Accountable Care Organization Pricing Model Josh Miller, FSA Head of Actuarial – Americas, Aetna International Gao Niu, Ph.D., ACAS, MAAA Assistant Director, Goldenson Center for Actuarial Research

Table of Content What is Accountable Care Organization (ACO)? One Funding Approach – Fixed Payment Why Accountable Care Organization? Pricing Example Experience Data and Practical Perspective Pricing Model A/E Analysis What’s Next?

1. What is Accountable Care Organization? Health Care Provider led coordination around their local population designed to: Improve the quality of care provided Reduce the overall cost burden of care provided Improve patient/community satisfaction A major component necessary for Accountable Care Organizations to execute these goals is the financial mechanism used to incentivize behavior changes.

2. One Funding Approach–Fixed Payments Patients Insurance Patients Insurance 1 1 Pay Premium Pay Premium Bill Insurance Company for Excess Loss 3 Bill Insurance Company 2 4 Provide Health Care Services Provide Health Care Services 2 Get Paid by fixed amount for each assigned patient 3 4 Get Paid Get Paid for Excess Loss 5 Health Care Provider Health Care Provider Accountable Care Organization

3. Why Accountable Care Organization? Doctors Perspective: Less Incentive for Over Treatment No financial pressure to become a businessman Protected by large losses or complicated surgeries Policyholder/Customer Perspective Ultimate Premium Reduction Avoid Unnecessary Treatment Insurance Perspective: Significant Risk Transfer Loss Control

4. Pricing Example

5. Experience Data and Practical Perspective 2013, 2014 and 2015 claim data and exposure data 7.2 millions records in the 2013 claim data alone

5. Experience Data – Medical Cost Category

5. Experience Data - Specialty

6. Pricing Model - Clustering   Specialty Grouping Specialty1 Cardiothoracic Surgery Specialty2 Neurosurgery Specialty3 Vascular Surgery Specialty4 Cardiology, Pulmonary/Critical Care Specialty5 Cardiology Surgery Specialty6 Other Specialty7 Obstetrics/Gynecology Specialty8 Surgery, Plastic Surgery, Nephrology, Infectious Disease Specialty9 Orthopedics, Neurology, Urology, Otolaryngology, Gastroenterology Specialty10 Dermatology, Endocrinology Specialty11 Rheumatology, Ophthalmology, Allergy/Immunology

7. Pricing Model – A/E

8. What’s Next Data Mining on both medical and pharmaceutical claims data Claims Tracking and Monitoring Morbidity based Mortality for Life Insurance