The Medicare Prescription Drug Proposals and Health Insurance Risk

In order to facilitate a better understanding of the complex issues raised by Senate and House proposals to establish a prescription drug benefit for Medicare beneficiaries, this paper briefly addresses some fundamentals of the health insurance market, defines key risk-sharing mechanisms, including risk corridors and reinsurance, and identifies the relevant risk provisions in the bills. Other issues related to cost management strategies and program design, which may have an impact on cost and adverse selection, are also discussed