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The Curious Case of Reinsurance

Although much of the Affordable Care Act has been contentious, one provision that has bipartisan support as well as proven efficacy is reinsurance. Simply put, reinsurance is insurance for health insurance companies. It essentially provides individual and small-group insurers “coverage” purchased from the federal government to protect against risk of high cost enrollees. Importantly, reinsurance is a market stabilization mechanism. It protects against risk, keeps premiums increases at bay, and encourages market competition in the individual insurance market.

Unfortunately, it’s also a temporary solution. In the ACA, the “innovation” waiver was only designed to be active for three years, 2014 through 2016. In March 2017, former Secretary Price issued a letter to states reiterating the law’s key requirements for “innovation” waivers and offered states assistance in the development and implementation of innovation programs. It’s still up in the air how the waiver will be interpreted, but for now states should take the waiver on its face and consider ways in which the waiver can make improvements to their healthcare markets.

It’s no secret that the individual market is not thriving. Although few states have signaled an interest in using reinsurance programs, recent exits from the individual insurance market like Aetna and Humana may encourage more states to consider waivers to stabilize these markets.

Below are a few states that decided to enact reinsurance programs:

Alaska was the first state to try on the program. With a small population and massive size, it’s no surprise the state has the highest premiums in the country. Adopting the reinsurance program kept premium hikes at bay, a 7% increase versus the expected 42%. In 2018, the federal government will fund $48M in reinsurance and the state will pay $11M.

Minnesota also approved a reinsurance program of $600M through shifting funds that would otherwise come from its MinnesotaCare program for low-income residents. The hope is the program will have an immediate effect on premium affordability for consumers in 2018, but it has been widely hailed as a semi-bipartisan solution.

Iowa is seeking to alter multiple ACA requirements, with the threat of having no insurers participate in the marketplace in 2018. Despite a large and dominant Blue Cross plan, Iowa is proposing several changes to the insurance marketplace. Their Iowa PSM plan would cost around $304M, $220M of tax credits and the remaining to pay for reinsurance.

Other states are considering the possibility but their buy-in will likely depend on how health reform policy changes shake out. And the latest news out of Washington, D.C. indicates a quick resolution or a clean solution isn’t likely.

So, what does all of this mean? A few things:

  1. The rising cost of health insurance premiums directly affects the ability of small businesses and self-employed workers to provide or obtain healthcare coverage.
  2. State-sponsored reinsurance programs that target health insurance markets for small groups and individuals make insurance more affordable and accessible.
  3. If reinsurance continues to expand to other states, new (or returning entrants) to the individual and small-group market can be expected to expand as well.

Whether you’re a health system, a health plan, or a health services organization, the opportunity for reinsurance to drive down premium costs and increase market competition directly impact your business. The revitalization of the individual market has direct impact on managed care, hospital operations, and access to care for patients. Keep an ear to the ground and watch this trend closely, especially as the open enrollment period approaches.

November 7, 2017
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