April 27-29, 2004 Dresden, Germany
Ever-expanding life expectancy is increasing the size of elderly populations with profound social and economic consequences for developed nations, including future cost of their healthcare systems. Most existing long-term healthcare cost projections are driven mainly by changing demographics (aging populations). This simplified approach fails to recognize the many variables, and complicated interactions among them, that affect the future of health, healthcare, and healthcare costs. This study presents a framework incorporating key healthcare cost drivers. Using the framework, the study then presents three plausible futures for healthcare and broad, non-modeled estimates of their costs, which point to a very wide range of potential future costs. By taking the next step and building actuarial models based on the framework presented in this study, actuaries and health economists can create a powerful tool for health policy makers and health officials to better understand the long-term consequences of decisions taken during their stewardship of healthcare systems.
The analysis presented in this document investigates the question of whether the increase in life expectancy causes financial stress for health insurance systems or not. In particular, the authors focused on the financial impact of the “costs of dying” and how much these costs contribute to the total health costs. The article analyses an in-patient and an out-patient tariff of a large private health insurance company in Germany. It is based on health care costs of people who died in 1999 and of those who continued to live. The percentage of the costs of dying is often overestimated. However, the costs of those who continued to live increased over-proportionately. In particular, this was true for the insured people over 80 years. The claim that the increase of life expectancy only postpones the high costs in the future and has no impact on the financial conditions of health insurance is doubtful. Older people live longer and have more opportunity to take medication and receive therapy for a longer period. Therefore we argue that longer life expectancy and other factors like progress in medical technology pose a severe threat on the financial stability of health insurance.
We will start by outlining the main characteristics of German Long-Term Health Insurance. Then we will discuss the main risks that companies face in this business, and the way they are correlated with each other. As a conclusion, we would like to sketch some ideas how the upcoming risks could be tackled.
In the next fifty years, the share of the world population aged 65 or older will double, the average age will rise from 26.5 to 36.2, and the fast-growing 80+ age group’s share will quadruple rising from 3% to 8% (UN Population Division 1998). What is more the process is speeding up. Today, about two-thirds of all older people are living in the developing world; by 2025, it will be 75%. Although some countries could be considered to still be in the pre-transitional phase of the demographic transition with high fertility and mortality rates, in most developing countries there will be a very significant increase in the size of the population over 65 in the next 25 years. Virtually all of the available literature on the costs of aging pertains to the developed countries. At this stage, we simply do not know what proportion of total health expenditures in developing countries is spent on the aged or if that proportion is rising or falling. There are good reasons to think that it will rise, and rise sharply because of the very rapid increase in the number of old people. It is critical to be able to predict what the impact of these changes is likely to be on total health expenditures, and on the demands for public sector care. In this technical note we present an econometric approach to modeling health expenditures on the elderly in developing countries.
Objectives: Many publications deal with the influence of longevity on morbidity of the population and the implications in terms of health care expenditures. Unfortunately nearly all these studies focus only on single aspects such as drug consumption, nursing home, length of stay in hospital, etc. This article presents one of the first differentiated survey about the single factors worldwide. So it was the general objective of the CoCB (Competence Centre for Biosciences) study to elaborate a clear survey in a maze of contradictionary publications. Method: Comprehensive research in the medical and bioscience database MEDLINE during the period of 1990 until June 2002, connected with keyword-triggered research in the Internet. Ultimately 64 international studies and publications were considered. Results: Six essential major factors were identified and analysed in terms of their trends: restricted activities of daily living, chronic diseases, subjective perceptions of health condition, ambulatory expenses, hospital based expenses, drug prescriptions and expenses for long term care. On balance there is a clear trend towards an extension of the health care expenditures with increasing age. However there are three factors, where a compression might be expected: perception of health care condition, reduction of severe activities of daily living and reduction of health care expenditures in the last year before death (with increasing age). Apart from these not very reassuring predictions, the galloping ageing of many societies (ratio employed to job inactive generations) and volume effect (the baby boom generation grows old) will make financing of health care expenditures very difficult. Conclusions: Private life and health care industry will be affected in many ways. Health care insurance and long-term care insurance will require higher premiums with increasing age (necessity for adaptation for premiums). Annuity insurance have to cover longer periods than expected with a potential need for additional reservation. Additional expenses especially for old people will withdraw money from personal consumption. A remarkable shift of morbidity and mortality spectrum can be expected in the medium term: better survival and potential cure of ischemic heart disease and cancer will lead to a higher prevalence of neurodegenerative diseases (Alzheimer’s disease will be the prevailing issue of next decades! ) and orthopedic diseases. Implications on new and innovative insurance product are most likely and have to be discussed.
