Maryland state officials and health insurers are reviewing how to run and fund a program that aims to keep individual health insurance premiums low.
The state-operated reinsurance program — a special fund through which insurers are reimbursed for a portion of the costs of patients requiring the most expensive care — was recently reapproved by the federal government.
By helping to offset the most expensive insurance claims, premiums stay lower for the wider insurance pool, and Maryland was one of the first states to implement such a program.
Now, the state is tasked with estimating the costs of the reinsurance program over the next 5 years and determining whether new policies should be considered in order to help fund it.
But challenges lie ahead. The federal funds that help support the reinsurance program vary from year to year. In addition, subsidies from the American Rescue Plan that help fund the reinsurance program may expire within the next two years.
When the Maryland General Assembly was first considering legislation to establish the reinsurance program, the individual insurance market was facing uncontrollable rising rates, according to Maryland Insurance Commissioner Kathleen A. Birrane.
The increasing rates led some Marylanders to drop their individual health plans to save money, particularly those who were younger, healthier and had less immediate need for medical services.
“It became a vicious cycle, because the people who are the healthiest — younger, healthier people — they pay their premium and they don’t use very much,” Birrane said. Those individuals would then drop their insurance all together, which would lead to higher rates for people who stuck with their insurance, she explained.
“Therefore, it becomes this death spiral,” she said.
“The Reinsurance Program is a way for an insurance company to be reimbursed for some portion of very large claims that they pay in respect for individuals, so that that claim does not get baked into the rate that everybody pays,” Biranne told Maryland Matters.
According to data from KFF, a nonprofit health policy research organization, Maryland’s average lowest-cost silver plan for health care was $448 dollars back in 2018. The average gold plan for that year was $456 and the average bronze plan premium cost $321.
Since then, there have been improvements in the individual market. For 2023, KFF shows that the average lowest-cost silver plan premium in Maryland has gone down to $334. Meanwhile, the gold plan average premium is $323, and the bronze plan average premium is $242.
“Before the reinsurance program, insurers were proposing rate increases, year over year, that were ranging from 25% increases all the way up to 33% increases between 2017 and 2019,” Deborah Rivkin, vice president of government affairs for CareFirst BlueCross BlueShield for Maryland, testified in 2022, as lawmakers were debating extension of the reinsurance program. “Without the Reinsurance Program, individual premiums were going to jump back to those pre-2019 levels, which was going to cause individuals to drop their coverage, stay uninsured and not come into the marketplace, and ultimately increase uncompensated care in the state.”
Now that the reinsurance program has been approved for another five years, with the U.S. Department of Health and Human recently approving the state’s waiver until 2028, state officials and health insurers have the task of determining how much the program will cost.
Current projections from the Maryland Insurance Administration shows that the costs for the reinsurance program are rising, with current estimations indicating that by 2028, it could cost $700 million. Compare that to the program’s first year: in 2019, the cost was about $350 million.
The federal portion of funding for Maryland’s reinsurance program is “volatile,” the Insurance Administration’s Chief Actuary Bradley Boban said at a recent meeting.
From 2019 to 2021, the reinsurance program was 100% funded by federal passthroughs, due to a “quirk” in the calculations as a result of few insurers in the insurance marketplace at that time, according to Birrane. But since 2023, the federal contribution has covered about two-thirds of the costs.
State costs are funded through a 1% assessment on health insurance policies.
“It all varies a bit, and every year it’s a little bit different,” Birrane said. “Just as a ballpark, the state premium assessment comes in somewhere between $150-180 million each year. And then the federal passthroughs have varied a lot, and have been going down.”
Birrane is a part of the health policy workgroup tasked with delivering a report on the impact and future of the reinsurance program to Gov. Wes Moore (D) and the General Assembly by the end of this year.
The report will consider the necessary level of funding for the reinsurance program, potential sources of funding, and any changes in the insurance market to provide individuals with affordable health coverage options.
Part of the calculations are contingent on whether financial subsidies out of the American Rescue Act are extended past the current expiration date. According to the National Conference of State Legislatures, states and local governments have until December 31, 2024 to obligate funds and then until Dec. 31, 2026, to spend them.
Without the extension, the state could need to provide those funds. During a recent meeting, the workgroup considered options that other states have used. As of 2022, several states have created reinsurance programs, but they fund their programs through different mechanisms.
Eight states fund their program through health insurance premium assessments, similar to Maryland, according to Boban. Those states are Oregon, Maine, Delaware, Montana, Pennsylvania, New Hampshire, and New Jersey.
Alaska and North Dakota fund their program through a state premium tax. Meanwhile, Georgia, Minnesota, and Wisconsin fund the program through the state’s general funds.
New Jersey and Rhode Island have state mandates for individuals to have health insurance, and the reinsurance program is funded by tax penalties from those who don’t buy plans.
Colorado has a multi-funding approach, which includes a health insurance premium assessment, a portion of the state’s premium tax revenue and support from general funds.
It’s not clear yet what changes the workgroup will propose. A written public comment period is open until Aug. 25 for Marylanders to weigh in.