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Actuaries: Public Plan Would Need Billions In Capital

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A joint work group that included members of the health practice councils at the Society of Actuaries, Schaumburg, Ill., and the American Academy of Actuaries, Washington, developed the report, and the AAA today made the report available to the public and held a teleconference to let actuaries discuss its implications.

The SOA and the AAA started the work group to help the participants in health reform efforts by analyzing the capital requirements for starting either a “public option” plan or a collection of health insurance cooperatives.

Some Democrats say offering a public option, or customer-controlled cooperatives, could hold down costs, by decreasing the large health carriers’ dominance over the market in many communities.

The work group came up with similar start-up cost estimates for the public option and co-op proposal.

Factors that had a much bigger effect on start-up cost estimates include what enrollment might be and whether plans set prices to be a little tight or a little generous.

For a public plan that pays providers about as much as much as private insurers pay, the start-up capital needed might be $1.7 billion, for an “underpriced” plan, to $3.8 billion, for an “overpriced” plan, for a public plan that would cover about 2 million people from 2013 to 2019, the actuaries estimate.

If enrollment increased to 40 million in 2019, from 20 million in 2013, the start-up costs could range from about $12 billion, for an underpriced plan, to more than $41 billion, for an overpriced plan, the actuaries estimate.

For a co-op system, the start-up costs could range from $2.1 billion to $4.4 billion for a system that covers 2 million people, to about $14 billion to $46 billion, for a system that ends up covering 40 million people.

“Although not shown in the tables, capital requirements are also sensitive to the health care costs per member,” the actuaries write in a discussion of their results.

The public plan, or co-op system, would need start-up capital to cover pre-operational start-up expenses and to meet prudent risk capital standards until it started to generate capital from its own earnings, the actuaries write.

“Most of the start-up capital required in the scenarios tested is to meet prudent risk capital solvency standards,” the actuaries write.


CORRECTION: An earlier version of this article gave an incomplete description of the work group that created the start-up capital report. The report was developed by a work group made up of members of both the American Academy of Actuaries and the Society of Actuaries.

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