State-Based Marketplace Directors Ask Senate Leaders to Support a Reinsurance Program

Executive directors of 10 state-based insurance marketplaces have asked leaders of the Senate Health, Education, Labor and Pensions Committee to support Congressional efforts to stabilize Affordable Care Act (ACA) insurance marketplaces through a reinsurance program that would spread the financial risk for high-risk individuals across insurance markets.

The leaders wrote in a Jan. 30, 2018, letter that a reinsurance program could strengthen individual insurance markets across the nation and protect consumers from escalating premiums. A reinsurance program, they explained, could offset, “any potential negative effects of adverse selection (where only the very sick sign up for coverage) resulting from the recent repeal of the individual responsibility requirement penalty, and other federal policy changes such as reduced marketing and outreach investments.”

“Preliminary analysis from our states indicates the potential for significant premium reductions upon establishment of a reinsurance-type program,” they noted. “For example, an actuarial analysis conducted by California estimates that annual net federal funding of $5 billion toward reinsurance or high-risk pools could reduce premiums by an average of 9 to 16 percent across states in 2019.”

“A permanent, comprehensive, federally-funded reinsurance program (without a state match requirement) is necessary to ensure consumers have access to affordable coverage as the individual market is inherently less stable than group coverage,” they added.

The letter suggests that any federal reinsurance efforts should be structured in a way so all states could have easy, seamless access to the program. State policymakers are concerned the federal government will force states applying for reinsurance funds to go through a lengthy and complex 1332 waiver application process to establish a state reinsurance program.

“Many states have budget constraints that limit their ability to dedicate a sufficient and ongoing stream of state funding to support a state-level reinsurance program or to match a state-federal reinsurance program, leaving states and consumers at risk of future instability if state funds cannot be sustained,” they added. “A federally-funded reinsurance program will provide a consistent and long-term solution to foster market stability across the nation.”

Some reports indicate that reinsurance legislation may be a part of the budget resolution that is expected to be debated in Congress this week. Two proposals have been offered as possible legislation, including a House bill sponsored by Rep. Ryan Costello and one sponsored by Sens. Susan Collins and Bill Nelson in the Senate.

The Costello-Peterson bill would allocate $30 billion over three years for the establishment of a “Patient and State Stability Fund” that would provide funding so states can conduct one of nine health benefit strategies, which includes financial assistance for high-risk individuals and arrangements to help stabilize premiums for health insurance coverage, such as reinsurance. The bill also proposes a federal safeguard program that allows reinsurance payments to be made directly to issuers in states that do not apply for funds. The Collins-Nelson bill would provide $4.5 billion over two years to states to establish reinsurance programs through 1332 waivers.

The letter was signed by state exchange leaders from Oregon, Massachusetts, Washington, DC, Nevada, California, Washington, Vermont, Minnesota, Rhode Island, and Connecticut. Read the letter.