Zachary Grider of Arsenal discusses the value in taking advantage of data for those captives involved in the healthcare industry.
The landscape of healthcare in the insurance market has changed in many ways over the past few decades: newer ideas, more policies, changing regulations, and one of the most important aspects, the data available.
Regardless of the opinions on the state of our healthcare system, anyone working in the health insurance industry, or any employee benefits captive insurance company, will want to analyse the information available. According to the DOL’s National Health Expenditure Projections for 2018-2027, for the years of 2020-2027, private spending is “projected to grow by 5.1 percent per year on average” and out-of-pocket spending is expected to grow around the same percentage, with an anticipated growth of “5.4% related to the excise tax on high-cost insurance plans”. This correlates to increasing rates to cover costs that most traditional insurers face; however, a captive can handle these rising costs more gracefully – with the help of data.
Captives have a unique benefit compared to traditional insurers; the partners of the captive who provide health benefits to their employees share the risk – and thus are incentivised to be more responsible and prevent premiums, and by proxy payouts, from increasing exorbitantly – allowing the captive to outperform the standard insurance market. The tangible benefits of having an employee benefits captive include the following: providing innovative benefits plans in order to meet the changing needs of the evolving healthcare landscape, enabling an insured to pay for coverage that may not be available to them on the market, potentially providing a percentage return on the premiums to companies that performed particularly well compared to their expected loss, and more control of medical costs through wellness options and data readily available.
While the benefits stated there are possibilities or assumptions we understand through the structure of a captive – the big question is how do we get there, and how do we make sure that our captive is functioning at the level of profit we would like? The answer to that question is very simple – data.
Untapped potential
Data is very valuable, surprisingly abundant, and often goes unused. According to a post on the World Economic forum, “the entire digital universe is expected to reach 44 zettabytes by 2020”; to put that into perspective, streaming a Netflix show or movie uses “about 1 GB (gigabyte) of data per hour for each stream of standard definition video” according to Netflix – which means there are 44 trillion hours of Netflix shows expected by the end of 2020. Another blog post discusses how roughly 73% of data every day goes unused in businesses.
While your captive business is probably not dealing with anywhere near that amount of data, you probably have questions as a business professional about premiums, finances, billing, risk – and other sorts of enquires related to your customers. Some of these questions turn more complex, and a bit more difficult to grasp – an example being: since introducing this new policy available to our consumers, how has participation changed in the other plan types? Or perhaps you would like to drill down by area, age, or even income – depending on what data is available to you. The key to answering these questions directly follows data: business intelligence.
Business intelligence
Business intelligence, in short, is the ecosystem used by a business for the analysis of business information. The name itself is self-explanatory – you use the data that is available to you in order to gain insights into historical or current data and process them to make decisions that will make your business’ bottom line look better. This can ultimately result in a better business process, better predictions of risk, and a competitive advantage that other businesses may not have. Business intelligence is broad and comprised of many technologies such as reporting, online analytical processing, and analytics.
To give a short example of why business intelligence is so popular, consider the simple Excel spreadsheet and PowerPoint presentation. You would generally have a simple line chart based on a flat data spreadsheet. Business intelligence reporting is more like a book for you as a professional – the pages have all of the information, and you can see the page you are on, but you also have the ability to flip the pages and search through them to see what interests you.
As business professionals, there’s no need to deep dive into the specific technologies or methodologies that are used to process and consume the data, but as a professional you should be aware of the advantages, inputs, and responsibilities that come with moving from simple reports to complex, real-time, reporting tools that can provide instant feedback and reporting at your fingertips.
Now business intelligence is backed by data, and any good business professional – especially in the captive insurance industry – understands the results that good data-based insights will lead to in order to reduce costs and improve outcomes for your business and your consumers. Earlier we discussed how healthcare costs are rising, even in the private sector, and that the solution to this is good data to build insights, answer questions, and predict outcomes for patients regarding claims, illnesses, and pricing models.
Business intelligence can provide these benefits more tangibly and easily through this data – by tying together your policyholders, their health, and their health outcomes. Since they are participating in your captive, having this information that can be disclosed (per state and federal guidelines) will give the companies within your captive more incentive to bring those costs down, at a minimum to reduce the cost of their premiums through claims and health management, and potentially reimbursements or rebates for a year where the claims were significantly less than the premiums received from the well-performing company.
Business intelligence could also be used to improve diagnostics of your policyholders to predict future claims or health outcomes and could potentially be used to design more specific plans or to offer more specified coverage. In large organisations, a specific wellness or health management plan could be offered to people who suffer from specific chronic illnesses, such as diabetes, heart conditions, or mental illnesses based on the health data for that specific organisation.
Lastly, and perhaps the most importantly, business intelligence with big data has a subset of predictive analytics using artificial intelligence. This can be used, with enough, important data, to not only predict patient outcomes but to determine the responsiveness of a company to a policy, the effectiveness of specific wellness or health management plans on a subpopulation of individuals, and even help determine whether a new type of coverage would be profitable or not, and the consumers who may participate in it.
To summarise, business intelligence is a powerful set of tools that can be used to improve outcomes within your captive, and not just for health insurance. Many traditional insurers have been using these tools for years, and actuaries have used these methods for quite some time – but in 2020, these tools are more easily available to the business professional and more digestible from a reporting standpoint, and could give you and your captive the competitive advantage to not just succeed, but to really take control of your programmes, especially in the healthcare sector.
