Congrats, @GovWalker! States, like #Wisconsin, continue to work with @CMSGov to expand state flexibility to address the rising premiums in #ObamaCare. See our approval of WI’s #1332waiver, our first this year, & fact sheet (under “Wisconsin” section): https://t.co/gRTuvMbbL2 pic.twitter.com/byXjtSBvC6
— Administrator Seema Verma (@SeemaCMS) July 29, 2018
This will lower announced premiums this fall from what they otherwise would have been without reinsurance.
Reinsurance does two things. First, it reduces high cost claim risk for insurers which reduces variance which reduces the amount of stress actuaries feel which marginally reduces rates. More importantly, it is an infusion of outside money that lowers rates.
This bigger pool of money is then used to split high cost claims (there are half a dozen different flavors of doing this) and pays those high cost claims out of a general pot of money instead of from an insurer’s pot of premium revenue. The remaining claims are then what the public facing premiums are based on. Since premiums are lower, advanced premium tax credits are lower and the Federal government kicks in the difference between announced premiums and expected premiums as a pass through.
Reinsurance can be set up in a bunch of different flavors:
- Invisible risk pools/invisible risk share
- Catastrophic claim cost reinsurance
- Diagnosis based reinsurance
The attachment points can vary. The maximum amount the reinsurance fund pays out can vary. The percentage of qualified costs the reinsurance fund pays out can vary. The funding stream for the external cash infusion will vary.
There is variation in the mechanics and those variations matter to actuaries and geeks but the fundamental process and top level action of all of these choices will be roughly the same. Public facing premiums will go down.
Wisconsin applied in April. CMS is allowed to 210 days to consider a 1332 application (30 days to determine if it is complete, 180 days to analyze and accept public comments). CMS turned this waiver around in about 100 days. Maryland and Maine submitted 1332 reinsurance waivers in May. New Jersey just submitted a 1332 reinsurance waiver this month. I expect the Maryland and Maine approvals to happen sometime in August and New Jersey should be approved in September.
CMS on operational matters of the exchanges is acting in good faith. Simple requests like these waivers are getting approved in a more than timely manner. CMS made it clear last year that Oklahoma and Iowa waivers were out of the guard rails. There will be a few head scratchers and odd decisions but those are well within the norm of any large entity trying to deal with uncertainty.
Finally, I am somewhat surprised that only four states submitted new reinsurance waivers. Congressional action last year made 1332 waivers easier to score and approve for states:
two developments—the repeal of the individual mandate and the replacement of eliminated cost-sharing reduction payments by higher advance premium tax credits (APTC)—both increase net federal costs under the ACA; they thus increase the amount of pass-through funds available to states implementing 1332 waivers.
No individual mandate increases pool morbidity so there is no “free” money there. However Silver Loading CSR costs increases advanced premium tax credits without an underlying increase in claims costs so there would have been “free” money from a state’s perspective. I would have expected more states to take advantage of these opportunities.