What exactly is reinsurance?
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A reinsurance program acts as a safety buffer for insurance companies by reimbursing them for the costs of certain ‘high-cost-claimants’ in the individual market.
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As soon as an individual reaches a certain level of claims in a plan year, their insurance company can rely on the state-administered reinsurance program to pay any further claims for that year.
By excluding these high claims from the insurer’s general cost pool, insurance companies are expected to be able to lower their premiums across the entire individual market, affecting the approximately 6% to 8% of Colorado’s population that gets their coverage through the individual market.
How would Colorado pay for this reinsurance program?
Funding for this program is still under debate, but the current proposal suggests two major funding sources:
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This bill authorizes Colorado to request a federal waiver of certain ACA rules regarding the federal tax credits offered in the individual marketplace. There’s no guarantee the current administration would approve the waiver, but it is similar to those in place with other states.
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By lowering premiums in the marketplace, federal tax credits would also be reduced. Instead of the federal government holding on to these savings, the waiver requests that these unused funds be directed to funding the state reinsurance program.
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In addition, the bill would charge hospitals a fee each year for five years to raise additional dollars to pay for the reinsurance. This funding mechanism replaced an earlier strategy that would have lowered reimbursements to hospitals.
Would the reinsurance program actually work?
Though no one knows for sure, similar programs have been introduced in other states and have reported successes:
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Other states include Alaska, Maine, Maryland, Minnesota, New Jersey, Oregon and Wisconsin.
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A federal reinsurance program ran temporarily from 2014 to 2016 under the ACA.
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A Colorado Division of Insurance report suggests that this bill could cut individual premiums by nearly 23%.
Read more about the bill with these links:
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https://insurancenewsnet.com/oarticle/reinsurance-bill-advances-in-colorado-legislature#.XK0OWJhKiUk
We’ll be watching this bill, and the many others currently being discussed, as the legislative session draws to a close in early May. Count on Fall River to keep you informed of further developments in this area, and don’t hesitate to reach out to us if you have questions or would like more information!