Loss prevention in health insurance is an area which has not been sufficiently explored. Theoretical need for applying risk management principles for loss prevention and loss minimisation in health insurance. Models of non-life insurers' containing losses using risk management principles. Discussing the possibility of health insurers' containing losses through better health risk management. Simple and practicable steps that can be taken for managing and minimising health insurance losses. Scope for research and information-sharing to provide a healthier life to health insureds.
Problem: It is well-known for a long time, that health care expenditure per capita for elder people are a lot higher than per-capita-expenditures for younger people, we call this correlation of average per capita-expenditure and age "expenditure profiles". If health care expenditures for the elderly grow faster than for younger people, the expenditure profiles become “steeper”, we created the term "steeping" for this phenomenon. Methods and Data: Data of the largest German private health insurer are used to investigate the phenomenon of "steeping" profiles over a period of 18 years. Different insurance plans for inpatient, outpatient services, and supplementary insurance plans are investigated. We develop three instruments for measuring the phenomenon of "steeping": (1) time trend of the simple relation between per-capita-expenditure of the old to the young, (2) comparison of the linear slope of per-capita expenditure in the different age groups and (3) time trend in parameters of nonlinear modeling of expenditure profiles. Pros and cons of these methods are discussed. Results: A steeping in most examined insurance plans in the period of observation was found with all three methods. The health plans of men show stronger "steeping" than those of women, inpatient plans show stronger "steeping" than outpatient plans. Because of the given structure of data detailed research of causes of “steeping” is not possible. But by conceptual discussion it becomes clear: Neither the correlation between health expenditure and time until death nor the improving life expectancy nor the combination of both can help to explain the phenomenon of “steeping”. keywords: health care expenditure, expenditure profiles
This paper considers decision of inverse problem of Markov model corresponding to a special medical insurance scheme. Two mutually opposite problems arise when using Markov processes for modeling. Direct problem is to calculate probabilities of corresponding states and other characteristics of process. It is assumed that parameters of model are available. Inverse problem is to evaluate parameters of model by using experimental output data. In Markov model input parameters are forces of transition from state to state. When dealing with queuing problems or insurance models these values are unknown in advance. Meanwhile, statistical information about output results for some models can be found in special literature. This paper considers the parameter estimation for Markov models in medical insurance.
There have been, in Switzerland, many _theories_ of health insurance from which peremptory policies were born to live to a disappointing and frustrating end. The reason seems to have been that these _theories_ systematically ignored the facts that were supposed to be gathered into a data base speci_cally designed by law to monitor the system. This paper summarizes the lessons learned while studying a small portion of the data in that data base and describes some practical means for coming to terms with such data.
The presentation will show that, within the MedNet business model, the role of a reinsurer changes from a pure risk carrier to a proactive risk manager in the healthcare field. Through its own service provider MR performs important functions along the value chain of a primary health insurer for clients in selected markets. These functions include not only the management of primary health insurance business but also the gathering and evaluation of data as well as implementation of measures derived there from. We will demonstrate how standardised data formats, actuarial methods and tools can be used to prepare a detailed planning, to assure continued transparency and to conduct deviation analyses even from the distance. At the same time we will show how reinsurers can proactively support primary insurers in adapting their wordings and rates and in improving their internal processes and procedures. To this aim, we describe standardised methods and tools used to renew group business, conduct performance analyses and adjust premiums at product level. A large portion of our presentation of methods and tools will cover the dynamic assessment of claims reserves geared to the specific operative requirements of each individual company.
In Japan, every person is required to participate to one of the public health insurance schemes. Therefore, public health insurance benefits cover most of Total Domestic Health Expenditures in Japan. Through the judging and disbursing organizations (the typical organization is Social Insurance Medical Fee Payment Fund), the public health insurance schemes compensate insurance medical institutions for providing medical service by the Fee-for-Service that are decided by the Ministry of Health, Labor, and Welfare. We explain about the basic structure and some features of the public health insurance schemes in Japan. And then, we explain about the Medium-Term Financial Management Approach, the financial crisis of public health insurance schemes, 1997 Amendments and 2002 Amendments to public health insurance schemes. Furthermore, we introduce the actuarial analysis of medical expenditures and the latest long-term outlook of the public medical expenditures and the public long-term care expenditures. And then, we would like to explain how we should reform health insurance schemes in Japan for a rapid progress of the aging of Japanese population.
