The Actuary Magazine

Managed Care 3.0 Technology


By Sudha Shenoy and Joan Barrett


Photo: Niam

Over the years, some health care analysts have estimated that new technologies account for about half of the cost increases in U.S. health care.1 Others have disputed these claims and cited factors like price2 as the major element driving increased costs.

Regardless of one’s viewpoint, there are two key takeaways. First, improvements in technology have—for the most part—led to improvements in the quality of care. As an example, consider that magnetic resonance imaging scans (MRIs) generally provide more accurate diagnostic information than X-rays, without the potentially harmful radiation. As the use of MRIs has increased over time, however, there have been increased concerns about their cost-effectiveness and potential for overdiagnosis.

Second, the nature of new technologies has changed dramatically in recent years. Although expensive and focused technologies like MRIs will always be a factor in health care costs, we are seeing the emergence of widely used and relatively inexpensive technologies. For example, Fitbits usually cost less than $200 and can be used by anyone to monitor metrics like the number of steps one takes each day. Additionally, scientists recently made a breakthrough that could encourage more efficient international scientific collaboration. The Cronin Lab at the University of Glasgow developed software that translates a chemist’s words into recipes for molecules that a robot can understand. As described by CNBC contributor Charlie Wood, the resulting “online repository of easily downloadable recipes for important key molecules…[could] help developing countries more easily access medications.”3

Artificial intelligence (AI) powers many of these emerging technologies, and it is being adopted in various health care applications. The first half of 2020 saw a more than 20 percent increase in health innovation funding compared to the same period in 2019.4 At this point, one can only speculate how much this shift in the technology landscape will impact the cost and quality of health care, but we do know that it will have a major impact on the day-to-day work of actuaries, especially in terms of pricing and network analytics.

To help actuaries and others adapt to this new reality, the Society of Actuaries (SOA) and the Kaiser Family Foundation Initiative 18|11 team sponsored this Managed Care 3.0 (MC3.0) Technology strategic initiative. The name “Initiative 18|11” refers to the fact that the United States spends 18 percent of its gross domestic product (GDP) on health care, compared to comparable countries spending just 11 percent of their GDP. The Initiative 18|11 team has explored cost drivers as well as potential solutions that address health care costs. During the next few years, we should witness increased efficiency in health care delivery and many new innovations, techniques, care models and analytical tools that promise to revolutionize health care access and delivery.

The SOA Health Section and the 18|11 team jointly sponsored this MC3.0 Technology initiative with a focus on the impact of technology on health care costs. This project introduces actuaries to the growing number of innovative technologies that are moving health care into the digital era and empowering the member, health care providers and payers. We also witnessed in 2020 how technology proved to be a great ally and a valuable resource as we navigated the COVID-19 pandemic. Many technologies, such as telemedicine and AI, and the development of new drugs and vaccines, played a role.

We hope this series of articles will provide readers with knowledge, resources, guidance and an outlook on how innovative technologies will continue to revolutionize health care.

We studied the impact of technology on health care costs from three angles:

  1. Diffusion of technology in the health care system
  2. Efficiency in health care settings and processes
  3. Empowerment of the consumer and technological innovation


Diffusion of Technology in Health Care by Sudha Shenoy, FSA, MAAA, CERA, and Geof Hileman, FSA, MAAA

This article provides the theoretical context on forces that impact the adoption of technological innovations in general and the specific barriers to adoption of these new technologies in the health care space. In the short term, both emerging health care technologies and the COVID-19 pandemic have primed the health care consumer for the use of new technologies. The longer-term outlook depends on how various stakeholders and the diffusion of technology will be driven by a combination of payers, regulatory bodies, pandemics, consumer demand and technologies like AI that stretch the capacity of providers and directly assist in patient care.


Telemedicine in the New Health Economy by Doug Norris, FSA, MAAA, Ph.D., and Keith Passwater, FSA, FCA, MAAA

This article discusses telemedicine, a topic the COVID-19 pandemic has put in the spotlight. There suddenly was a huge need for accessing health care services while observing public health guidelines such as social distancing. This wider adoption of telemedicine was made possible as existing barriers were waived, making it more accessible and easier to use. Telemedicine deals with technologies and applications concerned with diagnosis, treatment and prevention of disease and injuries where distance is a critical factor. The article covers different types of telemedicine and identifies specialties like radiology, pathology and cardiology that use telemedicine to a greater degree. Finally, it also explains the impact on health care costs and identifies key criteria that need to exist for this technology to become an integral tool in health care delivery.


