- ACA federal reinsurance policies have undergone a transformation since their introduction from four years ago. Payers should continue to prepare for larger changes of federal and state ACA reinsurance in 2018.
Reinsurance programs have gone from an initial measure to support ACA health plans to a larger healthcare solution for the stabilization of individual insurance markets.
The objective of reinsurance is to lower the cost of consumer premiums by using set funds to pay for the expenses of high-risk, high-cost enrollees. As federal reinsurance has progressed, stakeholders have identified the potential for positive financial outcomes.
How reinsurance has changed since the start of the ACA
In 2010, Mark A. Hall, the Director of Health Law and Policy Program at Wake Forest University’s School of Law, identified three mechanisms that would guide the ACA’s early $5 billion-capped reinsurance program. Those mechanisms would direct reinsurance payments within the ACA’s Transitional Reinsurance Program towards high-risk individuals, retirees, and payers experiencing unpredictably high healthcare costs.
Before the full implementation of the ACA’s reinsurance program, reinsurance payments within these segments were estimated to cover 20 percent of the healthcare costs on 80 percent of claims between $15,000 and $90,000.
According to CMS data, the ACA’s reinsurance program paid out $7 billion for claims requesting the assistance in 2014. The $7 billion was enough to fund 100 percent of payer beneficiary claims that qualified for reinsurance, well above an earlier projection of 75 percent of claims.
The initial success of the reinsurance program may have led to high payer participation in 2016, with as many as 496 payers participating in the program, CMS added.
The federal reinsurance program is estimated to have paid $3.3 billion on high cost claims in 2016, with a payer coinsurance rate of roughly 50 percent. The total value of beneficiary claims submitted for reinsurance totaled close to $7.5 billion.
In FY 2016, reinsurance payments to payers exhibited significant variation. Payers only required $0 for reinsurance compared to other reinsurance payments exceeding $48 million.
Since January of 2017, federal 1332 waivers have allowed states to develop their own reinsurance programs. 1332 waivers allow state governments to assess how reinsurance funds can lessen the financial impact of high-cost claims on local payers.
Under the ACA in previous years, $132 billion dollars were available to states for the development of reinsurance programs. To receive any of the funds, CMS and HHS required states to provide actuarial and economic analyses of potential reinsurance programs.
States including Alaska and Minnesota have successfully submitted waivers to create reinsurance programs designed to protect in-state insurers from high healthcare costs and rising premiums for beneficiaries.
Alaska is expected to receive $48.8 million dollars on a quarterly basis during the duration of the reinsurance program. The state believes these funds will reduce the growth of premiums, which have jumped up 47 percent, to a rise of only 7 percent.
In Minnesota, the state reinsurance program will use $323 million dollars to lower premiums by 20 percent.
How reinsurance programs will evolve in the 2018 health insurance market
Beginning in 2018, the ACA's risk adjustment program will continue to implement a reinsurance component. The risk adjustment mechanism will reimbruse payers 60 percent of the cost above a threshold of $1 million.
Industry analysts from Milliman estimate that the 2018 reinsurance program will play a role in improving health equity, based on the demographics of consumers who will benefit the most from reinsurance.
Households that meet federal poverty line (FPL) requirements are expected to save $250 on monthly premiums through direct premium assistance, compared to some households only saving $25 because they require less federal assistance.
The analysts also expect more states to file 1332 waivers following successful approval of reinsurance programs like the ones in Alaska and Minnesota. The number of states submitting 1332 waivers has already increased: New Hampshire and Oklahoma are among those recently submitting applications.
Former HHS Secretary Tom Price previously encouraged state governors to submit 1332 waivers, which may help push other state governments to submit waiver agreements.
Milliman analysts estimated that if the federal cost-sharing reductions (CSRs) remained in place while the 2018 reinsurance program operated, ACA enrollment and premiums would remain stable throughout the year.
Experts from AHIP and Avalere also believe that additional policy adjustments can enhance the positive financial and market outcomes of reinsurance programs in 2018.
In order to achieve high financial returns on reinsurance, the federal government would have to guarantee funding for cost-sharing reduction payments, create a $10 to $15 billion premium stabilization program or reinsurance fund to help stabilize premiums, continue to implement the ACA’s health insurance tax, and provide states additional flexibility to manage individual insurance markets.
Compared to current law, without the CSRs in place, these changes could reduce individual market premiums by 13 to 17 percent with the reinsurance program acting as a primary driver. The changes could add 200,000 to 300,000 individuals into the individual market, but could also increase government spending between $18.6 billion and $21.8 billion.
While policy implications will pay a significant role in 2018 reinsurance programs, payers should expect that these programs will continue hold great significance within individual ACA marketplaces at federal and state levels.