By Michael L. Frank
This is a follow up to an article “A Global Perspective of the Health Insurance Market” written in 2012. After completing our second year as professors at Columbia University in the Masters in Actuarial Science program (the course was taught by principals at Aquarius Capital-Michael Frank and Don Rusconi), we continued the journey from the first year’s class. The course provided an overview of the health care insurance industry, including products, delivery systems, health care reform, reinsurance and capital markets with focus in the U.S. and international markets.
As part of the course, students were given traditional actuarial projects in pricing, reserving and underwriting as well as other projects and course work to understand sales, provider contracting, disease management/wellness programs, claims management and finance. The course was an intensive program on the health insurance industry with the objective of providing detailed training as a health actuary while increasing the students’ chances of reaching C-Suite roles (e.g., CEO, CFO, COO).
Rather than using a textbook to teach the course, the class material was on PowerPoint (more than 1,000 slides) and 200+ recent health industry articles. The objective was to help students hit the ground running on their first job. Students also benefited by expanding their resume through research and experience, which is critical in a difficult job-market.
Students worked independently as well as in teams and made presentations that often took them out of their comfort zones, exposing them to public speaking, project management, networking, and team building. Students were given homework assignments and readings to critique as part of their regular class work. We wanted to make sure that the course also covered a professionalism component, so material included the review of actuarial standards of practice, traditional health actuarial projects, and other professionalism issues.
The course in 2013 was similar to the one in 2012 except that we expanded four key areas of the course, which were as follows:
- Study of international health care systems (10 New countries)
- Impact of health care reform, known as the Patient Protection and Affordable Care Act (ACA)
- Retiree health systems in the United States, including research in retiree health valuations (e.g., GASB45, General Accounting Standards Board No. 45, which is a valuation standard for municipalities reporting under GASB for post-employment benefits other than pensions)
Study of International Health Care Systems
Columbia University’s actuarial program has students from a variety of countries. 37 of the 40 students for the 2013 class were international students. As a result, the course was designed to study international health care systems in addition to the U.S. health care system. In the prior course (2012), 10 countries were selected by students, which included Australia, Brazil, Canada, France, Germany, India, Japan, Singapore, South Korea, Sweden, and United Kingdom. This year’s course incorporated 10 additional countries including Austria, Bermuda, Mexico, Netherlands, New Zealand, South Africa, Spain, Switzerland, Turkey, and United Arab Emirates. Students were divided into teams of three to four to research their selected countries health care system and provide both research papers and power point presentations.
As part of the course, students would teach a class for approximately 30 minutes on their specific country coverage insurance system, reinsurance, regulations, health care reform, market penetration and roles of actuaries in those countries. Students also networked—with assistance from the professors in the course—with actuaries and insurance professionals in other countries to expand their research.
One beneficial result of the class was that some students were able to obtain internships and employment post-graduation of the class through their contacts they developed as part of their international project work.
Impact of Health Care Reform (ACA)
With health care reform becoming a day to day issue for health actuaries as well as impact many individuals and corporations in and out of the insurance industry, it was important for the course to address health care reform and its impact in the market (e.g., insurance companies, health care providers, corporations, municipalities). As part of the class, students would regularly study impacts of health care reform and its changes in the market. Students were assigned research projects around health care reform with the results of this research incorporated into the class. The 2012 course reflected the use of poll surveys to gage the impact on the consumer on health care reform.
In 2013, additional time was spent around the implementation and timeline on the ACA. Some of the areas studied in detail included:
- Impact on commercial (fully insured vs. self-funding) and government programs (e.g., Medicare, Medicaid, etc.).
- Strategies pursued by insurance companies and HMOs including marketing, pricing strategy and operations.
- Impact of Accountable Care Organizations (ACOs) as a result of health care reform.
- Impact of health care reform on other organizations serving the insurance industry including insurance brokers, third party administrators, preferred provider organizations, disease management/wellness companies, technology companies, reinsurers, and private equity.
- Strategies around “pay or play” for corporations as well as exploring and implementation of health insurance exchanges by insurance regulators and health plans.
- Other areas including claims audits, provider billing and wellness initiatives.
Retiree Health Systems and GASB45
As part of the class, significant time was spent around understanding the Medicare system and health insurance programs available to retirees. Students were exposed to all types of Medicare plans including Medicare Advantage and Medicare Supplement arrangements. The course was expanded to help students learn about retiree health valuation methods for other postemployment benefits (OPEB) including FAS106 (single employers), SOP92-6 (multiemployer) and GASB45 (municipalities).
