Although reinsurance is widely used by the underwriters of health benefits (i.e., insured and self-funded plans), its role is little understood by policymakers. Reinsurance plays important roles in the health care markets that we considered. Primary insurers (including self-funded plans) reduce their risk exposure in ways that can effect the availability and affordability of coverage. Reinsurance also plays an important role in how primary insurers and HMOs assure their financial stability and meet minimum capital requirements imposed by states.
The potential role of reinsurance has been an important topic in several recent policy debates. State insurance regulators have raised concerns that certain stoploss arrangements are being used to help small employer health plans avoid state insurance reforms. Reinsurance also has been suggested as a potential vehicle to assist provider sponsored health plans and multiple employer benefit arrangements demonstrate financial adequacy.
We undertook a limited analytic study of the role of reinsurance in three insurance markets: primary health insurance coverage offered by indemnity insurance companies; health insurance coverage offered by health maintenance organizations; and health benefits coverage offered by employer-sponsored self-insured plans. Our review of the potential sources of information concluded that there are no existing data sources or existing research that would enable us to quantify the risk being ceded to reinsurers in the three markets. The problems we encountered differed across the three markets. While a substantial amount of information is available about the reinsurance transactions of indemnity (non-HMO) health insurers, the data is aggregated in ways that make it difficult to specifically identify transactions related to primary health insurance offered to groups and individuals. The information available from state insurance filings about reinsurance purchased by HMOs is more useful in understanding the level of risk that HMOs cede to reinsurers, but lack of detail and inconsistencies in the way that HMOs report the information in their annual statements reduces its analytic potential. In addition, the information currently must be collected separately from each state, but it will be available from a central source (the NAIC) in the near future. Finally, despite the substantial amount of information available about the prevalence of self-funding and the use of reinsurance by self-funded employers, there is virtually no reliable data about the level of risk being transferred to reinsurers in these arrangements.
If new efforts were to be made to collect information about reinsurance, the most logical method of collecting information in the indemnity insurance and HMO reinsurance markets would be through the annual statements collected from insurers and HMOs by the NAIC. These statements include detailed annual information from every licensed insurer and HMO, and have substantial benefits in terms of reliability, cost, and response burden. However, concerns may be raised by regulators or insurers about using the annual statement to collect information that does not serve a regulatory purpose. The annual statements are regulatory tools and using them for research-related data collection could be seen as undermining their primary purpose over time.
Employer surveys would be the most appropriate source for collecting additional information about self-funded employer stoploss arrangements and minimum premium plans. There are a number of existing surveys that could be expanded to collect this information, including the EBS. BLS is currently in the process of redesigning their employer surveys and are in the process of selecting items to field test for inclusion. However, adding detailed questions about stoploss insurance to employer surveys could raise significant problems in the areas of reliability and response burden. Collecting this information may require surveyors to review records of the stoploss or minimum premium transaction or to confirm information with additional staff at the respondent firm or with an insurer or insurance broker. This could add substantially to survey costs. At the current time, a survey being conducted by the Rand Corporation is attempting to collect some detailed information about stoploss arrangements and the presence of minimum premium plans. The experience of that survey effort should provide an indication of the difficulties of collecting this type of information through employer surveys.