States are increasingly looking for ways to improve stability in their individual insurance marketplaces. One way is through reinsurance programs – systems in which multiple insurance companies share risk by purchasing insurance policies from another party to limit the total loss the original insurer would experience in case of unusually high claims. To date, Alaska, Minnesota, and Oregon have established state reinsurance programs through Section 1332 State Innovation Waivers, according to the Kaiser Family Foundation. More are on the way.
Recently, there has been significant activity on using Section 1332 waivers to implement reinsurance programs. On July 29, 2018, CMS approved Wisconsin’s 1332 waiver request to implement a reinsurance program for years 2019 through 2023. On July 30, Maine’s waiver request to reinstate its reinsurance waiver was approved. Maryland and New Jersey also have pending reinsurance applications before CMS (Maryland being the most recent state to submit an application).
Below we describe three states with the most recent action relating to 1332 reinsurance waivers – Wisconsin, Maine, and Maryland.
Wisconsin: 1332 Waiver Approval
On July 29, 2018, CMS approved Wisconsin’s Section 1332 waiver request to implement a state reinsurance program, the first time this year that the Administration has done so. As detailed below, the request waives the Affordable Care Act’s (ACA) single risk pool requirement for the individual market (Section 1312(c)(1)) for a period of five years beginning in the 2019 plan year to implement a state reinsurance program.
Since passage of the ACA, Wisconsin has experienced over $400 million in insurer loses and dramatic premium increases. Rate increases averaged 44% during the 2018 open enrollment period, with some areas seeing increases as high as 105%, and approximately 75,000 citizens were forced to choose a new insurer.
To address this market instability, Wisconsin proposed establishing the Wisconsin Healthcare Stability Plan (WIHSP) intended to keep insurers in the market and lower premiums by reducing risk. The state submitted the waiver application to CMS on April 18, 2018.
Wisconsin initiated the waiver request through Senate Bill 770, signed into law on February 27, 2018. The bill established WIHSP and set a program funding cap of $200 million. WIHSP will be funded through state general purpose revenue and federal pass-through dollars. The Office of the Commissioner of Insurance (OCI) estimates an 83% federal pass through rate, and therefore expects to allocate $34 million in state funds to the program.
WIHSP will operate as a traditional reinsurance program by reimbursing qualifying insurers for a percentage of the costs (coinsurance rate) for participants with annual claims costs exceeding a specified threshold (attachment point) and up to a specified ceiling (reinsurance cap). Senate Bill 770 established an attachment point of $50,000 and a cap of $250,000 for plan year 2019. OCI has established a preliminary coinsurance rate of 50%for plan year 2019, though the authorizing legislation allows for a coinsurance rate of up to 8%. OCI estimates that WIHSP will reduce premiums by 10.6% in 2019 from what they would be absent the waiver.
Maine: 1332 Waiver Approval
Following the Wisconsin approval, on July 30, 2018, CMS approved Maine’s 1332 waiver request to reinstate its reinsurance program. Beginning in May 2011, Maine operated a successful reinsurance program (MGARA) for its individual insurance market. In 2013, MGARA limited what otherwise would have been a 22% rate increase to just 2%, but was suspended in 2014 after implementation of the ACA.
Since then, increased instability in the market has resulted in significant premium increases, and health carriers have begun to implement narrower provider networks. On May 9, 2018, Maine submitted a waiver request to restart the program beginning in 2019 and receive federal pass-through funding in the amount of the savings that will be generated from the resulting reduction in Advanced Premium Tax Credit (APTC) subsidies.
MGARA was authorized in May 2011 by Public Law Chapter 90 which put forth a four-part funding mechanism – an organizational assessment, base market assessment, reinsurance premium, and deficit assessment – designed to spread the costs of the program across the individual, group, and self-insurance markets. Under the waiver, federal pass through funds will become a fifth funding source, further enhancing market stability. The estimated cost of the program in 2019 is $93 million, and the State anticipates federal pass through funds to be in approximately $33 million per year through 2027.
Once reinstated, MGARA will provide reinsurance for policies covering high-risk individuals, as identified by medical diagnosis or by the insurance carrier’s underwriting judgment. When the carrier cedes a policy to MGARA, it will operate as a traditional reinsurance program by reimbursing a portion of a carrier’s claims if they exceed a specified attachment point in exchange for a premium. For the 2019 plan year, MGARA will collect a premium that is equal to 90% of the underlying insurance premium and reimburse the carrier for 90% of claims between $47,000 and $77,000 and 100% of claims above $77,000.
MGARA will be operated by a Board of Directors which will determine the reinsurance premium, attachment points, and the list of medical conditions for which ceding a policy is mandatory. There are currently eight medical conditions which require ceding of coverage to MGARA. The State estimates that the program will reduce premiums by 9% in 2019.
Maryland: 1332 Waiver Request
In light of the increasingly destabilized individual health insurance market, the state of Maryland submitted an application for a Section 1332 waiver on May 18, 2018. Like the Maine and Wisconsin waivers, Maryland proposes to waive the ACA’ single risk pool requirement for the individual market for a period of five years beginning in the 2019 plan year in order to implement a state reinsurance program.
The number of carriers offering plans on the Maryland insurance exchanged decreased from five to two between plan years 2015 and 2018. Of the two remaining, only one offers coverage statewide. Since the implementation of the ACA, rates on the individual market in Maryland have risen 166%, and the state estimates that they will increase over 200% without corrective action.
Maryland’s State Reinsurance Program is intended to lower premium rates market-wide, ensuring that health care is accessible and affordable for the 250,000 citizens who rely on the individual insurance marketplace.
Maryland’s state reinsurance program would be administered by the Maryland Health Benefit Exchange (MHBE). The waiver will allow Maryland to include expected state reinsurance payments when establishing the market wide index rate, thereby decreasing premiums and federal payment of advance premium tax credits (APTCs).
The authorizing legislation for the reinsurance program is House Bill 1795, which was signed into law on April 5, 2018. House Bill 1782, signed into law on April 10, created a 2.75% assessment on certain health insurance plans and state regulated Medicaid managed care organizations, which is estimated to collect $365 million in 2019. This assessment will fund part of the $462 million cost of the program for 2019, with the rest of the funding coming from federal pass-through dollars through net APTC savings.
Like Wisconsin and Maine, Maryland’s reinsurance program will operate as a traditional, claims-based reinsurance program that will reimburse non-group market carriers for a percentage of the costs for participants with annual claims costs exceeding a specified threshold and up to a specified ceiling. Maryland is proposing a cap of $250,000 and a coinsurance rate of 80% for the 2019 plan year. The attachment point will be determined after further analysis. The MHBE will establish the payment parameters each year. It is estimated that the reinsurance program will reduce average premiums by approximately 30% in 2019 from what they would be absent the waiver.