It was a little risky, it was difficult to control the risk, and administrative costs were quite high. HMSA also offers a plan for individuals, but spokesman Cliff Cisco said it is a small market that accounts for a very small portion of the company's total enrollment. It's a very tough sell, always an underwriting challenge. The Alliance protects itself by purchasing reinsurance to pay off large claims, a standard practice of insurers, Larson said. Larson declined to say at what level reinsurance takes over, saying that is proprietary information.
Companies typically balance costs and risks in purchasing reinsurance.
A low reinsurance threshold means the reinsurance pays more of total claims and reduces risks but costs more. As the threshold rises, the cost of reinsurance drops while risks go up. Larson's own insurance agency, Design Benefits, shares an office with the Alliance and does all of its sales and marketing. The company uses salaried employees instead of paying commissions, a move that provides further savings, he said. The Alliance has contracted with the Queen's Physician Group to serve as its preferred provider network, while a Queen's spinoff, Health Unified Inc., provides medical management services, an arrangement Larson equates with monitoring by the marketplace.