Health insurers in PA and NH may see lower ACA individual plan premiums thanks to new reinsurance OK

Ingrid Stiver Senior Manager, Health Research Institute, PwC US August 13, 2020

Pennsylvania and New Hampshire recently received CMS approval of Section 1332 State Innovation Waivers that establish a state-based reinsurance program with funding from CMS. They become the 14th and 15th states to receive approval of a Section 1332 Waiver, 14 of which are for state-based reinsurance programs and one of which (Hawaii) waives certain small business exchange requirements of the Affordable Care Act (ACA).

New Hampshire’s reinsurance program will go into effect for plan years starting Jan. 1, 2021, through Dec. 31, 2025. For 2021, the program is expected to reimburse health insurers offering ACA-compliant individual plans 74% of the total claims for an individual between $60,000 and $400,000.

Pennsylvania’s reinsurance program will go into effect for plan years starting Jan. 1, 2021, through Dec. 31, 2025. For 2021, the program is expected to reimburse health insurers offering ACA-compliant individual plans 60% of the total claims for an individual between $60,000 and $100,000.

The reinsurance programs are expected to reduce premiums for 2021 by 16% in New Hampshire and 5% in Pennsylvania. The number of individuals purchasing an ACA-compliant individual plan without any federal premium subsidies in New Hampshire is expected to increase by 8% in 2021 as a result of the New Hampshire reinsurance program. The number of individuals purchasing an ACA-compliant individual plan (with or without federal premium subsidies) in Pennsylvania is expected to increase by 0.5% as a result of the Pennsylvania program.

Section 1332 is a section of the ACA that allows states to apply to CMS for “state innovation waivers” to opt out of certain sections of the law. The waivers allow states to take innovative approaches to provide access to care that is at least as comprehensive and affordable as it would be without the waiver, provides health insurance coverage to a similar number of residents in the state as would be provided without the waiver and does not increase the federal deficit.

If a 1332 waiver reduces the amount of federal premium subsidies for individuals (premium tax credits) or small groups (small business tax credits), the savings are paid by the federal government to the state (known as pass-through funding) to fund the state’s 1332 waiver program.

HRI impact analysis

Many states have pursued 1332 waivers to establish a state-based reinsurance program funded jointly by CMS and the state. Reinsurance programs generally reduce the gross premiums for ACA-compliant individual plans by providing a funding source for certain high-cost individuals to health insurers offering these plans.

The resulting reduction in gross premiums across a market should reduce the premiums on the second lowest cost silver plan—used to determine the level of federal premium subsidy available, in addition to household income—and in turn the amount of federal premium subsidy paid by CMS to health insurers.

Data from CMS released in June indicate premiums were 4% to 40% lower on average between 2018-2020 in the 12 states with state-based reinsurance programs, compared to what premiums would be in those states absent the reinsurance program.

Individuals who do not qualify for federal premium subsidies benefit from these lower premiums and in turn, health insurers should benefit. In theory, health insurers selling ACA-compliant individual plans could see increased enrollment by unsubsidized individuals while providers and pharmaceutical life sciences companies could see incrementally more revenue if more individuals opt for comprehensive, ACA-compliant coverage, over being uninsured or for less comprehensive short-term health plans.

Yet the data CMS released in June show the number of unsubsidized individuals went down during the first year (2018) of the state-based reinsurance programs for Minnesota and Oregon. The number of unsubsidized individuals decreased by 7% in Minnesota and by 19% in Oregon. Other factors likely contributed to decreases in average unsubsidized enrollment in 2018 in these states, including the Trump Administration permitting individuals to exempt themselves from paying the ACA’s individual mandate penalty for 2018 and the expansion of short-term health plans by the Trump administration in October 2018.

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Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

Ingrid Stiver

Senior Manager, Health Research Institute, PwC US

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