What is reinsurance and how does it apply to healthcare?
Health plan insurance coverage gives people peace of mind when an unexpected medical event happens. As we have all experienced, life can be unpredictable, and we have learned the precious value of having good health. Doctors, nurses, and medical staff are on the frontlines daily to help patients achieve and maintain good health.
Behind the scenes, there are dedicated teams creating healthcare plans at the most affordable prices possible. One of the tools they use to keep prices down is reinsurance. It is essential to understand what it is, why it is important, and the challenges of incorporating reinsurance into strategic decisions for healthcare plans.
According to Health Insurance.org, reinsurance, also known as stop-loss coverage, is “essentially insurance for insurance companies. Just like individuals count on their insurance company to cover a portion of their medical bills if and when they have a claim, reinsurance programs pay a portion of the insurer’s bills when enrollees have high-cost claims.” As the author states, reinsurance can help control costs and increase enrollments, resulting in a stable insurance market.
Health plan providers have a dual challenge: they want to give their clients the best possible healthcare plans while keeping these quality products at a reasonable cost without cutting benefits. Health plan providers face an environment of quickly evolving medical technologies and medications during global health and economic challenges, so keeping costs down is challenging.
They need to analyze the costs of incoming claims, understand the highest risks to their cost structure, and address those risks so that people can access the best possible care using their health plan. As Healthcare.gov explains, “reinsurance is a way to stabilize an insurance market and make coverage more available and affordable.”
To understand reinsurance, consider Mary’s story. Mary has been a dedicated, hard-working employee for many years. She was recently diagnosed with a serious illness that will require multiple medical procedures, expensive medications, and a long-term recovery period which will require time off work.
Mary’s claims could potentially increase premiums for other clients of her healthcare plan, but the team providing her healthcare plan has already anticipated that some of their clients may be in Mary’s challenging situation. Her healthcare plan’s team works with their reinsurance company to assess potential expenses for future care similar to Mary’s to reduce the risk and minimize losses from large claims like hers.
Crafting a cost-reduction and stop-loss strategy using reinsurance requires significant data including:
- High-cost claims like Mary’s
- Constantly changing policies in healthcare and the economy
- Advances in technology and medicine, and
- Potential health issues, such as the expectation of a triple-demic (flu, COVID, and RSV), highlighted by physicians, in October 2022
Teams constantly monitor the latest developments across all these areas to produce the most accurate analysis and adjust their reinsurance approach.
If there are errors in claims due to upcoding, creative coding, or honest mistakes, then the decisions to use reinsurance could be based on invalid data. Small errors in claims add up and can result in impacts to Mary, her healthcare provider, her health plan, and her health plan’s reinsurer. As a result, these errors have a downstream effect on other people like Mary, who are challenged with overcoming a severe medical condition so they can get back to their life’s work.
Essentially, the data that drives decisions about the use of reinsurance has a tremendous impact on the stability of the health insurance market and the life story of millions of patients like Mary.
At Nokomis, we are driven to create a better healthcare system for all and work alongside health plan teams to find significant savings from claim inaccuracies with ClaimWise™️ and our expert review team. Even small dollar savings add up to substantial savings each month. Nokomis will be launching ClaimWiseRE™️ in 2023 to help companies with end-to-end Claim Accountability.
We encourage you to join in the conversation with us on LinkedIn. Together we can learn about the Claim Accountability in the claims process and the impact it can make on our shared healthcare system.