Health Insurance Futures
Definition of "Health insurance futures"
One-year futures contract (standardized agreement between two parties to buy or sell a commodity or financial instrument on an organized futures exchange such as the CBOT within some future time period at a present stipulated price), traded at the Chicago Board of Trade (CBOT), which would allow health insurance companies and self-insured employers to hedge their losses. The essential design of this contract is such that when actual claims exceed expected claims by amount "X," the futures contract would increase by the same amount "X." The financial instrument that forms the basis of this futures contract is an index that reflects the claims experience of ten health insurance companies. By buying futures contracts that will appreciate in the future as claims increase in the future, insurance companies and self-insured employers can profit from increasing futures prices through which they can offset their losses. Accordingly, by selling futures contracts that will decline in the future, these organizations can profit from decreasing futures prices that can be used to offset smaller cash flow. For example, if a health insurance company buys a futures contract for $40,000 and then sells it for $50,000, the company will recognize a profit of $10,000, which can be used to pay the higher than expected claims incurred. The cost effectiveness of hedging through the buying and selling of futures contracts depends on high correlations between expected claims payments and the futures contracts prices. If there is a low correlation between expected claims payments and the futures contracts prices, the less cost effective the hedge becomes. Thus, it is critical for the insurance company or the self-insured employer to establish the correlation between its block of business and the health insurance futures index.
Popular Insurance Terms
Coverage for the employer in the event of a tort committed by an employee in the use of his or her own car while conducting business on behalf of the employer. ...
Frequency and severity of accidents resulting from conditions and environment surrounding one's workplace. Occupation is an important underwriting factor when considering an applicant for ...
Financial analysis method established by the national association of insurance commissioners (naic) to detect problems of property and casualty insurance companies and life and health ...
Coverage in which an initial premium is charged, with the stipulation that an additional premium can be charged later if the loss experience of the insurance company warrants it; that is, ...
Workers' premiums in a contributory employee benefit plan. ...
Requirement that the combination of medicare and the employer's plan can not be greater than the amount the employer's plan would pay without Medicare. ...
Plans that are similar to stock appreciation rights (SARS) in that an employee is granted a contractual right by the employer to a stipulated number of units in the business, which is ...
Coverage for bodily injury and/or death resulting from accidental means (other than natural causes). For example, an insured is critically injured in an accident. Accident insurance can ...
Agreement concerning an insured individual, not the insured's property. A property and casualty insurance contract cannot be assigned, since it follows the insured, not the property. For ...
Have a question or comment?
We're here to help.