A State-by-State Approach to Stabilizing the Individual Market
The status of health reform seems to change hourly – in the matter of a few days, the debate shifted from repeal and replace, to repeal only, to “let it die,” to let’s work this out. With so much uncertainty around federal reform efforts, payers and states are exploring alternative options to stabilize individual insurance markets. And that has put a spotlight on 1332 waivers.
Under the Affordable Care Act, states can apply to change some elements of the law related to private health insurance. Specifically, Section 1332 gives states the ability to waive provisions of the ACA and deploy their own stabilizing strategies, but still receive federal funding. Just last week, the Centers for Medicare and Medicaid Services (CMS) approved the state of Alaska’s application for a 1332 waiver. The waiver allows Alaska to use federal money to fund a high-risk pool for the state’s individual market. It is the first waiver that CMS has approved aimed at stabilizing the individual market. According to a CMS statement, the new reinsurance program will lead to more Alaskans gaining coverage and lower premiums for all state enrollees.
While there remains uncertainty on the outcome of legislation in Washington, DC, we expect that more states will pursue 1332 waivers – or future equivalents – in order to ensure stable individual insurance markets for their citizens. Understanding how Alaska intends to use its waiver, as well as the process and parameters of the waiver program, has taken on a greater importance as payers, providers, and state insurance officials look to 2018 and beyond.
Tammy Tomczyzk, FSA, FCA, MAAA, Senior Principal, and Ryan Mueller, FSA, MAAA, Senior Consultant with Oliver Wyman Actuarial Consulting, were part of the team that performed the actuarial modeling Alaska used to support its application. Here, they provide an overview of Alaska’s reinsurance program and shares insights on how other states might utilize 1332 waivers.
What a 1332 waiver looks like in Alaska
Hawaii and Alaska are thus far the only two states that have applied for and received approval of 1332 waivers. Hawaii’s waiver is focused on the SHOP (small group exchange) and not aimed at stabilizing the individual market. Alaska’s waiver, on the other hand, is a first-of-its kind state effort to shore up the individual market.
Alaska is unique in that it has very high individual health insurance premiums and a very high percentage (83 percent) of its individual ACA marketplace receives premium subsidies. With its waiver, Alaska intends to waive the single risk pool requirement under the ACA and fund a high-risk pool for its individual market. The rationale behind their application is that relieving payers of costs associated with high-risk individuals will serve to reduce premiums in the individual market as a whole. That means people will need less help paying their premiums, which means the federal government will be paying out less in premium subsidies. Under the waiver, Alaska asked the federal government to contribute (roughly) the amount the federal government will “save” on those premium subsidies toward the State’s new high-risk pool.
Our work showed that investing $60 million into the high-risk pool in 2018, and subsequently lowering premiums by that amount, would result in a net decline in federal outlays for premium subsidies and other items of $49 million. The waiver proposed that the federal government pay this $49 million to Alaska.
Our model also estimated that creating the high-risk pool could lower overall individual-market premiums by roughly 20 percent and expand the number of individuals with individual coverage by roughly 8 percent. Thus, for a net cost of roughly $11 million, Alaska can offer more people coverage, lower premiums for those in the individual market, and reduce the bill for taxpayers in Alaska – and the federal government spends no more than it would absent the waiver.
What 1332 waivers could look like elsewhere
The first step in the waiver process is enacting legislation authorizing a state to pursue a 1332 waiver. To date, 10 states have enacted legislation and more are considering it. (Learn more about the 1332 process in this earlier article.) How these states approach their waiver process will vary greatly, as each state’s unique socioeconomic make-up and current premium levels will play a part in shaping the size and composition of its single-risk pool.
For example, while a large percentage of Alaska’s individual enrollees receive federal subsidies, just 6 percent of Washington, DC’s individual market receives subsidies. If Washington, DC, were to implement a high-risk pool similar to Alaska’s, the majority of people who would see a drop in premiums would be individuals who were not eligible for premium subsidies. Thus, a waiver based on Alaska’s reinsurance model would have very limited impact in this market.
The characteristics of each state’s risk pool are unique, and stabilizing individual insurance markets will require a variety of approaches. However, in this time of uncertainty and intense market pressures, we are convinced that 1332 waivers provide states with a mechanism to implement reforms that recognize each state’s unique circumstances, and can lead to increased market stability with relatively low costs.