AI to the Rescue by Wayne Pages, ASA, MAAA, FCA; Paul Moore, MBA; and Jason Reed, FSA, MAAA, MS

A health care crisis has been caused by the confluence of an aging population and a shortage of physicians, but this crisis can be partially solved by technologies such as AI. This article defines AI, its origins, various types and the current impact, as well as the potentially huge reach of AI in the health care space. Key topics within this article include the reliance of physicians, providers, health insurers and pharmaceutical companies on AI to increase productivity in diagnosis, treatment and effective patient monitoring through various devices and wellness programs. While AI is still evolving as a mainstream technology, it continues to make an impact on many facets of society. Actuaries need to understand the impact on the profession as AI is used increasingly in predictive models to analyze risks and in many other complex health care applications.

Can We Achieve More for Less? by Francois Millard, FSA, FIA, MAAA, and Lianne E. Jacobs, MPH

This article focuses on delivering value using high-productivity innovations such as the digitization of health care by driving value throughout the health care space. This can be achieved by empowering the consumer by providing critical data, digital applications with supportive clinical models, and efficient health care settings. The vision described in this article has care delivery models using “seamless data and information” exchange and the Internet of Medical Things to provide the health plan member with an experience that helps the member manage their health holistically. These technologies need to be accessible both from a cost and design perspective, and individuals should be rewarded for engaging in healthy behaviors. The funding for these technologies should be supported by a mix of employers, payers and providers. Actuaries are best positioned to study and provide opinions on how to govern these cutting-edge technologies and optimize funding.

Actuarial Perspective on Price Transparency in Health Care by Lee M. Parrott, FSA, MAAA

There has been a lot of attention on the topic of health care transparency and whether it leads to lower health care costs. There have been arguments that third-party payments by insurers insulate members from learning more about true costs of health care. This article explains current regulations like the Health Care Transparency Act and the Centers for Medicare and Medicaid (CMS) proposed rule for hospital pricing. Low-value care in the health system accounts for up to 11 percent of waste, and price transparency may be inadequate to address this issue without addressing quality of care. Innovation in benefit designs should replace high-deductible plans that result in members foregoing care to reduce first dollar out-of-pocket spending. Physicians can act as financial advisers and help members with shared decision-making by taking into consideration cost, quality indicators and member preferences. Price transparency is only part of the equation, however, and lower health care costs with better quality outcomes can be achieved through innovative benefit designs and shared algorithms for decision-making. Actuaries are best positioned to partner with clinicians and come up with innovative benefit designs that drive value and lower the costs of health care.

Adoption of New Drugs, Devices and Treatments by Krishna Faldu, ASA, MAAA

While actuaries focus on the impact of new drugs, devices and treatments on their health care trend and cost projections, there are many factors that go into acceptance and adoption of these new technologies. This article separately discusses key factors and considerations that impact the adoption of new drugs, devices and treatments. It explores various categories of drugs such as medical drugs, pharmacy drugs, generics and biosimilars and the considerations that apply to each of these categories. Adoption of new devices can be trickier depending on whether current alternatives exist, whether it would result in a reduction of costs or an increase in quality. Implementation of new devices can require more time, funding and additional resources. It is crucial to understand factors that influence adoption of these technologies since this has a more immediate impact on the work of most health actuaries.

Gene and Cell Therapies by E. Anne Jackson, FSA, MAAA; Melanie Kuester, Pharm.D., BCPS; and Jessica Naber, FSA, MAAA

Gene and cell therapies are innovative technologies that can transform the treatment and management of certain diseases. These therapies tend to replace abnormal genes or cells. Currently, most of these therapies are focused on rare diseases with no other treatment options. The article describes the science of these therapies and the different factors that impact coverage decisions. The inclusion of these therapies may pose many uncertainties related to the utilization and budget impact of gene and cell therapies given the short administrative period but long-term benefits of these treatments spanning many years. Managing risks related to these therapies also is covered within this article, and several options are provided, including the use of reinsurance, stop-loss and development of innovative stakeholder partnerships. The article concludes by asking actuaries to get involved and find creative and innovative ways to manage the financial and performance risk of these therapies.

