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.
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.
There are several other distinctions between insurance policy coverage and the CBOT health insurance futures contract:
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.
Although the CBOT health insurance futures contracts have been designed for the hedging use of insurers and reinsurers, it is important to note that these new futures contracts do not provide insurance coverage.
Users of health insurance futures contracts must post an initial margin, which acts like a performance bond.
If your company is considering taking the self-insurance route to control healthcare costs, maybe you should investigate health insurance futures contracts. Some say the new hedging tool defies Murphy's law, because you just can't lose.
Health insurance futures contracts, a powerful new hedging tool soon to be released by the Chicago Board of Trade, may help companies freeze previously uncontrollable health-care costs.
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