Health Care Reinsurance

Health plans and self-insured employers often use reinsurance (also known as stop-loss coverage) to limit their aggregate exposure to medical costs or to control the costs of a single episode.  A new report from Milliman describes the current reinsurance market.   (Milliman Report)    The report covered 24 insurers with $8.6 billion in premium, out of a total market of around $15 billion.  Sun Life, Symetra and Tokio Marine were identified as the most prominent independent carriers and most of the large health plan companies also offer employers reinsurance, although those health plan competitors often in turn purchase reinsurance.  A number of significant new entrants are expected, many of which are well-established insurers in other lines.  This may result in greater price competition and reduced profitability.  Most reinsurers said health was a focus area and 58% said premium revenue grew 6% or more during 2016 and 50% expect growth of 12% or more in 2018 and 2019.  Loss ratios were around 77% in 2016.  Commissions for broker-placed reinsurance averaged about 3% to 5%.  Independent reinsurers were more likely to rely on brokers than were health plans which offered reinsurance.  About 58% of policies start on January 1, and another 13% on July 1.  Some emerging or popular features of policies include the ability to aggregate specific deductibles, mirroring of the underlying policy and dividend or experience-based premium refunds.  Some carriers are offering coverage for pharmacy-only claims, which may be a strong future trend given specialty drug costs.  60% of reinsurance premiums come from policies with $150,000 or lower individual claim deductibles and 75% of premium revenue is derived from employers of 1000 workers or fewer.  Health plans that offer reinsurance tend to have greater stickiness of clients from year-to-year than do independent reinsurers.  As health care spending continues to increase, particularly among the most expensive cases, the reinsurance market should also see continued growth.