Who Moved My Deductible?
eACH HeAltH PlAn IS unIque, and different factors must be con-
sidered in the decision regarding reinsurance coverage parameters. this
overview offers considerations for selecting a medical excess reinsur-
ance deductible for commercial, Medicare, and/or Medicaid programs. It
is more applicable for large payers, such as HMos, than for self-funded
employers because there usually are not enough expected claims to
warrant such analysis on any given employer group. Medicaid risk varies
significantly by state program, so generalization regarding frequency
and cost is more difficult than for commercial and Medicare plans.
When selecting a reinsurance
deductible level, a reinsurance decision-maker can review national excess claim
frequency and severity data, one’s own
health plan data, and, perhaps, data from
similar health plans.
A key consideration in selecting
a reinsurance deductible level is the
number of expected claims. Table 1
can be used to determine expected frequency and severity of claims at various
deductibles for Medicare or commercial coverage of comprehensive services
(e.g., all hospital, physician, and miscellaneous charges).
These are only estimates, and varia-
tions by health plan can be expected
because of the unique risk character-
istics of each plan as well as random
fluctuation. A health plan should usually
select a deductible level that is expected
to generate no more than five to 15 insur-
ance claims per year. A higher number of
claims begins to approach a predictable
level, and medical excess reinsurance is
designed to cover unpredictable losses.
Furthermore, there is an additional cost
to reinsurance represented by the ex-
pense and profit charge of the reinsurer.
If the deductible level is too low, the cli-
ent pays expense and profit margin on
essentially predictable claims.
Individual Plan Considerations
Important individual health plan considerations in deductible selection are:
■ ■ geographical location and provider
contracts—Higher cost geographical
areas will have more claims at various
deductibles.
■ ■ The risk profile of a health plan’s
membership—Higher risk individuals will have more claims at various
deductibles.
■ ■ The amount a health plan is willing
to pay for reinsurance coverage—
A reinsurance premium is an expense
item subject to financial constraints.
