- One way that health payers can compete more effectively in the current destabilized environment is by investing resources in reinsurance programs. Reinsurance is a method in which a payer can buy a policy from other insurers in order to manage risk and for tax mitigation. The reinsurer would be responsible for paying some share of the original payer’s claims. The reinsurer would also receive a premium from the original company in order to cover these costs.
Healthcare legislation has created certain reinsurance programs that would ensure more affordable health plans. Kevin Counihan, Health Insurance Marketplace CEO, wrote for The CMS Blog that the Affordable Care Act along with the Medicare Part D prescription drug coverage options have created reinsurance programs that stabilize spending and costs across various populations.
The need for these programs is due to a general unawareness among health payers with regarding to the number of people with high-risk conditions who will enroll in their plans. Ever since the Affordable Care Act has eliminated the pre-existing condition clause and created regulations that keep older policyholders from having to pay an inordinate amount more in premiums from younger generations, payers have had more challenges managing their overhead.
Counihan claims that reinsurance programs will help keep the health insurance market more stable and even assists with keeping premium costs low for consumers. Additionally, the reinsurance programs keep payers away from circumventing consumers with high-cost medical conditions from purchasing health plans.
The Affordable Care Act initially created a three-year reinsurance program to help the health insurance exchange grow as new reforms were being implemented to require payers to cover more expensive conditions. Recent data shows that per-enrollee costs for the ACA health insurance marketplace remained the same from 2014 to 2015 while outside the exchanges, per-enrollee costs grew around 3 percent.
Counihan suggests that such data is displaying the fact that healthier, low-cost consumers are entering the ACA health insurance marketplace, which means some critics that have positioned the exchanges as a place for sicker populations may have been wrong.
Merrill Matthews, a resident scholar at the Institute for Policy Innovation, discussed some of his views regarding the risk pools of the health insurance exchanges in an interview.
“I’m not sure what they can do because everything they’ve done is set-up to fail. They’ve got a pool in which people can enter the pool regardless of how sick they are and they can’t charge someone more for entering the pool as a sick person. That’s the definition of a pool that’s going to self-destruct,” Matthews explained.
“The only thing that will save that is the subsidies,” he continued. “As long as the subsidies are there, you will have certain people going in. Roughly, I think about 7 million people are getting subsidies under the Affordable Care Act. That certainly makes for a huge pool. But the structure of it is designed to fail.”
But, according to Counihan, the health insurance exchanges is bringing in more healthy, low-cost populations due to the reinsurance programs, which means critics of the Affordable Care Act may be mistaken when it comes to the success of the health insurance exchanges.
Another point that Counihan makes is that the 2016 premiums on the federal health insurance marketplace are at least 12 percent below the initial predictions that came from the Congressional Budget Office.
The future for the risk adjustment program may include some modifications, Counihan explains, in order to take on the costs for claims above a specific, large threshold. The funding for this will be covered by a payment from all issuers.
It is also necessary to mention that individual states have also adopted reinsurance programs to protect consumer coverage. Alaska, for instance, has moved forward in reducing healthcare costs through the concept of reinsurance.
“Alaska’s health insurance market has struggled for many years with the highest healthcare costs in the country, low levels of insurance market competition, and other challenges, which are likely related, at least in part, to its very low population density and unique geography. But after Alaska’s governor signed the reinsurance bill into law, Premera, the state’s Blue Cross Blue Shield plan, reduced its requested 2017 rate increase to 9.8 percent, less than the previous two years’ increases, well below the 40 percent increase the company had previously considered,” Counihan wrote in The CMS Blog.
When it comes to covering the costs of people with more extensive medical needs, the health insurance marketplace under the ACA is often innovating new ways that would help ensure coverage among those most in need, said Counihan. If new methods to keep payer revenue stable and consumer needs met are implemented over the coming years, the federal health insurance marketplace may still be standing for future generations to benefit from.