HMO reinsurance raises a more discreet and clear cut set of policy issues: to what extent are HMOs using reinsurance to minimize risk, and how does reinsurance use vary across HMOs and by size of plan? As mentioned above, some useful information about HMO reinsurance arrangements already is available from state insurance filings, although, as discussed below, there appears to be some variability in how arrangements are reported. We believe that the following variables would be the most important to understanding if these types of arrangements are prevalent in the market:
- Cessations by HMOs. The most basic information that is needed is the presence of a reinsurance arrangement. Information about the size of the HMO (e.g., total HMO premiums, probably including premiums of affiliates) also should be available so that the reinsurance arrangements can be related to the size of the ceding HMOs.
- Scope of Risk. An important factor in understanding HMO reinsurance arrangements is understanding what type of risk is being covered. Our interviews with reinsurers indicate that most HMO reinsurance is limited to hospital risk, although some arrangements are broader. Differentiating the types of services reinsured, including hospital, and professional services, would be useful.
- Structure of Transaction. Another important factor is the structure of the transaction. Our interviews with reinsurers indicate that most HMO reinsurance appears to be excess of loss coverage (typically called stoploss coverage in this context), so the most important distinctions are between specific and aggregate stoploss arrangements. Public purchasers also may wish to know if the risk for public programs is transferred on the same bases as the risk for commercial coverages.
- Risk of Loss Transferred. In addition to distinguishing between specific and aggregate stoploss arrangements, it is important to know the magnitude of the risk that is being transferred. This could be determined by the excess of loss threshold levels (dollar thresholds for specific arrangements and percentage thresholds for aggregate arrangements). In addition, it would be useful to know if the HMO retained any share of the losses (e.g., coinsurance) above the stoploss thresholds.