By Terry Narine, FCIA
Like most other countries, Canada does not currently have an Office of the National Chief Health Actuary or a related position. However, the time to incorporate this role into our government’s structure may be reaching critical mass. But before we dive into how this position may be suitable for Canada, let’s define what an Office of the National Chief Health Actuary is.
The Office can be defined as being led by an individual (“Chief Health Actuary”) who brings actuarial skills and expertise to advise federal and provincial governments in an unbiased fashion on the future trends of government health plans and health expenditures. The Chief Health Actuary role would exclusively focus on public health care, with private health care being well represented by actuaries who specialize in that side of health insurance. The Office would entail a staff of actuaries and possibly economists and data scientists who would support the Chief Health Actuary’s function.
Why would a National Chief Health Actuary be necessary in Canada?
Many years ago, I attended a risk management conference where at some point, an attendee asked why all insurance companies weren’t required to have a Chief Risk Officer. I thought the question was quite self-serving at the time given we were at a risk conference. In my mind, the CEO was the Chief Risk Officer responsible for all risks the company was willing to take on.
Today, their question seems prophetic. Most financial institutions have a risk manager or more in some role at their organization. So, at the danger of seeming self-serving, I now ask the question, “Shouldn’t Canadians have a National Chief Health Actuary?” (For full disclosure, at my age and stage of career, this is not a role I would have any interest in pursuing.)
The concept of a National Chief Health Actuary has some precedent. The US has a Chief Actuary of CMS (Centers for Medicare and Medicaid Services) that oversees the Medicare program for seniors and the Medicaid program for low-income individuals. Similarly, the Canada Pension Plan has a Chief Actuary. And while that work is primarily on Canadian pension payments, there are some health aspects to the role. Our own Canadian Institute of Actuaries recently issued a media release on a national pharmacare strategy recommending the involvement of actuaries. Implementing an Office of the National Chief Health Actuary would be another step toward that direction by having actuaries as key advisors on national and provincial health care.
Actuaries and the future of health care
It’s well known that health care costs continue to inflate for many governments around the world, including our own provincial and Canadian bodies. At some point, these costs may overwhelm the GDP for many nations.
A recent quote from the Fraser Institute says, “…according to early economic forecasts, even if health-care spending simply grows according to historical trends (say 3.5 per cent based on the last five years), it will consume a much larger portion of government revenues, increasing from 23.5 per cent to almost 29 per cent of tax revenues.” How can actuaries play a role in this emerging dilemma?
One specific way might be through the use of predictive analytics and regression analysis for which we are trained. For example, actuarial skills can be used to quantify the side effects of drugs. Several years ago, a big pharma company in the US tried to hire me to perform a similar exercise. I had recently heard about a linear regression model being used by obstetricians to decide whether people in labour should have a C-section. The algorithm takes such factors as age, weight and the presence of scar tissue to make the decision. This, to a large extent, takes the decision out of the hands of the doctor, allowing them to focus on other aspects of the job.
“Surely, government health departments can expand their use of algorithms in health care for better patient outcomes and cost savings–and actuaries can drive some of this algorithmic development.”
I expect applications of health algorithms and predictive analytics to only expand in medical practice in the future. Actuaries, with their grounding in statistics and modelling, would be opportunistic candidates for roles in this area. And I’m sure there are many other examples along those lines. At the time of writing, I recently chaired a presentation by another actuary on the changes in levels of physical fitness, sleep and blood pressure depending on the length of hospital stays. There is likely a large, untapped market of research in this field where actuaries can add value.
This opens the question of how the emerging field of AI and machine learning in health care could impact some of these potential actuarial roles. Can model-based health care, driven by AI algorithms, alter health care delivery? I’ve recently heard about the potential to use machine learning to detect cancer at early stages. I believe actuaries can play a role in some of this predictive analytics and regression analysis as it applies to mortality and morbidity outcomes.
A recently opened hospital a short drive from my residence is now using robots to deliver patient forms and medications to different floors and wards of the hospital. This saves the nurses time that can be dedicated to more suitable things like patient care. There are also two Ontario hospitals that now use drones to deliver lab samples between them. Health care and its delivery are changing, and it’s time actuaries had a stronger role to play in this field.
