The individual market is an important source of coverage for a significant segment of the population, and as we discussed in a prior post, keeping coverage affordable in this market is a key challenge for issuers and policymakers. The Trump Administration recently published the State Relief and Empowerment Waiver Guidance.[i] The guidance provides greater flexibility to states to meet the state legislative authority requirement under the section 1332 of the Affordable Care Act (ACA).
We created an Excel-based tool to help policymakers and other interested parties understand the approximate cost and potential benefit of implementing a 1332 waiver-based solution to the problem of what for many are unaffordable premiums in the ACA, non-group market. This tool can be used as an aid in estimating pass-through savings from the federal government under a simplified set of assumptions regarding various reinsurance scenarios. Examples of the scenarios that can be modeled using this tool are as follows:
A state has $50 million available annually, say from its general revenues, that it can make available to lower premiums in the non-group, ACA market. How much pass-through funding would the state receive from the federal government if it were to use that $50 million to implement a reinsurance-based program, and how much would average premiums decrease?
A state would like to reduce average premiums in its ACA market by 10% in 2021. What would the total cost of this program be, and of this amount, what would be the state’s share?
- A state would like to implement a reinsurance program in the individual ACA market in 2020, and would like to create a program to fund $100 million in reinsurance claims. How much of the $100 million would the state be responsible for, how much of this could be funded with pass-through savings, and by how much would premiums be expected to decline?
We tested our calculator tool by estimating the federal pass-through funding for 2018 in the states of Alaska, Minnesota, Oregon, and for 2019 in Maine, Maryland, New Jersey, and Wisconsin, using the default values in our tool and comparing the output of the tool to estimates in these states’ 1332 waiver applications. As shown in the below table, the difference between the estimates from our tool and the states’ waiver applications varies from -15.6% to +7.4%, except in Maine and Oregon. In Oregon, our calculator tool estimates the federal pass-through at $53.3 million, about 62% higher than the state’s waiver application. We note that the actual 2018 federal pass-through payments Oregon received from the federal government total $54.5 million,[i] which is more in line with the estimate from our tool than the waiver application.
Our Maine pass-through estimate at $69.7 million is more than double what was included in the state’s waiver application. This is primarily due to the state’s Medicaid expansion that will occur in 2019. Our tool uses data from the 2018 open enrollment period, so Maine’s 2019 expansion of Medicaid is not reflected in the tool nor in the resulting estimates. The example in Maine highlights the importance of setting the assumptions as closely as possible to the actual market conditions when running the model. For the most accurate estimates, we recommend revising assumptions with the guidance of an experienced actuary.
Estimates of pass-through funding – Oliver Wyman Pass-Through Waiver Tool Compared to States’ Waiver Applications (Millions)
State |
Year |
Reinsurance Program Dollars |
Federal Pass-Through Estimate |
Pass-Through Funding Estimated in the Calculator Tool |
Difference |
AK[i] |
2018 |
$60.0 |
$49.0 |
$45.7 |
-6.7% |
ME[ii] |
2019 |
$89.7 |
$33.4 |
$69.7 |
+108.7% |
MD[iii] |
2019 |
$462.0 |
$304.0 |
$326.3 |
+7.4% |
MN[iv] |
2018 |
$271.0 |
$130.7 |
$110.3 |
-15.6% |
NJ[v] |
2019 |
$323.7 |
$218.0 |
$207.3 |
-4.9% |
OR[vi] |
2018 |
$90.0 |
$32.9 |
$53.3 |
+62.0% |
WI[vii] |
2019 |
$200.0 |
$166.0 |
$148.7 |
-10.4% |
This tool is not a replacement for actuarial expertise, nor will it produce the information required to complete a 1332 waiver application. Our hope is that it helps states in their planning efforts and in understanding the approximate cost and benefits of implementing a 1332 waiver program.
[i] Estimated Reinsurance and APTCs saving in 2018 in AK, Table 1 on Page103, Attachment 3:
[ii] Estimated Reinsurance payments and Federal Pass-Through Funding in 2019, Figure 3 and I-2A of the Actuarial Analyses:
https://www.maine.gov/pfr/insurance/mgara/Complete Maine 1332 Waiver Application and Exhibits.pdf
[iii] Estimated Reinsurance and Net Federal Savings in 2019, Tables 1 and Table 6 Best Estimate of the Actuarial Analysis:
[iv] Estimated Reinsurance and Federal Premium Tax credit saving in 2018 in MN, Table A-1 on page 7 of the Actuarial Analysis:
[v] Estimated cost of the Reinsurance Program and the Net savings to the Federal Government in 2019 in NJ, Table 1 on page 5 of the New Jersey 1332 Waiver Application:
https://www.state.nj.us/dobi/division_insurance/section1332/180702finalwaiverapplication.pdf
[vi] Estimated Reinsurance and Federal Premium Tax credit saving in 2018 in OR, Best Estimate in Table 1 on page 2 of the 1332 Draft Waiver Application:
https://healthcare.oregon.gov/DocResources/1332-application.pdf
[vii] Estimated WIHSP total cost and federal pass through rate for 2019 on page 3 of the Wisconsin 1332 Waiver Application:
https://oci.wi.gov/Documents/Regulation/WI 1332 Waiver Application and All Attachments.pdf
