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Reinsurance for High Health Costs: Benefits, Limitations, and Alternatives

Listed author(s):
  • Dow William H

    ()

    (University of California, Berkeley)

  • Fulton Brent D

    ()

    (University of California, Berkeley)

  • Baicker Katherine

    ()

    (Harvard University)

Government-sponsored reinsurance for individuals with high health costs is a commonly proposed strategy to improve access and affordability in the individual and small-group health insurance markets. While reinsurance may have some benefits, other schemes may be more effective at accomplishing the same goals at lower cost. Reinsurance can be seen as a crude special case of risk-adjusted insurance subsidies. This paper estimates the effect of different reinsurance schemes on insurance premiums and insurers disincentives to enroll potentially high-cost individuals. We find that reinsurance is relatively ineffective at reducing cream-skimming incentives and argue that more sophisticated risk-adjustment schemes are more effective, particularly under community rating with guaranteed issue. Although in the past risk adjustment had been considered too complex to implement in practice, recent experience suggests that it is now feasible, and we argue that incorporation of risk adjustment would strengthen current health insurance reform efforts.

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Article provided by De Gruyter in its journal Forum for Health Economics & Policy.

Volume (Year): 13 (2010)
Issue (Month): 2 (July)
Pages: 1-23

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Handle: RePEc:bpj:fhecpo:v:13:y:2010:i:2:n:7
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  1. Ellis, Randall P. & McGuire, Thomas G., 2007. "Predictability and predictiveness in health care spending," Journal of Health Economics, Elsevier, vol. 26(1), pages 25-48, January.
  2. Thomas Buchmueller & John Dinardo, 2002. "Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania, and Connecticut," American Economic Review, American Economic Association, vol. 92(1), pages 280-294, March.
  3. Katherine Swartz, 2003. "Reinsuring Risk to Increase Access to Health Insurance," American Economic Review, American Economic Association, vol. 93(2), pages 283-287, May.
  4. van de Ven, Wynand P. M. M. & van Vliet, Rene C. J. A. & Schut, Frederik T. & van Barneveld, Erik M., 2000. "Access to coverage for high-risks in a competitive individual health insurance market: via premium rate restrictions or risk-adjusted premium subsidies?," Journal of Health Economics, Elsevier, vol. 19(3), pages 311-339, May.
  5. Brigitte C. Madrian, 1994. "Employment-Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 27-54.
  6. Deborah Chollet, "undated". "The Role of Reinsurance in State Efforts to Expand Coverage," Mathematica Policy Research Reports 6a1891751984484ba20b0719c, Mathematica Policy Research.
  7. repec:mpr:mprres:4253 is not listed on IDEAS
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