Seminar on Reinsurance Philadelphia, PA June 3, 2003

1. 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

4. Health Care Update

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

6. Change in Average Total Health Benefit Cost1987 – (2003 estimated) NOTE: 1987-1998 are based on cost for active and retired combined; 1998-2002 is based on active employee cost only. Source: William M. Mercer Employee Benefit Survey

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

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 • Increased start-up activity • An underwriter at an MGU has said “Fear has been replaced by greed.”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 InsurancePPO (80% IN,60% OON)$1,500 deductible MemberResponsibility$500 Preventive Care100% Consumer Directed Personal CareAccount(Health Reimb.Account)$1,000

17. Consumer Directed Health Plans Internet Health InsurancePPO (80% IN,60% OON)$1,500 deductible Provider Information Pricing QualityAccount Information Benefits BalancesGeneral Health and Wellness InfoHealth Risk Assessment Voluntary Medical Management (“Health Coach”) MemberResponsibility$500 Preventive Care100% + Consumer Directed Personal CareAccount(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 ClaimsData 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 99% mbrs, 69% care Bracket Study 87% mbrs, 41% care 62% mbrs, 3% care

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

25. Disease Management

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. 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 covering1996 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