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

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

3. 1 3 3 Today’s Agenda 1.Health Care Update 2.Medical Stop Loss Marketplace 3.Consumer Directed Health Plans 4.Predictive Modeling 5.Disease Management 6.SARS 7.Society of Actuaries Large Claim Study 8.Questions

4. A SHPS Company 1 4 4 Health Care Update

5. A SHPS Company 1 5 5 National Health Expenditures as a Percentage of GDP * Projection ** 16 Year Average Source: Bureau of Economic Analysis, Office of the Actuary National Health Expenditures National Defense Expenditures**

6. A SHPS Company 1 6 6 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.

7. A SHPS Company 1 7 7 Most Important Employee Benefit Source: Employee Benefit Research Institute, WorldatWork % Employees Listing as Most Important

8. A SHPS Company 1 8 8 25 th %ile50 th %ile75 th %ile90 th %ile Pension3.5%4.5%5.4%6.5% Cash Accumulation2.5%4.7%5.7%9.3% Post-Retiree Medical0.8%1.5%2.2%2.8 All Retirement Benefits5.0%7.8%10.2%12.7% Medical7.3%8.6%9.8%11.0% Dental0.7%0.8%1.0%1.1% Life/AD&D0.3%0.5%0.7%0.9% STD/LTD0.6%0.9%1.1%1.3% Vacation5.6%6.5%7.1%8.3% Holiday/Sick Time4.8% 5.2%5.8% TOTAL25.7%29.8%33.6%36.9% Benefit Costs as a Percentage of Base Pay

9. A SHPS Company 1 9 9 Medical Stop Loss Marketplace

10. A SHPS Company 1 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. A SHPS Company 1 11 Stop Loss Industry Results  2002- Profits Exceeded Target  2003- Profits at Target  2004- Profits Below Target (Losses?)

12. A SHPS Company 1 12 Stop Loss Industry Results Why the negative trend?  Leveraged trend increase- 27% vs Sold trend increase- 21%  RTMs decrease

13. A SHPS Company 1 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  Increased start-up activity  An underwriter at an MGU has said “Fear has been replaced by greed.”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. A SHPS Company 1 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. A SHPS Company 1 15 Consumer Directed Health Plans

16. A SHPS Company 1 16 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” Preventive Care 100% Personal Care Account (Health Reimb. Account) $1,000 Health Insurance PPO (80% IN, 60% OON) $1,500 deductible Member Responsibility $500 Consumer Directed Consumer Directed Health Plans

17. A SHPS Company 1 17 Preventive Care 100% Personal Care Account (Health Reimb. Account) $1,000 Health Insurance PPO (80% IN, 60% OON) $1,500 deductible Member Responsibility $500 Consumer Directed Internet Provider Information Pricing Quality Account Information Benefits Balances General Health and Wellness Info Health Risk Assessment Voluntary Medical Management (“Health Coach”) + Consumer Directed Health Plans

18. A SHPS Company 1 18 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

19. A SHPS Company 1 19 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 Consumer Directed Health Plans

20. A SHPS Company 1 20 Predictive Modeling

21. A SHPS Company 1 21 Predictive Modeling Predictive Modeling – the use of artificial intelligence or “expert systems” to predict future chronic and catastrophic claimants.

22. A SHPS Company 1 22 Claims Data Clinical Records Expert Opinion Literature Review 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

23. A SHPS Company 1 23 Bracket Study 62% mbrs, 3% care 87% mbrs, 41% care 99% mbrs, 69% care Predictive Modeling

24. A SHPS Company 1 24 Claims PMPM $9.27 $179.76 $361.28 $4,790.63 Source: Aetna Healthcare Predictive Modeling

25. A SHPS Company 1 25 Disease Management

26. A SHPS Company 1 26 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. A SHPS Company 1 27 Disease Management Common disease management conditions  Diabetes  Asthma  Coronary Artery Disease  Congestive Heart Failure  Depression  Pregnancy

28. A SHPS Company 1 28 Severe Acute Respiratory Syndrome (SARS)

29. A SHPS Company 1 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. A SHPS Company 1 30 Society of Actuaries Large Claim Study

31. A SHPS Company 1 31 Society of Actuaries Large Claim Study

32. A SHPS Company 1 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. A SHPS Company 1 33 Questions ?

34. A SHPS Company 1 34 Thank You