Right now, it seems very likely that there is a Democratic Party consensus to significantly increase eligibility for premium subsidies in the ACA market. This consensus is likely able to get 218 votes in the House and 51 votes in the Senate. It will get a signature in the White House and the Supreme Court won’t care one way or the other. This is a 218-51-1-5 policy. Details will likely remain unclear until legislative text is written and the votes are counted.
The goal of this policy would be to remove the 400% FPL cliff where plans can suddenly go from painfully affordable to OMG NO WAY IN HELL CAN I PAY THAT for upper middle class families who are able to effectively organize their screams of pain into political and policy action. States have several policy options to address this group’s real pain.
- State sponsored subsidies for the over 400% FPL group (California)
- Encouraging parallel underwritten insurance markets like Short Term Limited Duration Plans and Farm Bureau “not insurance” insurance-like plans
- Indirect subsidies through the 1332 reinsurance mechanism.
Section 1332 in the ACA allows states to modify their individual health insurance markets to address local needs through local means. Almost all approved 1332 waivers are designed to lower gross premiums for non-subsidized buyers. States add in some amount of state funding to the pool of funds that are used to pay premiums. Previously that pool of funds was composed only of premiums and federal tax credits. The new state money means premiums go down and the federal government does not pay as much in subsidies. The reduced federal subsidies are recycled to help pay claims. This results in slightly higher premiums for people who are subsidized and buy below benchmark plans but notably lower premiums for non-subsidized buyers. In 2019, Avalere estimated that 1332 waivers reduced gross premiums by about 20% compared to a no-waiver world with a broad range of 6% to 43% gross premium reductions.
Charles Gaba has been producing some awesome graphs on the impact of different subsidy schemes for older Americans. I’ve taken his graph for a 60 year old couple at average national benchmark premium who earns 401% FPL and therefore does not qualify for subsidy and marked it up to reflect the impact of reinsurance.
The very short version of this first visual attempt at sketching out what happens to affordability for currently non-subsidized households is that reinsurance is utterly dominated in terms of affordability for people who earn over 400% FPL by changes to the subsidy scheme. The biggest reinsurance premium reduction is producing only the same relative ballpark in gross premium reductions as the current California state funded subsidy scheme that goes to 600% FPL and caps payment at a large fraction of income.
Reinsurance can have multiple goals such as improving the competitiveness of a market by reducing actuarial uncertainty in a market by having a common pool cover truly catastrophic and rare events but currently reinsurance in the state funded 1332 context for the ACA has primarily been a way of reducing some gross premium shock to middle and upper middle class families.
If we move to a world where everyone is eligible for subsidies, I’m scratching my head at what a state 1332 reinsurance waiver is supposed to be doing? A lot more imagination and possibility space will be open for a creative state 1332 that meets Obama and presumably Biden administration guardrails.