Reinsurance in Delaware

The purpose of reinsurance is to mitigate risks for insurers. It is

not an instrument to make health insurance more affordable. In effect,

insurers include whatever reinsurance they get into their premium cost

calculations. So it is the wrong tool to be used by governments to

make healthcare more affordable and accessible.

In addition, affordability is driven by total cost of

insurance/healthcare, not just by premiums or cost and risk sharing.

Currently the consumer has 2 sets of costs to get healthcare

financing:

1 Premiums that are paid to cover the financial cost of the risks of

needing healthcare. This is essentially the cost of risk

2 Deductibles, copays, and co-insurance are essentially instruments of

risk sharing used by insurers to mitigate their cost of healthcare

utilization

So the total cost of healthcare financing to any individual is the sum

of the premiums paid and the cost of the utilization of healthcare at

the beginning of any coverage which is excluded through conditions of

the policies, that is the amount of the deductible, the amount of any

copays and coinsurance

Based on the ACA, the total of out of pocket expenses that an insurer

can impose on any individual is currently $8,100 per year. This means

that the combinations of the amount of deductible, copay and

coinsurance cannot exceed $8,100 in any policy year. In effect, if a

person buys a policy with a maximum of out of pocket expenses of

$8,100, that person would have to pay the first $8,100 of billed

healthcare services, in addition to the premiums.

Any reinsurance the insurer may obtain will not change this figure.

Whatever the premiums the person pays, they will have to be able to

pay this very large amount. For example, even if a reinsurance policy

bought by an insurer allows them to reduce premiums by 10% or even

20%, this will not change the affordability of using healthcare.

Furthermore, given the nature of healthcare utilization, 30% of

members will be responsible for 80% of the utilization and thus the

cost. Now, the full 100% of members will have to pay average premiums

to cover the excessive use of the 30%. Only 5% of the members will

have costs of utilization which will be substantially higher than the

average cost of utilization per member. The cost per each utilization

of these people will be in excess of $50,000.

Any reinsurance policy, that is not an aggregate stop loss policy for

the entire population, will mitigate the risk and cost to the insurer

of the individual trigger amounts. For example, if as is the case in

Delaware, the reinsurance kicks in for amounts above $65,000, the

insurer will not be responsible for any aggregate individual cost

above $65,000. In reality, these are very few but extremely high in

cost, often in the hundreds of thousands of dollars. These rare

utilizations are the exact risks and costs that force insurers to

charge everyone much more than most people will have in utilization

costs in any given year. That is the logic and actuarial and

statistical science behind the fact that 50% of any insured population

will not use healthcare at all during any given year but will pay the

full premiums. The insurers will no longer have the outlier risk and

costs that can bankrupt them if they do not charge everyone adequate

premiums. So, technically and based on the science, either premiums

would have to go down massively, or deductibles and other cost sharing

would have to be eliminated or reduced substantially. Unless one of

these 2 conditions are enforced, government reinsurance programs will

not make utilization of healthcare any more affordable or accessible

for individual policyholders on the ACA.