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Modeling the future: consumer-driven health care will require the public to be educated in understanding the programs so economically rational decisions can be made.

The U.S. health-care market has yet to identify the exact form of consumer-centric financing that employers and/or consumers will embrace in an effort to curtail raising premium costs. Regardless of which model or models come to eventually dominate this latest cost-containment effort, their common underlying characteristic will certainly involve a significant cost-shift to the consumer. As "financial risk" is shifted to the consumer, the role of the health plan changes to that of an "infomediary"--an entity that adds value through leveraging its data assets to assist naive health-care consumers in making economically rational health-care purchasing decisions.

The first step a health plan needs to take in its evolution to the role of "infomediary" is to develop an in-depth understanding of the behaviors and needs of its entire population. One method of developing this knowledge is through modeling risk and utilization based on existing technologies such as diagnostic cost-groupers, episode treatment groupers and utilization-cost metrics to create a Risk/Utilization Transition Model.

The ability to gain an in-depth understanding of customers is dependent upon the leveraging of customer data from within the enterprise data warehouse. Only with a single, centralized data warehouse can an insurer collect data from across the organization, store it once and run the necessary analytics against the data to gain the insight. The insights gained are the basis of the business intelligence that drives the modeling of patient risk and service utilization.

The RUT Model requires the application of basic statistical techniques to calculate a predicted future risk value and historical cost value for every member of the health plan's population. These values should be calculated at the beginning, end and on a periodic basis throughout the contract period.

The predicted future risk metric and historical cost metrics can be expressed in terms of "x" and "y" coordinates on a scatter-plot with the vertical axis representing future predicted risk and the horizontal axis representing historical cost. Further develop the RUT Model by applying demarcation lines representing the mean value of each axis. The resulting RUT Model describes four rather distinct population segments based on risk and utilization: Examination of these segments provides critical insight into member profitability, needs and behavior modification opportunities.

Low-Risk, Low-Utilization includes a company's most profitable members, yet are the ones companies know the least about because they're not incurring claims or interacting with on any regular basis. These members tend to be price-sensitive fence-sitters who value health insurance, but consider it a commodity and are the greatest risk of leaving a plan or exiting the market based on price. Insurers should focus on retention by providing value and developing the trust relationship.

High-Risk, Low-Utilization members are profitable today--representing about 2% of total claims expense-but the clock is ticking. Underlying disease conditions like asthma, diabetes, coronary artery disease and obesity have yet to result in significant claims expense. Insurers should focus on avoiding future expense and establishing the net present value of current expenditures.

Low-Risk, High-Utilization members are less profitable today, but the opportunity exists to make them lower cost in the future. Their high costs are representative of a wide variety of injuries, accidents and inappropriate benefit usage. Insurers should focus on behavior management and leverage data to educate these members about health lifestyles and lower-cost providers.

High-Risk, High-Utilization members are chronically ill; the 5%, who generate somewhere around 80% of total costs. Their underlying disease processes are resulting in costly inpatient admissions and inpatient days. The focus is on identification and disease management, while spending time and effort to understand which programs are working and which aren't.

Escalating health insurance premiums are forcing employers and consumers to re-think how they participate in our health-care system. Those health plans that drive the most value in the emerging market will be the ones that have the capability to leverage the data in their data warehouse to assist consumers in making economically rational purchasing decisions.

Kenneth Kubisty is a senior industry consultant for Teradata, a division of NCR Corp. He can be reached at
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Title Annotation:Technology Insight
Comment:Modeling the future: consumer-driven health care will require the public to be educated in understanding the programs so economically rational decisions can be made.(Technology Insight)
Author:Kubisty, Kenneth
Publication:Best's Review
Geographic Code:1USA
Date:Feb 1, 2004
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