In addition to learning about traditional actuarial formulas around retiree health valuations, students were involved in research projects to understand methods used in the market and summarizing results to see trends and benchmarks (averages). We wanted students to get a sense of the output results from a valuation program, since many actuarial firms are using a valuation program, which may be a “black box” to many students and practicing actuaries.
The research involved students gathering valuation reports which reflected valuation reports prepared by thirty five (35) different actuarial firms reflecting municipalities in forty (40) states. In aggregate, results were compiled for 114 municipalities with results compiled so that students were able to learn the following:
- Types of retiree benefits offered by municipalities nationwide
- Types of assumptions and methodologies used by outside actuarial firms (e.g., 35 different organizations)
- Patterns of results so students can obtain insights on what they should expect in results (e.g., benchmarks, ratios, etc.).
- Most common report elements provided by practicing actuaries.
Some highlights identified as a result of students’ research are as follows:
- Actuarial Cost Methods: 69.3 percent of all valuations reviewed reflected a selected actuarial cost method of projected unit credit, which is the most common valuation method used for GASB45. The second most common method was Entry Age Normal, which was used 24.6 percent of the time.
- Discount Rates: Discount rates varied widely with actuarial firms using discount rates as low as low as 3 percent and as wide as 8.5 percent. Students were able to see a wide range of discount rates used by actuaries as well as assumptions made for funded and unfunded retiree benefits programs. 28.1 percent of all municipalities evaluated had funded some portion of its retiree health benefits.
- Health care Inflation (Trend) Rates: Similar to discount rates, students were able to see a wide range of health care inflation rates used with the average first year discount rate being 8.5 percent and the ultimate trend rate assumption averaging approximately 5 percent (average was 4.92 percent).
- Mortality Tables: 69.0 percent of all valuations reviewed were based on the RP-2000 mortality table, while 71.9 percent of all valuations reviewed reflected some component of mortality improvement.
- 51 percent of the reports had splits for actives vs. retirees for both employee counts and unfunded accrued liability. For those reports splitting actives vs. retirees, active lives reflected 72.6 percent of the total employee count and 58.1 percent of the unfunded accrued liability.
Other trends were also identified by students and reviewed in the course. Results were also illustrated for the class in aggregate so that students can see trends and relationships between unfunded accrued liability, annual required contribution (also known as ARC, not to be confused with the Actuarial Research Conference referenced elsewhere in this newsletter), pay-as-you-go amounts and net OPEB obligations.
Students were also able to see different formatting of reports and how results were presented to the end user. The overall goal for the research was to help students be more consultative with results and be able to audit output for reasonableness when calculations are generated out of the actuarial “black box” (valuation program).
The course also included reinsurance for the second straight year. With an ever changing reinsurance market, we wanted to provide insights to actuaries on health reinsurance as well as reinsurance for other product lines (e.g., life insurance, annuities, accident products, catastrophic coverages, property casualty products). The course includes an overview of history of reinsurance along with providing an overview of the market (e.g., study of various countries, top reinsurers by line of business).
Topics included actuarial, underwriting, claims, auditing, treaties, retrocession, captives and financial reporting as part of the course. Back in the fall of 2012, we had developed a three day reinsurance course that was taught in the Dominican Republic, and we incorporated material from that course into the Columbia University program.
This course, due to high demand, is being offered again in fall of 2013 for Columbia’s graduate students and has an enrollment of 55 students.
Thanks to Donald Rusconi, VP & CFO at Aquarius Capital for his work in this joint effort, and to Noor Rajah, Program Director & Actuary at Columbia University, for his assistance in getting this course off the ground and for trusting us to create a unique program for Columbia’s graduate students.
We also want to thank the various actuaries and insurance professions that assisted the students in research. Their participation was very valuable for the course and we hope other actuaries will participate in the future.
Most importantly, a special thanks to the Columbia University graduate students that went on this unchartered course called a “Global Perspective of the Health Insurance Market,” since they made the program go. Many of those students have gone on to graduate the program and have provided positive feedback on how the course helped them transition seamlessly into their new position. To learn more about the program, visit http://ce.columbia.edu/Actuarial-Science.
Michael L. Frank, ASA, FCA, MAAA, is President & Actuary, Aquarius Capital and
Adjunct Professor at Columbia University. He can be reached at
Michael.Frank@AquariusCapital.com or 914-933-0063.