Government-Backed Health Reinsurance Proposal Could Cut Insurance Rates: Experts

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A government-funded health reinsurance program could cut individual and small group health insurance rates more than 7% per year.

Linda Blumberg and John Holahan, researchers at the Urban Institute, Washington, have published those projections in a paper that appears in Inquiry, a health finance journal affiliated with Excellus Health Plan Inc., Syracuse, N.Y.

Blumberg and Holahan were reacting to a health reinsurance program proposed by Democratic presidential nominee John Kerry. Kerry, a Democratic senator from Massachusetts, has talked about setting up a program that would reimburse employers for 75% of the cost of care for insureds whose medical expenditures exceed $30,000 in 2006. In 2013, the “catastrophic threshold” would rise to $50,000, according to Kerrys health care plan.

To qualify for the “premium rebate” pool, employers and insurers would have to provide coverage for all of their employees.

Blumberg and Holahan used federal medical expenditure survey data to assess the effects of several hypothetical government health reinsurance programs.

The researchers conclude that a program that paid 75% of the bills above a catastrophic threshold of $30,000 would cost the government about $41 billion per year for all U.S. residents and $8.6 billion per year if the government limited participation to employers with fewer than 100 employees. If the government offered the program mainly to employers with fewer than 100 employees, those employers would see their health insurance premiums drop about 7.4%, the researchers predict.

Lowering the catastrophic threshold to $15,000 might cost the government almost $17 billion per year but lower health insurance rates for employers with fewer than 100 employees by more than 14%, the researchers add.

“Premiums would be likely to fall by more than these estimates,” Blumberg and Holahan write in the reinsurance paper.

The researchers point out that health insurers have to charge high rates for individuals and small groups partly because claims rates for individual and small group policies are hard to forecast. Blumberg and Holahan note that a public reinsurance program has helped cut group rates available through a major New York state health insurance purchasing coalition more than 15% and individual rates more than 30%.

Kenneth Thorpe, a health economist at Emory University, has estimated in another study that Kerrys reinsurance program would cost about $257 billion between 2005 and 2014, reduce employers costs about $288 billion and increase the number of people who have health coverage by about 3 million.

Unlike most other health finance reform proposals, “a federal stop-loss pool would generate immediate savings,” Thorpe says.

Americas Health Insurance Plans, Washington, has several members that sell health reinsurance.

“In general, the private market for reinsurance seems to be working, and the companies in the market seem fully prepared to continue playing the role they currently play, using private sector tools and techniques like care management to improve quality of care and contain costs,” AHIP says in a statement about the concept of setting up a government-funded health reinsurance program.

So far, AHIP has not seen enough details about Kerrys proposal to offer a definitive comment on them, AHIP spokesman Larry Akey says.

Critics at the National Center for Policy Analysis, Dallas, and the American Enterprise Institute, Washington, two conservative think tanks, say a government-funded health reinsurance program would be too expensive and might not do much good.

Thorpes research suggests a program similar to the one Kerry has proposed would cost an average of $11,000 per year for each newly insured person, according to Devon Herrick, a senior fellow at the NCPA.

Joseph Antos, an AEI health care policy researcher, says the program would amount to a direct subsidy for employers rather than a successful effort to cut health insurance risk. Large employers and large health plans have a fairly easy time projecting claims experience, and small employers usually solve the problem by buying health insurance, Antos writes in analysis of the government health reinsurance concept.

Moreover, making sure that the employees who trigger the catastrophic health reinsurance payments really qualify for reimbursement could be complicated and expensive, Antos warns.

“Firms must be prepared to satisfy a government auditor demanding proof that an employee who spent more than $30,000 did so in a prudent and reasonable way,” Antos writes.

But Thorpe agrees with Kerry that the government health reinsurance program could make the private health insurance system more fair, by reducing the incentive for health insurers to shut out older, sicker individuals and employers with older, sicker employees.


Reproduced from National Underwriter Edition, October 14, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.