By Amy Lotven (January 29, 2018)
Stakeholders in Colorado continue to debate the development of a reinsurance program for the 2019 plan year that would cost about $346 million in order to significantly reduce premiums. Sources note that gathering the funding is a key sticking point in the debate because issuers are hitting back on using a premium assessment and other funding is elusive.
Colorado’s legislature approved a bill last year requiring the state’s Department of Insurance to look into options for setting up a reinsurance program through a 1332 waiver. The department commissioned a report to study how much a reinsurance program would cost, and its impact on claims, premiums and the morbidity of the risk pool.
While some states have opted to explore or implement condition-based programs, or so-called “invisible high-risk pools” that reimburse carriers claims for patients with certain high-cost diseases, Colorado has opted to do a claims-based approach under which plans typically are partially reimbursed for claims after a certain “attachment point” and up to a set threshold.
Milliman did an analysis and found that in order to achieve a 25 percent claims reduction, the program would cost $346 million in 2019. The firm says about half of the program costs would be covered by the federal pass-through money under the 1332 waiver, while Colorado would need to provide $178 million. The program would reduce premiums an average 21 percent statewide, boost enrollment by 17,000 and lower morbidity by 2.0 percent compared to the baseline, Milliman says in its final report. Importantly, Milliman notes, premiums would fall by 35 percent in the high-cost Western region and rural areas of the state; the average decrease in non-rural areas would be 17 percent (hence the 21 percent average).
The state legislature is now working to craft a bill that would create the reinsurance program, but the big question is funding, according to Mara Baer, president of AgoHealth, the lead author of the DOI’s report to the legislature.
The funding is tricky, says Colorado Democratic Rep. Chris Kennedy, who shepherded the legislation to get the study and is now working on the bill to create the program. A large problem, Kennedy says, is that unlike most other states, the Colorado legislature cannot legally raise taxes due to a 1992 state constitutional amendment. The state now requires voter approval for any tax hikes. In addition to its tax-raising restrictions, the legislature also faces budget caps, Kennedy notes, “so funding anything is challenging.”
Other funding possibilities have been discussed but each has their own drawbacks. Increasing the “provider fee” on hospitals would be difficult because the tax is already high and needed to support rural hospitals, Kennedy says. There are talks about getting private grants, but while that could help with start-up funds, the key is to find something that is sustainable over the years.
One funding source that Kennedy says should be on the table is related to the state’s income tax base. Kennedy explains the state’s taxable income base is anchored to the federal base, which was broadened under the tax law passed in December. According to the Denver Post, the base expanded due to the elimination of deductions and will bring in from $196 million to $346 million in state revenue.
However, Kennedy notes, GOP lawmakers want that money to go toward transportation.
This leaves the state with essentially one option, a per-member, per-month assessment on insurance plans, to collect a large portion of the funding. And because the state cannot tax self-insured employer-sponsored coverage, the fee would likely fall on fully insured group plans, individual plans, and stop-loss coverage.
According to Milliman, for the 25 percent claims impact, that fee would have to be set at $7.98 per-member, per month. And, Kennedy acknowledges, because Milliman conducted the report prior to enactment of the legislation repealing the individual mandate, that number could go up.
While insurers are supportive of the reinsurance proposal, they are less pleased with the price-tag. Issuers have argued that slapping a fee on plans basically re-circulates the dollars and does nothing for underlying costs, Baer says. State officials have acknowledged the concerns, but note that getting the program up and running is a good opportunity to help force a direct conversation on cost control.
Kennedy, who has been meeting with a wide range of stakeholders, says he often hears that industry agrees there is a crucial need to save the market, especially in the Western region. But issuers also complain that reinsurance funded by assessments is a cost-shift that fails to tackle the underlying issue.
For that reason, Kennedy says he is exploring some cost-control measures that could be added to the reinsurance bill. Details of those potential policies are being hashed out now, according to Kennedy, who declined to publicly discuss the options.
Other key details for the reinsurance program, including the attachment point and co-pay rate, are also unclear at this point. Kennedy says that once the funding level is clear, lawmakers can work backward to figure out the best design.
Meanwhile, at the federal level, lawmakers continue to work on legislation that would provide funding for reinsurance programs. In exchange for her support of the tax bill, Sen. Susan Collins (R-ME) secured an agreement with Majority Leader Mitch McConnell (R-KY) to back $10.5 billion in reinsurance funding, of which she wants $500 million available for seed money in 2018.
Collins and Senate health committee Chair Lamar Alexander (R-TN) and Patty Murray (D-WA) have said they are continuing to work on marketplace stabilization legislation and want to see it attached to the omnibus bill expected in March. Senate Minority Leader Charles Schumer (NY) said in floor remarks last week that he would like to see market stabilization legislation move along with an expected Feb. 8 continuing resolution.
Collins recently said that House Speaker Paul Ryan (R-WI) and his colleagues are warming to the idea of reinsurance legislation. Others have noted that the concept should carry support from House Republicans considering they all voted for it as part of their repeal-and-replace legislation: In April, the House attached to its repeal bill an amendment from Freedom Caucus members Rep. Gary Palmer (R-AL) and Rep. David Schweikert (R-AZ) that would have allocated $15 billion from that bill’s Patient and State Stability Fund from 2018 to 2026 to create a federal “invisible risk sharing program.”
Kennedy says he would appreciate federal reinsurance funding but is not wildly optimistic that it will come through. He notes he has had some initial conversations with Sen. Michael Bennet’s (D-CO) staff, and hopes to speak with other members of the Colorado delegation who could help push for funding.