CMS approved requests from five additional states to launch reinsurance programs under Section 1332 state innovation waivers in order to help alleviate high premiums in the individual health insurance markets. Colorado, Delaware, Montana, North Dakota, and Rhode Island are embracing reinsurance as a way to help insurers cover the cost of the largest claims they face. They join Alaska, Maine, Maryland, Minnesota, New Jersey, Oregon, and Wisconsin, which have existing reinsurance programs. The positive results in these seven states are significant: a 17% drop in premiums on average in the first year of operation.
Reinsurance was a key feature of the ACA to help stabilize premiums in the individual market for 2014 – 2016, the first three years of the marketplaces. The marketplaces were new, and insurers faced much uncertainty in covering previously uninsured and under insured individuals. The ACA offered a partial safeguard against high, unpredictable medical expenses under Section 1341’s transitional reinsurance program. Estimates place the average reduction in premiums by the federal reinsurance program by as much as 14%. Based on the assumption that insurers would gain a better understanding of their members’ health status as time passed (and thus could price their products with greater accuracy), the ACA’s reinsurance program was temporary. But in 2017 premiums increased more sharply than they had in previous years, in part due to the loss of reinsurance.
The ACA’s Section 1332 innovation waiver, however, creates opportunities for states to pursue new strategies to provide their residents with access to high quality, affordable health insurance while retaining the basic protections of the ACA. The waivers permit states to apply for authorization to make changes to their marketplaces as long as they demonstrate their plan: (1) will provide coverage that is at least as comprehensive in covered benefits as without the waiver; (2) is at least as affordable (taking into account premiums and excessive cost sharing); (3) covers at least a comparable number of state residents; and (4) does not increase the federal deficit.
Reinsurance is the most common innovation pursued by the states. Establishing reinsurance programs through section 1332 waivers is implemented through an aggregate payment to the state of what residents would otherwise have received in premium tax credits and cost-sharing reductions, referred to as subsidy pass-through funding. Thus, the vast majority of the states’ funding of reinsurance programs is recouped from the federal government.
But there are differences in states’ designs of their reinsurance programs. In Alaska, for example, the program fully or partially reimburses insurers for claims for enrollees diagnosed with at least one of 33 high-cost health conditions. Other states set a percentage reimbursement amount of claims between an attachment point and a cap. Colorado’s program reimburses insurers 60% of claims paid between $30,000 and an estimated $400,000 cap. In Rhode Island, the program reimburses insurers 50% of claims paid between $40,000 and an estimated $97,000 cap. In Maine, the program reimburses 90% of claims paid between $47,000 and $77,000 and 100% of claims in excess of $77,000 for members with certain health conditions.
It’s hard to deny the efficacy of reinsurance in the face of an almost 20% reduction in premiums on average for states that have already instituted such programs. Georgia submitted a waiver application in December 2019 for a reinsurance program that would reimburse insurers a percentage of claims paid between $20,000 and $500,000. Louisiana, New Hampshire, and Pennsylvania have public draft waiver applications, but have not yet submitted them. And a number of other states are considering reinsurance programs. This is likely only the first wave we will see of states taking it into their own hands to battle high premiums in the individual health insurance markets.