An actuary is a business professional who deals with the measurement and management of risk and uncertainty, particularly compiling and analyzing statistics to calculate insurance risks and premiums in health care. Within a health plan, actuaries set premium rates, forecast trends, design copays and member cost sharing, evaluate the cost impact of medical/clinical programs, design and price new products, assist in designing formulary model, model the impact of risk-share agreements with providers and clients, and forecast the impact of risk adjustment on revenues.
During a presentation at the AMCP Annual Meeting, Karl J. Gregor, PharmD, MS, vice president of pharmacy advisory services at Optum in Fishers, Indiana, Drew Kirchner, FSA, senior actuarial director at Cigna Healthcare in Denver, Colorado, and Whitney S. Pratt, FSA, CERA, MAAA, actuarial manager at Optum in Englewood, Colorado, discussed the role of an actuary and the influence within an organization.
Actuaries use the following for assumption development: the plan’s internal claims database, external databases and reports, online publications, and the professional judgement from experts within various departments.
Payers are responsible for many types of consumers and different coverage options, and each book of business has different external influences that impact payer decisions. The actuary must consider the following factors:
- Involved department
- Product leads
- Historical experience
- Minimal loss ratio
- Reasons for performance
- Reserve sufficiency
- Potential projection impacts
- External impacts
- Trend inflation
- Changes to the model
- External impacts
The projection of premiums starts with a claim. All analyses are performed to help estimate the expected claims and administrative costs of a health plan. These values are further analyzed to calculate premiums for different regions and books of business. Future drug costs are required to set premium; they must account for costs plus margin but remain competitive. As a result, inaccurate trending of high-cost drugs can significantly impact margin and market share. Pharmacists can help by communicating expected cost and utilization data.
The speakers then gave a few case scenarios. In one, a drug with a new mechanism of action (MOA) comes to an established market for a known patient population for which there are no direct drug competitors on the market. The actuarial will estimate the shift to the new drug using similar scenarios for different drugs, as well as estimate the cost using published reports and expert opinion. In addition, the pharmacy could provide an expected shift percent and costs. In another example, a drug with a new MOA comes to an unestablished market for an unknown patient population for which there are no direct drug competitors on the market. The actuary will use the same methods noted for an established market, as well as estimate the “warehoused” population through historical diagnoses and online research. The pharmacy can also provide information on the estimated disease in total insured population.
Presentation R5: The Actuarial Influence on Pharmacy Benefits. AMCP Annual Meeting 2019.