States Leverage Federal Funds to Help Insurers Lower Premiums

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When Tracy Deis decided in 2016 to transition from a full-time job to part-time contract work, the loss of her employer’s health insurance was not a major worry because she knew she could get coverage through the marketplace set up by the Affordable Care Act.

“The ACA made it possible to make the switch in my life,” said Deis, 48, who lives in Minneapolis. But she quickly added, “I was really worried about the cost.”

Her anxiety was understandable. In Minnesota, the average cost of insurance in the state-run exchange soared 57 percent in 2017, after a 40 percent rise in 2016.

Amid a public outcry, the legislature last year took several steps to stabilize its individual insurance marketplace.

Among those moves, lawmakers launched a “reinsurance” program. The program helps pay the costs insurers incur for people with high medical bills. In turn, the companies — knowing that these “outlier” expenses will be covered — can lower premiums. Alaska had launched a similar program in 2016.

The Alaska and Minnesota models have now become touchstones for other states eager to prevent startling premium increases in the individual insurance marketplace.

Critically, much of the money comes from the federal government. A provision in the ACA allows states to experiment with their marketplaces as long as they honor ACA requirements and don’t cost the federal government more money. (Federal reinsurance funding for high-cost patients reduces premium subsidies, which are fully paid by the federal government.)

Notably, even as the Trump administration has blocked other provisions of the ACA and pushed Congress to repeal the law, it has encouraged states to establish reinsurance programs and seek federal funding.

In Alaska, lawmakers used only state funds to cut an anticipated 43 percent premium increase to 7 percent in 2017. As the program continued in 2018 with $58 million in federal funds, the lone insurer in the state, Premera Blue Cross Blue Shield, lowered premiums by an average 22.4 percent. And on Aug. 2, Premera announced it had asked the state if it could reduce premiums by an average 3.9 percent in 2019.

Alaska’s program, unlike other states’, covers all the costs for people with 33 high-cost conditions. In 2017, about half of all expenses for enrollees in the exchange were for people with one or more of those conditions.

“We have unique issues here,” said Jim Grazko, president of Premera Blue Cross Blue Shield of Alaska. “Without the reinsurance program, things would be untenable in the individual market.”

The federal Department of Health and Human Services approved Minnesota’s waiver request for a 2018 reinsurance program, with $131 million in funding. The program covers medical bills between $50,000 and $250,000 for marketplace customers.

It worked. Premium rates declined by 13 percent in 2018 compared with 2017 and are projected to drop again in 2019 by 5 to 8 percent, according to Eileen Smith, a spokeswoman for the Minnesota Council of Health Plans.

That was good news for Deis. Her monthly premium this year is $317, down from $355 in 2017. She’s in a plan that includes the doctors she wanted and is happy with her coverage, although it has a deductible of $7,050.

“I wouldn’t mind if my premiums came down again for 2019,” she said. “Every little bit helps.”

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