Retiree Stop-Loss Reinsurance

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Healthcare reform bills pending in the United States Congress in 2009 create incentives for employers to continue providing certain retirees with health insurance. They do so by providing free partial reinsurance for annual claims within a certain band. This Demonstration explores the value of the reinsurance subsidy provided under the two leading reform contenders, H.R.3590, the Patient Protection and Affordable Care Act (Senate), and H.R.3962, the Affordable Health Care for America Act (House of Representatives).


You select the size of the retiree pool. You also determine a lognormal distribution of retiree annual claims by selecting the mean size of annual claims and the standard deviation of annual claims. You set the percentage of claims that the reinsurer will pay if those claims are within a user-specified amount of a user-specified "attachment point". The Demonstration outputs a log-log plot showing the distribution of claims and the zone in which claims are reinsured. It also produces a chart showing the actuarial value of the claims of the pool (), the actuarial value of the reinsurance (), the actuarial value of the unreinsured claims () and two ratios: , (the ratio of unreinsured claims to the actuarial value of all claims) and (the ratio of reinsured claims to the actuarial value of all claims).

The default values of the parameters mimic those established by the leading bills pending in Congress as of November 2009.


Contributed by: Seth J. Chandler (March 2011)
Open content licensed under CC BY-NC-SA



Snapshot 1: changing the standard deviation of annual claims can have a significant effect on the value of the reinsurance even when the mean value of the claims is preserved

Snapshot 2: increasing the attachment point can have a significant effect on the value of the reinsurance

Snapshot 3: increasing the maximum size claim for which reinsurance is provided typically does not have a large effect on the value of the reinsurance

Reinsurance subsidies are further described in section 111 of H.R.3962 and section 1102 of H.R.3590.

There is respectable evidence that health insurance claims can be plausibly modeled as draws from a lognormal distribution. G. W. de Wit and W. M. Kastelijn, "An Analysis of Claim Experience in Private Health Insurance to Establish a Relation between Deductibles and Premium Rebates," ASTIN Bulletin, 9, 1977 pp. 257–266.

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