Government Insurance Study Note Flashcards
5 reasons for Government participation in insurance:
- Filling insurance needs unmet by private insurance
- Compulsory Purchase of Insurance
- Convenience
- Greater Efficiency
- Social Purposes
2 methods in which Government has the capacity to
subsidize losses:
- Directly taxing taxpayers
2. Indirectly, by using a government-provided fund to subsidize any losses
List 2 examples of programs where government has
subsidized losses:
- Crop Insurance
- Flood Insurance
- Federal Crime Insurance Program (expired in 1995 as private market could profitably insure)
2 implications to the government in markets where
insurance purchase is mandatory:
- government may feel obliged to provide insurance
2. government may believe that the private market should only be able to make limited profits
Why may the apparent savings of having the
government provide the insurance be overstated:
Possibly other government departments are performing the services on behalf of the government insurance entity
3 levels of government participation in insurance:
- Exclusive insurer
- Partner with private insurer
- Competitor to private insurer
2 examples of Government acting as Exclusive Insurer:
- Social Security (Federal)
2. Government-run workers compensation program (State)
List a few examples of government partnering with
private insurer:
- NFIP, TRIA, Federal Crop Insurance (Federal)
- FAIR, WC, Windstorm plans, Residual Auto plan (State)
List an example where the government acts as a
Competitor to private insurer:
WC (some states)
List 3 questions that should be asked when evaluating
government insurance programs:
- Is it necessary for the government to supply insurance (does it achieve a social purpose that can not be provided by the private market)?
- 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)
- Is the program efficient and accepted by the public?
Describe the structure of Crop Insurance:
Private insurers sell & service the policies. The federal
government reinsures the losses
Explain the impact of the fact that in Crop Insurance,
the losses have not been shared proportionately
between the government and private market:
Historically, the private insurers have made underwriting
profits, whereas the federal government has realized
underwriting losses
2 ways in which RMA subsidizes the cost of the Crop
insurance program:
- Subsidizes the premium
2. Reimburses the insurers for the administrative costs
Critique the performance of Crop Insurance:
-Even though crop insurance has existed since 1938, the
federal government has periodically had to pass disaster bills to cover uninsured losses
-Many farmers had felt that the insurance did not provide
sufficient coverage when natural disasters occur
-Opponents of crop insurance felt that it encouraged
overproduction
2 changes made to the Crop Insurance program in 2000
to address the concerns:
- The portion of the premium paid by the federal government increased
- The level of coverage improved
2 changes made to the Crop Insurance program in 2005:
- Reduced the reimbursement rate to insurers for
administrative and operating expenses - The risk sharing between the government and insurers was rebalanced
List 3 Federal Workers Compensation Programs:
- Federal Employee Compensation Act (FECA)
- Longshore and Harbor Workers Compensation Act of 1927
- Black Lung Benets Act
5 ways that Government participates in State WC
programs:
- Partnership with Private Insurers
- State Funds
- Competitive State Funds
- Exclusive State Funds
- Residual Markets
How does the government act as a partner with Private
Insurers:
State laws prescribe benefits for which employers are
responsible
2 fears of businesses due to WC laws that encouraged
the government to set up State Funds:
- Refusal of coverage by private insurers (Would be forced out of business)
- High rates
Briefly describe the notion of conditional payment:
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
Briefly describe Medical Set-Aside Allocation:
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
2 problems of the implementation of MSAs:
- Medicare administrators did not know if Medicare eligible parties were collecting workers compensation or liability payments
- Parties had little incentive to agree to MSAs
What type of MSAs will be reviewed by CMS:
-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
2 things that Claimants must agree to once the MSA is
approved:
- Pay the workers compensation related medical bills using the MSA
- Complete the reporting of the payments
List some P&C Actuarial Implications of the Recent
Changes to Medicare/ MSAs:
-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
