Earlier this year, the OIC proposed legislation that sought to make insurance more affordable and more available to more people. The legislation would accomplish this by pooling the highest risk in the market and spreading the costs more broadly. When the legislation was proposed, Commissioner Kreidler stated publicly that if the agency couldn't verify the cost benefits of the proposal with absolute certainty, he wouldn't advocate moving it forward.

To that end, the Commomwealth Fund, a New York-based research organization, studied the proposal but was unable to validate the plan's predicted degree of savings. The researchers indicated, however, that they believe pooling upper-level risk is the right approach. They recommended that the OIC present a revamped proposal to the 2006 Legislature. View the analysis and recommendations here. (PDF 67Kb)

The information below describes the proposal submitted to the 2005 Legislature.

Last year marked the fourth consecutive year of double-digit increases in health insurance premiums. Washington consumers spend approximately $318 million a year on uncompensated care for the more than 600,000 uninsured in Washington. Only two-thirds of small employers are able to offer their employees health care compared to 97% of large employers. It’s clear that our current health care system cannot be sustained if these trends continue.

Why reform health insurance?

Insurance is designed to work by spreading costs across a large number of people. Premiums are based on the average costs for the people in an insured group. This risk-spreading function helps make insurance reasonably affordable for most people.

The current health insurance market is so volatile because health plans can’t predict how many high-cost enrollees they will have in a given year. High-cost enrollees are people with severe illnesses and injuries or chronic medical conditions. If insurers could better predict the cost of covering these individuals, insurance coverage for everyone could be more affordable.

What does the OIC proposal do?

Our proposal, “Pooling Risk, Reducing Cost,” would lower health insurance costs and insure more people. It would not require any public money and would preserve consumers’ individual choice of their provider and health plan.

It would spread the cost of the highest-risk enrollees across the private insurance market (the individual, small and large groups), enabling health insurers to better predict insurance premiums. Once insurance costs are more predictable, the following can happen:

Premiums (especially for small businesses) can be lowered
The uninsured gain access to more affordable health insurance
Uncompensated care costs decrease
Money saved can be recaptured and used to pay a portion of insurance premiums for low-income people in either small-group plans or in the Washington State Health Insurance Pool (WSHIP)

How does this proposal work?

Our proposal would use a tool called reinsurance. Reinsurance is commonly used by the insurance industry to help spread the high-costs of insuring a large and unpredictable risk.

Coverage for the highest-cost enrollees would fall under a newly-created statewide reinsurance pool, allowing the costliest of care to be shared throughout the private health insurance market.

How would the reinsurance pool work?

Coverage under the pool would kick-in when an enrollee’s annual expenses for health care exceed $25,000. An estimated 50,000 enrollees a year are predicted to meet the threshold of $25,000 and would be covered by the reinsurance pool.

Once an enrollee’s costs reach $25,000, the reinsurance pool would cover 75 percent of the subsequent costs. Coverage under the pool would be transparent to the enrollee and they would remain in their current health plan and continue receiving care from their provider(s). The carrier would cover the remaining 25 percent of the costs.

Carriers continue to provide case and disease management services and would continue to promote effective management and quality coordinated health care.

Who would administer the new reinsurance pool?

A private/public appointed board would administer the reinsurance pool and could contract with a reinsurance carrier.

How would the reinsurance pool be funded?

Every carrier would contribute money to the pool based on their enrollment in the private health insurance market. However, their contribution actually would be less than what they currently pay to cover their highest-cost patients.

Revised: December 2004

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