The ACA’s Reinsurance Program – What You Need to Know

A recent AP article highlighted a new reinsurance fee included in the Affordable Care Act (ACA) that will take effect in 2014. The ACA’s reinsurance program is an important program that will help stabilize the market and mitigate some cost increases for consumers as the new insurance reforms take effect.

What is the ACA’s reinsurance program?

The reinsurance program is a temporary three-year transition program that will help mitigate premium increases in the individual market resulting from individuals with very high health care costs purchasing insurance in the new exchanges. This is one of three programs included in the ACA – risk adjustment, reinsurance, and risk corridors – designed to help stabilize insurance markets as the new exchanges and insurance market reforms take effect.

According to the Department of Human Services (HHS), the transitional reinsurance program is designed to provide health insurers with greater stability as insurance market reforms are implemented.

The reinsurance program, which is a State-based program, will reduce the uncertainty of insurance risk in the individual market by partially offsetting risk for high-cost enrollees.  By limiting issuers’ exposure to high-cost enrollees, this program will attenuate individual market rate increases that might otherwise occur because of the immediate enrollment of individuals with unknown health status.

The amount of the assessment is $25 billion and will be collected over the three-year period in the amounts of $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016. HHS estimates that in 2014 the cost of reinsurance contributions will increase premiums by approximately one percent in the total market, but will offset premium increases in the individual market (relative to what they would have been) by 10-15 percent.

Why is the reinsurance program important?

The reinsurance program is critical to assuring greater stability in the marketplace as the new insurance reforms are implemented and new people enter the system.

All stakeholders have a shared interest in maintaining a stable and well-functioning individual insurance market. The reinsurance program will mitigate some premium increases for individuals and families purchasing coverage on their own. It will make it easier for employees not eligible for employer-sponsored coverage, such as part-time and seasonal workers, to obtain health care coverage. And entrepreneurs and sole proprietors starting a small business will have more stable coverage options so they can focus on growing their businesses.

When workers have health care coverage – through employer-sponsored coverage or by purchasing coverage on their own – they are more productive in the workplace and miss fewer days of work. Fewer uninsured also means less uncompensated care costs that ultimately get passed along to consumers and employers with private insurance.

For exchanges and new insurance market reforms to work, coverage needs to be affordable and there needs to be broad participation in the health care system. To learn more about the affordability of health care coverage, visit www.AHIP.org/Affordability.

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