State Reinsurance Programs to Expand Coverage

1
State Reinsurance Programsto Expand Coverage

• Deborah Chollet
• Senior Fellow, Mathematica Policy Research
• The Robert Wood Johnson Foundations
• State Coverage Initiatives Program
• September 19,2005

2
What is Reinsurance?

• Insurance for insurers
• Targets the small number of insured lives that
  account for most health plan costs
• Captures insurers highest costs and pools them
  more broadly

3
The Purpose of Reinsurance

• Conventional reinsurance
• Stabilize premiums by stabilizing claims
  experience
• Reduce premiums
• Reduce small insurers premium margin for risk
  aversion
• Encourage competition
• Magnitude of effect?
• Subsidized reinsurance
• Same purposes as conventional insurance
• PLUS targeted subsidy to reduce consumer premiums

4
How Does a Reinsurance Program Work?

• Insurer pays
• A premium to cede risk to the reinsurance program
• Some level of initial claims (deductible), and
  percent of reinsured claims (coinsurance)
• Reinsurance program pays
• All claims above the coinsurance threshold (minus
  coinsurance) reinsurance may be capped.
• All health insurers and/or the State participate
  in paying scheduled or unscheduled net losses.

5
Conventional Reinsurance Programs

• New Mexico Health Insurance Alliance Small
  groups and self-employed workers
• Idaho Small Employer Health Program Small
  groups and self-employed workers
• Idaho Individual High Risk Reinsurance Pool
  uninsurable individuals

• Reinsurance premium covers ceded risk and the
  programs administrative cost
• Program may assess all participating insurers
  to cover unexpected losses net of premium
  revenues
• Insurers may deduct assessment from taxable income

6
Subsidized Reinsurance Programs

• Arizona Health Care Group Small groups and
  self-employed workers
• Healthy New York Low-wage small groups and
  individual workers

• No insurer premiums for reinsurance
• Primary insurance premiums reflect reinsurance
  subsidy
• State appropriates funds to cover reinsurance
  costs

7
Advantages

• Reinsurance can
• Be tailored to different employment and
  regulatory environments.
• Work with the market, directly with all insurers
  or with contracting insurers.
• Make coverage accessible to micro-groups, groups
  of one, and individuals.

8
Challenges

• A reinsurance pool that tries to do what the
  market does not (e.g., guaranteed issue to
  self-employed, compressed or community rates) can
  experience adverse selection. If so, it will be
  more expensive and/or less successful.
• Subsidized reinsurance can crowd out conventional
  insurance.
• To manage both problems
• Small-group reinsurance pools typically require
  high participation within groups and cover only
  full-time permanent workers.
• Targeted subsidies help.

9
Successes

• Evidence that reinsurance CAN do what the market
  has not
• NM HIA covers more than 4,000 lives 65 are
  small groups, 35 sole proprietors.
• Arizona HCG covers more than 11,000 lives,
  including 3900 small groups.
• Healthy NY covers 77,000 lives 58 are
  low-income individuals and 19 are sole
  proprietors.
• Idahos Individual High-Risk Reinsurance Pool
  covers 1,400 individuals