The paper aims to provide an actuarial perspective on high health care costs incurred by insurers in the last year of a policyholder’s life. Costs in the last year of life are compared to costs in earlier years prior to death and standard methods are used to compare decedent and survivor costs.

We describe the key methodological issues for actuaries to consider in analysing these costs in terms of calculating exposure and risk adjusting the results. The effectiveness of clinical grouper systems in predicting high medical resource utilisation at the end of life is explored. We consider the need for incorporating end-of-life costs in projecting health insurance expenditure, designing health insurance products and pricing health insurance products.

The experience of South African medical schemes is used as a case study to illustrate the impact of methodological choices on the results obtained. In this context health care costs in the last year of life are found to be 3.5 times higher than in the second last year of life, and decedent costs are found to be at least 15 times higher than survivor costs on a risk-adjusted basis. In addition last-year-of-life costs are observed to decrease with age after age 70. We outline the characteristics of the South African health care system and highlight the key limitations when comparing last-year-of-life costs between health systems. We also consider the relationship between health policy and end-of-life costs, in particular the impact of minimum benefits and the scope for anti-selection.

*Awarded Health Track Prize