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Reinsurance stabilizes rates, but Md. leaders now for permanent fixes

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Del. Joseline Peña-Melnyk, D-Prince George’s and Anne Arundel, sponsored the reinsurance program in the House of Delegates this year. (Bryan P. Sears)

ANNAPOLIS — Maryland’s governor and legislative leaders Wednesday celebrated the federal government’s approval of a reinsurance program, praising the bipartisan manner in which they acted and making good-humored jokes about their age.

But they also described the reinsurance proposal as a stopgap measure to stabilize Maryland’s individual market, foreshadowing a fall that will be spent considering how the state can best bring down premiums that have priced many families out of health insurance.

“Nobody has ever addressed this problem properly and we had to do it ourselves,” Gov. Larry Hogan said. “But whether we can change the whole health care system in our country and bring rates down is a little more challenging. We’re just happy we’ve been successful in getting to this point.”

Maryland became the seventh state to receive federal approval to start a reinsurance program. With up to $380 million of state funding and an estimated federal match of 59 percent, Maryland will have the largest reinsurance pool.

The expectation is that the reinsurance pool will offset premium increases that the two insurers on the state’s individual exchange have asked for this year. CareFirst BlueCross BlueShield and Kaiser Permanente have asked to raise their premiums by an average of 30 percent.

Bringing down the rates

The reinsurance program has been seen as a stabilizing option, meaning it will serve to prevent the type of double-digit rate increases that have become common on the individual market.

But for many, premiums remain too high to actually purchase insurance and some people in Maryland have chosen to go without coverage. Most of these people fall in the income bracket where they make too much to qualify for subsidies that help pay for their insurance. Without subsidies, it has been estimated that under current rate requests a family of four would pay half of their after-tax income to buy health insurance.

Lawmakers and other stakeholders acknowledge the issue and hope that the reinsurance program, which has been approved for five years, has bought them time to consider a new plan while reinsurance holds rates in place rather than rising so high the entire market collapses.

Hogan expressed a skeptical hope that the federal government could find a solution that would cut the rates.

At the state level, a legislature-created Health Insurance Coverage Protection Commission will meet in September for the first time this year to begin considering what plans the state may turn to in order to reduce premiums. The commission met last year, but reinsurance was their only proposal to pass the legislature.

The commission’s proposals for 2019 are due this December.

Del. Joseline Peña-Melnyk, D-Prince George’s and Anne Arundel, sponsored the reinsurance program in the House of Delegates this year and co-chairs the commission. She said all options are on the table for the commission.

The commission will take a look at plans including a Medicaid buy-in proposal, a basic health plan, and merging the individual and small group markets as Massachusetts, Vermont and Washington, D.C., have done.

“We have a lot of different options because we do want a permanent solution,” Peña-Melnyk said.

Democratic candidate for governor Ben Jealous supports a Medicare-for-all proposal that has become popular in the national party’s liberal wing.

“While today’s announcement creates a stopgap for many Marylanders, we still need a long-term plan to bring down health care costs for everyone,” he said in a statement. “That’s why I will bring people together to create a Medicare-for-All system that guarantees high-quality and affordable health care to every Marylander, and brings down prescription-drug prices, especially for our seniors.”

But some members of the commission prefer to work on solutions that do not need federal approval.

Vincent DeMarco, president of the Maryland Citizens’ Health Initiative and a member of the commission, has proposed instituting a statewide individual mandate, to replace the federal penalty that was zeroed out in last year’s tax legislation. His proposal would allow people to apply the penalty towards purchasing health insurance. It did not pass the legislature last year.

“(Reinsurance) is a tremendous short-term fix for the problem of skyrocketing premiums on the exchange,” DeMarco said. “But, we need to do more. One of the main things we need to do about it is the health insurance down-payment bill.”

How reinsurance works

With a reinsurance program, insurers can pass off some of the costs of expensive claims to the reinsurance pool. That saves the insurer money on high-risk patients and allows them to keep premium payments lower for everyone.

On the individual market, the carriers have found that sicker people tend to take up a significant portion of the claims they pay out while making up a small portion of the total pool.

Hogan said he believed reinsurance could make Maryland’s market more attractive to more insurers. Al Redmer, the state insurance commissioner, said he has been negotiating with several carriers, but nothing will be done for the 2019 plan year.

Many of the details of how the reinsurance program runs will be worked by the Maryland Health Benefit Exchange, the agency responsible for the running the pool.

The program will be funded by a combination of a state assessment on health insurers, garnering an estimated $380 million, and federal pass-through money, that would be money the federal government saves in subsidies because Maryland’s premiums are lower than they otherwise would have been because of reinsurance.

That assessment on insurers comes in lieu of a federal assessment on health insurers that was set aside as part of last year’s tax legislation. But that assessment was only set aside for 2019.

Lawmakers hope that the assessment continues to be set aside so the state can continue to levy it on insurers to pay for reinsurance. For 2019, the assessment had no impact on premiums because insurers expected to pay it federally and included it in their rate calculations.

CareFirst believes that with reinsurance, it could be able to decrease premiums for 2019.

“We are encouraged by CMS’s approval of Maryland’s 1332 waiver application,” Brian Pieninck, CareFirst’s CEO, said in a statement. “This was a critical step in the ongoing effort to ensure that Maryland residents who seek and rely on coverage in the individual market will have access to more affordable premiums.”

But one detail the health exchange will have to look at is whether the reinsurance will work in conjunction with the Affordable Care Act’s risk adjustment program to end up providing double payments to some carriers at a penalty to others.

Kaiser has expressed concern about this throughout the process and reiterated those concerns Wednesday.

“We support the state’s efforts to stabilize the individual market, and we support a reinsurance program that benefits all Marylanders equally,” Kaiser said in a statement. “That’s why Kaiser Permanente believes Maryland’s reinsurance program should include an adjustment for the entire amount of double payments that was identified in the Wakely analysis. Eliminating the entire amount of double payments will benefit the most Marylanders, maximize the use of federal dollars and optimize the market stabilization effect of the reinsurance program.”

Correction: A previous version of this article incorrectly contextualized Vincent DeMarco’s position. He supports the state finding solutions that do not need federal approval.


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