Health Insurance Futures

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Health Insurance Futures

A one-year futures contract structured to help insurance companies and other relevant parties to hedge losses on health insurance. Under a health insurance futures contract, if actual payments on health insurance claims exceed a certain level, the payoff of the contract increases by the amount of the excess. Health insurance futures are traded on the Chicago Board of Trade.
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The CBOT health insurance futures contract differs in many ways from insurance policy coverage.
Given today's environment, the most important conditions for the successful introduction of the health insurance futures contract is price variability and insufficient hedging alternatives.
The objective of the contract design of the CBOT health insurance futures contract is to create an index that reflects value for the industry.
Several contracts, including health insurance futures contract, have been approved by the Commodities Futures Trading Commission (CFTC).
The health insurance futures contract prices claims in the small group market, details of which are provided below.
The underlying commodity or financial instrument of the health insurance futures contract is actually an index that tracks the insurance losses of a minimum of ten health insurance carriers, including Blue Cross and Blue Shield plans and commercial insurance companies, that report to a pool calculation manager.
These features of the health insurance futures contract -- a standardized contract, traded on an organized and regulated market with superior creditworthiness -- will permit insurers and reinsurers to hedge the systematic risk component of their insurance liabilities as related to the underlying index of health insurance policies.
Before providing a description of the health insurance futures contract, an examination of the timing of the introduction of this new contract may provide insight into its probability of use and success as a hedging instrument.
Two key considerations for the introduction of a health insurance futures contract in today's market are the existence of insufficient hedging alternatives and price variability.
The names of the reporting companies and the estimated quarterly premium will be publicly announced by the CBOT prior to the start of trading for any health insurance futures contract.
This health insurance futures contract will lead the way to health care futures contracts to hedge rising health care costs.
If your company is considering taking the self-insurance route to control healthcare costs, maybe you should investigate health insurance futures contracts.
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