trended Individual Plan experience
$300,000 deductible and $10,000 AdM
thousands of dollars
$1,200
$1,100
$900
$800
$700
$600
$500
$400
$300
$200
$100
■ Amount Reimbursed
■ Amount Retained
Percentage of Claim Above deductible Covered by the reinsurer
$300,000 Deductible $400,000 Deductible
Year
$8,000
ADM
$10,000
ADM
$8,000
ADM
$10,000
ADM
2007 82% 97% 79% 92%
2008 63% 81% 58% 74%
2009 90% 98% 87% 96%
All years 88% 97% 82% 95%
Source: Summit re estimates
reinsurance program by providing the
best value for the premium. Key considerations in this decision include hospital
inpatient versus comprehensive cover,
ADM limit, outpatient, and step-down
facilities coverage, which may have day
and/or dollar limits.
Table 2 provides an example of coverage efficiency ratios. Reimbursements
above 80 percent represent an “efficient”
level of coverage as the amount provides
predictability instead of not knowing
how a claim will be adjudicated.
Figure 2 and Table 2 provide the
health plan with important insights regarding its own historical claim data,
both severity and frequency, and assist
in the selection of the appropriate deductible and ADM limitation.
Although the deductible is a signifi-
cant out-of-pocket cost, reinsurance
coverage should also be selected with
other important criteria in mind. A prop-
erly structured reinsurance program will
result in a high “coverage efficiency ra-
tio” of actual reimbursed claims relative
to total claims in excess of the deductible
(i.e., few reimbursement “surprises”).
This creates the most cost-effective
Most Frequent deductible ratios (2011)
25
20
number of Plans
15
10
5
0
Source: Summit re estimates
5% 10% 20% 30%
ratio of deductible to Member Months
40% 50% 60% 70% 80% 90% 100% 200% 300% 500%1000%
Keeping Up With the Joneses
When selecting a deductible level,
it may be helpful to see other health
plan purchasing behaviors. Figure 3
illustrates the ratio of the deductible selected to the number of annual member
months for the health plan. For example, a 50,000-member plan would have
600,000 annual member months and
might be selecting a deductible of around
$120,000, or 20 percent of the number of
member months (D÷MM=20%). These
observations represent a mix of hospital-only and comprehensive coverage and a
mixture of commercial, Medicaid, and
Medicare business.
Many different types of members,
geographical locations, and coverage
parameters are selected, so there will
be some natural variation in this relationship, not to mention the differing
risk tolerance of each health plan. Although this is a simplistic view of risk
tolerance and deductible selection, it is
valuable for providing a general idea of
the deductible levels selected by a large
number of health plans.
It should be noted that most of the
right tail activity on Figure 3 with a ratio
at 100 percent or greater is composed of
