Health Care Dialogue

Health Care Dialogue

Expert opinions on the future of health care

By Jennifer Gillespie and Sara Teppema

What do a Costco parking lot, a fine restaurant and a local fire department have in common? They are all used as analogies by authors in the recent collection of essays to describe the U.S. health care system.

The current spotlight on health care reform provides an excellent platform for actuaries to demonstrate the contributions they can bring to the table as the debate over key health issues continues. To showcase some of these ideas, the Health Section of the Society of Actuaries issued a call for essays on "Visions for the Future of the U.S. Health Care System."

This call for essays elicited an overwhelming response in terms of the outstanding quality and quantity of essays, as well as the diversity of opinions from both actuaries and other professionals in the health care industry. The invitation to submit 1,500-word essays went out to members of: the SOA Health Section, the SOA Long–Term Care Insurance Section, the DMAA: The Care Continuum Alliance, the American Society of Health Economists and the American Society for Healthcare Risk Management.

Twenty–nine of these essays were published in an e–book, which can be found on the SOA's Web site. Read the essays in their entirety at The essays were selected for the e–book by a team of volunteers and SOA staff. The essays were further reviewed by the Health Section Council, who awarded prizes to the top three essays.

John I. Mange, FSA, MAAA, won first prize for his essay, "Prepaid Medical Care and Medical Insurance," which asserts that we need to philosophically and legally differentiate prepaid medical care from pure medical insurance. By doing so, we can align incentives to introduce more individual accountability and gain efficiencies.

Second prize went to Ian Duncan, FSA, FIA, FCIA, MAAA, who discusses the need to remove barriers within the health care industry that impede productivity gains, provider and patient decision–making, effective long–term funding, and innovation. His essay is titled "Harnessing the Forces of Markets and Innovation."

Jonathan Shreve's (FSA, MAAA) essay, "Change the Expectations in Health Care," took third prize. He urges us to first change our expectations in terms of individual responsibility to have insurance coverage and provider responsibility for quality outcomes. Reinforcing these expectations with appropriate financial incentives and policies is the next step.

Several similar concepts and thoughts surrounding the subject of health care reform emerged from the essays.


Most (but not all) of the authors are actuaries and recognize the importance of applying actuarial principles to the changes that will inevitably be made to the health care system.

Mark Litow, FSA, MAAA, and Bob Shapiro, FSA, MAAA, express concern about the current Medicare system, as well as related parts of the health care system. They believe that the systems are not reasonably designed, priced or managed, and to remedy the situation, several tenets must be accepted regarding affordability; standards for access, cost and quality; and equity between the different generations in society. They also lay out several actuarial and economic principles that Medicare should follow: use established risk pooling techniques; minimize adverse selection; minimize induced demand; and monitor results.

Richard Hauboldt, FSA, MAAA, Mark Litow, FSA, MAAA, and Allen Schmitz, FSA, MAAA, collectively voice similar concerns regarding economic and actuarial principles. They provide a list of ideas that would help move toward these principles, including tax equity with respect to health care financing, an increase in the use of risk classification and pooling, and restructuring of Medicaid and Medicare.


The triumvirate of the highest goals of a health care system–cost, access and quality–are frequently discussed in the collection of essays, either singly or collectively. Sam Gutterman, FSA, MAAA, FCAS, FCA, Hon FIA, CERA, suggests that we must consider all three, and their consequences, in any kind of national or state reform; well–intended changes in one of these can have negative effects on the others. In fact, Howard Bolnick, FSA, MAAA, Hon FIA, Hon MASSA, suggests that "... a realistic assessment of the conventional wisdom is that almost any reform from Washington will make significant strides at improving access–providing public or private coverage for the uninsured–but the tools available to Congress will not be able to do much to control costs or to make major improvements in quality."

Indeed, many of our essayists focus on access, especially in terms of the need to reduce the number of uninsured Americans. Mavis Tuten, RN, CPHRM, believes that coverage for the uninsured can be paid for by eliminating inefficiencies. Others, such as Bill Lane, FSA, MAAA, discuss universal coverage with community rating, using actuarial tools such as risk adjustment among payers. Steele Stewart, FSA, MAAA, develops a construct for portability in his essay, through which individuals can maintain health coverage even when they terminate coverage with their employer.

