Government Programs Flashcards
Reasons for Gov Participation in Insurance
- Filling insurance needs unmet by private
- residual market philosophy: provide where market is underserved (unavailability or affordability)
- gov has capacity to subsidize losses: directly taxing taxpayer, using gov-provided fund - Compulsory purchase of insurance, individuals/businesses may be forced to buy to meet social responsibilities
- gov may feel obliged to provide insurance
- gov may believe private market should only be able to make limited profits - Convenience
- may be easier for gov to quickly establish a program
- convenience alone may not be sufficient grounds to justify gov insurance program - Greater efficiency
- based on assumption that gov can provide at lower cost than private
- savings may be overstated bc other departments are performing services on behalf of the gov insurance entity - Social purposes
Level of Government
- Exclusive insurer: social security, gov-run WC
- Partner with private insurer: offers reinsurance coverage to private market
- Competitor to private insurer: WC
Evaluation of Gov Programs
- is it necessary for them to supply insurance?
- is it insurance or social welfare program? social welfare is financed by tax and provides benefit to qualified people without any payment from them
- is it efficient and accepted by public?
Crop Insurance
- provides protection to farmers against losses to crops from natural disasters: indemnifies if yield fall below certain levels and/or prices fall below a certain level
- must buy prior to planting and must insure all fields, reduces adverse selection
- initially only wheat & corn but not successful due to high cost and low participation so Congress passed legislation to expand crop & areas and subsidy of premium
- droughts an wet&cool growing seasons caused Congress to pass several disaster bills to assist farmers which competed with crop insurance
structure of crop insurance
- structure: private-public, private insurer writes and services policies
- RMA sets rate and determines what crops and acts as reinsurer, prem subsidized by fed gov
pros and cons of crop insurance
- supporters believe that crop insurance is necessary to bring stability to volatile sector of economy, private insurance may be more expensive and unavailable due to risk of CAT losses
- opponents believe that it may encourage agriculture overproduction & encourage farming in disaster prone areas, harming the environment, and increasing disaster relief costs
WC benefits
- WC benefits evolved to insure injured workers covered w/o having to sue employer
- Depending on state, may be provided by private insurance companies or state fund
Federal Employee Compensation Act (FECA
): Benefits to non-military federal employees for employment related injuries and disease
-Costs are lower than state WC systems -> FECA benefits reduced if benefits from elsewhere available
Longshore and Harbor Workers’ Compensation Act of 1927
Benefits to maritime workers for employment related injuries and disease while on or near navigable waters, & for which no state coverage act applied
Black Lung Benefits Act (BLBA)
Benefits for wage loss and medical provided to miners totally disabled from black lung disease, and eligible survivors
- Established because state WC often didn’t provide coverage
- financed by federal general revenues, black lung trust fund from excise tax on mine operations
- 2008, deficit had grown so large made 1 time appropriation to reduce deficit
State WC Programs
- partnership with private insurers
- state law prescribe benefits
- financing options: private insurance, state fund, or self-insurance if demonstrate financial responsibility
- where private insurers operate, public-private partnership exists as law establishes benefits - state funds
- fears of businesses with WC laws
- refusal of coverage by private insurers -> would be forced out of business
- high rates might have neg effect on state economy or allow insurers to gain unfair profits
- state funds established to address fears
- setup: usually except from fed taxes and serve as insurer of last resort - competitive state funds
- 20 states have
- compete with private insurers
- may or may not be last resort - exclusive state funds
- some states allow self-insurance - residual markets
- no state fund or state fund isn’t insurer of last resort
- private carrier rates are limited
- structured as reinsurance pool or JUA
Evaluation of WC
- Private carriers remain largest source of WC benefits
- State funds have created significant competition
- Proponents of state funds argue they are specialists in WC and offer higher levels of services than a multiline insurer, but there are private insurers that specialize in providing only WC
- State funds designed to be self-supporting -> Overhead expense ratios may be lower than private carriers, Able to return dividends or safety refunds to policyholders
- Evidence suggests both state funds and private insurers can provide WC in efficient manner
Medicare can overlap with other private and government insurance programs
- WC is primary: Medicare will only begin to pay if WC coverage is exhausted
- Medicare Secondary Payer Act of 1980 stipulated that Medicare is also secondary to liability insurance
- Notion of conditional payment also introduced by the 1980 Act: 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
Medical Set-Aside
WC claims are often closed via a settlement that covers anticipated future medical payments
Medicare 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
-Parties had little incentive to agree to MSAs & Medicare administrators did not know if Medicare eligible parties were collecting WC or liability payments
