Senior Policy Analyst
The idea of reimbursing health insurers for some costs associated with their highest-cost enrollees, known as reinsurance, is gaining traction as policymakers seek ways to make states’ individual insurance markets more stable and reduce premiums. But some federal reinsurance proposals are likelier than others to reduce premiums, and reinsurance alone won’t help individual market consumers who qualify for subsidized coverage.
Reinsurance defrays insurers’ costs and reduces their risk, so insurers can reduce overall premiums compared to what they’d otherwise charge.
In the House, a bipartisan reinsurance bill from Reps. Ryan Costello and Collin Peterson is reportedly gaining support, including among insurers. It would provide up to $30 billion over three years for the Secretary of Health and Human Services (HHS) to allocate at his discretion. Meanwhile, Sen. Susan Collins is continuing to craft her bipartisan reinsurance bill (co-sponsored by Sen. Bill Nelson), which Senate Majority Leader Mitch McConnell promised to bring to the Senate floor. She’s proposing to make up to $10 billion over two years available to states, which they could then use to secure additional federal funding through waivers that HHS approves to let states experiment with new ways to deliver health care to their residents.
With reinsurance efforts potentially moving forward, policymakers should keep the following in mind:
The Costello bill also seems to let states create high-risk pools, an idea that House Speaker Paul Ryan has continued to talk up. But past high-risk pools worked by separating people with high-cost health needs into a different pool from less costly people. That approach has been tried and failed, and it shouldn’t be replicated. The Costello bill also includes new, unrelated policy dealing with abortion.
The Collins-Nelson bill relies entirely on states to apply for funding. In a better approach, the Costello bill gives states the option to apply for funding and administer their own programs but includes a safeguard — to establish a federal program if states don’t act fast enough. The Costello bill, however, would also leave the amount that each state would receive up to the HHS Secretary’s discretion, creating unnecessary uncertainty and risk, particularly because the Trump Administration has been more focused on sabotaging the ACA-compliant insurance markets than shoring them up.
A bill that includes reinsurance funding and would reinstate CSR payments to insurers, such as the Costello bill, also should increase the tax credits or increase cost-sharing subsidies for people. Here’s why: As we and others have explained, the Trump Administration’s decision to halt CSR payments has had the effect of substantially raising tax credits, making coverage more affordable for many moderate-income consumers. (That’s because insurers raised premiums to account for the loss of CSR payments, which boosted the amount of federal premium tax credits available to eligible people.) Restoring CSR payments would reverse the tax credit increases and make coverage more expensive for this group. Thus, a bill funding reinsurance, restoring CSRs, and failing to increase tax credits or cost-sharing subsidies would make coverage more affordable for middle-income consumers but less affordable for many people at lower income levels.