Similar to hockey players who need to understand where the puck is going in order to be successful, actuaries need to understand where the health care industry is headed in order to develop skills that will be needed in the future. While hard work and exam success are prerequisites, the extent of your success is connected to where you place your effort and how those skills will be valued in the market. A focused effort on the most highly sought-after skills of the future is much more likely to produce success than a blind focus on skills that may have been more highly valued in the past.
This article will focus on several broad themes that affect the health insurance market and how these changes will impact the needed skills and career prospects for those in the actuarial profession.
The Health Insurance Market: Where the Puck Has Been
Historically, most health insurers were stand-alone companies where provider discounts, administrative costs and customer service primarily drove an insurer’s success. With these capabilities, health insurers provided services similar to insurers in other lines of business—they offered financial protection for people and organizations against higher-than-expected medical claims. In most environments, a competitive market drove down rates and helped ensure relatively modest operating margins for most insurers.
In addition, regulators focused on the application of rating rules to help assure the financial solvency of the organization offering insurance products—all in keeping with their mandate to protect consumers and ensure sufficient financial protection in case of insurer failure.
In this environment, actuaries distinguished themselves as the lead risk managers in health insurance. We help our organizations achieve their expected margins through accurate premium rate and trend development, ensure an accurate accounting of our organizations’ financial performance through reserve estimates, and protect the long-term financial sustainability of the insurer.
This has been and will be a major part of our mission as actuaries. We need to be effective risk managers; we need to use our analytic skills to develop accurate premium rates; and we need to base our actuarial opinions on actuarial standards of practice. This professional approach to important financial decisions has helped health insurers, for the most part, remain stable, and provide financial protection for people during the most vulnerable times of their lives.
The Health Insurance Market: Where the Puck is Going
Things are changing, however. Instead of being a stand-alone insurance company, many insurers are becoming increasingly connected to organizations that provide care through all aspects of the delivery system, including hospitals, physicians and pharmacies. Even if there isn’t a direct connection, many insurers are developing risk-based arrangements with provider organizations that are blurring the distinction between insurance companies and providers.
Through these combinations and arrangements, organizations are attempting to address the United States’ affordability challenge by creating integrated organizations focused on reducing medical costs while providing high-quality care. Unlike the existing fee-for-service system, these organizations have a financial incentive to reduce medical costs because of the risk arrangement inherent in an insurance product.
This change should be exciting for actuaries. We can participate in helping to solve one of the most prevalent problems in our country, while also continuing to maintain our primary role as the lead managers of risk in health insurance.
In addition to the combining of insurance payers and providers, we are seeing more regulatory complexity across all lines of business—including Medicare, Medicaid and the Affordable Care Act (ACA) marketplace—with the very real possibility of more change with the further expansion of Medicare to a broader population. The rules are complex and can have wide-ranging impacts on the financial and operational success of an organization.
Over the last several years, we also have seen a significant increase in computing power and the volume of data available to analyze. More and more people are attempting to analyze this data through a variety of methods ranging from sophisticated modeling techniques employed by data scientists to less sophisticated approaches employed by people attempting to justify a decision. This shift has been accelerated by books and articles that highlight the “big data” success stories from big-name companies like Amazon and Google.
How to Skate to Where the Puck Will Be
With the inevitable change to a stronger connection between insurers and provider organizations, we also need to think about how our profession can be more effective in driving results in these new organizations, where regulation has become more complex and the data more accessible.
While the following bullet points offer some thoughts on how to think about this environment, it is by no means an exhaustive list. Regardless, as one thinks about career prospects, it is important to have a viewpoint on where the industry is going to help guide career experiences and skill development.
- A broad knowledge of the health care delivery system will become increasingly important. The continued focus on reducing medical costs and making health insurance more affordable is a critical aspect of the changes occurring in the market. With these changes, actuaries have a unique opportunity to help drive change by using analytic skills to find savings opportunities. In order to lead, we will need to develop our knowledge in all aspects of the health care delivery system—including an in-depth knowledge of the how care is delivered, the contracting process with providers, and techniques that can better manage utilization.
- An ability to drive operational change with analytic findings will become a more important skill. In many of our historical roles, we focused on risk management, premium rate development and reserve estimates. While these are important activities, in many cases this work focused on estimates where operational change was not required. A premium rate, for example, could be developed and then filed with an insurance department without requiring significant operational changes within an organization. With the increasing focus on health care affordability and improved performance from the health care delivery system, we will need to develop analytic insights—but we also will need to ensure we can drive management change internally by connecting observations with tangible actions that improve performance.
- Effective communication regarding all aspects of health care, including the health care delivery system and insurance concepts, will be critical for our profession. With insurance organizations becoming more connected with providers, actuaries will need to improve how they communicate technical topics to these audiences. While this need has long been understood, it will become increasingly important as new people and organizations are introduced to our complex industry.
Beyond clear communication of complex topics, we also need to tell stories that connect the elements of the delivery system with insurance and the final product sold to consumers. Considering the complexity across this entire continuum from the delivery system to insurance, this skill to develop overarching stories that address complex topics (while avoiding needless details) will be important when communicating to a broader audience.
- Risk management will be different as providers and larger organizations take on insurance risk. As providers accept more risk through a variety of arrangements, it will be important for them to fully understand the financial implications of the risk deal and then have the ability and willingness to make operational changes based on the results of the risk taking. The ability to draw this connection between understanding the initial risk arrangement to making operational change will be particularly important for the actuarial profession.
Risk management will also change for larger organizations that have a delivery system division combined with an insurance company. In many cases, the financial results of the insurance company could serve as a hedge against adverse results in the delivery system. For example, a particularly light flu season could benefit the insurance company (and members), but adversely impact the financial results of the delivery system assets. As we consider the risk implications across the entire enterprise, this natural hedging mechanism must be considered.
- A detailed knowledge of complex regulatory rules will differentiate actuaries relative to other professions (data scientists and economists) where analytic skills are primarily emphasized. The trajectory in health insurance is toward more complex regulations, particularly in the lines of business with the greatest growth (Medicare, Medicaid and the ACA marketplace). With this continued complexity, actuaries will be able to differentiate themselves by combining analytic skills with detailed regulatory knowledge critical to addressing important financial decisions. In many cases in health insurance, the ability to use large data sets and complex modeling to answer a financial question is simply inadequate without also having a strong understanding of the regulatory environment.
This knowledge of the regulatory environment will also position actuaries to provide key insights into proposed policy changes. As we have seen with the ACA, our observations can be critical in improving policy.
The future is bright for our profession. We stand at important crossroads for one of the most pressing problems in the United States—high medical costs. While our historic position as risk managers will continue to be important, we also have the opportunity to extend our technical skills to other aspects of heath care. This challenge to develop approaches to reduce medical costs most likely will be met by people with a broad knowledge of the regulatory environment, strong analytic skills, an intuitive knowledge of risk, and the ability to execute and drive operational change. While many in our profession will find success in purely technical fields, the changes in the health care industry will allow others in the actuarial profession to succeed as generalists who can apply analytic skills across a broad cross section of challenges.
Copyright © 2019 by the Society of Actuaries, Schaumburg, Illinois.