Improved reinsurance mechanisms for the U.S. health insurance market have been proposed as a means to rescue the struggling industry with a more stabilised risk pool, according to a report by management consulting firm McKinsey.
Health insurance in the U.S. continues to be a hotly debated issue as the new administration pursues changes to the Affordable Care Act, or how it’s implemented, and health insurers have been witnessing year-on-year losses as more people opt out of paying high fees.
In 2014, health insurance losses across the individual market were at $2.7 billion, and these have nearly tripled in just two years to up to $8.9 billion in 2016, according to McKinsey.
Reinsurance appears to be seen by the U.S. administration as a plausible solution to stabilising risk pools by capping or removing large and volatile claims.
This in turn would lead to better pricing and insurance uptake, and hopes are the U.S. industry could climb its way up out of the vicious lose-lose cycle of fewer people opting for vital health insurance, and the industry suffering continual heavy losses.
McKinsey explained; “Assuming that either mechanism is self-funded within the market-level individual risk pool, reinsurance provides more predictability in a more efficient way.
“Moreover, a reinsurance mechanism is similar to the medical stop-loss policies used in the employer-sponsored insurance market, and health insurance actuaries have many years of experience with them.”
In addition, hopes are harboured that reinsurance could enable high-risk people (HRP) to receive the same plan choices and prices as low-risk people, avoiding some of the historical challenges with HRPs.
And while these high-flying hopes for reform that could create an expansive, growing market for reinsurers proliferate, the report fails to outline any detail as to how exactly this restructuring of the form in which risk is pooled or external funding is applied, might look.
Hence,”this uncertainty is likely to persist in the future, given questions about the payment of cost-sharing reductions and reinsurance collections. Insurance markets without large, stable risk pools and appropriate funding sources can become volatile,” McKinsey said.
In addition to extending reinsurance mechanisms, other methods proposed to stabilise the risk pool include introducing high-risk pools (HRPs) and merging non-high-risk Medicaid expansion enrollees with the individual market population.