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ACA’s Reinsurance Program in the hot seat

Posted by John McDonough  October 15, 2013 11:16 AM

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It appears that part of the Budget/Debt Ceiling deal in DC may include a one-year delay in the collection of a fee on employer-sponsored health insurance to fund a temporary three-year reinsurance program to ensure a more stable individual health insurance market during its first three most vulnerable years.

Big deal or little deal? Little deal.

A similar program was run in Massachusetts in the first years of implementation of the 2006 MA health reform law to encourage health insurers to enter the program despite the risk that folks who signed up for their coverage might be, on average, sicker than the risk pool as a whole. So money was collected for the first few years to make payments to participating insurers who had a worse-than-average risk pool.

In drafting the ACA, we made sure that a similar mechanism was included for years 2014, 2015 and 2016. So $25 billion will be collected from employer plans -- whether traditionally insured or self-insured to finance state-based reinsurance programs (the U.S. Department of Health & Human Services will do the job in states that do not want to do it themselves).

$12B in 2014, $8B in 2015, and $5B in 2016. In 2014, this will amount to $63 per covered live, or $5.25 per month. In 2014 the fee amounts to .95% of total market premiums, dropping to .6% in 2015 and .35% in 2016.  Helpful summaries here and here.

From the news accounts I have seen, the new Capitol Hill deal would simply push back the collection -- in the same amounts -- to 2015, 2016, and 2017. Treasury can front the money for 2014 that will be repaid on a one-year delayed basis.

The reinsurance program is important to health insurers who will be participating in the new individual market because there is no relevant experience to let them know who will sign up through the new Exchanges. And some will certainly be less lucky than others in terms of the risk profile of the new enrollees.

Unhappy with the new assessment are labor unions with their own health plans, often called "Taft-Hartley Plans." They had advocated with the Obama Administration that their enrollees should be able to claim the new tax subsidies provided through the Exchanges -- something the Administration said it could not do under the law. They wanted to be exempted from the Reinsurance fee, again something the Administration said it did not have legal authority to allow. So instead, they get a one-year delay.

If this is what it takes to get to a deal, then I'm all for it.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »

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