverage

Stop-loss coverage is purchased by self-insured employers looking for coverage from catastrophic medical and pharmacy claims. Based on the most recent data available from S&P Global Intelligence, the stop-loss market stands at approximately $24 billion in premium.

In March, Milliman sent survey participation requests to a wide range of employer stop-loss market participants. Of those receiving a request, 25 provided survey responses. This survey is an update to Milliman’s prior employee stop-loss market survey, which was published in May 2019.

In this paper, Milliman’s Rob Bachler, Nick Johnson, Brian Reed, and Mike Hamachek summarize the findings from the most recent stop-loss survey.

What are the economic costs of the opioid crisis for employers?

In a Society of Actuaries report, authored by Milliman, the total economic cost of the opioid crisis was estimated to exceed $631 billion from 2015 to 2018. Much of this cost was borne by employers, many of which offer health and disability benefits that individuals with opioid use disorder (OUD) rely on.

Within this estimate, lost productivity costs due to absenteeism and decreases in labor force participation resulting from nonmedical opioid use were found to total at least $79 billion from 2015 to 2018. Excess healthcare costs for commercially insured patients affected by OUD, a large portion of which are borne by employers, totaled $67 billion over the same period. When considering other types of opioid crisis-related costs that are more difficult to measure, the total cost may be substantially higher.

In this article, Milliman’s Stoddard Davenport, Matt Caverly, and Katie Matthews discuss what the economic cost of the opioid crisis has looked like for employers.

Requirements for Qualifying Advanced APM Participant status increases

Accountable care organizations (ACOs) participating in Advanced Alternative Payment Models (Advanced APMs) are eligible to qualify for a payment bonus equal to 5% of Medicare Part B revenue and avoid Merit-based Incentive Payment System payment adjustments and reporting requirements.

For ACOs to receive the 5% bonus, they must achieve Qualifying Advanced APM Participant status (QP status) by meeting the eligibility criteria outlined by the Centers for Medicare and Medicaid Services. In 2021, the requirements for an ACO to achieve QP status will increase significantly over 2020 requirements, making it substantially harder for many ACOs to qualify.

In this paper, Milliman’s David Byron and Chris Smith explore 2021 QP status criteria and actions ACOs can take to ensure they continue to qualify for the 5% bonus, even during a pandemic.

How are India’s healthcare insurers managing medical inflation?

Medical inflation is a key driver of health insurance costs and premium increases. Health insurance companies are continuously looking for ways to better manage medical inflation to keep premiums competitive for customers and to mitigate lapses.

Despite adopting many initiatives on claims management, fraud management, provider networking and case management, most insurers are still struggling with medical inflation. With new players entering the market that have competitive pricing and product offerings, this becomes more important.

In this paper, Milliman’s Rachin Aggarwal and Joanne Buckle discuss common definitions of medical inflation, factors driving medical inflation in the short and long term and current medical inflation trends in India. They also cover the Insurance Regulatory and Development Authority of India (IRDAI) regulations on rate filing and restrictions on premium rate increases in the context of how companies are currently adjusting their premium rates for medical inflation. In addition, they provide insight into current practices and levels of premium increases in Indian and international health insurance markets and the way forward.

Obtaining and employing data for insurance innovation

Insurers that innovate typically have a significant advantage over those whose products blend into the background. Data is a key component when attempting to identify opportunities and quantify the impact of innovative ideas. Whether pricing new benefits or trying to understand the effectiveness of new services and tools, data is necessary to assess value.

In her article “Harnessing the power of data,” Milliman consultant Ashlee Borcan discusses where insurers can get public and private sources of data. She also provides perspective on what happens if that data is imperfect or not what carriers are looking for.

The article is part of Milliman’s Innovate to Win series.