January 4, 2005
CONNECTICUT SMALL EMPLOYER HEALTH REINSURANCE POOL
By: Janet L. Kaminski, Associate Legislative Attorney
You asked for information on the Connecticut Small Employer Health Reinsurance Pool.
State law mandates that all insurers be members of the Connecticut Small Employer Health Reinsurance Pool. The pool issues reinsurance coverage to insurers who wish to relinquish liability for a small employer's employees' or dependents' covered expenses in excess of $5,000 per covered person. Pooling high-risk employees and reinsuring coverage helps make health care insurance more affordable and available for small employers and encourages insurers to continue offering coverage to otherwise uninsurable groups.
Reinsurance spreads the insurance risk liability of one company by the assumption of some portion of the risk by one or more other companies. A company assuming the other insurer's risk is called the reinsurer. For example, insurer XYZ sells a policy with a $100,000 liability limit to a customer. Insurer XYZ then cedes (gives up) some of its liability to Reinsurer ABC by purchasing reinsurance coverage. Through the reinsurance treaty (contract), Reinsurer ABC will cover claims made by the customer to Insurer XYZ exceeding a certain amount, such as $10,000. Typically the customer is unaware of the reinsurance arrangement.
Pooling risks from across a certain population can minimize premium variances between groups and premium fluctuations per group. A reinsurance pool covers the excess costs associated with high-risk individuals from numerous employer groups. A high-risk individual is one who is likely to generate substantial claims due to his health status.
Pooling and reinsuring risks helps keep underlying plan premiums more predictable and therefore lower. The excess costs are shared proportionately among all pool members (e.g., insurance companies). As a result, a pool helps make health care coverage more affordable and available and encourages insurers to continue offering coverage to otherwise uninsurable groups.
SMALL EMPLOYER HEALTH REINSURANCE POOL
A 1990 law created the non-profit Connecticut Small Employer Health Reinsurance Pool (“the pool”), the nation's first such pool, which became the National Association of Insurance Commissioners (NAIC) model for reinsurance pools. The pool is mandatory, meaning all insurers issuing health insurance and insurance arrangements providing health plan benefits must be pool members (CGS § 38a-569).
A board that is selected by the pool, subject to the insurance commissioner's approval, administers the pool. The board members must represent domestic insurance companies (one-third) and small employer carriers (two-thirds). The insurance commissioner is an ex-officio board member. The pool is funded by 1) annual assessments on all pool members, 2) premiums collected from insurers who purchase reinsurance coverage from the pool, and 3) investment income.
The pool defines the health care plans for which reinsurance is provided, issues reinsurance policies, and establishes rates as permitted by statute. Pool members may purchase reinsurance coverage for an entire small group or for individual employees or their dependents within a group that are considered high risk. Employees must work at least 30 hours per week to be eligible. The covered individuals and employers are unaware of the reinsurance, as the insurer may not disclose its existence.
An insurer wishing to reinsure an individual or a group must do so within 60 days of issuing the underlying coverage, under current board rules. For small groups of one or two employees, an insurer has additional opportunities to purchase reinsurance at every third plan anniversary.
The reinsurance coverage includes a $5,000 deductible per insured individual. This means that the underlying health care plan must cover $5,000 of benefits for a person before the reinsurance coverage takes effect. Above $5,000, the reinsurance coverage pays all claims for covered expenses.
Since its inception, the pool has enrolled over 27,000 employees and dependents. As of October 2004, 3,116 employees and dependents of small employers are enrolled in the reinsurance pool. The average reinsurance premium is $4,500 per year, according to information Karl Ideman, Pool Administrators, Inc., provided to The Robert Wood Johnson Foundation for its recent issue brief on reinsurance (copy enclosed).