Inside the Black Bos: How Actuaries Price June 8th, 2004
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Inside the Black Bos: How Actuaries Price Health Insurance June 8th, 2004 Agenda Inside the Black Box: How Actuaries Price Health Insurance Academy Health Annual Research Meeting Discuss historical drivers of trend. Discuss the different ways to define “trend”. Discuss the components that impact medical expense trends. June 8th 2004 Lisa F. Tourville, ASA, MAAA Vice President Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Top 10 Trend Drivers by Category Top 10 Trend Drivers by Condition Contribution to Trend based on Change in PMPM Contribution to Trend based on Change in PMPM Poorly Diff. Neoplasms Skin/Mucus Surg-Mult. DRGs Kid and Urin Tract Contraceptives Resp. System Digestive System Preg; Childbirth Nervous System Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Chronic renal failure Sprains and strains Myocardial Infarction Breast cancer Arthritis Abdominal pain Maintenancy chemotherapy Liveborns Low back pain Ischemic heart disease / chest pain Autonomic Gastro Hormones Psychother. Anti-Inf Cardio Cen. Nerv. Unclassified Dialysis Pharm acy by Therapeutic Class DME; Supplies Clinical Lab Observation Lab & Path Rx - Facility Misc OP Facility E.R. OP Surg Radiology Outpatient by Service Category Newborns Musc; Conn. Tissue Circ. System E.R. Med. Cardiology OB Gyn Inpatient by Major Diagnostic Category Chiropractic Pediatrics Orthopedics Internal Med. Fam/Gen Prac Hem. and Onc. Anesthesiology Physician by Specialty Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Different Views of “Trend” Financial Product Mix Net Trend Benefit Plan Change Demographics Underwriting Underlying Medical Expense Trend (pulling out business mix components) Health Tech Pipeline Clinical Allowed Trend Total provider reimbursement Payer + Patient liability Price, Volume and Intensity Components of Medical Expense Trend Included in the Ingenix Trend Forecast Model 2004 AcademyHealth Research Conference Leveraging Baseline Utilization Workday Core Unit Cost / Price Regulatory Policy Process Inside the Black Box: How Actuaries Price Health Insurance Cust/Indy Mix Geographics Payers’ liability Excludes patients’ out of pocket expenses SG UW Wearoff © 2003 Ingenix, Inc. Inside the Black Box: How Actuaries Price Health Insurance Intensity/Mix © 2003 Ingenix, Inc. 1 Inside the Black Bos: How Actuaries Price Health Insurance June 8th, 2004 Demographics U.S. Population Pyramids Ingenix Trend Forecast Model 2000 Member Months Allowed Trend PROFILE OF NET TREND Business/Product Mix Components Demographics Geographic Mix SG UW Wear-Off Product Mix Customer/Industry/Other Mix Benefit Plan Changes Business/Product Mix Total 2001 2002 2003 2004 2005 4,532,024 4,902,426 4,044,900 3,158,935 2,992,874 2,967,328 13.1% 14.3% 13.6% 9.5% 11.9% 10.8% Projected 2025 Male Female Female Sample 2.1% 0.0% 0.2% 0.0% 0.0% -1.7% 0.5% 2.0% 0.0% 0.0% 0.0% -0.4% -1.5% 0.1% 1.2% 0.0% -0.1% 0.1% -1.9% -1.8% -2.5% -1.1% 0.0% -0.1% 0.0% -0.6% -3.5% 1.2% 0.0% -0.3% 0.0% 0.0% -3.2% 1.2% 0.0% -0.1% 0.1% 0.0% -3.2% -5.1% -2.2% -2.1% 4.8% 5.3% 0.2% 0.6% 0.0% 0.0% -0.1% 6.3% 5.7% 0.0% 0.7% 0.0% 0.0% 0.1% 5.3% 8.2% 0.4% 1.1% 0.2% 0.0% -0.1% 0.5% 7.1% 3.3% 1.0% 0.2% 0.0% 0.0% 2.3% 6.0% 1.3% 0.9% 0.2% 0.1% 0.6% 3.4% 4.7% 1.4% 0.8% 0.2% 0.0% -0.5% Core Trend Total 11.2% 13.3% 15.8% 12.5% 11.7% 10.3% Net Trend Total 11.8% 13.4% 12.8% 6.8% 9.2% 8.0% Core Trend Components Core Utilization (Includes Health Tech.) Core Unit Cost Mix of Services (Includes Health Tech.) Leveraging Regulatory Mandates UHG Policy/Process Changes Work/Calendar Day Adjustments 2000 Male Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Demographics U.S. Population Pyramids Unless the U.S. population “pyramid” holds the same shape from year to year, there will be an impact on trend due to demographics. Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Variation by Health Cost Category and Geographic Region 2050 Male Female 2050: And people wonder why we’re so worried! Source: TrendAlertTM Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Customer / Industry Mix Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Workday/Calendar Adjustments The impact on Net Trend of One New Group PMPM costs are highest on Mondays. Friday costs are the lowest of the regular work week. 1.5% The membership for this new group equaled 1% of the total block of business yet they contributed 40 bps to total net trend in their first year. 12.5% 12.0% 11.5% 1.0% 0.5% Including Excluding 11.0% 10.5% 0.0% -0.5% -1.0% Inside the Black Box: How Actuaries Price Health Insurance 2004 AcademyHealth Research Conference © 2003 Ingenix, Inc. Inside the Black Box: How Actuaries Price Health Insurance 2004q1 2003q1 2002q1 Q3 2001q1 Q2 2000q1 Q1 1999q1 9.5% 1998q1 -1.5% 1997q1 10.0% Considering the experience period and projection period when experience rating, calendar make-up can have a significant impact! 2005q1 13.0% © 2003 Ingenix, Inc. 2 Inside the Black Bos: How Actuaries Price Health Insurance June 8th, 2004 “Consumer” Demand Morbid Obesity Admits per 1,000 “Consumer” Demand Colonoscopies per 1,000 Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Consumer Demand Inside the Black Box: How Actuaries Price Health Insurance Health Technology Pipeline Be aware of what’s coming down the pipeline. Proactively manage your business to control unnecessary costs. What to look for: Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Expected Release Date: Q1 2005 Impact Grades in linearly over 4 quarters Ultimate Utilization: 97 per 1,000 Expected Technology Cost: $165 (off-setting costs: $0) Peak PMPM: (97*(165-0)/12000) = $1.33 HCC Split: Professional = 20%; Ancillary = 80% 2004 PMPM $ - Change in PMPM Medical Trend Impact1 (estimated PMPM = $160) 1 2005 2006 2007 $ 0.83 $ 1.33 $ $ 0.83 $ 0.50 $ 0.5% 0.3% 1.33 0.0% © 2003 Ingenix, Inc. 2008 $ 140 120 - $ 0.90 $ 0.80 $ 0.70 80 $ 0.60 $ 0.50 60 $ 0.40 40 $ 0.30 $ 0.20 $ 0.10 0 0.0% $ 1.00 100 20 1.33 $ A generic equivalent is introduced to the market. Total scripts reduce slightly. Overall costs decrease significantly. PMPM Inside the Black Box: How Actuaries Price Health Insurance Scripts per 1,000 New treatments New devices New diagnostic tests Changes in guidelines Brand name patent expirations Move from prescription to over-the-counter Changes in FDA status New medications Pipeline Example: Impact of Generics Pipeline Example: OvaCheck™ Test For Ovarian Cancer © 2003 Ingenix, Inc. $ 0.00 Generic Scripts Brand Scripts Combined PMPM Impact on professional and facility allowed costs (excludes pharmacy) Source: Ingenix Health Technology PipelineTM Inside the Black Box: How Actuaries Price Health Insurance 2004 AcademyHealth Research Conference © 2003 Ingenix, Inc. Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. 3 Inside the Black Bos: How Actuaries Price Health Insurance June 8th, 2004 Pipeline: Understanding and managing the problem Core Unit Cost- Price $20M New Medical Developments as a whole add significantly to Medical Trend Brave New World, Old-Fashioned Fear: Advances Are Coming At A Furious Rate-- Health Plans Find It Difficult To Separate The Cost-Efficient From The Rest $15M Technologies that increase quality of care and desired outcomes ACTION: Encourage adoption and incent utilization Therapeutic advantage when appropriately applied ACTION: Limit use to appropriate population Therapeutic advantage is unproven ACTION: Restrict or