1. Bertko - Novel Technology's Effects 1 Novel Technologies -- A Health Insurance Cost Projection Challenge John Bertko, FSA, MAAA 2008 National Health Policy Conference February 5, 2008

2. Bertko - Novel Technology's Effects 2 Primer on Actuarial Trend Trend (next year’s premium increase) includes: –Unit cost increases Determined by contract changes (mostly) Influenced by cost-shifting among payors –Utilization changes Like last year, except where care coordination and disease management have an effect –New technology effects on unit costs and utilization Residual effect but necessary to look at the “pipeline” of new technology

3. Bertko - Novel Technology's Effects 3 Recent Private Sector Premium Trends (2006 Mercer Survey)

4. Bertko - Novel Technology's Effects 4 Lessons from Historical Trend Trend is not “immutable” –Pressure from Managed Care Reduced unit costs Probably minimized the dost effect of new technology (Project Hope study) in the mid-1990s –Actuaries must forecast trend factors New technology can be estimated from the drug and device pipeline Much harder to forecast physician behavior Differences between seniors and pre-65 usage

5. Bertko - Novel Technology's Effects 5 “Pipeline” Forecasting By Insurers Several services monitor new drugs and devices –Through trials –Likely uptake assessed by clinical staff Drugs monitored –Over 30 new drugs closely monitored Any blockbusters? The BIG question How much generic substitution Placement on formularies related to both effectiveness and discounts/rebates Example: macular degeneration drugs -- which ones, how much, etc? –Some cynicism can be warranted -- e.g., statin recommendation was not fully implemented

6. Bertko - Novel Technology's Effects 6 “Pipeline” Forecasting Devices –Costly new devices and the usage Stents Lower back fusion devices Procedures –Gastric bypass How many? Will the uptake change? Will marketing make a big difference? –Breast cancer screening using MRIs

7. Bertko - Novel Technology's Effects 7 Example: Breast Cancer Screening with MRIs New March 2007 Am. Cancer Society (ACS) guidelines –Annually for women with: BRCA genetic mutation First-degree relative BRCA carrier High family risk model score –Against MRI screening for women with <15% lifetime risk –No recommendation for some women

8. Bertko - Novel Technology's Effects 8 Example: Breast Cancer Screening with MRIs Could mean 1.4 million to 1.7 million breast MRI scans per year –Cost of $800-$2000 per scan –Cost of $56,000 per additional cancer detected Cost effective for women at high risk for breast cancer –Peak PMPM cost of ~$2.00 Around 1% of total health insurance cost –First impact in 2Q07

9. Bertko - Novel Technology's Effects 9 Actuarial Adjustment to Trend Actuaries “look in the rearview mirror” to set trend –Next year’s trend will be like this year, UNLESS: Blockbuster drugs emerge Important drugs have generic competitors New procedures and devices are marketed and “extended” to new types of patients –Mostly an UPWARD adjustment, except for generic drug substitution Is there a minimum technology trend factor?