Re-insurance: Ups and Downs of the Attachment Point

From my friend, CK:

In reinsurance, the attachment point is the dollar level above which the reinsurer takes over. For instance, if a policy has reinsurance at a $500,000 attachment point, when/if the policyholder’s claims get to $500,000 in a year (usually calendar year) they are not paid by the underlying insurer but are paid for by the reinsurer.

Limiting the insurers risk like this lowers the premiums they need to charge to the insured. Buy they still need to pay for the reinsurance policy. Usually a per policy per month premium. This is added to the cost of the insurance.

Reinsurance is typically sold to self-insured employers who need to protect themselves from catastrophic risk. All a numbers game. Sometimes reinsurers also reinsure themselves.   They take the risk from $500,000 – $1,000,000 and over $1M another reinsurer takes over. There’s a charge for this of course.

There are those in the industry who feel that the government only needs to reinsure the private sector insurers at a low enough attachment point and this will in itself solve much of the un and under insured problem. In theory, private insurers would then price their products lower thus providing additional access by virtue of lowered premiums.

I haven’t seen this served up or studied for impact, but it is a thought and seems simpler than some of the other reforms that are more comprehensive. But I wonder if the insurance companies would only pocket more profits. Thus the need for a public option, I think — the competitive model.

My thanks to CK

Let’s get this right

There are definitely weaknesses in the newest reform bill to pass the House of Representatives.  Many would prefer to see stronger regulations on insurers.  Among them is Dr Marcia Angell. 

http://www.huffingtonpost.com/marcia-angell-md/is-the-house-health-care_b_350190.html 

I don’t have anything against the tightest regulations possible, but I don’t really believe they’d be effective.

I, like Dr. Angell, am happy to see some kind of reform, but wish it were different.  Dr. Angell couches many of her concerns in terms of Medicare.  I’d couch many of mine in terms of market incentives. 

I suspect she wishes for tighter regulations placed directly on insurers.  I’d wish for a stronger, more independent public option that provided low administrative costs and competition that insurers couldn’t escape.

 

My point of view is that if regulations can be placed on insurers during one administration, they can be removed during another. 

So I’d prefer a system set up to work regardless of which party controls either Congress or the White House.  (Which brings us back to re-insurance as a means of assuring that the public option remains independent and sustainable.)

 

So I think I understand Dr. Angell’s point of view, but if I do, then we differ.

 

Sel

Not a Healthcare Topic? But Impossible to Avoid

http://www.alfranken.com/content/splash_video_20091021

Another View on Re-insurance, aka. Risk-adjustment

Re-insurance plans, also known as risk-adjustment plans, are commonly thought of in terms of their primary functions: 1) as a means of protecting individual insurance companies against risk, and 2) as a means of further distributing risk across a community.  In this context, they have become part of the health reforms proceeding from the Senate Finance Committee.   

A national re-insurance plan might, however, perform an additional role.  It might become an important factor in establishing a “level playing field” between the private health insurance industry and the public plan option.

 Participation by the public plan in the re-insurance program represents a vital, but not a sufficient, condition for a level playing field. 

1. If affordable coverage is to be available for all, something must be done about free-riders, adverse selection and cost-shifting.
2. One acknowledged solution to free-riders, adverse selection and cost-shifting is universal enrollment.
3. Universal enrollment requires either default enrollment or mandatory enrollment.
4. Enforcing mandatory enrollment may be politically and practically unpalatable, but a public plan option provides a suitable format for default enrollment.
5. A public plan option, coupled with the private health insurance industry, provides other advantages (especially relative to a single-payer alternative; preserves choice, preserves the innovation inherent in the private sector, etc)
6. The sustainability of such a system requires a level playing field.
7. A level playing field requires that the public plan be actuarially sound and that it operate without subsidies from congress.
8. Participation by the public plan, as well as all private insurers, in a national re-insurance program would provide an important assurance that the public plan will become actuarially sound and operate without subsidies.

If one supposes that the public plan option represents an acceptable solution to healthcare reform (and I do, I consider it the most sustainable alternative available), one must also contemplate that the so called “level playing field” is essential – that accommodations must be made to protect both the private health insurance industry and the public plan. 

If one agrees that free-riders, adverse selection, and cost shifting are, in fact, erosive demons capable, by themselves, of rocketing health insurance premiums ever higher, then one must also admit that truly universal coverage is not optional – it is imperative.  Insurers are absolutely correct in saying that they cannot accommodate community ratings and guaranteed issue without universal enrollment.

