States can get a checklist of required waiver elements and model templates, according to CMS. In a statement, CMS Administrator Seema Verma said the Trump administration approved seven waivers for state reinsurance programs since 2017, which has helped reduce insurance premiums.
Encouraging Reinsurance Programs
Reinsurance programs have become an attractive option for states struggling with their Obamacare health insurance exchanges. The programs create a high-risk pool for insurers so they can shoulder claims from higher-cost individuals, reduce premiums, and attract healthier people.
Risk pools are an attempt to remedy a problem created by Obamacare, says Doug Badger, a senior fellow at the Galen Institute.
“Healthy people did not enroll in anything like the numbers the experts had predicted, producing a pool that was disproportionately unhealthy and poor,” Badger said.
“That drove many insurers out of the market, leaving most counties with a monopolistic insurer that raised its rates and collected massive federal premium subsidies to cover the rate hike,” said Badger. “Meanwhile, the individual market began to contract in 2016, as unsubsidized people no longer could afford their premiums.”
States that have obtained Section 1332 waivers have been able to divert some of the federal money allotted for subsidizing people on the exchanges to help fund risk mitigation pools. State governments also contribute to the pools.
“And here is the critical point: Because premiums drop, government premium subsidies drop as well,” Badger said. “That means that the federal government spends no more under the waivers than it would if the state did not obtain such a waiver.”
Saving a Bad System?
Reinsurance is a stabilizing mechanism, not a true solution, says Kyle Wingfield, president and CEO of the Georgia Public Policy Foundation.
“In a purely free market this isn’t necessarily what you would do, but because the market is so segmented amongst so many self-insured companies and small businesses and individuals and all the various public programs, you’re left with a very limited marketplace for mostly the people who have the hardest time getting insured,” Wingfield said. “The way we’ve been doing it under the ACA has made it even worse.”
Reinsurance pools can make the exchanges more stable and premiums more affordable, says Badger.
“States that have obtained risk mitigation waivers deploy federal Obamacare money more rationally and efficiently than those that have not,” Badger said.
States Decide Who Qualifies
Linda Gorman, director of the Health Care Policy Center at the Independence Institute, says she’s concerned how states will use the federal money.
“State reinsurance programs basically pay a portion of whatever the state considers a large claim,” said Gorman. “So, what we have is direct subsidies to insurers if a patient has what state regulators consider a costly year. The numbers considered ‘large claims’ are interesting in and of themselves.”
Gorman says a 2011 industry paper defined high cost claims as anything exceeding $100,000 a year.
“This was 0.2 percent of the commercially insured population,” said Gorman. “These are people with severe trauma, hemophilia, HIV, ESRD, extremely premature infants, transplant patients, people receiving advanced cancer treatment, people on ventilators, or victims of serious strokes.” Gorman says waiver applications define “high cost” at a much lower level and cap it at $250,000.
Gorman says it will not be long before state legislators start demanding cost cuts for the expensive conditions the state has to cover in the reinsurance program.
“They can do this with tiered formularies, restricted formularies, keeping national centers of excellence out of networks that accept these payments, and so on,” says Gorman. “They have done that for Medicaid, which routinely sends patients to lower-quality hospitals, or exchange plans, which routinely have networks that exclude flagship hospitals and their higher survival rates for advanced disease.”
States, Insurers in Favor
CMS’s openness to reinsurance and the fact that premiums on the exchanges have dropped in states that are using the pools make it more likely states will apply for waivers, says Badger.
“What changed is that federal legislators of both parties have introduced legislation that would create a federally funded reinsurance program,” said Badger. “The insurance industry has understandably focused its lobbying efforts on this legislation.”
‘Regulation Increases Cost’
The waivers are not nearly sufficient to repair the damage the ACA has done, says Gorman.
“Guaranteed-issue and community rating are the cause of the Obama administration premium spiral and the decreases in quality caused by increasingly narrow networks,” Gorman said. “The Trump administration regulations require that these remain in place, so we are tinkering around the edges.”
Fashioning a more affordable, consumer-driven system will require more than reinsurance programs, says Badger.
“Congress should block-grant Obamacare premium and Medicaid expansion money to the states,” said Badger. “In order to qualify for the grant, a state would have to design a consumer-based system that made health insurance affordable regardless of income or medical status.”
Gorman calls for a more thorough reform: repeal of Obamacare.
“That would allow Medicare pricing to be revamped, Medicare regulations to be reformed, block grants for Medicaid, and subsidies that are granted to actual patients and providers at the local level rather than through the states,” said Gorman.
“Instead, the bureaucracy is electing to patch up a problem the government created without taking a look at the problem that created the problem they are patching,” said Gorman. “It is a formula for ever-more regulation. Regulation increases cost.”
Ashley Bateman ([email protected]) writes from Alexandria, Virginia.
Ashley Herzog ([email protected]) writes from Avon Lake, Ohio.