control utilization John Carroll, Managed Care Magazine 2/1/2004 $10M Six years ago, the health care economist Michael Chernew concluded from a review of the evidence that the driving force behind rising health care costs was new technology. "It's not increased waste, it's not fraud, it's not increased lawsuits, it's not the fact that people on average are older -- all of that may contribute, but the predominant factor relates to the development and utilization of new medical techniques, of which there are an enormous number," he said in a 1998 study. $5M The University of Michigan professor concluded that “…but the predominant factor relates to the development and utilization of new medical techniques…” Pro-actively addressing the impact of new medical technologies could save a 25,000 employee organization $10 million annually Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Medical Care CPI Rolling -3 Month Averages 12.0% 10.0% Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Cost per Day for Selected Markets CPI is a combination of Non Par and Par Revenues. Non Par cost increases are generally higher than Par. Result: Non Par trend impact is likely higher than CPI. 14.0% Models have been developed and are used to assign a value to existing contracts (physician and facility). Models are populated and forecasts are established using all available information from contract negotiators working directly with the providers. Outlier provisions and percent of charge contracts leave little protection to contract increases. Non-par payment rates cause volatility in forecasts. Mergers and closings result in variability of market share and also impact results. $3,100 11.1% Trend Percentages appear on the top of each bar. $2,900 $2,700 8.4% 8.0% 19.4% 15.4% $2,500 21.6% 6.0% 12.2% 2004 $2,300 2003 4.0% $2,100 17.4% 2.0% 9.1% $1,900 Cost per Day varies significantly by geographic market. Contract negotiations also vary. Jun-03 Dec-03 Sep-03 Mar-03 Jun-02 Dec-02 Sep-02 Mar-02 Jun-01 Dec-01 Sep-01 Mar-01 Dec-00 Jun-00 Sep-00 Mar-00 Dec-99 Jun-99 Sep-99 Mar-99 Jun-98 Dec-98 Sep-98 0.0% $1,700 Rolling Quarters Physician Hospital IP Host OP Hosp $1,500 Pharmacy Market A Market B Market C Market D Market E Market F Market G Market H Consider the whole picture! Adj'd Med CPI Inside the Black Box: How Actuaries Price Health Insurance © 2003 Ingenix, Inc. Baseline Utilization and Intensity (Mix of Services) Inside the Black Box: How Actuaries Price Health Insurance Benefit Plan Design Impact of Tier Placement in Rx Historical experience is normalized for all other identified trend components. Regression analyses are performed on units resulting in possible forecasts. Legislative and economical influences are considered (health care reform, NHE, etc.). Management initiatives of the client are considered. Final projections are established using a combination of all information gathered above and pass through an actuarial peer review process. 60% 55% A drug goes over the counter. In tiered plans, Brand #1 is placed in Tier 3 and Brand #2 is placed in Tier 2. 50% 45% 40% 35% 30% 25% Brand #1 - Tiered Plan Brand #1 - Open Plan Inside the Black Box: How Actuaries Price Health Insurance 2004 AcademyHealth Research Conference © 2003 Ingenix, Inc. © 2003 Ingenix, Inc. Inside the Black Box: How Actuaries Price Health Insurance Brand #2 - Tiered Plan Brand #2 - Open Plan © 2003 Ingenix, Inc. 4 Inside the Black Bos: How Actuaries Price Health Insurance June 8th, 2004 Inside the Black Box: How Actuaries Price Health Insurance Contact Information Lisa F. Tourville, ASA, MAAA Vice President 12125 Technology Drive Eden Prairie, MN 55344 Email: lisa.tourville@ingenix.com Phone: 952-833-7559 2004 AcademyHealth Research Conference 5
