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Life Health > Health Insurance > Life Insurance Strategies

Witnesses Say Reinsurance Has No Small Group Magic Wand

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If small business advocates want the private reinsurance market to cure what ails the small group health insurance market, the federal government should be prepared to subsidize the reinsurance.

Witnesses delivered that message here Thursday during a House Small Business Committee hearing on the possibility that a reinsurance program might be able to cut small businesses’ benefits costs.

Rep. Nydia Velazquez, D-N.Y., the chairman of the committee, asked during her opening remarks whether reinsurance might be able to help small businesses overcome the effects of lack of competition in the small group market.

Janet Trautwein, executive vice president of the National Association of Health Underwriters, Arlington, Va., noted that 19 states already operate health insurance reinsurance pools and that 11 other states have reinsurance pools that are inactive or in the development stage.

The pools do not necessarily do much to ease health coverage cost burdens, Trautwein said.

“Reinsurance pools are currently funded by premiums paid by participating carriers,” Trautwein said. “Up until this time, reinsurance pool success has been marginal in terms of its ability to produce cost savings in a given state market, primarily due to the size of current pools. The main reason for this is that the pools are largely voluntary and small, with only a few participants to share in the cost of the reinsurance.”

Some people believe health insurance reinsurance pools would work better if the federal government helped them, Trautwein said.

Steve Harter, owner of Select Risk Management Inc., Ava, Mo., an insurance agency, and a past president of the National Association of Professional Insurance Agents, Alexandria, Va., said expanded reinsurance programs might not do much to cut small group benefits costs because reinsurance typically does more to increase access to coverage than to lower costs.

In the small group market, “I have always been able to find group health insurance, just not been able to afford it,” Harter said. “I don’t get the impression from my clients that they cannot find coverage.”

Patrick Collins, chairman of the Medical Reinsurance Work Group, Princeton, N.J., and vice chair of the committee on federal health at the American Academy of Actuaries, Washington, said policymakers should focus on reducing cost trends in health care, which would allow a well-structured reinsurance plan to deliver savings to consumers.

“Transferring losses from a health plan or insurer to the government would not reduce overall health cost trends unless measures are taken to encourage plans to further manage costs,” he said.

Leonard Crouse, a deputy insurance commissioner from Vermont, talked about the possibility that setting up captive insurers might be able to help the small group health insurance market the same way captive insurers been able to help the hospitals that have good medical malpractice records.

The hospitals with low claims “took their money out of the commercial market and formed captive insurers,” Crouse said. “They engaged actuaries to predict their future losses; hired loss prevention specialists to keep their claims low, and now are in charge of their own destiny. As long as they can keep losses within a predictable range, their premiums should now be predictable from year to year.”


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