Public Payers News

CO’s Reinsurance Waiver Projected to Lower Premiums by 16%

Colorado’s reinsurance program will use a three-tiered system to incentivize payers to enter rural areas and to bring down premiums for mountainous regions.

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Source: Thinkstock

By Kelsey Waddill

- HHS and the US Department of the Treasury approved Colorado’s Section 1332 waiver to develop a reinsurance program, CMS announced.

The waiver will exempt Colorado from Section 1332 of the Affordable Care Act, which requires all enrollees to be assigned to a single risk pool in order for a state to implement a reinsurance program.

“As a result of the waiver approval, more consumers in Colorado may have coverage, consumers are expected to see lower premiums, and Colorado will receive Federal funds to cover a substantial portion of state costs for the reinsurance program,” the fact sheet begins.

Starting in 2020, the state aims to reimburse qualifying non-group health payers for 60 percent of an enrollee’s claims cost, between an attachment point of $30,000 and reinsurance cap of $400,000.

After $30,000, the reinsurance program will pay 60 percent of the member’s bill until it reaches $400,000, after which the insurance company must cover the claims.

The state projects that this approach will lead to 16 percent lower premiums in 2020. Colorado’s actuaries also say that enrollment will increase by 2.9 percent in the same year.

As part of the reinsurance model, Colorado will rate regions as one through nine, indicating claim costs.

Using a three-tiered structure by grouping areas, the state will apply different claims costs reductions to equalize individual marketplace premiums across the state. Tier one will receive between 15 to 20 percent reduction, tier two will receive a 20 to 25 percent reduction, and tier three will be reduced by 30 to 35 percent.

The tiers will draw payers to rural portions of the state that may have higher costs and premiums, in contrast to urban areas.

And, ideally, lower premiums will raise enrollment and retain current members and will stabilize the individual health insurance market.

Colorado will receive pass-through funding to support the reinsurance program. Pass-funding pays states based on the amount of advanced premium tax credits (APTCs) that the federal government would normally pay for eligible individuals if the waiver were not in place. In order to preserve deficit neutrality, the fact sheet warns, the amount provided may be reduced.

“We believe that granting the waiver will not only lower premiums, but bring more stability and predictability to the individual health insurance market,” Colorado Governor Jared Polis wrote to HHS and the Treasury Department when the state applied. “More predictability may also incentivize health insurance carriers to expand into other parts of Colorado to offer individual health insurance.”

In the public comments, the Colorado Hospital Association (CHA) and Health One responded with concern regarding the financial impact on hospitals. CHA noted that Colorado’s hospitals would be responsible for contributing about $80 million over the next two years to the reinsurance program’s funding model.

Health One sought stronger accountability for payers in reaching enrollment goals and a fallback for potential differences between the projected and actual premium decrease and enrollment increase.

The state responded to similar questions in their public hearing that hospitals will have the opportunity to apply for an exemption under certain circumstances, such as financial barriers.

The reinsurance program received written support from around seven organizations, with some suggested alterations.

Many of the letters of support note a study conducted by Avalere in March 2019. The study examined the seven states that had a reinsurance program through a Section 1332 waiver. So far, the results have been strong.

Avalere’s study found that the states experienced a 19.9 percent drop in premiums on average within the first year. However, the reductions varied widely across the states, ranging from a 6 to 43.4 percent decrease.

The study also found that the reinsurance programs in these states lowered federal APTC spending by about $1 billion.

However, one barrier for states with low flexibility in their budgets is that states shoulder on average 31.9 percent of the costs to run the reinsurance programs.

“Though the appetite for state reinsurance programs is high, securing state funding is an obstacle to additional states implementing these programs,” Avalere’s practice director Elizabeth Carpenter explained in the study.

Since the study was completed, North Dakota has also applied to establish a reinsurance program. The North Dakota program was also approved on July 31.

The approval for Colorado’s program is effective for two years, starting January 1, 2020 and extending through 2021.