Understanding Health Care Finances

R. Dale Hall

Health care in the United States has become a hot topic in recent months as various plans to modify the existing law have been proposed and debated. If you’ve been following the news, you’ve seen an ongoing volume of stories about the Affordable Care Act (ACA) usage, costs and funding, plus the possible replacements to the ACA. As both a member and staff of the Society of Actuaries (SOA), I want to highlight some of the recent SOA health care research resources we’ve been producing to shed more light on this important topic.

Leading up to the current discussions, the SOA released, in October 2016, a research paper on the accuracy of claims-based risk scoring models. Since the passage and implementation of the ACA, risk scoring models have taken on an important role with health care financing. This research examines the predictive abilities of more than 40 risk scoring models, looking at how closely the models are able to estimate actual health care expenditures for individuals and groups of individuals.

Good Research Reads

Predictive Models on Conversion Studies

The SOA Reinsurance Section, Product Development Section and the Committee on Life Insurance Research sponsored a report on the third phase of results of a multiphase study on term conversions. This report explores conversion rates and post-conversion experience using predictive analytics.

Hidden Markov Model for Portfolio Management with Mortgage-Backed Securities

Sponsored by the SOA Committee on Finance Research, this new research report provides a primer on the mechanics and uses of the Hidden Markov Model (HMM) for actuarial and financial applications. The report also includes development of a new application for the HMM to mortgage-backed securities exchange-traded funds.

Medicaid Managed Care Organizations

A new research report from the SOA Health Section Research Committee describes the components of margin for calculating capitation rates in a Medicaid context, along with a description of practical issues that may be encountered by managed care organizations (MCOs). The report includes observations from interviews with MCO executives as well as financial results analysis of MCOs nationwide.

Earlier this year, the SOA and its Health Section Research Committee released a research report on Medicaid managed care organizations (MCOs). The report focuses on the calculations of margin in rate setting and the practical issues involving MCOs. The report findings highlight the future role of MCOs and how Medicaid programs may evolve. This includes considering how the margin will support changes in cost, capital, taxes and more. While the report focuses on MCOs, many of the same ideas on the considerations of margins arise when looking at individual, small group and large group health markets.

Another report provided a comparative case study on risk adjustments for Texas Medicaid. This study focuses on the need for regular updates of pharmacy-based risk factor mappings using the National Drug Code. Health risk adjustment models are an important component of premium revenue for many types of health plans.

Additional health research includes updates to the Thomas E. Getzen model. Developed in conjunction with the SOA Pension Section and Health Section Research teams, its serves as a resource model for the projection of long-term health care cost trends.

At the 2017 SOA Health Meeting in Hollywood, Florida, we feature several concurrent sessions with actuarial research. For example, we have sessions on the long-term disability experience study, and a session on practical health research projects sponsored by the SOA Health Section’s Research Committee, plus a multidisciplinary panel of experts discussing the impact of antibiotic-resistant bacteria on the health care industry. We’ve also included a session on long-term care (LTC) insurance consumer attitudes and financing, based on sponsored research from the SOA’s Research Expanding Boundaries (REX) Funding Pool.

Stay tuned for more updates, and don’t forget to visit SOA.org for more updates on SOA research.

R. Dale Hall, FSA, CERA, MAAA, is managing director of Research at the Society of Actuaries.