Catastrophic Reinsurance Pool

Many of the problems in health care coverage could be eliminated if every carrier (and the government) were promoted to reinsure the catastrophic (stop loss) coverage for each enrollee in a common nonprofit reinsurance pool. To facilitate implementation of such a system, one might allow existing carriers to get stock in the reinsurance pool according to the catastrophic coverage that they donate to the pool. This mechanism might be called CatCare for 'Catastrophic Care'.

This internal change to the health care financing industry would resolve many the portability issues between different carriers and different types of coverage (PPOs, Managed Care, MSA, Medicare and Medicaid).
A central catastrophic pool of catastrophic coverage would level the play field between individual and group coverages.
Carriers would not fear an individual would sign up for their coverage only to find out that patient had some preexisting million dollar expense. This risk would be shared with all other carriers as part of the reinsured catastrophic pool.
Under such a system, the focus of the carrier and providers would be to provide the best care that the carrier and catastrophic pool can provide. With a reinsured catastrophic pool, no longer would there be any benefit to attempt to dump these patients or to restrict their ability to move from one care system to another or onto taxpayers. The benefit would be to have a solid reputation to providing the best cost effective care. It should also be pointed out, depending upon the stop loss threshold, few people have health care problems that come under such catastrophic coverage. At the insurer level, a stop-loss threshold might be $20,000, about ten times higher than individual catastrophic coverage.
It is important that government health care systems also be part of any such reinsured stop loss coverage pool. This prevents the taxpayers from picking up the tab for patients dumped by other forms of private sector coverage. This also eliminates any rhetorical concerns about healthy people migrating from Medicare to MSAs or Managed Care, leaving only the sick in Medicare and Medicaid.
The stop loss threshold might be age adjusted and set so that the stop loss coverage included coverage for 10% (or less) of people who are responsible for one third to one half of all health care services. This reinsurance pool would be flexible to the market uses of health care and largely immune to micro management by politicians attempting to add or restrict certain procedures to appease some special interest for inclusion in the catastrophic pool.

The marketplace itself can move toward such a reinsurance system if government promotes policies where it benefits the marketplace to make such a change, or the system can be mandated upon the market as was recently implemented in Montana. The system can be a standard reinsurance system or set up as a slightly more complex nonprofit company for carriers and providers to work together to provide this essential care in a cost-effective quality oriented fashion.

There are functioning analogies to this process to be found elsewhere in the marketplace. The most commonly recognizable analogy to a central system of portable benefits exists in the personal computer industry with MS DOS (the World Wide Web is another). DOS provides a core operating system where people and businesses can move data and programs between different computers with great ease because each computer shares the same core operating system.

Such was not always the case in computers. Apple, IBM, Amiga, Atari, and many others all had proprietary operating systems and file formats. Along came the non-proprietary DOS to be followed by Windows. With DOS as the core, people could move programs and data from one computer to another with a minimum of problems. With the struggling exception of Apple, the rest of the proprietary systems have virtually disappeared from personal computers. Contrast this with the contemporary success of the non-proprietary DOS operating system and the nonproprietary hardware's rapid vertical and lateral development in both quality and cost effectiveness. The same could happen in health care financing if the market was promoted to operate in an open and competitive fashion.

Currently, our health care carriers are allowed to operate health care financing as if they all have their own operating system and build their own computers. As the computer marketplace shows, this is neither the most effective nor desirable way for a healthy and vibrant marketplace to operate. Of all the reforms in health care, pooling of catastrophic coverage is perhaps the most fundamental change that could be made that would have the largest benefit for all involved. Or at least, that is my opinion.