But you think preventing risk is the “same thing” as transferring risk? To me, it seems odd that an actuary would think that because the distinction between preventing and transferring risk is insurance 101.
I’ve been in the industry for 20 years, half in P&C claims with one of the big boys and the other half as an independent agent. In that role, I’ve run an agency as well as marketed P&C, life, health and annuities.
Great, I love to learn. Educate me. Does reinsurance not affect the loss ratio?
Actually, I have ample basis. Many carriers separate their business into subsidiaries by line and, often, by individual states as well. I know because I’ve been licensed in many states and appointed with many different carriers because I’ve sold insurance over the phone.
Note my earlier answer. At some point, we will be forced into a single-payer system.
That’s what assigned risk is…forcing an insurance company to take a policy against its will. The idea is basically that the state is saying “if you want to sell anything, you will take the policies we assign to you.”
Context is important. For purposes of this particular issue, they are the same. The point was that having insurance lessens the risk - and thus provides a benefit - to the people purchasing the insurance. It differs from socialism in that manner.
[This is besides for the issue of whether spreading risk is the same as transferring it - insurance does both of these.]
Of course it does. That was the whole point of the reinsurance. Your claim here is that even after the reinsurance “everybody knew” that the plans would have high loss ratios.
Pointing to the reinsurance feature amounts to arguing against yourself, because you’re pointing to something that lowers loss ratios while arguing that there would be expected high loss ratios.
This does not support your claim. If you were familiar with underwriting and reporting requirements - versus just selling insurance - you might be aware that insurers are required to report their loss ratios - along with a lot of supporting detail - separately for these various lines of business, and these are closely reviewed by state regulators. Your suggestion that the carriers are playing games with the loss ratio numbers by shifting from one line of business to another amounts to an accusation that the carriers are committing massive insurance fraud that has been sneaked past the regulators.
But even if you’re right, you’ve not provided any basis for the assumption, both in general and in the specific instance of these exchange plans.
That amounts to backing off your earlier position. I’m discussing the viability of the exchange. You now seem to be saying that they will eventually collapse but that there will be a single payer system. That’s beyond the scope of this discussion.
Please. Please let major insurance companies pull out of the ACA. Each time they raise rates or cut benefits we’re one small step closer to forcing them out of health insurance completely and can move onto a reasonable single-payer plan.
These carriers were very much in business before the ACA. Most of their business is aimed at the employer-sponsored/group market (or the Medicare market).
The idea of the exchanges was to provide a viable individual market. The question is whether that will hold.
It does follow. Politically, going back to primary employer sponsored insurance when there’s already an established concept of federally arranged healthcare is a non-starter. Too many people - who vote - have made moves based on it. To do otherwise is to risk political destruction.
Maybe if you pulled the rug out today, in one shot. But that’s not happening.
If the exchanges collapse (and it’s still a very big if) it would be slowly and over years, with fewer and fewer choices, at higher and higher rates, and gradually declining enrollment each year. That’s not a “non-starter”, that’s the way a lot of things work.
Sure, there would be all sorts of bickering over what to do about the increasing number of people without insurance, but there’s no guarantee that the answer would be a single payer system.
I don’t believe so. An example of preventing risk would be to leave your car in the garage and take the bus. An example of transferring risk would be to buy insurance before you drive the car down the road.
I can certainly agree with you there.
But not here. While the term socialized medicine has been broadened in common usage to include single-payer private systems. The term socialism still requires common ownership of the means of production. Hence, a Medicare-for-all type of system could be deemed socialized medicine but not socialism. For that, the government would have to own the facilities and employ the doctors directly and it’s difficult for me to imagine that would happen. Of course, we have had a healthcare mandate in this country which meets the definition of socialism almost since the country’s founding (military medicine), but that was never extended to the public at large.
Another controversy put to rest.
Certainly.
Really? When I initially said “everybody knew”, I don’t think I stated anything about reinsurance.
If the risk wasn’t expected to be high, why plan mitigation measures? Sorry, I’m not following your line of reasoning. It seems as if I’ve had extra words put in my mouth.
Ah, so my ignorant observation they spread their money amongst a bunch of individual pots isn’t so far-fetched, after all? Something else I’ve inexpertly noticed…they don’t just do this for regulatory purposes, they do it to isolate risk as well.
Admittedly, that was a rhetorical flourish. Although, it had nothing to do with sneaking things past the regulators. I was talking about sneaking things past the public. You see, there’s a question in my mind about exactly what was lost. Was it a loss in a segregated pot while the rest of the company made money hand-over-fist or was it truly a major loss which they can’t bear?
Luckily, it appears you’ve lent your support to me on the issue.
Risk of what? If 100,000 people get together and pool their risk by buying insurance, then the risk to each of them is lessened, not just transferred - none of these people now face the possibility of catastrophic loss, where before all of them did. Each is transferring a bit of risk to the other, in that everyone pays a small amount for the other guy’s loss. So it has both elements.
But the distinction is not important for our purposes here. Bottom line is that the people who are purchasing insurance are getting something for their money, whether by transferring or reducing risk. This is where it differs from forcing insurers to offer coverage at a loss in order to subsidize other coverage.
You’re quibbling about semantics here. Argue the point, not the terminology.