Long-Term Utilization of Pandemic-Emergent Technologies by Radha Shenoy, MPH, and Sudha Shenoy, FSA, MAAA, CERA

The COVID-19 crisis has greatly accelerated the use of existing technologies as well as introduced both new and promising pipeline technologies. This article seeks to examine the use of technology during the COVID-19 pandemic and how this technology may impact post-pandemic technology utilization in health care and health-related areas such as testing, diagnosis and contact tracing; drug, vaccine and medical device development; hospital and other business operations; patient, family and provider communications; AI; and medical education. The article concludes by providing examples of collaborative studies and emphasizes the immense benefits achieved when different segments of society work collaboratively to find new and innovative solutions to complex health care problems.


Actuaries are familiar with the impact of new technologies used primarily by clinicians and health care providers, such as new drugs and devices. The common theme emerging from many of the articles points to a technological revolution in health care. We will begin to see more prolific use of AI in health care operations, analytics, decision-making in clinical models and other digital applications. The advent of predictive models can impact actuarial tasks, including pricing, risk stratification and complex modeling of health care costs. Actuaries need to be vigilant, learn how to run these models, review the output and provide guidance on interpretation and adoption of any recommendations.

Like every other industry, consumerism is poised to enter the health care space, and we will witness digitization of the health care system. COVID-19 has been a catalyst for such change, and the momentum will continue even into the “new normal.” Many big technology firms like Amazon, Apple, Google and others have provided applications such as logistics planning, applications for contact tracing and so on during the pandemic, and they have been eager to penetrate the health care space. Actuaries need to understand these technologies, the forces driving them and educate themselves on this topic. We hope actuaries will understand the impact, learn how to drive this technological change and guide the response of their profession and their own health care organizations.


The team wishes to thank the Health Section Council for its support throughout the production of this article series, as well as the Managed Care 3.0 Steering Committee, which included Sarah Osborne, FSA, FCA, MAAA (Chair), 2020-2021 SOA President Roy Goldman, FSA, CERA, MAAA, Ph.D., Rick Gundling, FHFMA, CMA, and Matthew Rae, MPH, MHA, and the leadership of Initiative 18|11, Joan Barrett, FSA, MAAA, and Brian Pauley, FSA, MAAA. We also are grateful for the support of our SOA Staff Partner, Joe Wurzburger, FSA, MAAA, SOA Section Specialist, Ladelia Berger, and Strategic Initiative Chair, Geof Hileman, FSA, MAAA.

Sudha Shenoy, FSA, MAAA, CERA, is president of Steer Health.
Joan Barrett, FSA, MAAA, is a senior consulting actuary with Axene Health Partners.


  1. Congressional Budget Office. Technological Change and the Growth of Health Care Spending. January 2008 (accessed October 27, 2020).
  2. Anderson, Gerard F., Peter Hussey, and Varduhi Petrosyan. It’s Still the Prices, Stupid: Why the U.S. Spends So Much on Health Care, and a Tribute to Uwe Reinhardt. Health Affairs, January 2019 (accessed October 27, 2020).
  3. Wood, Charlie. Scientists Make Digital Breakthrough in Chemistry That Could Revolutionize the Drug Industry. CNBC, October 24, 2020 (accessed October 27, 2020).
  4. Landi, Heather. Investors Double Down on Health Technology as Global Funding Reaches $9.1B in 2020. FierceHealthcare, July 1, 2020 (accessed October 27, 2020).

Diffusion of Technology in Health Care

How innovation affects the health economy
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Telemedicine in the New Health Economy

Will increased telehealth access lead to more efficient delivery of care and cost reductions?
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AI to the Rescue

How artificial intelligence can help stave off a looming health care crisis
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Can We Achieve More for Less?

The impact of technology on health care
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Actuarial Perspective on Price Transparency in Health Care

Have we found a path to lowering the total cost of care?
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Adoption of New Drugs, Devices and Treatments

How actuaries can forecast the utilization of new technologies on the market
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Gene and Cell Therapies

A primer for actuaries and benefit providers
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Long-Term Utilization of
Pandemic-Emergent Technologies

COVID-19 accelerates the move to a more comprehensive and connected approach to care
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