Government Insurance Study Note

Question 1

5 reasons for Government participation in insurance:

Answer 1

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

Question 2

2 methods in which Government has the capacity to subsidize losses:

Answer 2

1. Directly taxing taxpayers

2. Indirectly, by using a government-provided fund to subsidize any losses

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

Private insurers sell & service the policies. The federal government reinsures the losses

Question 12

Explain the impact of the fact that in Crop Insurance, the losses have not been shared proportionately between the government and private market:

Answer 12

Historically, the private insurers have made underwriting profits, whereas the federal government has realized underwriting losses

Question 13

2 ways in which RMA subsidizes the cost of the Crop insurance program:

Answer 13

1. Subsidizes the premium

2. Reimburses the insurers for the administrative costs

Question 14

Critique the performance of Crop Insurance:

Answer 14

• 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

Question 15

2 changes made to the Crop Insurance program in 2000 to address the concerns:

Answer 15

1. The portion of the premium paid by the federal government increased
2. The level of coverage improved

Question 16

2 changes made to the Crop Insurance program in 2005:

Answer 16

1. Reduced the reimbursement rate to insurers for administrative and operating expenses
2. The risk sharing between the government and insurers was rebalanced

Question 17

List 3 Federal Workers Compensation Programs:

Answer 17

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

Question 18

5 ways that Government participates in State WC programs:

Answer 18

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

Question 19

How does the government act as a partner with Private Insurers:

Answer 19

State laws prescribe benefits for which employers are responsible

Question 20

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

Answer 20

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

Question 21

Briefly describe the notion of conditional payment:

Answer 21

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 22

Briefly describe Medical Set-Aside Allocation:

Answer 22

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 23

2 problems of the implementation of MSAs:

Answer 23

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 24

What type of MSAs will be reviewed by CMS:

Answer 24

• 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 25

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

Answer 25

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

Question 26

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

Answer 26

• 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