Reinsurance
Reinsurance is insurance purchased by an insurer or self-funded health plan to cap its exposure to unusually large or catastrophic claims. It transfers a portion of risk to a reinsurer, stabilizing the primary plan's finances.
What is Reinsurance?
Reinsurance is insurance that an insurer or a self-funded health plan buys to protect itself against unusually large or catastrophic claims. In effect, the primary plan transfers a slice of its risk to a reinsurer in exchange for a premium.
A common form is stop-loss coverage, which begins paying once an individual's claims or the plan's total claims exceed a set threshold. The arrangement caps the primary plan's exposure on the most expensive cases.
Why does Reinsurance matter?
A single catastrophic case, such as a complex transplant or a prolonged intensive-care stay, can be financially destabilizing for a plan. Reinsurance smooths that volatility by absorbing the tail of extreme costs, making the plan's finances more predictable.
This stability is especially important for self-funded employers and smaller health plans that bear claims risk directly. By limiting downside exposure, reinsurance allows them to offer coverage without the threat that a few outlier patients could overwhelm their budget.
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