Public Payers News

Reinsurance Programs Reduce Individual Market Premiums by 16.9%

A continuing analysis from Avalere finds that states pursuing reinsurance programs see lower premiums, stabilized markets, and a decrease in the number of uninsured.

Reinsurance Programs, Affordable Care Act Premiums

Source: Getty Images

By Samantha McGrail

- Reinsurance programs reduced premiums by 16.9 percent, on average, in the first year of program enactment relative to estimated premiums without reinsurance, according to a continuing Avalere analysis. Overall, premium reductions ranged from 6 percent to 43.4 percent. 

The analysis of individual market rate filings from 2017 to 2019 in the 12 states with reinsurance programs also estimated that during the first year of enactment, reinsurance programs led to lower federal spending on advanced premium tax credits (APTCs). The government saved nearly $1 billion compared to what the federal government would have spent without a reinsurance program. 

“States continue to look at reinsurance programs as a cost-effective way to stabilize their individual markets,” Chris Sloan, associate principal at Avalere, explained in the analysis. “If they are able to secure a source of funding, state-based reinsurance programs can reduce premiums significantly in their first year, particularly in states with higher individual market enrollment.” 

The federal government helps to support state-run reinsurance programs. States receive federal funding based on the amount the government would have spent on APTCs to eligible individuals if the programs did not exist.

For the twelve states with reinsurance program at the time of the study, the federal government contributed about $1.2 billion in the pass-through funding, which was nearly twice as much as states paid to run reinsurance programs in the first year ($643.4 million). The states included Alaska, Colorado, Delaware, Maryland, Maine, Minnesota, Nebraska, New Jersey, Oregon, Rhode Island, and Wisconsin.

However, states propose to bear an average of 35.1 percent of the total annual costs to run their reinsurance programs for an average of $53.7 million, the analysis found.

“These additional costs may hinder adoption of reinsurance programs by states with limited budget flexibility,” researchers at Avalere stated. Although, states could be responsible for a lower proportion of the costs than projected, which was the case in Minnesota in 2018, they pointed out. 

Payers have benefited from reinsurance programs, including one ran by the federal government from 2014 to 2016.

Risk adjustment and reinsurance provisions of the ACA improved financial outcomes for certain payers with higher risk enrollees, according to a study published in Health Affairs. Specifically, 30 percent of insurers with the highest claims lost between $90 to $397 per enrollee per month before ACA implementation, researchers from AHRQ and CMS found. After the first two years under the ACA, payers saw improvements, with revenues exceeding the cost of claims by $49 per month per enrollee or more. 

Since the temporary federal reinsurance program ended, states have implemented their own versions and seen some success in reducing premiums, but more states may want to consider implementing these programs, according to the Commonwealth Fund. 

“A key way to mitigate the adverse effects of these recent policies is by offering reinsurance,” experts from the healthcare foundation stressed. “In the absence of consensus in Congress on how to strengthen the marketplaces, several states have secured, or are seeking approval from the federal government to establish state- based reinsurance programs through the ACA’s innovation waiver program.”