Systemic Risk in the Health Insurance Industry
Current instability in the financial markets has many wondering if a systemic failure could happen in other industries. American International Group’s (AIG) difficulties shifted the spotlight toward the insurance arena. Those that wish to see the insurance industry regulated on a national level are using the current economic crisis as an opportunity to revisit insurance reform legislation. Just last week, Therese Vaughan, chief executive officer of the National Association of Insurance Commissioners (NAIC), gave testimony before the U.S. House Financial Services Committee’s Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises regarding the role state insurance regulators play in mitigating system risk in the insurance markets. While most emphasis has been placed on the Life and Property/Casualty insurance industries, speculation on a system-wide crash of the beleaguered health insurance market is also receiving media attention.
Given the various linkages and interdependencies in the health insurance marketplace, is there a chance that if one player fails the entire market could crash? Mark Farrah Associates looked at the top three health insurers in the country, WellPoint, UnitedHealth and Aetna, to determine if a hypothetical failure of any one occurred what would happen to the rest of the marketplace. This brief also looks into the odds of a system wide crash of the health insurance industry.
