Charles Gaba is asking a good question about re-insurance:
After analyzing the data submitted by issuers of their reinsurance contributions and requested reinsurance payments, CMS determined that the number of eligible high cost claim expenses were lower than expected for the 2014 benefit year. Because of these lower than expected claims, CMS recently announced that, consistent with its regulations, instead of paying 80 percent of eligible high cost claim expenses (that is, expenses between $45,000 and $250,000), all eligible claim expenses for the 2014 benefit year would be paid at 100 percent….
this stuff gets way into the weeds and beyond my pay grade, so I won’t speculate as to what it all means. The only thing I’ll note is the bold-faced part above, which sounds positive, anyway…
This is good news.
The reinsurance program is a pot of money used to pay insurers on Exchange for their high cost expenses. It is a donut hole strategy so the insurer holds onto the common risk, and also holds on to holy shit risk but moderate outlier risk is covered by this temporary program.
The way it works is the Federal government collected a $63 per covered life year from group insurance plans (both fully insured plans and employer run plans). That money from the group insurance side is then used to reimburse individual policy insurers for big claims. This program is supposed to be revenue neutral and temporary as it expires after 2016. The pool of money collected is designed to shrink as the 2015 fee is $44 per covered life year.
Payments were originally designed so that for claims between $45,000 and $250,000, the federal government would cut a check for 80% of the incremenent. For instance, if a person had $50,000 in claims, the insurer would be 100% responsible for the first $45,000, and then have a 20% co-insurance for the remaining $5,000. The Feds would have cut a $4,000 check. Now there is no co-insurance and the Feds pay $5,000.
If there was an insured individual with $500,000 in claims, the system was originally designed to have the insurer pick up the first $45,000, split the next $205,000 so the insurer would pay $41,000 and the feds would pay $164,000, and then the insurer was again responsible for the remaining $250,000. Total insurer exposure would have been $336,000 of the $500,000 claims.
Now the new system would have the insurer be on the hook for $295,000 instead of the $336,000 under the original scheme.
How is this happening?
The short answer is that the Exchange risk pools weren’t as ugly as the CMS actuaries projected. The risk pools are still sicker than employer sponsored group insurance risk pools, but they are healthier than the worst case projections. This is good news in general. Either fewer people entered the reinsurance zone at the same distribution of claim expenses, or the same number of people were in the reinsurance pool but the sum of their eligible expenses were lower than projected.