Decisions needed on health reinsurance

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It wasn’t yet time to put a stop to a stopgap state program that has helped lower health insurance premiums in Minnesota since 2018.

Fortunately, Minnesota lawmakers agreed, with end-of-session dealmaking sensibly yielding a one-year extension of the pioneering “reinsurance” program. But next year, legislators need to look hard at putting an expiration date on what was supposed to be a short-term solution for sharp price increases in the individual health insurance market.

If lawmakers won’t do that, then funding alternatives should be considered to reduce the program’s reliance on state dollars.

Legislators passed reinsurance in 2017 in response to steep rate increases in the individual health insurance market after the Affordable Care Act’s launch. This market serves about 167,000 Minnesotans who buy private coverage on their own instead of getting it through an employer or from a public program.

Since it went into effect in 2018, it has effectively lowered individual market insurance premium rates 20% each year from what they otherwise would have been, according to the state Department of Commerce. The program, championed by Minnesota Republicans and supported by the Editorial Board, has helped stabilize this narrow but important market.

But reinsurance comes with trade-offs. It uses public funds to help pay the medical costs of private health insurance enrollees who require a lot of medical care. Once an enrollee’s annual medical care bills fall between $50,000 and $250,000, the reinsurance program covers 80% of the cost. Insurance companies pay the remaining 20%, though they’re once again on the hook for 100% of the costs once the bill tops $250,000.

Yes, this can add up to substantial sums. In 2019, it was about $150 million. In 2020, it came to $160 million. The program relies on a mix of federal and state funding.

Reinsurance also has a lesser-known cost. Its existence lowers the amount of federal funding the state receives for MinnesotaCare, which helps those who make too much to qualify for medical assistance but too little to comfortably afford private insurance.

The connection is complex, but the federal aid formula for MinnesotaCare is tied to the cost of private insurance, and lower rates reduce federal dollars for the program. The Commerce Department estimates a loss of about $100 million a year.

The Biden administration will hopefully fix this. That said, it’s still time to consider reinsurance’s future. A key question centers on newly expanded eligibility for Affordable Care Act aid that instantly discounts monthly premiums. This aid would offset consumer costs if reinsurance ended and premiums went up. This new assistance is in place for two years but may be made permanent.

The University of Minnesota’s Lynn Blewett has identified another critical question: Who should shoulder reinsurance’s cost? Blewett, a School of Public Health professor, notes that 15 states have reinsurance programs. In 12 of them, the primary funding mechanism is an assessment on insurance premiums. Blewett said lawmakers should consider leaning more on the industry that benefits from reinsurance to provide for the state’s share of the costs.

The one-year extension agreed by lawmakers and the Walz administration smartly steered clear of an abrupt end to the program and included a reasonable change: The state program will now cover 60%, not 80%, of enrollees’ medical costs between $50,000 and $250,000. That could be the start of a tapered end to the program.

Lawmakers in 2022 should come prepared to take a deep dive into what’s next for reinsurance in Minnesota.

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