Tag Archives: Juliet Spector

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.

Reading list: COVID-19 implication for LTC industry

The coronavirus pandemic is affecting every line of insurance including the long-term care (LTC) marketplace. This reading list highlights Milliman articles and papers focusing on the various issues and implications that LTC carriers and other stakeholders must consider due to the pandemic.

  • Impacts of COVID-19 on in-force long-term care insurance
    By Jeff Anderson and Mike Bergerson

    This paper examines the potential impact of COVID-19 on the LTC insurance industry based on a mortality case study. It focuses on in-force blocks of stand-alone LTC insurance in the United States.
  • Pandemic risk on long-term care insurance reserves
    By Andrew Dalton, Jeremy Hamilton, Al Schmitz, and Juliet Spector

    The coronavirus pandemic will affect underlying LTC insurance cash flows. In this paper, Milliman actuaries provide a useful framework that can help carriers develop appropriate short- and long-term assumptions in order to project future cash flows.

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.