Germani

Question 1

Reasons for governmental participation in insurance

Answer 1

FCC(ES)
* Filling needs unmet by private insurance
May occur when private insurance is not economically viable (after 9/11, private market withrdrew coverage)
* When insurance is Compulsory
if insurance is compulsory but not offered by the private market then government must be the provider
* for Convenience
government may already have necessary structures in place
* for Efficiency
agent commissions eliminated > lower expense ratio > lower premiums for consumer
* for Social purposes
private market is motivated by profit, sometimes at the expense of social purposes like universal medical coverage for seniors

Question 2

Examples of governmental participation in insurance

Answer 2

• Filling needs: TRIA - Terrorism Risk Insurance Act
• Compulsory: WC
• Convenience: NFIP - National Flood Insurance Program (government already provides disaster relief after floods)
• Efficiency: auto insurance
• Social purposes: Medicare

Question 3

3 Levels of government involvement in insurance

Answer 3

• Sole provider
  Social Security, Unemployment Insurance
• Partnership with private insurance
  NFIP
• Competition with private insurance
  WC competitive state funds in some states

Question 4

Criteria for evaluating government insurance programs

Answer 4

W/I - SEAN
* is the program one of Welfare or Insurance
* does it achieve Social purposes
* is it Efficient
* is it Accepted by the public
* is it Necessary

Question 5

Crop Insurance

Answer 5

• Private insurers market, write, and service policies
• Government sets the rates
• Government acts as reinsurer
• Government uses taxes to subsidize the program
• Government reimburses insurer expenses
• Not eligible for disaster relief if you don’t buy crop insurance

Types of coverage - protects against:
* low yields
* low prices

Overall effectiveness: fair

RMA = Risk Management Agency of US Dept of Agriculture

Question 6

Crop Insurance shortcomings

Answer 6

• encourages over-production
• encourages farming in marginal or risky areas
• private insurers make money while government (taxpayers) subsidize the losses

Question 7

Crop Insurance shortcomings mitigation

Answer 7

• Limit coverage (to address over-production)
• Shift balance of loss-sharing more towards private insurers (to relieve taxpayer burden)

Question 8

Federal WC Programs

Answer 8

• Federal Employees Compensation Act (FECA)
• Longshore & Harbor WC Act (1927)
• Black Lung Benefit Act (BLBA) (1969)

Question 9

Levels of state government participation in WC

Answer 9

Partnership: state defines benefits, but private insurers write policies
more choice for consumer, but still assured of minimum statutory benefits

Exclusive State Fund: state is sole provider, no private WC is permitted
no advertising or agent commissions means lower cost > pass savings to consumer

Competitive State Fund: state competes with private insurers
state funds provide a stable source of coverage & competition can help keep costs of private WC down

Question 10

3 mechanisms states can use to operate residual market (WC)

Answer 10

1. State assigns applicants to carriers based on WC market share (insurers then service policies as if they were voluntary)
2. State uses a reinsurance pool (profits & losses are shared among all insurers in proportion to voluntary market share)
3. State authorizes a JUA or Joint Underwriting Association (profits & losses are shared among all insurers in proportiong to voluntary market share)

Question 11

Advantages of state funds

Answer 11

• lower cost for consumers (no advertising or commissions for state funds)
• provides coverage for high-risk customers (if insurance is mandatory, government should ensure coverage is available by being an insurer of last resort)

Question 12

Disadvantages of state funds

Answer 12

• Private markets are more innovative (and private competition drives prices down)
• Private markets can operate efficiently (about half of states don’t have state funds so state funds may not be needed to fill unmet needs)

Question 13

MSA

Answer 13

Medical Set-aside Allowance
* A portion of the WC (or liability) settlement set aside for future medical costs due to the injury
* All parties to a settlements must agree & fund the MSA

Question 14

CMS

Answer 14

Center for Medicare & Medicaid Services
* Administers Medicare, and establishes guidelines for review & approval of MSAs

Question 15

MMSEA

Answer 15

Medicare & Medicaid SCHIP Extension Act (2007)
* Addressed the problem of CMS being unaware of primary payer responsibilities
* Primary payers were trying to shift costs to Medicare (involved MSAs & other payers)
* Act requires RREs to report claim data to CMS (so that Medicare doesn’t start paying when it shouldn’t)
* There’s a substantial penalty for non-compliance (CMS is serious about this!)

Question 16

RRE

Answer 16

Responsible Reporting Entities
* Claim payers

Question 17

Who is primary payer?

Answer 17

• WC/liability is primary
• Medicare is secondary

Question 18

Characteristics of social welfare system

Answer 18

• Payments are based on need not on reimbursement for covered losses
• Funding is through taxation not policyholder premiums

Question 19

Describe FECA

Answer 19

• for civilian government employees
• costs are controlled because there is no judicial review or litigation

Question 20

Describe Longshore & Harbor WC Act (1927)

Answer 20

• for workers (other than seamen) injured on/near navigable waters
• created because it wasn’t always clear which state’s WC program would apply
• considered EFFECTIVE: fills a coverage gap (& reduces benefits if state funds are available)

Question 21

Describe Black Lung Benefit Act (1969)

Answer 21

• wage replacement & medical benefits to totally disabled coal-miners (for black lung disease)
• created because of inadequate state compensation
• note that federal compensation is reduced by amount of state compensation
• FUNDING: federal excise tax on coal miner operators
• if fund goes into deficit, may borrow from federal government