David Axene, FSA, MAAA, FCA, agrees the number of uninsured needs to be reduced and that we can find other savings in the system, but he is skeptical about our ability to use those savings to purchase greater access. "The challenging public policy dilemma becomes how to capture savings achieved through health care reform efforts without bringing all programs in under a common umbrella–the end result being to accumulate savings to fund broader initiatives. Is there a solution that accomplishes this without painful aggregation? Is it possible to do this without nationalizing the entire health care system?"

Essays by Jim Toole, FSA, MAAA, CERA, and Steve Siegel, ASA, MAAA, suggest that socioeconomic barriers to access must be removed. Toole believes that our lack of intentional health policies has provided "a perfect storm of high costs, poor access and shameful outcomes which disproportionately impact the poor and people of color." Siegel takes a creative approach, equating an ideal health care system to a Costco store parking lot, where all are served equally: SUVs, hybrids, luxury cars, beaters, bicycles and skateboards.

Robert Stone proposes that we focus on the single goal of Quality: to move the United States' system from a ranking of 37th in the world, to a ranking of 1st. He suggests working on three things: 1) keeping healthy people healthy; 2) helping people mitigate or eliminate health risks associated with unhealthy lifestyle behavior choices; and 3) ensuring the provision of evidence–based care to those who are ill.


The essays all explore the roles of the stakeholders in the debate. Following are some of the most compelling stakeholder considerations raised by the authors.


The government's role in the health care debate has become a central issue in Washington. Should there be a Public Plan? If so, will it replace, partner or compete with the commercial insurance market? How will Medicare and Medicaid fit in?

A few of our authors believe that the government needs to play a lead role in a reformed system. Brian Jones, ASA, EA, FCA, argues that health care should be mandatory and financed with taxes, just like fire departments. If fire departments were funded by optional per capita premiums, fires in uninsured homes would still be put out and these homeowners would be left to pay the fire department after the fact, at a time when they are likely facing other financial hardships. Similarly, those without health insurance seek ambulatory health care in emergency rooms, and must pay high out–of–pocket fees for care, at a time when they have other hardships.

Toole proposes a health care Fed, similar to the U.S. Federal Reserve, which would influence health care trends. He further suggests that Medicare can and should play this role. Lane asserts: "The best solution requires government involvement in the funding of health insurance, but not in the management of health care providers and their prices." The government would do this through tax revenues and risk–adjusted payments to insurance companies.

Damian Birnstihl, FSA, MAAA, takes a similar approach, with a proposal to eliminate all other payers (employers, Medicare, Medicaid) and implement a Medicare Advantage program for all Americans. (Medicare Advantage is a Medicare program in which the government finances health care through taxes, but uses the existing competitive insurance company and provider platform to deliver and manage that health care.)

Other authors put less onus on the government itself, and more focus on partnerships with the private sector. Dale Yamamoto, FSA, MAAA, FCA, agrees with former Senator Tom Daschle, whose book Critical: What We Can Do About the Health–Care Crisis describes a National Health Board. Yamamoto's Board would assist in three ways: create a common contract between all providers and all health plans; develop a comprehensive national health care claims data warehouse; and oversee national and regional physician councils to analyze best practices, new technologies and regional variations.

Kevin Wolf, FSA, MAAA, proposes a mandatory system with three options: 1) the current commercial system option; 2) a "private option" which would pool federal employees with other Americans; and 3) a public option. In this construct, the two government options (options 2 and 3) would compete with the commercial insurance market.

Duncan and Joseph Slater, FSA, MAAA, both assert that there is too much government involvement today. Both favor changing the tax code to eliminate deductibility of health insurance premiums. Slater also believes insurance regulation and malpractice laws must be reformed. Duncan is concerned that the unfunded liabilities of the Medicare and Medicaid systems are unsustainable and must be replaced by other funding mechanisms over time.


Several authors believe strongly that providers should be able to charge what they want for their services, but that their fee should be the same fee regardless of who is paying. Hobson Carroll, FSA, MAAA, asserts that such a practice is "right, fair and necessary," and that we should not have "such a significant portion of medical services being paid for through a price–setting mechanism that dodges responsibility and creates cost–shifting distortions whose effect touches the rest of the economic sector." Yamamoto believes that a common national contracting mechanism would facilitate implementation of pay–for–performance and other quality improvement initiatives.

Many authors discuss the need for providers to take responsibility for evidence–based medicine. John Cookson, FSA, MAAA, proposes "a change ... to reduce or eliminate the third–party payment for high–cost, low quality providers and treatments that are of unproven or dubious efficacy, and allowing buyers to select coverage based upon the perceived cost of services in relation to the outcomes."


