According to Section 1332 of the Affordable Care Act (ACA), a State may submit an application with the Department of Health and Human Services (HHS) requesting a waiver from many of the requirements set forth under the ACA. This waiver is aptly called a “1332 Waiver,” and specific requirements must be met before HHS will approve the Waiver.
To date, virtually every State that has applied for a 1332 Waiver has done so to establish a State-based reinsurance program. These reinsurance programs reimburse insurance carriers selling “individual” market plans to high-risk individuals who utilize a lot of health care. Because these high-risk individuals consume a lot of health care – and thus, are costly to insure – these reinsurance programs help to offset these higher costs, which keeps premiums down for the general population.
Currently, fifteen States have established a State-based reinsurance program through an HHS-approved 1332 Waiver. Due to the implementation of these reinsurance programs, premium costs went down by 16.9 percent on average in the first year. Some States have experienced multiple years of lower premium costs.
When premium costs go down in these States, this produces savings to the Federal government.
The Federal government subsidizes the premium costs of “individual” market plans that are sold through an ACA Exchange. And, if the premium costs of these “individual” market Exchange plans go down, the government spends less money subsidizing health coverage. This produces the savings.
Importantly, the statutory rules under ACA section 1332 provide that this savings can be “passed on” to those States that reduced their premium costs through their own reinsurance program, representing a significant benefit to States (which is a primary motivation for why many States have sought to establish their own reinsurance program).
The American Rescue Plan – which was enacted on March 12th – increases the amount of the subsidy the government will pay toward an “individual” market Exchange plan. In addition, individuals and families with incomes above 400 percent of the Federal Poverty Level (FPL) that are not offered an affordable/minimum value employer plan can access a premium subsidy for the first time. Note, however, these increased subsidies and the expanded eligibility are only available for the rest of 2021 and 2022 at the moment.
It is estimated that up to 1.3 million people who are currently uninsured will purchase an “individual” market ACA Exchange plan on account of the increased subsidies and the expanded eligibility. This means that the government will spend more subsidized dollars to help these individuals access health coverage (an additional $34 billion, according to the Congressional Budget Office). With more subsidized dollars being spent on more people, States with a State-based reinsurance program will certainly benefit by receiving more in “pass-through” funding (this is because the State-based reinsurance program will apply to a larger number of enrollees, which will produce bigger savings irrespective of any premium cost reductions).
Which brings us to our main point: In cases where a State-based reinsurance program can also produce a reduction in premium costs in, for example, 2021 and 2022, even more savings will be “passed-through” to the State, which means more money for the State to fund their reinsurance program and/or other related health care programs, such as targeting high-cost ratings areas in the State and providing specific relief to mitigate higher than average premium costs.
Sounds great, right?
Well, if premium reductions are not attributed to their State-based reinsurance program, then the State does not benefit from the savings in the form of this “pass-through” funding.
How could premium reductions not be attributed to a State-based reinsurance program?
Well, in the case of the increased subsidies and expanded eligibility, the fact that 1.3 million people will be newly added to the ACA’s risk pools could reduce premiums by strengthening, improving, and balancing out the risk pool. But, States with a State-based reinsurance program will not receive any additional dollars because the savings came from the enhanced premium subsidies, not the State-based reinsurance program. Interestingly, if premiums go down on account of a balanced risk pool, the need for a State-based reinsurance program will be diminished.
These are all very important factors that States with an existing State-based reinsurance program – and States that are looking to submit a 1332 Waiver to establish a State-based reinsurance program – need to consider. If a State’s reaction to the enactment of the American Rescue Plan was easy-to-access increased Federal dollars that the State could use for their own health care programs, the State may have to re-evaluate.