August 11, 2016
By Kevin Counihan, Health Insurance Marketplace CEO
Building on
Premium Stabilization for the Future
The Affordable Care Act (ACA), the Medicare Part D prescription
drug benefit, and a number of states’ insurance plans include reinsurance
programs as a way to promote stable, affordable health coverage. Because
high-cost enrollees and events are rare, they create disproportionate
uncertainty in setting health insurance premiums: it is hard for any given
issuer to predict how many people with very high-cost conditions will enroll,
or how many expensive but unusual events will occur. By protecting against some
of this risk, reinsurance programs help stabilize health insurance markets,
promote issuer participation, and reduce premiums for consumers. Reinsurance
programs also reduce insurers’ incentives to discourage enrollment by people
with very high-cost conditions, thereby helping ensure those individuals can
access the care they need.
The three-year, transitional reinsurance program established
under the ACA was designed to buffer the new individual market as new federal
reforms were implemented, enrollment grew, and issuers gained experience
pricing and planning for new consumers. New data released today show that per-enrollee
costs in the ACA individual market were essentially unchanged from 2014 to
2015, falling by 0.1 percent, even as per-enrollee costs in the broader health
insurance market grew by at least 3 percent.
This finding suggests a year-over-year improvement in the ACA
individual risk pool, with the Marketplaces gaining healthier, lower-cost
consumers as it expanded. Meanwhile, independent researchers recently estimated
that 2016 Marketplace premiums are between 12 percent and 20 percent below what the Congressional Budget
Office (CBO) initially predicted. At the same time, the Health Insurance
Marketplace remains a young, maturing market, one where all participants –
insurers, consumers, providers, states, and we as federal regulators – are
still learning.
Given this evolution and as part of our ongoing efforts to strengthen the Marketplace, we are exploring
options to modify the ACA’s permanent risk adjustment program to better adjust
for the highest-cost enrollees and their actuarial risk, which would achieve
some of the same risk-sharing benefits as the reinsurance program. The ACA’s
risk adjustment program plays an important role in distributing the costs of
sicker, more expensive enrollees, and data show that the program worked as intended
in its first two years.
But as described in a white paper released this spring, the current
HHS risk adjustment methodology cannot easily adjust for certain high-cost
enrollees. In future rulemaking, we plan to propose modifying the risk
adjustment program to absorb some of the cost for claims above a certain
threshold (e.g. $2 million), funded by a small payment from all issuers. This
type of risk sharing would reduce uncertainty for issuers who are not yet able
to reliably predict the prevalence and nature of high-cost cases in their
Marketplace business, while also protecting access to robust coverage options
for people with very high-cost conditions.
Some states are also considering creating their own reinsurance
programs to help stabilize and strengthen their markets. Recently, Alaska enacted a law to allocate $55 million from an
existing premium tax to provide reinsurance for the individual market and to
pursue a State Innovation Waiver under the ACA. Alaska had previously collected
funds for the state’s high-risk pool that is no longer needed because the ACA
guarantees coverage to individuals with pre-existing conditions; about 35 states had high-risk pools prior to
the ACA as well and may have similar opportunities.
Alaska’s health insurance market has struggled for many years
with the highest health care costs in the country, low levels of insurance
market competition, and other challenges, which are likely related, at least in
part, to its very low population density and unique geography. But after
Alaska’s governor signed the reinsurance bill into law, Premera, the state’s
Blue Cross Blue Shield plan, reduced its requested 2017 rate increase to 9.8 percent, less than the previous two years’
increases, well below the 40 percent increase the company had previously
considered. According to media reports, this difference reflected the fact that
nearly a quarter of Premera’s claims costs in the first half of 2015 came from
just 37 high-cost enrollees and the plan expects
these high claims costs to be partially covered under the state’s reinsurance
program.
Alaska’s reinsurance legislation also includes authority for
Alaska to seek a State Innovation Waiver from CMS. Innovation Waivers may be
granted for changes that waive specific existing ACA policies and meet four
statutory guardrails: maintaining or improving access to
coverage, affordability of coverage, comprehensiveness of coverage, and not
adding to federal deficits.
While the details of Alaska’s waiver will not be clear until the
state submits an application, a reinsurance program has the potential to
improve access and affordability by strengthening the state’s insurance market
and buffering risk for insurers. In addition, to the extent a reinsurance
program reduces individual market premiums, it could also reduce federal costs
for the Premium Tax Credit. If an Innovation Waiver is approved, the state may
receive federal pass-through funding based on any savings realized in
Marketplace financial assistance. Thus, a waiver – in Alaska or other states
considering creating state reinsurance programs – could potentially provide
pass-through funding that would in effect cover part of the cost of a
reinsurance program.
Our door is always open to new ideas that help spread the risk
of providing coverage for people with significant health care needs. These
ideas contribute to our ongoing work in promoting Marketplace stability and
help ensure affordable options for consumers.
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