CAHI Issues: Reinsurance
Reinsurance can simply be defined as a type of insurance for insurance companies. It is a way for a primary insurer to protect its business against unforeseen or extraordinary losses. Reinsurance serves to control volatility by sharing liability when losses or high costs overwhelm the primary insurer's resources. Small and medium sized health insurance companies are the primary purchasers of reinsurance because they are not as highly capitalized nor do they have as wide of a customer pool as large insurers to spread risk. In addition, reinsurance companies help primary insurance companies control costs by implementing preventive medicine and medical management programs. The savings accrued through these programs are passed on to the consumer.
Federal legislators, both Republicans and Democrats, are considering various policy options to create a national government-subsidized health reinsurance program. The lawmakers’ intent is to establish a federal program that would assume a portion of the expenses of the most costly individuals in an insurer’s or employer’s health plan. The belief is that this would significantly lower insurance premiums resulting in more insured Americans. Some analysts predict that a federal reinsurance program could lower health care insurance premiums by between 10 to 30 percent.
However, the actual result of federal intervention would slowly put the reinsurance industry out of business and cause an increase in overall health care spending. Innovation in the field would come to a dead stop. Health care costs would rise as fewer resources and incentives are available to practice preventive medicine and medical management. Additionally, it is unknown how a federal reinsurance program would be funded. Cost estimates on some federal reinsurance proposals range from $257 billion to $573 billion over a ten year period. The money to fund the program would likely come from increasing taxes and cutting back on other government programs.
CAHI Solutions
CAHI believes it is crucial that the vibrant industry continue to operate without
egregious government intervention.
Legislative Resources
Small
Employers Health Benefits Program Act of 2006 (S.2510), sponsored by Senator
Richard Durbin (D-IL)
For More Information
Precedence
– Federal Government Reinsuring Risk Precedence, Council for Affordable
Health Insurance, October 4, 2006
Federal
Initiatives - Reinsuring Health, Council for Affordable Health Insurance,
October 4, 2006
Kerry
vs. Bush: The Future of Health Care Reform?, Council for Affordable Health
Insurance, September 2004
State
Reform Efforts Medical Reinsurance: Considerations and Design Options for a
Government-Sponsored Reinsurance Program, American Academy of Actuaries,
September 2005
Medical
Reinsurance: Considerations for Designing a Government-Sponsored Program,
American Academy of Actuaries, January 2005.
Analyzing
the Kerry and Bush Health Proposals: Estimates of Cost and Impact, American
Enterprise Institute, September 13, 2004.
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