Considerations and Design Options for a Government-Sponsored Reinsurance Program
Policy-makers are considering offering government-provided reinsurance to health plans as part of an
overall solution to address some of the problems in the health insurance system. The 2005 American
Academy of Actuaries1 issue brief, Medical Reinsurance: Considerations for Designing a Government-
Sponsored Reinsurance Program, provides a primer on the current commercial medical reinsurance
market and it outlines some of the issues policy-makers should consider when designing and
implementing a government-sponsored medical reinsurance program.2 This backgrounder provides further
insight on the various considerations and design options that would need to be addressed when
developing such a program.3
Current State of the Reinsurance Market
Many health plans and self-funded employer plans are large enough to manage effectively their own
catastrophic risk, and therefore usually choose not to purchase commercial reinsurance. As a result, the
current reinsurance market is fairly small compared with the health insurance market as a whole.
Nevertheless, reinsurers have significant amounts of available capital and large enough risk pools to
handle claim variability.
Under "true" reinsurance, risk protection is purchased by insurers for very large (catastrophic) claims.
Insurers can almost always purchase reinsurance with annual limits of up to $5 million, and with limits up
to $10 million sometimes available.
Under "stop-loss" insurance, insurance is purchased by self-funded employers to cover the risk of large
claims. Attachment points (per claim deductible) range from $10,000 to $500,000, with most falling
between $25,000 and $250,000. Self-funded employers can almost always purchase stop loss with annual
limits of up to $5 million. Higher limits are available, but are not always easy to obtain.
Issues for Consideration
Many issues need to be considered when designing a government re