The actuarial advantage in health care budgeting and planning
Many public health programs use economists and data scientists to address budgetary and other planning needs around financing from taxpayer money, and this review of the current system in no way intends to slight the many skilled econometrists and data scientists who work in this field.
However, an actuary or public-funded actuarial department can bring a unique set of skills and knowledge honed through experience and education.
“Armed with mortality and morbidity tables, adjusted for the public rather than insured populations, actuaries can enhance the prediction of health care needs as populations age.”
One area of actuarial expertise involves the calculation of loss ratios and the projection of future expected loss ratios. The Affordable Care Act in the US states:
“… (the ACA) requires health insurance carriers to spend the bulk of the premiums they collect on medical expenses for their insureds. Individual and small-group carriers must spend at least 80% of premiums on medical expenses, and for large-group plans, the requirement is 85%. Profits and other administrative expenses can make up no more than 20% (15% for large groups) of premiums collected. If administrative expenses exceed those amounts, the insurer must remit rebates to their insureds.”
I could see the Office of the National Chief Health Actuary being significantly involved in some sort of medical loss ratio calculations going forward. Whilst there is no premium involved, excluding taxpayer revenue, calculations could project future allocations to patient care versus administrative costs as a percentage.
The potential role of an Office of the National Chief Health Actuary in Canada
With underlying mortality/morbidity tables and future improvement factors on those tables, actuaries can develop models to accommodate projections of future health care costs. This should enhance governments’ ability to make wise choices regarding scarce resources that must be shared within the population.
The Canadian Medical Association (CMA) has stated the following: “The Canada Pension Plan (CPP), which is managed jointly by the federal, provincial and territorial governments, provides a good model. Major changes to the federal legislation governing the CPP require the formal consent of the Parliament of Canada and at least seven out of the 10 provinces, representing two-thirds of the population. Federal, provincial and territorial ministers of finance review the CPP every three years, with expert input from the Office of the Chief Actuary.”
The CMA made that statement with respect to a discussion on accountability of health care spending. They highlighted the co-operation of the federal and provincial/territorial governments along with the Office of the National Chief Actuary as a model that works with national pension plan payments. It may be speculated that they might also favour a similar model involving co-operation of federal and provincial/territorial governments along with a potential future Office of the National Chief Health Actuary in addressing accountability of health care spending.
Empowering the public through actuarial oversight
Governments could push back on highlighting levels of underfunding that an Office of the National Chief Health Actuary may highlight. It’s an understandable reaction that may provide criticism of governments in power. Still, the need of the population to know the level of funding for their future health care provides another source of information for governments to target.
Again, quoting the Fraser Institute, it has been stated that “…many Canadians know they pay a substantial amount of money for health care through Canada’s tax system. However, it’s unlikely that many can tell you exactly how much. We never receive bills for medical services, and we don’t see anything like a dedicated ‘health-care tax’ on our T4 slips.”
Ultimately, publicly knowing this cost may lead to greater understandings of how to implement health care in a more equitable fashion for various under-served sectors of society.
Notably, one area where actuaries stand out is with our code of conduct. Bound by this code, and the possibility of disciplinary action, the public can have great assurance that public health actuaries will act in their best interests. This is by no means to diminish the integrity of economists, data scientist and others. But the mandate of actuaries to protect the public interest is by far well-suited in what would be a very public role.
Tackling the future with actuarial expertise
It’s a well-known fact that there is a crisis in health care in Canada today. Many go without a family physician and must rely on walk-in clinics or emergency rooms. Physician and nurse burnout following COVID has seen many leaving the profession or Canada for greener pastures. Wait time for surgeries can be six months to five years.
This is a large and complex issue and we can’t boil the ocean. However, while actuaries won’t solve every one of these problems, this novel approach of implementing an actuarial body at the head of government would be worth the attempt. As the popular saying goes: you can’t fix what you can’t measure.
Terry Narine, FCIA, is Chair of the Health Forum of the International Actuarial Association and a long-time Institute volunteer.
This article reflects the opinion of the author and does not represent an official statement of the CIA.
