Category Archives: Actuary

What actuarial skills are important to the NHS?

Actuarial skills are immensely relevant in regional National Health Service (NHS) environments and can be used to inform the design of risk-based accountable care system (ACS) contracts. An article in The Actuary by Milliman’s Joanne Buckle and Tanya Hayward highlights their recent experience helping to develop an ACS within a sub-segment of the NHS encompassing a small number of clinical commissioning groups and local councils.

America’s relationship status with healthcare: It’s complicated

Financing and regulating healthcare in the United States is complicated. Fortunately, actuaries understand the intricacies and can provide unique perspectives to address the system’s complex challenges. In the article “Healthcare: It’s complicated,” Milliman’s Hans Leida and Lindsy Kotecki discuss issues related to reform that actuaries have helped navigate.

Here is an excerpt:

Besides predictability problems caused by regulatory or political factors, two challenges facing health actuaries during these transitional years have been (1) the lag between when market changes are implemented and when data on policies subject to the new rules becomes available, and (2) the difficulty in predicting consumer behaviour in reaction to major changes in market rules such as guaranteed issue and community rating. How many of the uninsured would sign up? How price-sensitive would members be when they renewed their coverage each year? How will changes in other sources of coverage (such as Medicaid expansion) impact the individual market? How will potential actions by competitors affect an insurer’s risk?

Despite the daunting nature of these challenges, actuaries have, out of necessity, found ways to try to address them. For example, faced with the data lag problem, they explored ways to augment traditional claim and enrollment data with new data sources such as marketing databases or pharmacy history data available for purchase. Such sources can be used to develop estimates of the health status of new populations not previously covered by an insurer. Many actuaries also developed agent-based stochastic simulation models that attempted to model the behaviour of consumers, insurers and other stakeholders in these new markets. Such models continue to be used to evaluate the potential outcomes of future changes to the healthcare system, and will probably be essential should efforts to repeal and replace the ACA prove successful.

The actuary’s role in payment reform

Spector_JulietWith the goal of more affordable medical spending, there has been continued attention to increasing the value of healthcare through arrangements in which healthcare providers and payers work together through sharing financial risk (i.e., payment reform) to better align incentives to provide quality care at more affordable prices. Although the idea of integrated delivery systems and providers taking on risk is not new, there has been a renewed focus on these value-based arrangements. It is important for stakeholders to understand the elements of these arrangements as well as some of the practical issues and impediments that have determined their past success or failure.

The Society of Actuaries (SOA) engaged Milliman to prepare this issue paper for public educational purposes. It is intended for a multidisciplinary audience, including providers1; health insurers; health actuaries; Medicare, Medicaid, and the Patient Protection and Affordable Care Act (ACA) policymakers; and those pursuing an actuarial career. This paper helps the multidisciplinary audience understand the actuary’s role in payment reform. In addition, the paper can be used by actuaries to think about key issues when pricing their employers’ and clients’ own payment reforms.

To properly implement payment reform, several stakeholders are involved, including policymakers, healthcare attorneys, actuaries, healthcare providers, coding specialists, data analysts, information technology specialists, administrators, etc. (“the payment reform team”). The actuary, an expert on risk, can help the provider understand the various risks the provider is taking when selecting a payment model. The actuary also leads the pricing exercise and helps quantify the risk, calculates the correct price for the selected payment model, and helps project and model the cash flows.

The main body of the paper, at a high level, can be broken down into the following four sections:

1. The risks and various payment models. All payment arrangements have the potential for both adverse risk as well as opportunity, depending on the circumstances. Additionally, no one payment structure is the best in all circumstances.

2. General pricing implications to think about when pricing and modeling all payment models.

3. Ten case studies of various payment models to further illustrate ideas from prior parts of the paper. The case studies illustrate the value that actuaries can add to projects for the stakeholders. They also illustrate what potential payment reform projects could look like.

4. Best practices and key takeaways observed for the various payment models.

Despite the many roadblocks payment reform faces, it appears that increased data sharing, results of decreased total costs of care and better quality, and implementation challenges shared through literature—along with the results of actual Medicare, commercial, and Medicaid programs—are propelling the momentum forward. In this paper, we have outlined the general steps and considerations for designing, implementing, and measuring results of existing payment reform models. As stakeholders become more skilled at managing the practical details of these contracts and enhance their infrastructures to collect and process meaningful quality and savings metrics for their target populations, defining the key features that hinder or help the success of payment reform models will become easier. In doing so, providers and stakeholders will refine and implement more sophisticated payment reform models to better manage costs and quality of medical care.

1The term “providers” is meant to be broad and includes any provider or organization that provides healthcare services, including doctors, hospitals, C-suite, board members, management, etc.

Maximize digital health funding with an actuary

There has been tremendous venture capital investment in the digital health market in the last few years. However, investors are concerned about the uncertainty surrounding return on investment (ROI) in these digital health start-ups. Actuarial expertise can help venture capitalists gauge the risk or benefit of a potential investment. Milliman’s Darin Muse, Jose Carlo, and Jason Cai provide more perspective in their article “‘A’ is for actuary.”

Here is an excerpt:

Actuaries play a number of key roles within this coalition. Our expertise in healthcare data analytics is currently being leveraged by digital health start-ups in developing business plans, products, and data analytics. Through our experience navigating the regulatory maelstroms of Medicare, Medicaid, and the Patient Protection and Affordable Care Act (ACA), actuaries have also become accustomed to reviewing and interpreting regulations as the landscape rapidly changes. Our familiarity working with state and federal regulatory agencies has matured from necessity, and we use this knowledge to help guide new companies in this space.

However, in order to maximize the funding dollars that are pouring into this industry, actuaries also need to be sitting on the other side of the (funding) table. Lisa Suennen, managing partner at Venture Valkyrie LLC, estimates that nearly 60% of companies that receive funding eventually go bust, yielding zero return on investment. She is certainly not referring just to digital health start-ups, but let us assume for the sake of argument that the $4.2 billion in 2014 digital health funding was funded uniformly across all companies. It does not take an actuary to determine that this results in roughly $2.5 billion that will soon cease its contribution to innovation due to start-up failure. It does, however, take an actuary to help determine how to shrink that number in the years to come.

Enter comparative analysis through the standardization of measurement and evaluation. The actuarial discipline has invested considerable resources in developing best practices to objectively evaluate healthcare intervention programs using vetted, standard measures. So how important are these studies to maximizing digital health funding? Assume you are the managing partner at a VC firm, and you have two digital health start-ups that have caught your eye for a potential seven-figure investment. Each of them has made it through a fair amount of due diligence already, and now you are comparing their purported returns on investments (ROIs). How do you know that the 5:1 ROI is truly better than the 3:1 ROI if the method of measurement is not the same—if it is not standardized in some way? The answer is that you don’t unless you have the time and expertise to dig into both numbers and the assumptions backing them.