Germani Flashcards
Reasons for governmental participation in insurance
FCC(ES)
* Filling needs unmet by private insurance
May occur when private insurance is not economically viable (after 9/11, private market withrdrew coverage)
* When insurance is Compulsory
if insurance is compulsory but not offered by the private market then government must be the provider
* for Convenience
government may already have necessary structures in place
* for Efficiency
agent commissions eliminated > lower expense ratio > lower premiums for consumer
* for Social purposes
private market is motivated by profit, sometimes at the expense of social purposes like universal medical coverage for seniors
Examples of governmental participation in insurance
- Filling needs: TRIA - Terrorism Risk Insurance Act
- Compulsory: WC
- Convenience: NFIP - National Flood Insurance Program (government already provides disaster relief after floods)
- Efficiency: auto insurance
- Social purposes: Medicare
3 Levels of government involvement in insurance
- Sole provider
Social Security, Unemployment Insurance - Partnership with private insurance
NFIP - Competition with private insurance
WC competitive state funds in some states
Criteria for evaluating government insurance programs
W/I - SEAN
* is the program one of Welfare or Insurance
* does it achieve Social purposes
* is it Efficient
* is it Accepted by the public
* is it Necessary
Crop Insurance
- Private insurers market, write, and service policies
- Government sets the rates
- Government acts as reinsurer
- Government uses taxes to subsidize the program
- Government reimburses insurer expenses
- Not eligible for disaster relief if you don’t buy crop insurance
Types of coverage - protects against:
* low yields
* low prices
Overall effectiveness: fair
RMA = Risk Management Agency of US Dept of Agriculture
Crop Insurance shortcomings
- encourages over-production
- encourages farming in marginal or risky areas
- private insurers make money while government (taxpayers) subsidize the losses
Crop Insurance shortcomings mitigation
- Limit coverage (to address over-production)
- Shift balance of loss-sharing more towards private insurers (to relieve taxpayer burden)
Federal WC Programs
- Federal Employees Compensation Act (FECA)
- Longshore & Harbor WC Act (1927)
- Black Lung Benefit Act (BLBA) (1969)
Levels of state government participation in WC
Partnership: state defines benefits, but private insurers write policies
more choice for consumer, but still assured of minimum statutory benefits
Exclusive State Fund: state is sole provider, no private WC is permitted
no advertising or agent commissions means lower cost > pass savings to consumer
Competitive State Fund: state competes with private insurers
state funds provide a stable source of coverage & competition can help keep costs of private WC down
3 mechanisms states can use to operate residual market (WC)
- State assigns applicants to carriers based on WC market share (insurers then service policies as if they were voluntary)
- State uses a reinsurance pool (profits & losses are shared among all insurers in proportion to voluntary market share)
- State authorizes a JUA or Joint Underwriting Association (profits & losses are shared among all insurers in proportiong to voluntary market share)
Advantages of state funds
- lower cost for consumers (no advertising or commissions for state funds)
- provides coverage for high-risk customers (if insurance is mandatory, government should ensure coverage is available by being an insurer of last resort)
Disadvantages of state funds
- Private markets are more innovative (and private competition drives prices down)
- Private markets can operate efficiently (about half of states don’t have state funds so state funds may not be needed to fill unmet needs)
MSA
Medical Set-aside Allowance
* A portion of the WC (or liability) settlement set aside for future medical costs due to the injury
* All parties to a settlements must agree & fund the MSA
CMS
Center for Medicare & Medicaid Services
* Administers Medicare, and establishes guidelines for review & approval of MSAs
MMSEA
Medicare & Medicaid SCHIP Extension Act (2007)
* Addressed the problem of CMS being unaware of primary payer responsibilities
* Primary payers were trying to shift costs to Medicare (involved MSAs & other payers)
* Act requires RREs to report claim data to CMS (so that Medicare doesn’t start paying when it shouldn’t)
* There’s a substantial penalty for non-compliance (CMS is serious about this!)
