Reinsurance: How States Can Make Health Coverage More Affordable for Employers and Workers

State-government–provided reinsurance—essentially, insurance for insurance companies—can relieve health insurers of the risk of “adverse selection” (disproportionate enrollments of individuals with extraordinarily high medical costs), particularly in the small group and individual markets. With such programs in place, insurers may significantly lower premiums, thereby making health coverage affordable for more people. Two states, New York and Arizona, have run reinsurance programs for several years that are achieving significant success. As other states consider establishing their own plans, they must similarly take into account a variety of operational, cost-estimation, and financial issues. Although established primarily with the working poor in mind, reinsurance could be designed to lower health insurance costs for all. Support for this research was provided by The Commonwealth Fund. The views presented here are those of the author and not necessarily those of Harvard University or The Commonwealth Fund, including its directors, officers, or staff. Additional copies of this and other Commonwealth Fund publications are available online at www.cwmf.org. To learn about new Fund publications when they appear, visit the Fund’s Web site and register to receive e-mail alerts. Commonwealth Fund pub. no. 820.