CO Extends Reinsurance Program After 1.5 Years of Lower Premiums

CMS announced that Colorado’s state innovation waiver which introduced a state-based reinsurance program has successfully lowered average premiums and, as a result, received approval for a five-year extension.

Colorado’s reinsurance program aimed to lower the average premium statewide by 16 percent. In 2020, the program lowered the average premium by 20.9 percent. Thus far in 2021, the state continued to see a 20 percent lower average premium.

Under the extended waiver, Colorado and federal actuaries have estimated that, in contrast to a year without the waiver, Colorado premiums will drop by 19.2 percent in plan year 2022 and enrollment on the individual health insurance market will grow by 2.5 percent in plan year 2022.

The extended waiver looks identical to the original waiver in every detail except the timeframe, according to a state frequently asked questions sheet. 

Reinsurance has been described as self-funded employers’ stop-loss insurance except that this type of stop-loss insurance covers insurers and it has also been compared to a deductible. 

Under Colorado’s reinsurance program, non-group health insurers may receive reimbursements when enrollees’ costs go beyond the claim attachment point. An attachment point is the projected benchmark for per-enrollee costs. 

When an individual health insurance market enrollee’s healthcare spending lands between the attachment point ($30,000 in plan year 2022) and the spending cap ($400,000 in plan year 2022), the reinsurance program will step in to reimburse the insurer for a certain portion of that cost.

The portion of the cost that the reinsurance program covers varies based on geographic region, with the goal of attracting more insurers to the rural regions by offering higher reimbursement rates.

Colorado has delineated three regional tiers. Each tier has its own coinsurance rate, meaning that the reinsurance program will reimburse insurers a certain amount for high-cost claims.

For claims that exceed the attachment point but fall below the spending cap in Tier One, the Denver metro area, the reinsurance program will be responsible for up to 43 percent of the cost. In Tier Two, eastern Colorado, the reinsurance program will cover half of the claims costs. In Tier Three, western Colorado, the reinsurance program will cover 73 percent of the costs.

Each tier encompasses more than one rating area. Based on the rating area, Colorado has projected how much the reinsurance program will reduce claims costs. In the urban area around Denver—rating areas one, two, and three—the targets for the reinsurance program are lower: 15 to 20 percent reductions in claims costs. 

However, in the more rural areas to which the state is hoping to attract more insurers, claims costs are expected to see greater decreases, with the eastern region expected to see 20 to 25 percent reductions and the western region expected to see 30 to 35 percent reductions.

CMS shared that in plan year 2022 the extended reinsurance program is anticipated to lower premiums in the western half of the state by 33 percent, in the eastern half of the state by 22 percent, and in the Denver area by 17 percent.

Federal funding—called pass-through funding—covers a significant portion of the costs in the state program, but it must maintain deficit neutrality.

In general, Section 1332 waivers have to meet four key requirements. They must offer coverage that matches or exceeds the comprehensiveness of coverage pre-waiver and matches or exceeds the accessibility of coverage attained without the wavier. They also have to prevent high levels of out-of-pocket healthcare spending and cannot boost the federal deficit.

The waiver extension is effective for January 1, 2022 through December 31, 2026.

Colorado’s experience with reinsurance is not an anomaly. Experts have found that reinsurance programs reduced state premiums by anywhere from 6 percent to 43.4 percent from 2017 to 2019.

Experts reiterated their support for starting reinsurance programs when the coronavirus pandemic struck. The model could help payers account for the many unknown factors that the coronavirus pandemic presented, they argued.

A couple of states answered this call. Georgia, New Hampshire, and Pennsylvania all received approval for their reinsurance programs during the coronavirus pandemic.