■ ■ Plan size—Smaller plans require
more reinsurance initially since statistical variability is higher. For a
health plan participating in multiple
lines of business, it is necessary to
choose between a deductible based
on the total membership and deductibles for each individual segment.
This decision should be driven by
management expectations for each
individual business segment. If each
segment is expected to perform
within certain financial boundaries on its own, then each will need a
lower deductible selected for its particular membership size and type as
opposed to basing decisions on the
entire health plan risk pool.
■ ■ Coverage type—Catastrophic claim
frequency will vary among commercial, Medicare, and Medicaid
populations. Medicaid plans, for example, are subject to higher neonatal
risk than transplant risk.
■ ■ The number of years that the
product or health plan has been
in existence—As a health plan matures, its risk tolerance typically
increases, regardless of the size of the
population.
■ ■ The health plan’s targeted and actual underwriting margin—The health
plan’s capital base and profit prospects are important to protect with
an appropriate deductible level.
■ ■ The health plan mission, financial
strength, and backing by parent,
if any—The larger the capital base
and/or access to capital, the less reinsurance is usually purchased. Many
publicly traded health care “chains”
do not buy external reinsurance. Most
small provider-owned health plans
purchase reinsurance.
■ ■ The health plan attitude toward
risk and its consequences—Is
the health plan management risk
averse or not?
TABLE 1
Medicare
Annual
frequency
per 1,000
members
54. 8
23. 6
14. 8
8. 4
4.0
1. 2
0.3
0.1
Deductible
Average
reinsurance
claim
$50,000 $36,850
75,000 43,108
100,000 37,807
125,000 39,221
150,000 54,499
200,000 82,063
300,000 88,302
400,000 104,605
Source: Summit re estimates
Commercial
Average
reinsurance
claim
$53,605
69,960
80,139
85,254
89,772
134,393
139,691
140,459
Commercial and Medicare Cost Curves
$2,500
Annual reinsurance Claim Cost per Member
$2,000
$1,500
$1,000
$500
Medicare
Commercial
Source: Summit re estimates
$50,000 $75,000
0
$100,000
deductible
$125,000 $150,000
$200,000 $300,000 $400,000
Modeling Individual
Plan Experience
Another useful tool is to model the reinsurance coverage being considered
relative to the health plan’s own claim experience over recent years. In reviewing
one’s own plan experience, it is helpful to
examine it graphically. Figure 2 illustrates
one health plan’s claim experience. An
average daily maximum (ADM) is a per
diem limit on claims to be reimbursed by
the reinsurer to provide incentive for the
health plan to control costs and manage
care within the contracted provider network as much as possible.
This bar chart illustrates the amount
reimbursed by the reinsurer versus the
amount retained by the cedant. Any
portion retained by the cedant above
the $300,000 deductible represents an
amount cutback and retained because
of the ADM limit.
