Unexpectedly Intriguing!
May 3, 2018

Last summer, we wrote about what is perhaps the most boring topic ever: reinsurance, which is, of course, insurance for insurers.

So yes, it sounds boring and, truth be told, it is boring. Yet we were intrigued by how this very boring insurance product could potentially solve a problem that President Obama's signature domestic policy, the Affordable Care Act, has proven itself to be incapable of solving: how to lower health insurance premiums to make them affordable while guaranteeing coverage regardless of pre-existing conditions. Here's how we described its potential for fixing the obvious deficiencies of the federal government health insurance scheme popularly known as Obamacare:

This is where the concept of reinsurance might provide a solution to the problem of costly customer pools for health insurers. What if every customer was initially covered by health insurance policies as if they had no pre-existing condition, but which would make full payouts to the patient so that they could cover the actuarial lifetime cost of having a condition after being diagnosed? Including if they had costly and chronic conditions, which could involve big payouts for the insurers.

The kind of payouts that would be provided through reinsurance policies taken out by the health insurers themselves. Because the money is paid out to the policy holding customer, say into their Health Savings Account, both they and the health insurer would effectively never have to bother with their having a pre-existing condition again, because it has already been accounted for. The same would be true if they were to change health insurers, where the new health insurer could afford to disregard the costs of their pre-existing condition because the customer's previous insurer had already covered it.

Believe it or not, one of the advantages of having the Obamacare death spiral underway is that the people still seeking Affordable Care Act health insurance coverage would constitute a high-risk pool - one that can be separated from the main bulk of the health insurance market making it possible for health insurers to offer lower cost insurance coverage to healthier Americans who were driven out of Obamacare because of skyrocketing premiums.

It certainly would be better than the situation we have today, where Obamacare premiums and costs to U.S. taxpayers can only rise because of the Affordable Care Act's inherent death spiral problem. We would expect it to be a major part of any legislation that might be introduced to repair Obamacare's multitude of defects.

At the time we wrote that, we were unaware that a few states, such as Minnesota, were about to try to use reinsurance pools as a way to stop Obamacare's health insurance premiums from continuing to skyrocket for their residents. Not quite the way that we described would be most optimal, but certainly enough to have an effect.

Data provided by the Urban Institute confirms that reinsurance pools work, not only stopping the death spiral of increasing health insurance premiums, but even reversing them. The following chart presents the Urban Institute's health insurance data for the average monthly insurance premiums of the lowest-cost "Silver" plan in Minnesota for each health insurance coverage year from 2014 through 2018.

Average Monthly Premiums for Lowest-Cost Silver Health Insurance Plan Available on Minnesota's Affordable Care Act Exchange, 2014 - 2018

The introduction of reinsurance pools in Minnesota, which came despite strong opposition from the state's Democratic party minority in the legislature and went on to pass into law without the signature of the state's Democrat governor, succeeded in reversing the rapid escalation of average health insurance premiums in the state, where they declined by nearly 15% in 2018.

Not quite achieving affordability at an average premium of $365 per month, but certainly an improvement over the average $429 monthly premium that preceded it in the year before the state's reinsurance pools came into existence, which reflected the death spiral effect catching up to Minnesota's Affordable Care Act health insurance premiums.

What will be interesting to see next is how other states might choose to add reinsurance pools to improve the affordability of health insurance premiums for their residents. It is certainly appears to be a step in a better direction.

References

The following articles, presented in chronological order, provide background on how Minnesota's reinsurance pools became law in the state.

Blotz, Tim. MNSure rebate and reform bill. KMSP. [Online Article]. 19 January 2017.

Montgomery, David. Minnesota lawmakers hope ‘reinsurance’ will help fix health insurance market. Here’s how it would work. Pioneer Press. [Online Article]. 19 January 2017.

Bauman, Christine. MN GOP Passes Healthcare Reinsurance Bill Through House. Alphanews. [Online Article]. 15 March 2017.

Pugmire, Tim. Senate passes plan to aid health insurers. MPR News. [Online Article]. 16 March 2017.

McCann, Bailey. Minnesota Passes Healthcare Reinsurance Bill. CivSource. [Online Article]. 3 April 2017.

Nelson, Peter. Minnesota's reinsurance program helps calm health care rates. Minneapolis Star Tribune. [Online Article]. 4 August 2017.

Political Calculations. Reinsurance. [Online Article]. 24 August 2017.

Dayton, Mark. Letter to Thomas E. Price, Secretary of U.S. Department of Health and Human Services. Governor, State of Minnesota. [PDF Document]. 19 September 2017. Note: Though Governor Dayton had opposed the reinsurance bill that became law, and refused to sign the bill directly into law, he recognized that it would be successful in reducing health insurance premiums in Minnesota, which is evident in the opening paragraphs of this September 2017 letter to Health and Human Services Secretary Tom Price, and which perhaps explains why he allowed the bill that he and his political party opposed to pass into law when he could otherwise have vetoed it.

Holahan, John, Blumberg, Linda J., and Wengle, Eric. Changes in Marketplace Premiums, 2017 to 2018. Urban Institute. [PDF Document]. 21 March 2018.

Ollove, Michael. To Curb Rising Health Insurance Costs, Some States Try ‘Reinsurance Pools’. Pew Charitable Trusts Stateline. [Online Article]. 9 April 2018.

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