Republican state senators have alleged that Democrats are blocking health care reform in our state. That is an absurd accusation since Connecticut has a long history of bipartisan health care reform. When former Sen. Len Fasano was the State Senate minority leader, he and I worked together to produce numerous bipartisan patient protections in health care.
Despite our having reached out to our Republican colleagues during the recently completed session, they did not appear to prioritize bipartisan health care policy. Health care and health insurance need not be partisan issues when we proceed with the patient as our north star.
Specifically, the policy that Republicans claim that Democrats have blocked is reinsurance. That claim is particularly odd because I had submitted a proposed bill on this topic. Reinsurance is one option for making health insurance more affordable for people who do not qualify for premium tax credits; it has been more effective in some states and less effective in others.
On its own, reinsurance offers no relief for people who receive premium assistance. There are a variety of other policy options that address premium affordability more directly. If the provisions of the American Rescue Plan Act (which assist all enrollees regardless of premium assistance status) are made permanent, state-based reinsurance may well become obsolete. The ARPA limits premiums to 8.5 percent of income for everyone. I am hopeful that Connecticut can work to provide additional protections for plan enrollees. The state could create a reserve fund to protect against the failure of Congress to extend the ARPA provisions. The state could also enact additional protections such as limiting the size of deductibles. While Democrats are not ruling out reinsurance, we believe that we must carefully examine what policies are best for all residents of our state.
We need to be clear about what reinsurance is; it is a program designed for the benefit of insurers which can, as an incidental effect, reduce premiums for more affluent people who do not qualify for premium subsidies. It is insurance for the insurers. It sends money to insurance companies, not insurance consumers. It is a bailout for insurance companies who are not struggling; it is insurance plan enrollees, not insurance companies, who need help paying high medical bills.
In the Affordable Care Act, a temporary reinsurance program was a temporary market stabilization program designed to cushion insurers from changes such as requiring coverage for individuals with pre-existing conditions. It does nothing to encourage more efficient care management, improve quality of care or lower provider prices. Reinsurance provides payments to health insurers to help offset the costs of enrollees with large medical claim costs; it cushions insurers’ obligations to pay expensive medical claims incurred by their members. In order to provide these payments to insurers the state must create a funding stream as well as set an attachment point (the dollar amount of an enrollee’s claims that triggers the insurer’s eligibility for reinsurance coverage) and a cap (the dollar-amount threshold, above which the insurer is no longer eligible for reinsurance).
Most states that have enacted a state reinsurance program have created a funding stream by assessing a fee on insurers (which is what the Affordable Care Act did before the reinsurance provision sunset). Since under a reinsurance program the insurers no longer have to provide payments (or have to provide only a percentage) for these patients’ costs between the attachment point and the cap, they can reduce premiums for some other policy holders. Reinsurance can help states bring down premium costs for unsubsidized policy holders; however, it does not, in itself, address any of the underlying drivers of healthcare or health insurance premium costs. In fact, without diligent legislative crafting, reinsurance will not provide any assistance to lower income patients who qualify for subsidies.
The majority of enrollees in ACA individual plans do receive some premium assistance and so reinsurance doesn’t reduce their required premium contributions. Rather, because it reduces the sticker price of the premiums, it reduces the value of their premium tax credit.
Below is an example from the Center for Budget and Policy Priorities (CFBPP) regarding persons at 150 percent of federal poverty level (FPL), or about $19,000 a year. (This example is from before passage of the American Rescue Plan Act which significantly reduced premiums such that persons earning 150% FPL would most likely pay no premium for a silver benchmark plan).
- Under the ACA, they must pay just over 4 percent of their income, or $63 per month, to buy the silver benchmark plan, with the premium tax credit making up the difference.
- If the sticker price of the silver benchmark plan for a 40-year-old is $400 per month, they are eligible for a subsidy of $337 per month.
- If a reinsurance program reduces the benchmark plan premium by 10 percent, from $400 to $360, the amount the person pays stays the same, $63 per month, and the premium tax credit drops from $337 to $297.
Creating a reinsurance program is not as simple as turning on a light; the plan must be carefully crafted to ensure that it doesn’t benefit those whose incomes are too high to receive subsidies at the expense of those who currently receive subsidies. This can be achieved by using some of the available money from the waiver to directly assist those who already receive some premium and/or cost sharing subsidy rather than putting all the available dollars into reinsurance. The process for creating a state reinsurance program is not trivial. The state must apply to the federal government (with a detailed plan) for what is known as a 1332 state innovation waiver. The plan must include a variety of details including a funding source (in most states that have enacted a reinsurance plan it is funded by a fee on insurers), the proposed attachment point and cap. It would also be possible to set up a condition based reinsurance program.
The approval process can take significant time at the end of which the state must set up the program. There are other options that can lower premiums immediately, some of which have already been taken by the state and federal governments this year. We Democrats would be happy to work with our Republican colleagues on a variety of these options at any time. It is critically important to have an informed debate on the subject of insurance premium relief without allowing the term “reinsurance” to be held up as a magic talisman without clarity of definition and precise understanding of who may benefit most.
Sen. Martin Looney serves as Senate President Pro Tempore and represents New Haven, Hamden, and North Haven.