The risk would have been higher were it not for the risk mitigation measures. The risk mitigation measures were a part of the same ACA which created the exchanges, and the expectation was that these risk mitigation measures would lower the loss ratios. So at the time the exchanges+risk mitigation were created, there was not an expectation that loss ratios would be high.
I’m not sure if you paid attention to what I wrote, but it was the exact opposite of what you say here. Please reread.
These companies are not claiming - to either the public or the regulators - that it was a major loss that they can’t bear. But the way companies work is that they invest in profitable business and don’t invest in unprofitable ones. Even if they’re making money hand-over-fist in one segment of their business, they are likely to pull back on another segment if that other segment is losing money. So the key question is whether the exchange segment is, or is likely to become, profitable. Because if it’s not, then they are likely to pull back from that segment.
As above, you appear to have misunderstood what I wrote.
The way I think of it is as sharing, or equalizing, the risk.
100 guys all buy auto insurance. One of 'em gets in an accident, and gets money to pay for repairs or a new car. It works, because no one of us, ahead of time, can possibly know which of us is going to need the money.
What many of us are mad at insurance companies for is cherry-picking their customers, such as refusing to sell medical-insurance policies to people with higher risks, such as family history, previous conditions, and so on. Instead of sharing or equalizing risk, they’ve moved on to maximizing profit, and that conflicts with the basic concept of risk pooling.
For an actuary who works for an insurance company, you sure seem to have strange ideas about this most fundamental concept of risk & insurance. Insurance never prevents risk. Prevention or avoidance is a risk management strategy but its presentation never takes the form of insurance. By definition, insurance transfers the risk of loss from the policyholder to the insurance company. The example I gave ought to be pretty clear: you prevent risk of a collision loss by leaving your car parked in the garage and you transfer the risk of a collision loss to an insurance company by purchasing an auto policy before you drive the car. These strategies can and do work together within the broader concept of risk management but your insistence that insurance “prevents” risk of loss in any way is simply wrong. Maybe another example in terms of health insurance will help: you prevent risk of an injury loss if you refrain from water skiing but you transfer the risk of an injury loss to an insurance company by buying health insurance before you go water skiing.
If you say so.
Now, we’re going to parse the difference between transferring and reducing?
As I’ve already pointed out, this happens routinely within the industry. Frankly, it’s much of the reason why states regulate insurance so heavily. It’s not just about the price. States force insurance companies to offer particular types of policies, particular coverage on those policies and, at times, require them to offer coverage in particular geographic regions. In the Medicare market, CMS enforces the same types of requirements with those products. Do you think those regional Part-C plans are making a profit in every county in which they’re required to offer coverage? I certainly don’t. The regional plans are required to offer coverage in every county of a particular region. It’s inevitable that they have only a handful of policyholders in some of the rural counties. Large losses from a couple or three of them would make that county a bust. Yet, the government makes them cover it as part of their contract and they make up ground with healthy policyholders in some other county. Insurance companies could make even more money if they were allowed to do as they pleased and pick & choose only the risks they want to cover but they are given a choice to pick from the regulator’s menu of options or not do business at all. There’s always a tug-of-war between the politicians, voters and the insurance lobby but, at the end of the day, insurance companies are generally required to do whatever regulators tell them to do. There are other aspects of this that you would no doubt consider “socialist” as well. Many states have high-risk pools or joint underwriting associations for certain classes of risk which are funded (or partially funded) by assessments and fees attached to the policies in the regular market. There is also our system of flood insurance. While people often believe they are insured by private companies because those are the conduits by which they purchase flood insurance. This is actually not the case. All flood policies are underwritten by the National Flood Insurance Program…private insurers merely service the policies. For political reasons which transcend political parties, this program has never collected the appropriate premiums for the risks it covers. Hence, when a large catastrophic loss like Hurricane Katrina hits, the program needs a taxpayer bailout. The very “socialism” thing you’re complaining about is already being done on a large scale in many other contexts.
I thought I was arguing the point.
Newsflash: the business of providing insurance is a form of gambling. It is never without risk. While these companies may have underestimated the risk, the idea they thought there was none is ridiculous.
I did and I continue to get the same impression.
The insurance industry has been treated in a fashion different from other classes of business for decades. While they are a necessary element of business, they have not been allowed to do whatever they want to do, nor have they been allowed to make as much money as they could have by cherry-picking only the risks they wanted to cover. Hence, it’s very difficult for me to see why this situation is fundamentally different.
Yes, it is, but this is all an example of transferring risk from policyholders to an insurance company.
The health market was long allowed carte blanche (except for group & Medicare) while insurers’ ability to cherry-pick was being curtailed in other respects within the industry. It’s not that it didn’t (or doesn’t) happen at all (e.g. any sort of underwriting policies essentially results in cherry-picking), it’s just that it was common for restrictions to be placed on it in other lines of insurance.
I find it interesting to hear things like this…like everything was just peachy beforehand.
Is it possible - just possible - that perhaps you’re a guy who knows a smattering of technical insurance terms but no clear and broad understanding, let alone the ability to apply them in practical terms? Something to think about it. A little knowledge is a dangerous thing.
In any event, I think what I’ve said stands on its own and I don’t feel I need to add anything further.
[*FWIW, I’ve not said I work for an insurance company, and in actual fact I work for an employee benefits consulting firm.]
It’s because you and F-P are seemingly talking about two different things. You are talking about risk of occurrence and F-P is talking about the actual dollars lost - think severity.