Many of the authors stress the need to curb health care utilization by shifting responsibility to the consumer, and structuring a system where individuals have more "skin in the game." Tim Maroz, ASA, MAAA, FCA, writes "a person with modest means would try to eat as much as he or she can at a low–fixed–price buffet, but may limit himself or herself to a glass of water and a main course at a nicer restaurant. Wine, appetizer and dessert are available, but would cost extra out–of–pocket. There is no reason medical service utilization cannot work in a similar economic fashion." Timothy Luedtke, FSA, MAAA, FCA, and other authors suggest this shift can be done with higher deductibles and other cost–sharing, potentially including Health Savings Accounts (HSAs) or other savings vehicles.

This responsibility also includes the need for individuals to be accountable to stay healthy and manage their chronic diseases, as outlined, for example, by Matt Varitek, ASA, MAAA, and Thomas Persichetti, ASA, MAAA. Varitek asks, "Should all diagnosed diabetics be treated the same by insurers; or should insurers favor and accommodate those diabetics who visit the doctor regularly, exercise and control their weight, and otherwise actively maintain their condition in a properly prescribed manner?"

Several authors also extend the concept of individual responsibility to a mandate on the purchase of health insurance. Shreve points out that the expectations of coverage are more important than financial incentives, which played out in the take–up rates under Massachusetts' recently enacted law for universal health insurance coverage. "The tax penalty was well below the actual cost of insurance ... It was not the economic incentive to get health insurance by itself that caused the change, but more importantly the expectation that you should have coverage that drove the much higher take–up rates."


Most of our authors work or have worked in the health insurance industry for years and have reason to desire a status quo in which traditional health insurers continue to provide traditional health insurance products. Surprisingly however, the authors who discuss the industry propose a re–engineering of the entire infrastructure of the insurance coverage system.

Many authors, such as Mange and Dennis Barry, FSA, MAAA, outline a system in which individuals have a greater financial stake in lower–cost services, and advocate HSAs or other ways for an individual to tax–effectively fund those lower–cost services. Michael Chernew, Ph.D. and Mark Fendrick, M.D., experts in Value Based Insurance Design, propose a different approach, in which health insurance is restructured such that patient coinsurance is based on the clinical value–not cost–of health care services.

Various combinations of public, government–influenced plans and private, commercial insurance company plans were explored by our authors. Bradley Vernon, ASA, MAAA, proposes a federal plan of basic health insurance for all Americans, plus a supplemental commercial market. He suggests that the federal plan will have long wait times and rationing within the system. Gutterman believes that "the hated 'R' word" (rationing) is inevitable in any kind of reform, "as long as the objective of the health care system is the delivery of services at an affordable cost." Persichetti discusses the uncomfortable, yet possible need to ration care at the end of life: "If we carefully study the economics of health care and its impact on the American economy as a whole, we would come up with a dollar figure for which it is no longer economically feasible to support health care for any one individual, particularly if the funds required to do so are public funds. American society's willingness to consume unlimited resources under the purview of 'if it saves at least one life it is worth it,' is a fiscally irresponsible mantra."


The somber realities of health care financing are counteracted with the optimism inherent in innovations that can lead to high quality, affordable health care for all. Greger Vigen, FSA, MAAA, presents a comprehensive review of the historic and future views of several areas of health care innovation and technology. These include evidence–based management of care, payment reform, program management, health information technology, measurement systems, industry collaboration, personal engagement and personal responsibility.

Duncan believes the power of innovation rests with the consumer: "If we want to control health care costs in the future, we will have to encourage the equivalent of Bill Gates's disruptive technology that places ultimate responsibility in the hands of the consumer."


Actuaries as a profession apply experience to model the future; as such we need to voice our perspectives on the future of health care. Litow and Shapiro express in their essay:

Nowhere is our leadership needed more today than in framing the ever intensifying national health care dialogue. Actuaries have a responsibility to assure that the design, costing and management of proposed ... health care programs are developed with actuarial discipline.

We encourage you to read all the thought–provoking essays available at

Jennifer Gillespie, FSA, MAAA, is the vice president of Underwriting for Blue Cross/Blue Shield of Minn. She is also the chair of the SOA Health Section. Gillespie can be contacted at

Sara Teppema, FSA, FCA, MAAA, is health staff fellow at the Society of Actuaries. She can be contacted at