State-run reinsurance programs helped lower ACA plan premiums by 20%
States with their own reinsurance programs have been able to cut individual market premiums by 20% on average in their first year, according to a new analysis from Avalere.
Seven states with reinsurance programs saw premiums drop from between 6% and 43.4%. Maryland saw the biggest savings, according to the report.
The programs saved the federal government nearly $1 billion. Avalere said states were on the hook for on average 32% of the costs to administer the programs — a burden that could be limiting the number of states participating.
Reinsurance is seen as a way to contain Affordable Care Act plan costs. The programs allow states to create pools for payers that can help stabilize the marketplace and pay to insure high-risk people. One result is lower premiums.
States can launch these programs using Section 1332 of the ACA and the federal government provides a portion of the funding. When figuring out how much to give states, the feds use a formula to see how much they would have paid out in advanced premium tax credits to eligible people without reinsurance programs. Those credits in the ACA marketplace help people pay for their health coverage.
Chris Sloan, associate principal at Avalere, said in a statement that reinsurance programs "may be an attractive opportunity" for states looking to stabilize their markets. "State-based reinsurance programs have the potential to reduce premiums and are a good financial deal for states if they can identify a source of funding," he said.
Last year, in a report funded by the Robert Wood Johnson Foundation, the Urban Institute offered a series of ways to insure more Americans. One of the proposals was a federal reinsurance program for non-group coverage.
So, if reinsurance programs show such promise, why have only seven created their own? Elizabeth Carpenter, practice director at Avalere, said in a statement that states may have trouble finding funds to launch the program.
Another reason so many states haven't created reinsurance programs is that the ACA market is actually stable after years of payer losses. The Kaiser Family Foundation found payers made $79 per individual plan enrollee in 2017. That's compared to a loss of $9 per enroll just two years earlier.
That stability was evident last year when payers on average decreased premiums by 1.5% for 2019. It was the first time the average ACA plan premiums decreased. The Trump administration said its policies were the reason for the decrease. Experts, however, credited a combination of high premium increases in previous years and payers learning from their experience providing marketplace plans.
Despite the stability in 2019, payers still face uncertainty for 2020 and beyond. This year, the Trump administration expanded access to short-term health plans and association health plans. The administration is also looking to sell insurance across state lines.
The administration is touting those methods as ways to reduce healthcare costs and improve member choice. However, they could also lead to lower coverage and lure people away from the ACA exchanges — potentially hurting the marketplace just as payers have found their footing.