Through the Affordable Care Act, many measures are being implemented that are expected to have a positive impact on bending the healthcare cost curve downward in the long term. However, the same act removed annual and lifetime limits for medical insurance claims. As a result, the maximum potential loss from a single individual is a new frontier of risk, with new heights being reached each year. This is both a frequency and severity issue.
To illustrate the frequency impact, consider a recent report by Sun Life Financial for its stop-loss business: the number of claims of USD 1 million and above increased by 1,000 percent from 2010 to 2013. While there were only two claims in 2010 that number rose to 22 claims in 2013. With respect to severity, the limit for any one person in any year was generally USD 2 million prior to 2010. Last year saw multiple claims of more than USD 20 million in charges and dozens of more than USD 5 million.
With the potential for medical solution providers to earn millions of dollars per patient each year combined with tremendous strides in biotechnology, previously unimagined and uneconomic therapies are becoming not only possible but also potentially pragmatic.
Predictive analytics or predictive medicine uses patient-specific data and enables a more customized, precise approach for patient-specific treatment. With the insight this provides, biotechnology, pharmaceutical and medical device companies can partner to provide better care, improve compliance, lower readmission rates and drive improved outcomes. This can lower unnecessary and ineffective treatments and decrease the overall cost of care. However, taken to an extreme scenario, life science companies could invest in developing much more specific treatments for very small cohorts of affected patients. These focused therapies could be extremely expensive and would be wildly impractical without the intersection of new technology and new economics.
Regenerative medicine is another area undergoing rapid change. Human cells and tissues are being repaired and regrown outside of the body. Three-dimensional printers will create much needed organs for transplant patients using their own cells. Simple organs are already being created. This technology-enabled area of medicine is groundbreaking because it harnesses the body’s own ability to heal and can provide potential cures for an enormous array of life-threatening diseases and conditions.
These examples of recent and emerging changes include regulatory, technological and economic disruptive shifts and represent only a portion of the factors affecting any insurer in this space. There is no historical precedent on which to base any forward-looking trends. The impact of these technologies on medical costs in the short term, and on human longevity and reserving in the long term, remains challenging to quantify reliably. However, advances in modeling and analytic methods will provide greater insight than has ever been possible previously.