A new United Hospital Fund snapshot report focuses on the Transitional Reinsurance Program, which was created by a provision of the Affordable Care Act and has improved the affordability of coverage for consumers by reducing premiums in the individual market. The report examines policy issues that will arise from the program's expiration in 2016, as well as offering options to consider to prevent significant premium increases for individual market enrollees. The report notes that none of these options would be easy to implement, some would require federal cooperation, and all would involve difficult choices among competing priorities.
“The Affordable Care Act has succeeded in rejuvenating the individual health insurance market in New York,” said Peter Newell, director of the Health Insurance Project and lead author of the report After the Reinsurance Is Gone: A New Challenge for New York's Individual Market. “Ongoing attention is needed to keep it on track, and the sunset of this reinsurance program warrants close consideration.”
The three-year program takes a $63 per-person, per-year assessment on participants in all fully insured and self-funded market segments to establish a “reinsurance corridor,” which fully reimburses insurers on individual market claims starting at $45,000 and ending at $250,000. The report presents an example of how the program reduces the claims costs of health plans for the 1 percent of members with claims exceeding $45,000—a reduction that allows for lower premiums for all enrollees in the plan, because it decreases the medical claims that health plans project as part of the rate approval process.
According to the report, the most pressing issue is determining whether it is possible to replace the reinsurance subsidy funds once the program expires. It discusses three options for doing so, each of which presents a difficult choice to policymakers and stakeholders. First, New York could revive its own state reinsurance program for the individual market, which would continue a subsidy from large groups to individuals—a plan unpopular with large employers because it would continue a cross-subsidy from group health plans to the individual market. Second, the federal government could fully fund its Risk Corridor Program, which allows health plans to recoup a portion of their losses if expenses significantly exceed premiums—but rather than increasing funding, Congress recently extended cuts to that program. Third, the State could reduce the $4 billion in surcharges and assessments on health plans (under the Health Care Reform Act, or HCRA), which would help offset declining reinsurance funding, but policymakers would need to consider alternative sources of funding for programs currently funded through HCRA or cut their funding.
The report also provides distribution tallies of reinsurance funds to New York health plans in 2014, documenting reinsurance payments totaling over $287 million. The largest recipients in dollars were Health Republic ($58.2 million), Empire BlueCross BlueShield HMO ($38.1 million), and Oxford Health Plans HMO ($37.8 million). Some health plans ranked high in reimbursement allocations without participating in the health insurance exchange market at all.
“Looking forward, the sunset of this reinsurance program is one piece of a very complex health insurance puzzle,” said Jim Tallon, president of United Hospital Fund. “It's important to remember we are also seeing innovative partnerships between health plans and providers aimed at reducing costs and improving quality, various moves away from fee-for-service to value-based payment models, and other changes that may contain costs over the long term. While the choices ahead, including those related to the reinsurance program, may at times be difficult, the overall direction is positive.”
After the Reinsurance Is Gone: A New Challenge for New York's Individual Market is the first in a series of snapshot reports highlighting specific issues related to the Affordable Care Act, as a complement to the forthcoming Big Picture chartbook on health plan operations. Written by Peter Newell and Nikhita Thaper, research assistant, the report is available here.
Support for this work was provided by the New York Community Trust.
About the United Hospital Fund: The United Hospital Fund is an independent, nonprofit organization working to build a more effective health care system for every New Yorker.