title: The power of reinsurance in health insurance exchanges to improve the fit of the payment system and reduce incentives for adverse selection.
abstract: Risk adjustment and reinsurance protect plans against risk of losses and contend with adverse selection in the new health insurance Exchanges. This article assesses the power of reinsurance in the context of other plan payment features, including prospective and concurrent risk adjustment. Using data from the Medicare Expenditure Panel Survey (MEPS) to draw an "Exchange population," we simulate the contribution of reinsurance to improving the fit of the payment system to plan costs and to mitigating incentives for adverse selection for groups of enrollees with selected chronic illnesses. Modest reductions in attachment points equate the payment-system fit of retrospective to concurrent risk adjustment. Reinsurance is very powerful in fitting payments to costs and moderately effective in dealing with selection incentives.
authors.affiliation: University of California San Francisco, San Francisco, CA, USA and Harvard Medical School, Boston, MA, USA.
authors.forename: Jane M
authors.initials: JM
authors.lastname: Zhu
authors.affiliation: Harvard Medical School, Boston, MA, USA.
authors.forename: Timothy
authors.initials: T
authors.lastname: Layton
authors.affiliation: Boston University, Boston, MA, USA.
authors.forename: Anna D
authors.initials: AD
authors.lastname: Sinaiko
authors.affiliation: University of California San Francisco, San Francisco, CA, USA and Harvard Medical School, Boston, MA, USA mcguire@hcp.med.harvard.edu.
authors.forename: Thomas G
authors.initials: TG
authors.lastname: McGuire
mesh_terms: D000293:Adolescent; D000328:Adult; D002648:Child; D002675:Child, Preschool; D005260:Female; D005102:Health Expenditures; D062265:Health Insurance Exchanges / Q000191:economics; D006304:Health Status; D006801:Humans; D007223:Infant; D007231:Infant, Newborn; D007348:Insurance, Health / Q000191:economics / Q000458:organization & administration*; D008297:Male; D008875:Middle Aged; D018803:Models, Economic; D009042:Motivation; D058991:Patient Protection and Affordable Care Act; D020379:Risk Adjustment / Q000379:methods*; D020414:Risk Sharing, Financial / Q000379:methods*; D012959:Socioeconomic Factors; D014481:United States
keywords: Adverse Selection; Exchanges; Health Insurance; Reinsurance; Risk Adjustment