Most Frequent deductible ratios (2004)
startups, small plans, or small segments
of larger plans. Deductible levels were
set higher than normal, either because
of current size and anticipated growth
or because of other, larger blocks of business within the same entity.
Figure 4 shows the prior results
Comparison of Figures 3 and 4 demonstrates the increase in health plan
deductibles to adjust reinsurance costs
for leveraged trend (assuming a stable
membership base). Notice a flattening of the curve at the left and some
movement to the right. What used to
be a steep bell curve with many health
plan ratios of 10 to 30 percent is now a
smoother curve with more health plan
ratios at 20 to 50 percent.
Carriers, because of their scope, presumably more capital, and more spread
of risk, often purchase higher deductibles
($0.5M-$1.0M) with comprehensive 100
percent coinsurance and no inside limits
such as ADMs. This leads to a large numerator and, hence, a higher ratio.
Because of health care reform, there
is a significant trend among self-insured plans to review the reinsurance
market cost for high-deductible coverage, often in requests for rates at
various layers (1M x 1M, 3M x 2M, 5M
x 5M, 10M x 10M, unlimited x 20M).
Most are window shopping for now.
Only 5 percent of Summit Re’s current
portfolio of clients have purchased an
unlimited annual maximum benefit.
However, many clients that currently
purchase reinsurance of $1 million to
$2 million have raised their annual
reinsurance maximum benefit to $2
million to $5 million.
Reinsurance premium is also a reflection of risk tolerance. Risk-averse
health plans have medical excess reinsurance premiums of $4 million to $5
million or even higher. Health plans
with more risk tolerance often have
premiums of approximately $250,000
to $750,000. An “average” reinsurance
number of Plans
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%
premium is approximately $1 million.
In conclusion, purchasing the
appropriate reinsurance coverage requires a thoughtful analysis and the
consideration of multiple factors.
Finding the proper balance between
the premiums paid and the benefits
provided can lend stability to a health
plan balance sheet.
MArk troutMAn is president of
Summit reinsurance Services Inc.
(Summit re), a managing underwriter
providing managed care insurance
and reinsurance to HMos, providers,
self-funded employers, and insurance
carriers. Portions of this article are used
with permission of America’s Health
Insurance Plans (AHIP) from an earlier
article written by troutman.
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