Therefore, if I want community ratings and guaranteed issue (and I do, believing they provide both social and economic benefit), I must then accept, and accomplish, universal enrollment.

Accomplishing universal enrollment in the U.S. may be tough politically, but other nations have done it; some by mandatory enrollment (Switzerland, Germany), some by default enrollment (Canada, Australia, Ireland).  A public plan option provides a format suitable for the implementation of the default enrollment method (Australia, Ireland).

In order to establish a public plan option, so that universal enrollment – a prerequisite to both community rating and guaranteed issue – is implemented, then both the private health insurance industry and the new public plan must be protected.  One must assure a level playing field. 

Among other things, a level playing field means that if insurance companies must operate without subsidies from congress, then the public option must also operate without subsidies.  Both must operate on an actuarially sound basis.  One assurance that both operate on an actuarially sound basis is a re-insurance program. (I suggest research on the Swiss requirement for insurers’ participation in a re-insurance program and the experience of BUPA in the Irish Supreme Court.)

Participation by the public plan in the re-insurance program therefore represents a critical condition for the establishment of a level playing field. 

*** 

For a supporting view regarding the importance of re-insurance:

 http://seekingalpha.com/article/165961-how-will-risk-adjustment-work-under-the-health-care-reform?source=yahoo

It’s Time to Consider A National Re-Insurance Program

It’s time to discuss a national re-insurance program as a companion policy to the public plan option.

1. If affordable coverage is to be available for all, something must be done about free-riders, adverse selection and cost-shifting.
2. One recognized solution to this triple-threat is universal enrollment.
3. Universal enrollment requires either default enrollment or mandatory enrollment.
4. Conveniently, a public plan option provides a suitable format for either.
5. The sustainability of a public plan option, coupled with the private health insurance industry, requires a level playing field.
6. A level playing field requires that the public plan be actuarially sound and operate without subsidies from congress.
7. One important assurance that the public plan operates without subsidies would be participation of the public plan, and all private insurers, in a national re-insurance program.

The importance of this topic first came to my attention while studying the Irish healthcare system. Then I noticed it was also an important component of the Swiss healthcare system. The more I study the effects of re-insurance, the more convinced I become of the two important roles played by a national re-insurance plan: first, such a plan protects insurers who accept high-risk clients (thus removing a large part of the incentive for “cherry-picking”), and second, it distributes risk more evenly across the entrie community, thus lowering costs for all.

Read more about re-insurance in “Handbook for Healthcare Reform: Foundation and Framework.”

Dear Senator Snowe,

Today you were eloquent.

Needed: A Patch for the Donut Hole

My friend Tom Garvey sent me this explanation of the Donut Hole for prescription drug expenses for Medicare patients.  Enjoy.

Sel: The Medicare Part D program is only helpful to people that have extraordinary Prescription drug costs. Here’s the math:

Annual Deductible Maximum – $310

Member pays 25% of the next $2,520, which will equal $630 ($2520×25%=$630)
Initial Benefit Period Maximum (what the member AND the plan have spent) -
$2,830 ($310+$2520)
DONUT HOLE: Member pays 100% of the next $3,610
Catastrophic Coverage Begins when member (NOT plan) has spent a total of $4,550
Cost sharing during Catastrophic Coverage is $2.50 generic/$6.30 brand or 5%

(whichever is higher)

$310 + $630 + $3,610 = $4,550 Annual out-of-pocket Cost — So in essence you have to spend (out of pocket expenses) $4,550 annually before full coverage kicks in. How many people do you actually think spend $4,550 and get to full coverage? I’d say less the 3% of the Medicare population. What does that mean? It means that the insurers and pharmaceutical companies are making a financial killing and only the high end utilizes are really getting any financial advantage. Tom!

Dear Senator Reid,

Dear readers,

I have sent the following message to Senator Reid at the following site:
 
http://reid.senate.gov/contact/index.cfm

Cut, paste, and send.  At your leisure.  And with your own signature, of course.

****************************

Dear Senator Reid,

Please make:

-Mandatory enrollment,
-Community ratings,
-Guaranteed issue,
-a Uniform minimum benefits package, and
-a National Re-insurance Program,

all part of the new PUBLIC PLAN OPTION.