Keywords: Health Service System for the Elderly, The Medium-Term Financial Management Approach, Financial crisis, 1997 Amendments, The arc elasticity of medical expenditures to price, 2002 Amendments, Lifetime Medical Expenditure, Long-Term Estimates of National Medical Care Expenditures, Long-Term Estimates of Long-Term Care Benefits, Future Prospect on the Benefits and Burdens related to Social Security, Basic Principles for the Medical Care System and the Medical Fee Schedule, The transformation of the medical insurance system including the integration and restructuring of insurers, Creation of a new medical care system for the elderly, Respect for selection by patients and offering of information, System to offer efficient medical care of high quality
In this paper an overview of how to price private health insurance products in China is given. In the beginning the Chinese private health insurance market and products are analyses. Then the statistical data and assumptions in pricing are discussed. Following it, the actuarial models and premium calculating methods used in pricing process in China are described. The regulation of private health insurance business in China, especially the pricing and re-rating are also involved. The perspective of Chinese private health insurance and some recommendations to develop health actuary are given in the end of this paper. Keywords: Private health insurance, products pricing, health actuary
The following is a brief outline of the paper:
1. The market and product of private health insurance in China
2. Data resource and actuarial assumptions of pricing
3. Actuarial model and pricing process in practice
4. Actuarial regulation of private health insurance business in China
5. Future of private health insurance and health actuary in China
* This research got financial support from the Chinese Nature Science Fund(project number: 70102030)
Actuarial tools are key in many decisions made in the healthcare market. The consistency and efficiency of these tools is always evolving. As the world becomes smaller, and there is more sharing of information and standardization, the need for tools that can operate in multiple markets is increasing. The adaptation of these tools requires careful planning and execution to ensure that the final result is a tool that is useful in the new country and is still valuable from a cost/benefit perspective. There are many considerations when adapting such tools.
The selection of the appropriate risks for a health plan is a critical function, as 15% of individuals generate 80% of the costs. This paper discusses the tools and techniques of underwriting, which include deny coverage, ridering out conditions, using rating classes and pre-existing condition exclusions. Sample conditions and their pattern of claim costs are presented from underwriting research, with a discussion of which of the techniques would be most effective with each condition. Sample regulations from a number of countries are presented. Keywords: medical underwriting, pricing, risk selection, healthcare
Links: Medical underwriting paper: http://www.milliman.com/health/publications/research_reports.asp?id=1352
Actuarial tools paper: http://www.milliman.com/health/publications/research_reports.asp?id=1353
A brief outline of the main features of the two health insurance systems in Germany is necessary to understand the rules of the private health insurance market. The presentation gives a survey of the requirements and the calculation of the private health insurance in Germany. The actuarial foundations includes techniques both from the life and non-life insurance. Hints referring to the legal framework are given, which have deep impacts on the calculation scheme.
In Japan, public health insurance is compulsory and, in principle, it covers most of the direct medical costs. While private insurance companies also sell medical products, unlike the public insurance, the benefits in their products are based on a fixed amount (for example, the amount of benefit for hospitalization will be fixed by multiplying the daily benefit by the duration of hospitalization, a given amount of benefit will be paid when an insured suffers from a disease which is specified in the policy conditions, and so forth) for a marketing reason in connection to the governmental health insurance system. We will be glad to give you a description of the status of private medical insurance which has varied due to competitions among insurers with the aforementioned background. Also, we would like to explain what causes lie in the situation where the private medical insurance offers long-term coverage (coverage period also means the period in which the premium rates are guaranteed in this context.) for 10 years and longer or for life, and how we should manage the risks which may be caused by this long coverage period. Keywords: Medical Insurance of Private Insurers, Hospitalization, Surgery, Trend in Private Medical Insurance, Long Term Coverage Period, guaranteed premium rate, Reserving, Right to change the assumptions (written with Tadayoshi Otsuka)
This session will cover: Brief History of LTC financing in the U.S.; Discussion of the role of public and private programs; Demographic and Cost Information; LTC Insurance Products/Trends; LTC Insurance Market Trends; and LTC Insurance Risks.
With respect to the private (compulsory) long-term care insurance, ways and limits of the integration of the private health insurance sector into the social security insurance scheme are briefly outlined. Following some introductory remarks on the German health care and the establishment of the compulsory long-term care insurance (PPV) in 1995, the basic conditions of the PPV are highlighted as well as their specific effects on the calculation. In this regard, it becomes evident that the calculation models of the PPV and the private health insurance (PKV) differ essentially. Finally, the extent to which the model of the PPV may serve as a pattern also for the integration of the private health insurance sector into the social security scheme is discussed.
In the course of a representative claims study in the area of private compulsory LTC insurance in Germany, Munich Re has compiled and studied an extensive body of data and developed procedures in order to close some gaps (e.g. as regards the influence of cases where the person is in need of longer-than-average nursing care) in the international statistics. The original data from Germany is modified to make it usable for other countries taking account of national special features (e.g. differing health status and different life expectancies). The methodology of these investigations and illustrative results are presented.
