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

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

3. 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:
_________________________________________________________________

4. Health Care Update

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

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

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

8. 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%

9. Medical Stop Loss Marketplace

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

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

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

13. 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An underwriter at an MGU has said “Fear has been replaced by greed.”

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

15. Consumer Directed Health Plans

16. 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

17. + 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

18. 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

19. 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

20. Predictive Modeling

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

22. 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

23. Predictive Modeling Bracket Study 99% mbrs, 69% care

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

25. Disease Management

26. 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

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

28. Severe Acute Respiratory Syndrome (SARS)

29. 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

30. Society of Actuaries Large Claim Study

31. Society of Actuaries Large Claim Study

32. 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

33. Questions ?

34. Thank You