Challenges and Opportunities in Health Care

Ksenia Whittal

Ksenia Whittal, FSA, MAAAThe theme of this issue of The Actuary is health care. We all interact with the health care system in some way, even if some of us practice in other actuarial disciplines. Health care is also a deeply personal issue, which can make it a controversial topic in any discussion. Nearly everyone seems to have an opinion on what is missing, what could be better or what’s working well, based on his or her understanding of and own interactions with the system. While opinions vary, our goal with The Actuary, as always, is to focus on the facts. As one of my favorite sayings goes, “Facts do not require an opinion.”

So, what are the facts? If we consider the United States (please forgive my bias as an actuary practicing in the United States), health care spending is a significant portion of the gross domestic product (GDP). It has been growing faster than inflation in the last several decades, and now comprises 17 percent of the total GDP.

Furthermore, health care is an industry with a unique set of challenges. First and foremost, the goods and services the health care industry offers are not things consumers seek out of a want or a desire, but rather out of need. Hence, most consumers are not thrilled to need or use health care services. My husband works in hospital administration, and he has commented that pretty much the only department in which you find “happy” customers is the maternity unit. Otherwise, the last place any of us wants to be is in a hospital or doctor’s office. Which leads to the next anomalous fact about this industry: The demand for acute health care services is largely inelastic.

Further, unlike most of the goods and services we purchase, most health care consumers are not able to make independent, well-informed choices regarding what type of care and services would benefit them the most. We rely on health care professionals to advise us and then deliver the needed care for which they get paid. And, finally, health care consumers are generally not health care payers (the government or insurance companies are); hence, the consumers in this situation are insulated from the true cost of the care they receive. This is all very different from purchasing an airplane ticket, for example, where the consumer is the decision maker, payer and consumer of the service.

You can imagine the tricky position in which most health care providers find themselves in this environment, as they juggle new regulatory demands, new data, more technology and directives to bend the infamous cost curve, all while attempting to improve quality and patient satisfaction. The role of regulators is no more enviable—they must balance budgets, the interests of consumers and the incentives of multiple stakeholders within the industry.

Not surprisingly, a lot is happening in the United States to amend, reform, complicate (unfortunately) and improve the health care industry—from how insurers operate to how providers are compensated. In this issue, Marla Pantano looks at health care and provider reimbursement in the United States through both provider and payer lenses, as the system moves away from the traditional fee-for-service (FFS) reimbursement to mandatory alternative payment models. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) regulation will drive not only a significant change in both the delivery and financing of health care, but also a shift of risk from payers to the provider community.

Some of the emerging health care system changes are coming from within the industry. David Pierce and Ella Young investigate the challenges and opportunities for actuaries using electronic health record (EHR) data in their analytical work. Pierce focuses on issues that are front and center for actuaries practicing in the United States, and Young comments on issues facing Canadian actuaries working with this additional data source. Interesting parallels and differences between the experiences in the two countries are worth noting.

There are two more feature articles in this issue that also compare and contrast different topics. The piece by Tim Jost tackles the premium stabilization programs introduced as part of the Affordable Care Act (ACA), and contrasts these to similar well-established programs used in the Medicare Part D market. The similarities and differences are striking and thought-provoking. The other article by Chris Pallot and Jennifer Gerstorff provides a comparison of the U.K.’s National Health Service, a public health care system, and the publicly funded Medicaid program in the United States. This comparison encourages actuaries to look beyond national borders for solutions and to learn from global experiences.

Finally, in an article by Daniela R. Furtado de Mendonça, the author shares the struggles and challenges actuaries and other stakeholders are facing in the Brazilian health care market.

I hope this October/November 2016 issue of The Actuary will provide you with a diverse sampling of the current issues in the health care industry in various parts of the world. Happy reading!

Ksenia Whittal, FSA, MAAA, is a consulting actuary with Milliman in Denver.