ACA Individual Market and State Re-insurance programs

A number of states have re-insurance programs to support the Affordable Care Act (i.e., Obamacare) marketplaces in the individual and small group markets.  Re-insurance occurs when the state offers to pay a percentage of patient costs if they exceed some threshold.  This may lead you to ask a number of reasonable questions.  For instance:

Why do states have reinsurance programs?

According to Schwab, Curran, Corlette (2018), the answer is: 

1. Stabilize individual market premiums and mitigate future rate increases;
2. Increase consumer enrollment;
3. Maintain insurer participation and attract future competition; and
4. Generate federal savings to fund state-level innovation, while ensuring a financially sustainable program.

Do reinsurance programs actually reduce premiums?

The answer seems to be yes. 

The reinsurance programs in all three states have directly reduced individual market premiums…One insurer noted that the program had a “tremendous immediate impact,” allowing them to reduce their proposed rates by over 20 percent. In Alaska, the state’s only insurer initially proposed 2017 rate increases of over 40 percent, on average, prior to approval of the [reinsurance] 1332 waiver.

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Do reinsurance programs increase the number of health plans entering the individual market?

The answer to this question is unclear.  Practically speaking, if the government guarantees to pick up a share of your cost, entry is bound to happen. In practice however, none of the states saw additional insurers join the individual market after the reinsurance program was introduced. However, current market insurers did not that reinsurance decreased their chance of exiting the market. 

Will reinsurance programs continue?

Insurers like them because they reduce business risk.  Patients like them because they subsidize insurance premiums.  The key question, however, is whether States will continue to pour money into these re-insurance programs.  If there is an economic downturn and state budgets sour, then re-insurance programs may soon be at risk. 

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