More Opportunities for Reinsurers in Health

As insurers and regulators address uncertainties in connection with risk-adjustment, transparent health reinsurance emerges ever more forcefully as a marketplace solution for managing risk in connection with healthcare costs. The immediate instance animating fresh reconsideration of health reinsurance is the early July Trump administration decision to desist from administering risk adjustment. The decision followed a federal court decision in New Mexico that found that the Centers for Medicare and Medicaid Services was being arbitrary and capricious in its risk adjustment. There is nothing inherent in risk adjustment that makes rational and neutral implementation impossible. It is simply that CMS wasn’t doing that in New Mexico in the court’s determination, so the judge sided with Land of Enchantment insurers and rapped CMS’s knuckles. Risk adjustment is a permanent element of the Affordable Care Act, or Obamacare, to transfer risk among insurers. Transitional reinsurance and risk corridors, elements of Obamacare that expired at the end of 2016, worked well... and badly. Transitional reinsurance had pooled enough money, coupled with $5 billion of Treasury subsidies over three years, to pay claims. Risk corridors, by contrast, paid but 12.5% on claims and put a number of insurers in the lurch. They had entered Obamacare markets on the supposition that risk corridors would pay vastly more. Administration decision making on risk adjustment leads inescapably to uncertainty because of the potential for adverse selection, an escapable element of insurance. Nicholas Bagley, a scholar, says that, “in one sense, the furor over the risk adjustment program may be overdrawn. The 2019 rule has been fixed, so we’re really talking about accounts receivable at this point. They’re big accounts receivable, amounting to hundreds of millions of dollars, but most insurers can handle a short delay in getting paid. "In another sense, however, the needless suspension of the risk adjustment program is a signal that the Trump administration remains intent on sabotage. Already, insurers were stiffed on their risk corridor money. Then the cost-sharing payments evaporated. Now, even risk adjustment money may go up in smoke. What’s next? This is no way to run a health program, and no way to run a government.” One practical solution is to embrace transparent health reinsurance, a proposal that ITL published in anticipation of fade-outs for risk corridors and transitional reinsurance just over two years ago. If anything, conditions are more propitious now. See also: Reinsurance: Dying… or in a Golden Age?   This past fall, the president placed the foundation for association health plans. Last month, the Department of Labor issued implementation guidance, which will go into effect later in August, so associations of enterprises could jointly negotiate and purchase health care coverage. DOL says: “As it has for large company plans since 1974, the department's Employee Benefits Security Administration will monitor these new plans to ensure compliance with the law and protect consumers. Additionally, states will continue to share enforcement authority with the federal government.” Similarly, the Trump market liberalization for short-term, limited-duration insurance opens another market for reinsurers. As with association health plans, CMS says that, “in the final rule, we also strengthened the language required in the notice and included language deferring to state authority.” The market liberalization initiatives, coupled with Department of Labor, CMS and state regulatory oversight, present signal opportunities for reinsurers. For instance, in the emerging private flood insurance market, “market growth to date has largely been driven by the interest of global reinsurers in covering more U.S. flood risk,” the Wharton Risk Management and Decision Processes Center reported in July 2018. Issuers would mitigate adverse selection. Associations and issuers of short-term, limited-duration insurance would mitigate risk. State legislators and regulators could enact statutes and set standards, their domain competencies. Mandatory, state-based reinsurance is wholly feasible, particularly in densely populated states, for each marketplace offering. This approach could go a long way toward creating foundations for accountable health organizations. See also: The Dawn of Digital Reinsurance   Innovators like Amazon Web Services could bring one element of available technologies, cloud computing, to provide fresh applications boosting asset values and volumes and increasing probabilities for effective service. Associations, enterprises and individuals would experience greater healthcare security and quality.