Thank you.   Selvoy M. Fillerup, MD, MSPH, FACS

Dear Mister President,

 President Barack Obama
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

October 4, 2009
 
Dear President Obama,

Thank you for your superlative role in forwarding the cause of universal healthcare in America.  Enclosed are additional copies of Handbook for Healthcare Reform and a letter recently sent to Senator Snowe.

Please allow me to emphasize the importance of truly universal enrollment and request your attention be directed to a national re-insurance plan.

A re-insurance plan will 1) protect insurers who accept risky clients, and 2) more evenly distribute insurance risks across the entire community.  To assure a level playing field, the public plan, as well as all private insurers, should participate in the re-insurance plan.  This will 3) separate the public plan from reliance on congress and 4) help assure that it is organized to operate on an actuarially sound basis.

With these two policies in place, the costs associated with free-riders, cost-shifting, and adverse selection will ultimately dissolve.  The entire system will benefit.

The other policy instruments common to successful healthcare systems, namely choice (including a public plan option), community rating, guaranteed issue, and a standardized minimum level of benefits, seem adequately addressed in existing proposals.   These final two policies need and deserve particular attention. 

These two policies will protect the private health insurance industry against crowd-out, citizens and patients against increasing costs, and establish the public plan as an independently operating entity, without subsidies from congress, in a balanced healthcare system.  The entire system will benefit.

Sincerely,

Selvoy M. Fillerup, MD, MSPH, FACS
TheCenter for Health Care Policy Research and Development
Gilbert, AZ 85234
www.ChronicCrisis.com

Dear Senator Snowe

Hon. Olympia J. Snowe
United States Senate
154 Russell Senate Office Building
Washington, DC 20510

October 4, 2009

Dear Senator Snowe,

I want you to know that I appreciate your thoughtfulness during the discussions on healthcare reform. I am a registered Republican and an avid advocate of health reform.

With the enclosed books, I hope to persuade you that a public plan option is a suitable format for reform. It provides good protection for the private health insurance industry, and if correctly implemented, will provide a sustainable format for universal enrollment with financial protection for enrollees.

I have been writing about healthcare systems similar to what has come to be known in the U.S. as the “public plan option” for several years. Three considerations are critical for the success of any healthcare system based on shared responsibility between insurers, a public plan, and consumers: a set of protections and responsibilities for the private health insurance industry; a set of protections and responsibilities for the public plan; a set of protections and responsibilities for patients. Only when each is protected and accountable will the playing field be truly “level.”

The experience of foreign healthcare systems suggests that a single set of six policies, in an inter-related way, protects all three interests. Most, but not all, of these policies have found their way into current health reform proposals. Notably absent are: 1) assurances of universal enrollment, and 2) a re-insurance program. These two policies are essential for the long term viability of any plan.

Systems with universal enrollment have lower per capita healthcare costs, suggesting universal enrollment is essential for economic as well as humanitarian reasons. Without universal enrollment, even small numbers of uninsured will assuredly grow. Cost shifting and premium increases will return. These represent the natural consequence of free-riders and adverse selection.

A re-insurance plan accomplishes two objectives. First, it protects insurers who accept risky clients, and second, it distributes insurance risks across the entire community. To assure a level playing field, the public plan, as well as all private insurers, must participate in the re-insurance plan. This will separate the public plan from reliance on congress and help assure that it is organized to operate on an actuarially sound basis and without subsidies from congress.

The other essential policy instruments common to successful healthcare systems, namely choice (including a public plan option), community rating, guaranteed issue, and a standardized minimum level of benefits, seem adequately addressed in existing proposals. These final two policies need and deserve particular attention. With these two additional policies, the costs associated with free-riders, cost-shifting, and adverse selection will ultimately dissolve. The entire system will benefit.

I hope you will consider how these two policies will protect the private health insurance industry against crowd-out, citizens and patients against increasing costs, and establish the public plan as an independently operating entity, without subsidies from congress, in a balanced healthcare system.

Kindest regards,

Selvoy M. Fillerup, MD, MSPH, FACS
TheCenter for Health Care Policy Research and Development
2980 E. Millbrae Lane
Gilbert, AZ 85234
www.ChronicCrisis.com
480-629-5882 H
720-219-2680 C

Cc: President Barack Obama
Karen Ignani, CEO, AHIP