Montana Reinsurance Program May Cut Premiums Up to 20%

September 24, 2018 - Montana is moving ahead with the idea of creating a reinsurance program for the state’s health insurance market.  The program may reduce premiums between 10 and 20 percent, said Governor Steve Bullock and Department of Administration Director John Lewis.  

A bipartisan workgroup will evaluate new ways to address high insurance prices for Montana residents.

The state estimates that Montanans enrolled in individual health plans will spend roughly $1300 more a year on insurance costs due to federal efforts to dismantle the Affordable Care Act.  Prices are on the rise after the repeal of the individual mandate and uncertainty around payments to payers which were intended to stabilize the marketplace.

“With the uncertainty and instability coming out of Washington DC, we must do what we can in Montana to drive down costs and stabilize the marketplace – and the time to act is now,” said Governor Steve Bullock.

“Stability and affordability are particularly important to a state like Montana. I believe we can find common ground from both sides of the aisle to make healthcare affordable for Montanans, while preserving consumer protections and market competition unique to Montana.”

A report from the Wakely Consulting Group found that Montana could lower premiums between 9.6 and 14.5 percent if the state implements a $50 million reinsurance program.

Wakely estimated that the state would likely receive $30 to $39 million in federal pass-through funding and would need to provide around $11 to $20 million in funds.

Montana may see sharper declines in consumer premiums if it decides to implement a larger reinsurance program, the team found, but more federal funding would be required.

A reinsurance program of $75 million would lower premiums between 15.4 and 22.2 percent in 2020. A $100 million reinsurance program could lower premiums by 30 percent.

Wakley estimated that the federal government would provide between 65 and 79 percent of funding for a $75 million reinsurance program. The government would likely provide between 67 percent and 80 percent of funding for a $100 million program, the team said.

The report informed the state that reinsurance could be a promising mechanism to reduce premiums. However, the team warned state officials that a reinsurance program should not be considered a solution for stabilizing every factor of the individual market.

As regulatory changes occur and new options, such as association health plans, become available to consumers, the market is still subject to enrollment declines, cautioned Wakely.

“Even if premiums are kept low, it would not guarantee that large enrollment decreases would not occur. Enrollment losses due to the effective mandate repeal may occur both for financial reasons and norm-driven reasons.”

The state may receive less federal funds to support a reinsurance program if subsidized enrollees drop their coverage.

CMS calculates pass-through funding for reinsurance programs based on the number of subsidized enrollees in a state. States can receive more funding if they have a large proportion of enrollees that receive advanced premium tax credits (APTCs). This is because CMS substitutes the APTCs for a state’s reinsurance funding.

“For example, if a larger number of enrollees with APTCs drop coverage, it would decrease the pass-through funding amounts,” the team explained. “Conversely, if a greater number of enrollees without APTCs drop coverage, the pass-through amounts could increase.”

Wakely believes that Montana could receive reinsurance approval from CMS as early as 2019 if it decides to begin the waiver process at the start of the year.

The industry’s findings on reinsurance has led a number of states to pursue reinsurance waivers.

In 2018, both New Jersey and Wisconsin received approval from CMS to implement reinsurance programs for the next five years.

In New Jersey, officials estimate that a $215 million reinsurance program will reduce premiums by 15 percent while increasing health plan enrollment.

Meanwhile, Wisconsin predicts its reinsurance program will cut premiums by 3.4 percent and help consumers avoid double-digit premium increases.

Montana officials are optimistic that they will build a reinsurance program that effectively reduces premiums for individual health plan beneficiaries.

“Access to health coverage is key to strengthening the health and livelihood of Montanans, yet recent federal action has destabilized the individual market, leaving Montanans who buy individual health coverage with increasing health insurance premiums,” said Department of Administration Director John Lewis.

 “Reinsurance for Montana could be a game-changer in the battle against rising healthcare costs.”