The Actuary’s Role in Managed Care

Abstract

Financial risk is moving to center stage in the $1-trillion U.S. health-care market. The growth of managed care has created new forms of risk and has shifted this risk from insurance companies, which have long dealt with it successfully, to health-care providers and other organizations that have not traditionally accepted the same type and amount of risk. Health-care actuaries have the expertise to help these institutions, and the nation, protect their financial well-being.

Actuaries specialize in the evaluation, quantification, and management of risk. Actuarial models of health-care costs, which help evaluate risk, offer management a window to the managed care world. With these models and other tools, health-care actuaries help organizations succeed in today’s health-care environment by showing how the financial and functional elements of an organization relate to risk.

This report discusses the evolution of the health-care industry and the role that the healthcare actuary has played in that evolution. Eight case studies outline actuarial approaches to assessing risk in the era of managed care by discussing situations affecting five groups: providers, employers, regulators, public policy organizations, and HMOs. Built on experience gained in hundreds of cases, these studies show the range of tasks encountered by managed care actuaries and outline approaches that can help balance risks in today’s health-care system.