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Risk Corridors and Reinsurance in Health Insurance Marketplaces: Insurance for Insurers

Timothy Layton (), Thomas G. McGuire () and Anna D. Sinaiko ()
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Thomas G. McGuire: Harvard Medical School
Anna D. Sinaiko: Harvard School of Public Health

American Journal of Health Economics, 2016, vol. 2, issue 1, 66-95

Abstract: Health Insurance Marketplaces established by the Affordable Care Act implement reinsurance and risk corridors. Reinsurance limits insurer costs associated with specific individuals, while risk corridors protect against aggregate losses. Both tighten the insurer's distribution of expected costs. This paper compares the economic costs and consequences of reinsurance and risk corridors. We simulate the insurer's cost distribution under reinsurance and risk corridors using data for a group of individuals likely to enroll in Marketplace plans from the Medical Expenditure Panel Survey. We compare reinsurance and risk corridors in terms of risk reduction and incentives for cost containment. We find that reinsurance and one-sided risk corridors achieve comparable levels of risk reduction for a given level of incentives. We also find that the policies being implemented in the Marketplaces (a mix of reinsurance and two-sided risk corridor policies) substantially limit insurer risk but perform similarly to a simpler stand-alone reinsurance policy.

Keywords: health insurance; insurance; insurers; reinsurance; Affordable Care Act; risk corridors; economic costs; marketplaces; policy (search for similar items in EconPapers)
JEL-codes: I0 I11 I13 I18 (search for similar items in EconPapers)
Date: 2016
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Journal Article: Risk Corridors and Reinsurance in Health Insurance Marketplaces: Insurance for Insurers (2016) Downloads
Working Paper: Risk Corridors and Reinsurance in Health Insurance Marketplaces: Insurance for Insurers (2014) Downloads
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