Pareto’s Law
As a (retired) actuary, a lot of my work projecting things was done using something called Pareto’s law. Some refer to this as the 80/20 rule.
Pareto’s law suggests that 80% of the outcome comes from 20% of the effort. The corollary also applies that 20% of the outcome comes from 80% of the effort.
A simple example is cutting drywall. When drywall is first put up, the installers do not measure and cut the bottom in a perfectly straight line because the baseboard will cover any minor differences in the bottom of the wall to the floor. (I hope this example makes sense. I’m not very experienced in this, but it was this example or putting tape on a light switch plate when you paint.)
Specifically, in my former job, we projected our members' health care costs so we could set the total amount of premium needed to cover them. Let’s say our members seek 11 doctor visits on average per year, and each visit costs an average of $100. We would need to collect $1,100 per year per member to cover those doctor visits. Of course, there are a lot more services than just doctor visits and there are many types of doctors. Then, there are hospital visits and durable medical equipment and drugs…the complexity just keeps increasing.
I got asked all the time if we forecasted how many flu or strep throat diagnoses or people with diabetes, etc., we would get. Sure, if I had unlimited manpower and computing facilities and more time, we could have projected each little diagnosis separately, but like Pareto’s law, the improvement of our projection would have been small compared to the increase in effort.
Oops, I probably shared a deep actuarial secret I shouldn’t have.
The point I’m trying to make is that, at least for insurance pricing, there are a lot of people working hard to accurately project healthcare costs so we can charge a premium that covers those costs without making too much money (really).
“I say: Keep the king’s command, because of God’s oath to him. Be not hasty to go from his presence. Do not take your stand in an evil cause, for he does whatever he pleases. For the word of the king is supreme, and who may say to him, “What are you doing?” Whoever keeps a command will know no evil thing, and the wise heart will know the proper time and the just way. For there is a time and a way for everything, although man’s trouble lies heavy on him. For he does not know what is to be, for who can tell him how it will be? No man has power to retain the spirit, or power over the day of death. There is no discharge from war, nor will wickedness deliver those who are given to it. All this I observed while applying my heart to all that is under the sun, when man had power over man to his hurt.” -Ecclesiastes 8:2-9 ESV
As much as we demand precision from others and give ourselves grace when we can’t provide it, there is much in life that isn’t certain. It isn’t certain the other driver will follow the rules of the road. A doctor can’t always figure out what is wrong with you, especially on your timeline. We buy things that break or need repair before we think they should. We have loads of laws and regulations protecting people from such things (within reason). But…
“So then, brothers, we are debtors, not to the flesh, to live according to the flesh. For if you live according to the flesh, you will die, but if by the Spirit you put to death the deeds of the body, you will live. For all who are led by the Spirit of God are sons of God. For you did not receive the spirit of slavery to fall back into fear, but you have received the Spirit of adoption as sons, by whom we cry, ‘Abba! Father!’ The Spirit himself bears witness with our spirit that we are children of God, and if children, then heirs—heirs of God and fellow heirs with Christ, provided we suffer with him in order that we may also be glorified with him.” - Romans 8:12-17
With God, Pareto’s law is 100/0
