Republican changes to the Affordable Care Act have driven up insurance prices for individuals. Now some states are acting on their own to halt a third year of sharp premium rises.
The state healthcare exchanges – which serve people who don’t get insurance through an employer or a government program – are stressed, with insurers raising prices to cover costs for the patients desperate enough to stay on expensive health plans. The average premium for a 40 year old buying her own insurance jumped nearly 61 percent in two years, and early projections suggest premiums could rise another 30 percent next year.
In order to stop those increases, states are turning to their legislatures to pass temporary programs aimed at stabilizing the insurance markets. Bipartisan plans in at least eleven states will direct state and federal money straight to insurers who take on sick, costly patients. In turn, the insurers keep prices down across the board.
For states, this temporary program, known as reinsurance, is an effort to counter a nationwide problem – that small, sick pools of people are driving up costs for everyone in the individual marketplace, the non-employer health plans offered to individuals and families under the ACA. The high costs threaten to push more healthy people off the marketplace who are willing to risk going without insurance — which could further push up prices for the sicker people left behind on the exchanges.
Nearly 11.8 million people get their insurance through the exchanges set up by the ACA, according to the Centers for Medicare and Medicaid Services. (The numbers are taken before the first payment of the new year, and could be lower — a person automatically re-enrolled might decline paying the new premium.)
The number of sign-ups is critical to the ACA’s structure. The law required marketplace insurers to charge the same price across genders and regardless of someone’s health. In order to keep premiums down — and insurers profitable — the law required that everyone in the U.S. sign up for insurance, a policy known as the individual mandate. That ensured that the marketplaces would have a big pool of consumers all paying the same premiums regardless of health, and enough of them paying to cover the expenses of the the costliest patients.
The ACA required insurers to cover sick patients at the same price as healthy people, so as not to discriminate against those with pre-existing conditions, and the individual mandate is crucial to the ACA health care model.
In December, however, Republicans repealed the individual mandate as part of their tax overhaul, the Tax Cuts and Jobs Act. Now, insurers fear that healthy people will start to waive coverage at high rates. While the mandate won’t officially be gone from the books, the fee for not having insurance drops to zero in 2019. That could leave them with a sicker pool of patients, forcing them to raise premiums.
In Maryland, the state insurance regulator projects that premiums will rise about 30 percent next year, in part because of the mandate repeal. In response, Governor Larry Hogan said he is working to expedite approval of a reinsurance program to head off the proposed premium increases.
Reinsurance plans vary somewhat from state to state, but generally follow a similar structure: States agree to reimburse insurers for taking on costly patients in return for keeping premiums down.
Money needed for the program comes from the federal government. Under the ACA, the federal government provides subsidies for people to buy insurance on the exchanges. If premiums go up, so do the subsidies. Under reinsurance, states effectively say: give us the extra money you would be paying out in subsidies, and we can instead use that money now to negotiate with insurers. This keeps premiums down for all consumers by paying insurers for the sick patients who cost insurers the most.
The federal government has to sign off on reinsurance programs. Those approvals have been stalled since last year and have yet to resume. That hasn’t stopped states from preparing to submit the paperwork.
If you still need an explanation of a general reinsurance plan, this audio guide can help.
Alaska was the first state with a reinsurance program up and running. It’s a markedly extreme case. The states’ prices were the highest in the nation due to a small pool of sick people, one that’s sicker than the general commercially insured population.
“In terms of the number of people and the very high costs,” said Becky Hultberg, president of Alaska State Hospital and Nursing Association, “I don’t think anyone expected the pool to look like it did.”
The prices in Alaska’s individual insurance pool went up around 30 to 35 percent in 2016 and 2017. After implementing the U.S.’s first state reinsurance program, price hikes fell to seven percent. Alaska fell from having the most expensive premiums in 2017 to fourth most in 2018, after years in the number one spot, a change that Hultberg attributed to the reinsurance program.
Oregon and Minnesota have had success with similar programs. Oregon’s prices went up after the state launched a reinsurance program in 2018, but by less than insurers requested. Minnesota’s prices fell almost $30.
Eleven states total are trying what Alaska did. Maryland is in its public comments period. New Jersey is waiting on a gubernatorial signature. Oklahoma is re-submitting a stalled-out application to the federal government.
There are other ways states are trying to stabilize their markets. Colorado is pushing to let people above 30 buy ‘catastrophic’ plans, which offer low monthly premiums but very high deductibles, and are only currently offered to young people. They think it will keep healthy people in the system.
Connecticut and New Jersey are trying to bring back the zeroed-out individual mandate penalties on a state level. Massachusetts has had a state-level mandate since 2006.
Unlike the individual mandate, reinsurance remains bipartisan. While Wisconsin is suing the Trump administration to drop the $0 mandate altogether, they are pursuing a reinsurance plan. The states working on plans are mix of red and blue: Colorado, Connecticut, Hawai’i, Idaho, Louisiana, Missouri, Maryland, New Hampshire, New Jersey, Oklahoma and Wisconsin.