Medicaid Managed Care - U.S. Senate Special Committee on Aging

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Table 4.2: Oregon's Reinsurance
Levels and Rates, 1995-97 Annual deductible per Percentage of lability
person before slate will over the deductible to be Reinaurance premium as
participate paid by the plan a percentage of capitation
$10,000 5 29.9
15.000 10 197
30,000 20 9.3
50,000 20 4.1
Source: Oregon Ofie of Media Aslmco Prog.so.
State <strong>Medicaid</strong> officials told us that, by protecting health plans from
extraordinary costs, reinsurance also helps build health plan capacity. For
example, new health plans and plans with small enrollments need time to
absorb spikes in service costs and the cash flow fluctuations inherent in
prepaid managed care. With reinsurance available, these plans can
participate and compete in the programs.
While reinsurance relieves some pressure on health plans faced with
expensive cases, it does not remove the negative incentives discussed
earlier. Plans still may benefit from enrolling the healthiest eligibles or
from underserving the high-cost cases that do enroll. Reinsurance
compensates plans only after they lose money on a case or on all their
enrollees. While reinsurance may relieve some pressure on plans facing
losses, it may not affect the incentives plans create with individual
providers to limit services. These incentives set out in the provider's
contract may not automatically adjust when the costs of a provider's
patient reach the reinsurance threshold.
In some areas, <strong>Medicaid</strong> managed care reinsurance may not be readily
available in the private market and may not be available at all for small
health plans. Consequently, state <strong>Medicaid</strong> agencies become de facto
insurance companies with the associated risk and resource requirements.
As reinsurers, states face the challenge of setting appropriate reinsurance
premiums-inappropriate premiums could lead either to plans paying too
much, and thus increasing the pressure to underserve, or plans paying too
little, which leaves the state in a money-losing position
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