Accountable Care Organization Pricing Model

1. Accountable Care Organization Pricing Model Josh Miller, FSA Head of Actuarial – Americas, Aetna International Gao Niu, Ph.D., ACAS, MAAA Assistant Director, Goldenson Center for Actuarial Research

2. Table of Content • What is Accountable Care Organization (ACO)? • One Funding Approach – Fixed Payment • Why Accountable Care Organization? • Pricing Example • Experience Data and Practical Perspective • Pricing Model • A/E Analysis • What’s Next?

3. 1. What is Accountable Care Organization? • Health Care Provider led coordination around their local population designed to: • Improve the quality of care provided • Reduce the overall cost burden of care provided • Improve patient/community satisfaction • A major component necessary for Accountable Care Organizations to execute these goals is the financial mechanism used to incentivize behavior changes.

4. 2. One Funding Approach–Fixed Payments Patients Insurance Insurance Patients 1 1 Pay Premium Pay Premium Bill Insurance Company for Excess Loss 2 Bill Insurance Company 4 3 Provide Health Care Services Provide Health Care Services Get Paid by fixed amount for each assigned patient 2 3 4 Get Paid Get Paid for Excess Loss 5 Health Care Provider Health Care Provider Accountable Care Organization

5. 3. Why Accountable Care Organization? • Doctors Perspective: • Less Incentive for Over Treatment • No financial pressure to become a businessman • Protected by large losses or complicated surgeries • Policyholder/Customer Perspective • Ultimate Premium Reduction • Avoid Unnecessary Treatment • Insurance Perspective: • Significant Risk Transfer • Loss Control

6. 4. Pricing Example

7. 5. Experience Data and Practical Perspective • 2013, 2014 and 2015 claim data and exposure data • 7.2 millions records in the 2013 claim data alone

8. 5. Experience Data – Medical Cost Category

9. 5. Experience Data - Specialty

10. 6. Pricing Model - Clustering

11. 7. Pricing Model – A/E

12. 8. What’s Next • Data Mining on both medical and pharmaceutical claims data • Claims Tracking and Monitoring • Morbidity based Mortality for Life Insurance