Government Insurance Study Note

Question 1

2 methods in which Government has the capacity to subsidize losses

Answer 1

1. Directly taxing taxpayers
2. Indirectly, by using a government-provided fund to subsidize any losses

Question 2

5 reasons for Government participation in insurance

Answer 2

1. Filling insurance needs unmet by private insurance
2. Compulsory Purchase of Insurance
3. Convenience
4. Greater Efficiency
5. Social Purposes

Question 3

List 2 examples of programs where government has subsidized losses

Answer 3

1. Crop Insurance
2. Flood Insurance
3. Federal Crime Insurance Program (expired in 1995 as private market could profitably insure)

Question 4

2 implications to the government in markets where insurance purchase is mandatory

Answer 4

1. government may feel obliged to provide insurance
2. government may believe that the private market should only be able to make limited profits

Question 5

Why may the apparent savings of having the government provide the insurance be overstated

Answer 5

Possibly other government departments are performing the services on behalf of the government insurance entity

Question 6

3 levels of government participation in insurance

Answer 6

1. Exclusive insurer
2. Partner with private insurer
3. Competitor to private insurer

Question 7

2 examples of Government acting as Exclusive Insurer

Answer 7

1. Social Security (Federal)
2. Government-run workers compensation program (State)

Question 8

List a few examples of government partnering with private insurer

Answer 8

• NFIP, TRIA, Federal Crop Insurance (Federal)
• FAIR, WC, Windstorm plans, Residual Auto plan (State)

Question 9

List an example where the government acts as a Competitor to private insurer

Answer 9

WC (some states)

Question 10

List 3 questions that should be asked when evaluating government insurance programs

Answer 10

1. Is it necessary for the government to supply insurance (does it achieve a social purpose that can not be provided by the private market)?
2. Is it insurance or a social welfare program? (Social welfare is financed by tax, and is designed to provide a benefit to qualified people, without any payment from those people)
3. Is the program efficient and accepted by the public?

Question 11

Describe the structure of Crop Insurance

Answer 11

Public private partnership: Private insurers sell & service the policies. The federal government sets rates, determines which crops can be reinsured, and reinsures the losses

Question 12

2 changes made in 1980 to increase participation in Crop insurance plan

Answer 12

1. expand types of crops and areas in which coverage is provided
2. authorized subsidy of premium

Question 13

Critique the performance of Crop Insurance

Answer 13

• Supporters: it is necessary to bring stability to a volatile sector of the economy
• Opponents: may encourage agricultural overproduction & encourage farming in disaster prone areas, harming the environment, and increasing disaster relief costs

Question 14

List 3 Federal Workers Compensation Programs

Answer 14

1. Federal Employee Compensation Act (FECA)
2. Longshore and Harbor Workers’ Compensation Act of 1927
3. Black Lung Benefits Act

Question 15

5 ways that Government participates in State WC programs

Answer 15

1. Partnership with Private Insurers
2. State Funds
3. Competitive State Funds
4. Exclusive State Funds
5. Residual Markets

Question 16

How does the government act as a partner with Private Insurers

Answer 16

State laws prescribe benefits for which employers are responsible

Question 17

2 fears of businesses due to WC laws that encouraged the government to set up State Funds

Answer 17

1. Refusal of coverage by private insurers (Would be forced out of business)
2. High rates

Question 18

Briefly describe the notion of “conditional payment”

Answer 18

Many people begin incurring medical costs before eligibility to collect insurance is determined. Until this time, Medicare will make conditional payments. If the insurer is determined to be primary, it will need to reimburse Medicare

Question 19

Briefly describe “Medical Set-Aside Allocation”

Answer 19

MSA calls for all parties to a settlement to agree to set aside money to be primary over Medicare, for the period where the individual is eligible for Medicare

Question 20

2 problems of the implementation of MSAs

Answer 20

1. Medicare administrators did not know if Medicare eligible parties were collecting workers compensation or liability payments
2. Parties had little incentive to agree to MSAs

Question 21

What type of MSAs will be reviewed by CMS

Answer 21

The claimant is already a Medicare beneficiary and the settlement exceeds $25K, or
The claimant is expected to be Medicare eligible within 30 months, and the settlement or expected future medical costs & lost wages exceeds $250K

Question 22

2 things that Claimants must agree to once the MSA is approved

Answer 22

1. Pay the workers compensation related medical bills using the MSA
2. Complete the reporting of the payments

Question 23

List some P&C Actuarial Implications of the Recent Changes to Medicare/ MSAs

Answer 23

• Between 2008 and 2010, in advance of the reporting deadline, there may have been an increase in Claims closings & Lump-sum payments -> This jump will distort paid and reported losses
• Since then, there may have been a slowdown in claim settlement rates due to the change in MSA procedures
• A portion of the increasing WC medical trends may be due to the new MSA requirements
• There is also a risk that injured workers who are currently receiving Medicare may have the payments reclassified as workers compensation

Question 24

Why may the new MSA requirements cause WC medical trend to increase?

Answer 24

Historically, settlements may have been attributed fully to indemnity, instead of being segregated into medical vs indemnity. MSAs will require a correct division into the two pieces