In 2006, AcademyHealth, working with the Urban Institute under contract, established the Reinsurance Institute to provide technical assistance to states interested in using reinsurance to make health insurance more affordable and expand coverage. Reinsurance is the practice by which an insurer pays the reinsurer a premium in return for the reinsurer paying all or part of the liability under the insurance policy or policies of the original insurer. Publicly funded reinsurance often targets small businesses and individuals who often find it difficult to secure insurance because they are not part of a large pool of enrollees.
The institute developed a microsimulation model to predict the effects of reinsurance on health insurance enrollment, coverage and state costs. It worked with three states—Rhode Island, Washington and Wisconsin—to assess various reinsurance plans they were considering.
- Reinsurance that covers only very high health care expenses cannot significantly reduce premiums charged to enrollees.
- Reinsurance subsidies paid with state funds would expand coverage among people who were previously uninsured and reduce premiums by about one-third.
- Most of the impact occurred because more employers offered coverage, not because more employees enrolled in health insurance that had previously been offered at a higher cost.
- Reinsurance often disproportionately helped higher-income people, who found the lower rates more attractive. Lower-income families still had trouble paying for insurance.
- Reinsurance did more to solidify existing coverage—by keeping small employers from dropping coverage, for example—than to expand the number of people covered.
- Reinsurance can help reduce risk segmentation—the tendency to cluster less healthy people in very expensive insurance plans—but by itself cannot ensure that those people have access to insurance.