Reinsurance and what it means for you

| Amy Prentice

As federal and state lawmakers across the country continue to identify ways to stabilize our health insurance marketplace and lower out-of-pocket costs for patients, some successful strategies have emerged. Many of these have gained momentum in the states as health care initiatives continue to stall in Congress.

Thirteen states have considered legislation this year to stabilize the health insurance exchanges, most of them seeking to create a reinsurance program with the necessary waiver from the Department of Health and Human Services and the Department of the Treasury. 

What is reinsurance? 

Despite being popular with both Democrats and Republicans, reinsurance policy does not generally make headline news. Reinsurance is a tool first used in then-President Obama’s Affordable Care Act (ACA). It was a temporary program aimed at keeping individual marketplace premiums stable and affordable while insurers were adjusting to the new ACA requirements. At the time, insurers were seeing large increases of enrolled patients, many of whom regularly used medical or prescription care. 

The reinsurance program transfers funds from the government, or via taxes or fees, to individual marketplace insurance plans with higher-cost enrollees. (Higher-cost enrollees are not necessarily the chronically ill. They may include healthy individuals with unexpectedly high costs, due for example to an accident or the sudden onset of an illness). This additional funding helps prevent insurers from charging higher premiums. Despite being a successful program, reinsurance funding expired in 2016, leaving many insurers wondering how to fill this gap.

The current state of reinsurance

States are rushing to implement programs that will keep the cost of care affordable as health insurance companies are working to set 2019 premiums. Lawmakers are working to establish reinsurance programs through legislative action and 1332 State Innovation Waivers. Section 1332 of the ACA permits a state to apply for a State Innovation Waiver to pursue innovative strategies for providing their residents with access to high-quality, affordable health insurance while retaining the basic protections of the ACA.

Alaska and Minnesota already have reinsurance programs in place, and Oregon has received federal approval to put a plan in effect for 2019. Wisconsin, Maryland and Hawaii are the furthest along this year with plans to set up reinsurance programs. Maine and Louisiana are not far behind with their respective Departments of Insurance soliciting comments on potential waiver applications. Projections by state policy experts expect reinsurance programs to decrease premiums by 10 percent to 20 percent.

Other states have introduced legislation and convened discussions about reinsurance plans. However, Justin Giovannelli, associate research professor at the Center on Health Insurance Reforms at Georgetown University, told Bloomberg News, “realistically, it’s going to be a relatively small number that move forward” for 2019.

Washington, Virginia, Louisiana and Indiana, among others, are considering reinsurance legislation, but it’s difficult for states to come up with funding for the plans, Giovannelli says. 

As policy experts forecast a continued increase in premiums, especially with the individual mandate repeal and other policy proposals, we expect to see an increase in proposed reinsurance programs in the years to come. NPF will continue to track this legislation and waiver requests and provide thoughts and comments when necessary. You can also track the status of 1332 State Innovation Wavers. 

If you’re interested in learning more about reinsurance or other health policy issues, contact Amy Prentice at [email protected] or 503-546-5551 or visit our advocacy site.


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