Seminar on Reinsurance Philadelphia, PA June 3, 2003 Casualty Actuarial Society Seminar on Reinsurance Philadelphia, PA June 3, 2003 A SHPS Company

Specialty Lines: Accident & Health David Olsho FSA, MAAA A SHPS Company

Today’s Agenda Health Care Update Medical Stop Loss Marketplace Consumer Directed Health Plans Predictive Modeling Disease Management SARS Society of Actuaries Large Claim Study Questions Notes: _________________________________________________________________

Health Care Update

National Health Expenditures as a Percentage of GDP National Defense Expenditures** * Projection ** 16 Year Average Source: Bureau of Economic Analysis, Office of the Actuary

Change in Average Total Health Benefit Cost 1987 – (2003 estimated) Source: William M. Mercer Employee Benefit Survey NOTE: 1987-1998 are based on cost for active and retired combined; 1998-2002 is based on active employee cost only.

Most Important Employee Benefit % Employees Listing as Most Important Source: Employee Benefit Research Institute, WorldatWork

Benefit Costs as a Percentage of Base Pay 25th%ile 50th%ile 75th%ile 90th%ile Pension 3.5% 4.5% 5.4% 6.5% Cash Accumulation 2.5% 4.7% 5.7% 9.3% Post-Retiree Medical 0.8% 1.5% 2.2% 2.8 All Retirement Benefits 5.0% 7.8% 10.2% 12.7% Medical 7.3% 8.6% 9.8% 11.0% Dental 0.7% 1.0% 1.1% Life/AD&D 0.3% 0.5% 0.9% STD/LTD 0.6% 1.3% Vacation 5.6% 7.1% 8.3% Holiday/Sick Time 4.8% 5.2% 5.8% TOTAL 25.7% 29.8% 33.6% 36.9%

Medical Stop Loss Marketplace

Stop Loss Industry Results 2002- Profits Exceeded Target Why? Reinsurers got tough. MGUs lost their reinsurance Surviving MGUs had to write to set RTMs

Stop Loss Industry Results 2002- Profits Exceeded Target 2003- Profits at Target 2004- Profits Below Target (Losses?)

Stop Loss Industry Results Why the negative trend? Leveraged trend increase- 27% vs Sold trend increase- 21% RTMs decrease

Stop Loss Industry Results Why the negative trend? Increased start-up activity An underwriter at an MGU has said “Fear has been replaced by greed.”

Stop Loss Industry Providers Currently- 115 (approx) 2002- asked to evaluate 1 start-up 2003 (to date)- asked to evaluate 12 start-ups

Consumer Directed Health Plans

Consumer Directed Health Plans Features: HRA High Deductible PPO Weak Discounts Weak Med Mgt High Administrative Fees Theory – Consumers seeking low cost providers will offset weak discounts and high administration fees Introduces “consumer cost impact” Health Insurance PPO (80% IN, 60% OON) $1,500 deductible Member Responsibility $500 Preventive Care 100% Consumer Directed Personal Care Account (Health Reimb. Account) $1,000

+ Consumer Directed Health Plans Consumer Directed Internet Health Insurance PPO (80% IN, 60% OON) $1,500 deductible Provider Information Pricing Quality Account Information Benefits Balances General Health and Wellness Info Health Risk Assessment Voluntary Medical Management (“Health Coach”) Member Responsibility $500 + Preventive Care 100% Consumer Directed Personal Care Account (Health Reimb. Account) $1,000

Consumer Directed Health Plans Potential Benefits May reduce cost - May reduce unnecessary care - May reduce routine visits later in the year when HRA funds disappear Encourages “consumerism” and the cost-effective use of services by exposing employees to cost impact Encourages provider competition on both price and quality Provides employees with useful information - Health risk assessments - Provider price and quality information - Nurse coaches and health interventions

Consumer Directed Health Plans Potential Drawbacks Entire premise might be flawed – not reduce cost - Not enough history for credible actuarial predictions - Very low enrollment history so far Vendors / programs are not well established Cost might increase - Adverse selection (only healthy people enroll) - Relatively weak discounts from “rented” networks - Employees waiving coverage historically might return to receive HRA funding - People may forego preventive care - Higher administrative fees

Predictive Modeling

Predictive Modeling Predictive Modeling – the use of artificial intelligence or “expert systems” to predict future chronic and catastrophic claimants.

Predictive Modeling Claims Data Clinical Records Literature Review Expert Opinion Identify claimants with high risk of severe medical conditions Of those claimants, identify those for whom an appropriate intervention exists Design/determine interventions to be used

Predictive Modeling Bracket Study 99% mbrs, 69% care

Predictive Modeling Claims PMPM $9.27 $179.76 $361.28 $4,790.63 Source: Aetna Healthcare

Disease Management

Source: Pacific Business Group on Health Disease Management Definition- the planned and systematic approach to caring for a population of patients with anticipatable needs and problems, typically defined by a chronic illness. Source: Pacific Business Group on Health

Disease Management Common disease management conditions Diabetes Asthma Coronary Artery Disease Congestive Heart Failure Depression Pregnancy

Severe Acute Respiratory Syndrome (SARS)

SARS What are the actuarial implications? 90% have mild symptoms 10% have severe symptoms 15 day intensive care length of stay 50% of these will die (5% mortality rate ) Could spread easily through workplace and family

Society of Actuaries Large Claim Study

Society of Actuaries Large Claim Study

Society Of Actuaries Large Claim Study New study covering 1996 to 1998 expected to be released in fall 2003 10 large insurers have contributed Follow-up to study covering 1991 to 1992, released in 1997

Questions ?

Thank You