New state-based healthcare reinsurance programs are pushing down premiums for policyholders and could entice more managed care companies to come back to the individual markets.
Section 1332 of the Affordable Care Act allows states to apply for "innovation waivers" to find ways to help consumers get coverage in the individual market while retaining certain basic requirements laid out in the law. Twelve states so far have had such waivers approved by the Center for Medicare and Medicaid Services. Alaska, Minnesota and Oregon implemented their programs in 2018, while Maine, Maryland, New Jersey and Wisconsin got the OK to start this year. Colorado, North Dakota, Montana, Delaware and Rhode Island had waivers approved this year and will start their programs Jan. 1, 2020.
States applying for these waivers have opted to create reinsurance pools to cover claims for people with catastrophic illnesses or injuries, the types of claims that usually drive up rates for the rest of the individual insurance market. Funding for the pools comes from a combination of state cash and federal pass-through funds, with a variety of assessments on insurance providers operating in the states.
A reinsurance pool is expected to bring double-digit rate reductions in North Dakota, which state insurance commissioner Jon Godfread said would be a boon to farmers, ranchers and small-business owners who have had difficulty getting health insurance.
"They have really been in dire straits for the last number of years with the rapidly increasing rates on the individual market," Godfread said in an interview. "So we needed to look at what we could do as the state level to provide some relief to those individuals who, frankly, haven't received any relief because they don't get [subsidies]."
The net effect of many of these reinsurance programs has been significant rate reductions, said Chad Brooker, an associate principal with Avalere Health, a healthcare consulting firm. Brooker said reductions seen in several states with reinsurance pools for multiple years have not melted away. Alaska, Minnesota and Oregon, which are in the second year of their programs, are examples of where premium rates have stayed "fairly constant."
"It wasn't like a one-year blip where things just dropped quite substantially," he said in an interview. "They've actually gone down and stabilized to a certain extent as well, which is exactly what you'd want to see from a program like that."
Katherine Hempstead, a policy adviser at the Robert Wood Johnson Foundation, said conditions for waiver approvals contained in Section 1332 when the ACA was enacted in 2010 were seen as "too restrictive," so reinsurance was one of the few options available for states.
Most states did not consider going the waiver route to build reinsurance programs until premiums rose sharply in 2017, according to Hempstead. That was the same year Alaska became the first state to obtain a 1332 waiver. A study by Avalere Health found that individual market premiums plummeted 34.7% in 2018; that got the attention of other state governments.
"A lot of states looked at that and realized how much it could help them," Hempstead said. "It's one of the few tools states have to bring their premiums down, especially if they're not subsidized."
Hempstead said that may already be happening. Looking ahead to 2020, she believes many carriers are "pretty bullish" on the market and want to reenter or increase their presence.
North Dakota
The reinsurance program would cover 75% of paid claims between $100,000 and $1 million, while insurers would cover the remaining 25%. Claims in excess of $1 million would move into the federal reinsurance pool.
By taking policyholders with high claims out of the formula, Godfread projected a reduction in rates of "about 20%" for people insured in the individual market.
Maryland
In Maryland's case, it was "sticker shock" that spurred its reinsurance program. All four of the state's individual market carriers in March 2018 requested double-digit rate increases, with two of them, both affiliates of CareFirst BlueCross BlueShield, asking for 91% hikes.
It was a dilemma that Maryland Insurance Commissioner Al Redmer said inspired a bipartisan effort to get a program in place in time for the November open enrollment period for that year.
Alongside the federal health insurance fee, which insurers pay to help fund federal- and state-run exchanges — the fee was suspended in 2019 — Maryland officials added a 2.75% assessment on Maryland health plans and Medicaid managed care organizations, based on annual net premiums. Claims above $20,000, to a maximum of $250,000, go into the reinsurance program, which pays 80%. The remaining 20% is picked up by carriers.
The result has been double-digit rate decreases from three insurers and a single-digit decrease from the fourth.
With the approval of Rhode Island's waiver Aug. 26, Idaho is the only state that is waiting for approval on its request. Georgia, Kentucky, Pennsylvania, Texas, Virginia and Nevada have passed authorizing legislation to start the waiver process but have yet to put forth any proposals to CMS.
