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The Actuary The magazine of the Institute & Faculty of Actuaries

Modelling in healthcare finance

The world is becoming a smaller place and there is a quickening trend towards the globalisation of companies and professional activities. Our own profession is not immune from this trend. We are seeing a gradual coalescing of actuarial syllabuses of individual counties under a global umbrella, and it is widely recognised that the techniques studied by actuaries have a universal application in risk-related businesses.
The problems associated with the provision and financing of healthcare have similarities around the world. All governments are finding it increasingly difficult to deliver healthcare within their budget limitations. The poor delivery of services by the UK health service is currently being given a high profile in the media.

Healthcare finance
The International Labour Office and the International Social Security Association have come together to produce a series of monographs on the qualitative analysis of national social protection schemes. The first publication in the series deals with modelling in healthcare finance. The book has been designed to appeal to healthcare finance professionals, including actuaries and statisticians.
The book takes a straightforward approach to the concept of modelling and sets out in detail the basic concepts to be employed. It is not suggested that one health system is preferred against another, rather that any country or region’s healthcare system can be modelled to a number of levels of detail.

Key components
The concept of national health accounts is described. The accounts have four components:
– Global cost How much is spent on healthcare?
– Functional breakdown What kinds of healthcare are provided?
– Provider characteristics Who are the major providers of care?
– Financing sources What are the major sources of funds?
It is the gap between true global cost and financing sources which has bedevilled the UK national health service since its inception. The NHS problem has worsened in recent years as the gap has widened, with the global cost being controlled by rationing.
Healthcare provided by a country is a subset of the total social care provided, and actions within healthcare will have an impact on other aspects of social care. The construction of the various health statistics on offer is placed within the modelling context. Each country will have its own data flow.
The monograph sets out to explain the modelling process from first principles, looking at all aspects of the modelling process, including calculation techniques, the use of models in policymaking and decisions, quoting examples from around the world. Modelling relies on a detailed database being available to the modeller. The absence of credible data is a frequent problem in healthcare, and the methods of plugging the data gaps are outlined.

‘Demoland’ modelling
Extensive use is made of a set of health statistics compiled for a fictitious country, Demoland. Nine examples of healthcare financing modelling using actual past projects are reviewed. The models were produced by six sources three national and three international and are representative of models produced in recent years. All of the models were developed in response to specific questions posed by policymakers, primarily of the ‘how much?’ variety. The models have therefore played a real role in national planning.
As the book is aimed at health system and financing practitioners, there are four additional briefs covering the basic concepts of:
– health economics;
– accounting and financial management;
– the mathematics of private health insurance; and
– the econometric techniques for modelling.
This monograph is not written for any particular course of study. The actuarial content is clear and at the basic level and the ideas can be understood by actuaries and students around the world, including those of us brought up in the pre-computer era. The book brings together the practical problems of modelling any public health system and, although it should not be viewed as a potential source of up-to-date statistics on any health system, it does provide an insight into a specialist area for actuaries.
The ILO social budget model is available separately. It is a good starting point for those wishing to explore this area in more detail.