Actuarial applications of survival analysis in healthcare

Abstract

Healthcare actuaries are increasingly responsible for advising their employers and clients in areas of managed care. Managed care links traditional health actuarial financial work to areas of medical practice, to address the fundamental question: what works? These relatively new responsibilities have required an expansion of actuarial techniques into non-traditional areas, and, in particular, epidemiology and biostatistics. This study is about a specific area of statistics, survival analysis, a topic of great potential application in non-traditional managed care actuarial practice. Survival analysis is used frequently in biostatistics to evaluate the efficacy of treatments and to identify factors that contribute to patient survival. In this study, we illustrate three applications of survival models to solve real-world problems in areas of health actuarial practice: the estimation of survival of permanently disabled workers receiving lifetime benefits for occupational illness and injury, the rate at which seriously ill hospice patients, at risk of polypharmacy, are weaned from non-life sustaining drugs, and the ability to predict, using a model incorporating drug dosage information and specifically changes in dosage, changes in expected future lifetimes of hospice patients. All three case studies are examples of practical models that can be applied within a business context. The study will serve a more important purpose, if it shows health actuaries the potential value of the application of a non-traditional technique within their evolving practice.