How Do Actuaries Model Healthcare Costs?

How Do Actuaries Model Healthcare Costs? Learn the Step-by-Step Process to Project an Employer-Sponsored Health Plan's Spend.

Step 1: Gather Historical Data... 24-36 months of claims data (both paid and pending claims) along with monthly plan member enrollment data

Step 2: Calculate the Historical Per Member Per Month (PMPM) Cost

Step 3: Apply Trend incorporating medical cost inflation, utilization changes, new treatments/drugs and regulatory changes

Step 4: Adjust for Plan Design Changes such as changing the deductible and total cost share, using a narrow network or benefit enhancements

Step 5: Exclude High Cost Claimants

Step 6: Adjust for Demographic Changes within the population

Step 7: Add a Risk Margin of 2-5% to allow for error

Step 8: Benchmark the PMPM against other similar groups and create three final PMPMs: High, Mid and Low estimates of healthcare costs.

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[aayushmabhandari]

Thank you for breaking it down so clearly. Very helpful!

[sathyahari]

This is super informative. Really appreciate you sharing this Dr. Bricker. You're single-handedly educating a new generation of healthcare entrepreneurs and builders. I love that you also explain the incentives and providing real examples in your content. Big fan!

[actuarydev]

as an actuary, this is a really solid 10 min simple explanation

[rarevalo]

Thank you!
You have take health financial education to a tagible subject to physicians & all healthcare workers. Congrats.

[CharlieSpecter]

The growth of channel has been fantastic. I was one of the first subscribers back in the double digits. Now at 36k+ 🎉

[poptart_king]

Dr. Bricker, yet again, fun topic you made even more fun and interesting!

Also, do you like pop tarts?

[StephenGriffith-jd]

Loved your previous video about healthcare communication

[billymasters]

Looks great. Maybe not strictly a "cost" but for pricing there is also profit loading (arguably this could be included in risk margin). Also I didn't see admin expense (again maybe not technically a "cost" but it is added in to the price charged). Finally, for certain markets risk adjustment gets factored in but I agree with leaving it out of the explanation / video.

[MarkStanley]

In my talks with actuaries, they seem to be well-grounded in the costs you have identified but miss the cost for customer service. A member in specialty medicine or one in high-cost claim territory will interact with member services and clinicians significantly more than average. They tell me that if they knew those costs it would be possible to bake them in to plan pricing and risk adjustment requests if only they knew the real numbers. That data is available, but you have to know where to look.

[CodyNavin]

You've got to fix your audio. High pitch squeel in most videos. PLEASE

[NANA-ndkq]

To solve the current healthcare crisis,
and obviate unconscionable insurance prices,
We should all get requisite medical degrees,
and minister, alone, to our own maladies.
This may present a quandary
To the Juris Doc, M.D....
What will the legal remedy be,
for a literal personal injury?