Critical illness (CI) had its original origins in South Africa in the early 1980's, although cancer riders had previously been sold in the US, Japan and Israel. It has developed in other countries such as the Asia Pacific, Australia, Canada, the UK and the US in various different guises. It has had varying degrees of success in each of these regions. In the UK it is the fastest growing healthcare product. It’s a simple product in concept, but some very complex issues are starting to emerge, in the UK in particular, stemming largely from the potential financial impact of medical advances. Such advances are largely beyond the control of the insurance industry, but they need to be kept abreast of and factored into any long-term pricing decisions or product development. The product is currently profitable in the UK, but there are concerns regarding the robustness of definitions against legal challenges as consumers become more aware and the potential impact of medical advances given that the claims trigger is based on diagnosis. In fact 2003 started with several high profile announcements of significant increases to CI premiums largely due to increased reinsurance terms. This presentation provides some background on the UK market, the current drivers of morbidity experience, trends in the experience, some thoughts on the future of the UK CI market and finally a very brief comparison with other parts.
This paper summarises the findings of a claim analysis covering more than 16,000 claims records and 4,000,000 lives in force as at 31 December 2000 under critical illness policies in Hong Kong, Malaysia and Singapore. The claim analysis focuses on cancer claims, comparing insured lives and population incidence. Further, incidence rates, smoker/non-smoker differential, selection effects and trends are analysed and compared with international data.
The goals to increase effectiveness and efficiency in the health delivery and payer markets make perfect sense from a theoretical perspective. In practice, however, the introduction of managed care techniques in non-US markets has not been met with resounding success. There are myriad of reasons for these weak results. In examining the roots of managed care program failure, it is primarily the absence of measurable goals or outcomes from the various parties that lead to unfulfilled strategies. This is due primarily to lack of standardization and insufficient data capture. Keywords: Managed Care, Risk Management
This brief presentation will set the scene for the UK, Australian and German experiences which follow. National supervisors around the globe are being given a lead by the solvency proposals emanating from the International Actuarial Association and from the International Association of Insurance Supervisors. The general trend is towards risk-based methods but there is diversity between discretionary approaches and more formulaic methods. In Europe new over-arching “Solvency II” directives will be formulated and local national supervisors must interpret what is and what will happen. Development of International Accounting Standards for insurance accounting is falling behind the timetables originally intended. This makes it more difficult to develop the ideal of simultaneous development of solvency and company accounting with consistent cross referencing between entries to the extent possible.
This presentation will describe the Australian prudential standards for private health insurance organisations introduced in 2001 and the experience in implementing those standards. The standards use risk-based methods. At the solvency level the standards are largely formulaic. At the capital adequacy level there is more discretion for companies to decide their prudential margins. The paper also compares the current Australian regulatory system with the Insurance Core Principles established by the International Association of Insurance Supervisors. For more information se the PHIAC website at www.phiac.gov.au.
With the many merging operations and the hausse of the stock markets between 1998 and 2000, the wave of IAS/US-GAAP swept over to the European insurance enterprises. Owing to the special properties of the German insurance business and missing IAS standards this meant a discovery journey for finding appropriate models and techniques satisfying the demands of an NYSE (US-GAAP) and complying with the national standards and conditions. Moreover, the German health insurance comprises risk components which are a mix of life and casualty insurance. Thus it may well be interesting to get an insight into the practical operations of international accounting of a German health insurance company (s.o.) under the aspects of selected examples, experiences and risks. The report ends with a short preview on possible phase i/II consequences.
Claim Analytics, a Canadian company founded by two actuaries, has developed a mathematical model to predict likeliness of return to work for long term disability claims. The model uses a number of data mining techniques to rank each claim with a number from one to ten, one being least likely to return to work, and ten being most likely. The model has proven its ability to successfully predict return to work, by accurately ‘predicting’ return to work for a body of claims studies whose outcome was already known. The model is operational, and is used as a tool for claims managers to help optimize resource allocation and maximize return to work opportunities for their claimants. For further information, please see www.claimanalytics.com.
In the world of Employee Benefits for the Multinational Companies in which the Generali Employee Benefits Network operates, the Income Protection covers have a very important role. Income protection covers are one of the benefits offered by multinational employers which requires the strictest cooperation between the Employer and the Insurer, and at the same time is becoming more and more one of the most "demanding" product for Insurance companies in terms of profitability monitoring, risk profile analysis and claim management. Working in this scenario on a worldwide scale requires flexibility at the highest degree and the continuous effort of harmonization of local situations, which very often largely differ one from the other.