Basic Design of Reinsurance in the Zimbabwean Health Sector

i) Reinsurance can be defined as “insurance bought by insurers for the purpose of limiting their risk exposure”

• The availability of reinsurance permits primary insurers (including self funded plans) to reduce risk exposure in ways than can affect the availability and affordability of health insurance coverage
• Our primary role of reinsurance therefore is to provide adequate reinsurance capacity and security to the market

ii) Reinsurance cover is typically not for high risk individuals but the high end of spending on claims , by individual or in aggregate

• The primary insurer is protected from very large, unexpected losses by transferring some or its entire high end risk to a reinsurer.

iii) Reinsurers cover most or all the expenses that exceed a specified annual threshold of spending per individual or for a group (similar to a deductible in a primary insurance plan, but for reinsurance called an “attachment point”)

iv) Above the deductible, risk is shared;

• Either through “co-insurance”, under which the primary insurer and the reinsurer each pay a percentage or the reinsurer covers all losses above the threshold, thus ending further losses for the primary insurer (stop loss insurance)

v) Basic design issues/features are:

• What population is insured?
  • Total population or target groups e.g. long term care, high cost behavioral health, or catastrophic diagnosis e.g. hemophilia, organ transplant etc
• What type of claims losses are reinsured?
  • What is the nature of the risks reinsured? High losses per member per year or aggregate losses for an entire population. Typically, reinsurance kicks in once a set level of cumulative expenses is accrued during a year. Typically, cover is for hospitalization which dominates high claims. Tracking other costs e.g. outpatient and doctor’s fees is also too costly
• How high are the attachment points?
  • Reinsurance provisions typically apply above a specified “attachment” point of annual spending per member. Attachment points vary widely per client
• What is the nature of co-insurance provisions?
  • Reinsurance coverage in normally written to cover costs above an attachment point on a Proportional basis (Pro-rata) like primary insurance co-insurance (e.g. an 80/20 split between reinsurer and primary insurer.
  • Another alternative is complete Excess of Loss coverage under which reinsurance covers 100% of losses above an attachment point, like primary coverage after a deductible
• Maximum reimbursements
  • Most schemes do set a maximum limit on the reimbursements the insurer can collect from the reinsurer per year (or per lifetime of the insured) and specifies certain additional “internal limits” e.g. maximum payment per hospital day or stay.
• The reinsurer will set their own limits within their capacity.

vi) Operational Policies

a) Determination of Reinsurance Premiums

• Reinsurers charge a premium for the protection they provide
• Premiums are collected as an offset to capitation payments otherwise due to service providers
• Premium levels are determined on the basis of
• Prior years experience (several years of fee for service data to smooth out variations)
• Projected fee for service claims (hospitalization)
• Upper payment limits in respect of outpatient and mental health claims
• Years of outlier expenditure experience (Primary Care
• Reinsurance premiums as a percentage of capitation rates/estimated claims vary
• Stop loss premiums tend to be higher for costly group e.g. those with chronic illnesses and disabilities
• There is no going rate for reinsurance – each reinsurer quotes differently based on the unique needs of the client (relevant risks to be assumed and cover purchased)

b) Claims Processing & Payment

• Electronic processing of claims is ideal – faster, accurate and allows redefinition of covered risks and management of different types of reinsurance plans with different attachment points
• Random retrospective audits by the reinsurer are mandatory to prevent fraud