Health Care Complexities

Who knew health care could be so complicated? It is safe to assume the question is more of a rhetorical musing (and clearly there is some underlying sarcasm implied as well). While actuaries aren’t generally known for their sense of humor, they are commended for their analytical skills and industry expertise. And as those of us working in health care can attest, it absolutely is complicated (and keeps us employed)!

Taking a step back, the general public’s understanding of health care—which includes insurance and benefit plans, cost-sharing, networks and more—can be complicated and confusing due to the multifaceted nature of a health care system and the numerous parties involved. Even if you work in the industry, after reviewing a detailed bill from your health care provider, you can likely relate to the feeling that you have more questions about your bill than you did during the visit or procedure itself. Case in point: A friend recently called me and said: “I know this isn’t exactly your job [to explain my insurance benefits], but you’re an actuary, and you work in health care. Do you know why my insurance company keeps denying my claim for this prescription?” (Honestly, I was just relieved someone who knows I’m an actuary was asking me something besides when they are going to die.) As we talked, to the best that we could decipher, she needed a preauthorization. Nothing terribly difficult to obtain (in theory), but crucial for the coverage of the service. And yet it wasn’t something her providers and insurance company were communicating clearly to her—or to each other.

For health care actuaries in particular, we know how complex health care is because it is our job. Managing costs and risk associated with health care is a challenge whether you’re working for payers or providers, in the commercial or government space, or in traditional or nontraditional roles. The past decade has been a continuous stream of changes and transitions regarding how many Americans receive, utilize and gain access to health care. In the past two years alone, the current administration has proposed many alternatives to the Affordable Care Act (ACA)—nine proposals were drafted in 2017 alone.¹ Beyond the United States, health care reform is happening in developed nations all over the world. It wouldn’t be an understatement to say that understanding what drives and influences health care is like shooting at a moving target.

This issue of The Actuary will explore many facets of the health care space in which actuaries are working today. Topics include:

• Medical trends. They are an integral part of actuarial work. National Health Expenditure data has consistently demonstrated significant growth in health expenditures as a percentage of gross domestic product (GDP), increasing to more than 18 percent in recent years.² There are many different components both directly and indirectly driving medical trends, and making the most accurate predictions requires the consideration of utilization and cost patterns with regard to market changes.
• Risk adjustment mechanisms. Even the definition of the term within different contexts is evolving. Although the development of the commercial risk adjuster employed in the individual and small-group markets as part of the implementation of the ACA is only one example, we can glean lessons to apply to other areas of the industry.
• Value-based insurance designs (VBIDs). Both in the medical and pharmacy space, VBIDs provide yet another opportunity to share risk and evaluate and tie in the value of care with cost. Outcomes-based risk-sharing agreements (OBRSAs), demonstrate how health care payers and pharmaceutical manufacturers can manage risk together.
• Social determinants of health. Societal impacts on health haven’t always been at the forefront of predicting costs for actuaries, in part because they have not been tangible or easily measured. However, as more research is done in the area and data becomes available, and as more key players in the health care industry are paying attention to social determinants of health, they will become another factor to incorporate into our understanding of both historical experience and projections.
• Reconciling and redefining how we value health (care). In other words, how do we evaluate health care and health outcomes? There’s always a financial aspect; after all, it costs money to deliver care, and it’s important to understand what drives costs and what can be done to manage them. As actuaries, our primary tasks are usually predicting costs and mitigating risks. But there is also the opportunity to consider what “success” looks like beyond isolated financial benchmarks.

Ultimately, what’s going on in health care has downstream effects for actuaries—and for those who work with actuaries—employed in life, disability, retirement and many other disciplines. I hope you enjoy reading this issue of The Actuary that focuses on “all things health care!”

Copyright © 2018 by the Society of Actuaries, Chicago, Illinois.