Commonwealth Health Reinsurance Program
Funding the Commonwealth
Health Reinsurance Program
Bradley Marsh, BOI Health Insurance Policy Advisor
Health Insurance Reform Commission
April 18, 2023
Background
Reinsurance is a mechanism for spreading the costs of
expensive claims by pooling them together and paying for
them through a separate financing system so that insurers
do not have to price those costs into their standard
premiums.
2
Background
SCC was directed by VA Code
§
38.2-6606
to apply for a
State Innovation Waiver under
Section 1332 of the
Affordable Care Act to permit and help fund the reinsurance
program
Waiver application was submitted on December 30, 2021
On May 18, 2022, federal reviewers issued a
letter
approving
Virginia’s State Innovation Waiver application to establish the
Commonwealth Health Reinsurance Program (CHRP) for an
initial period of up to five years, beginning Plan Year (PY) 2023.
3
How does Reinsurance Work?
4
PY 2023 CHRP Payment Parameters
5
CHRP Program Funding
Federal
“pass-through” funding is provided for federal savings
from reduced premium tax credits (PTCs) due to lower health
insurance premiums.
Premium tax credits are designed to bring an individual’s premium
costs down to a percentage of the individual’s income.
Lower top-line premium costs reduce the amount of federal PTCs
needed.
Waiver provides funding in the amount of projected savings.
In this arrangement, Virginia’s estimated “State share” of
Reinsurance program funding is largely driven by individuals
purchasing health insurance coverage without PTCs
With no PTC savings to offset program cost, Virginia bears the full
fiscal cost of these individuals.
6
PY 2023 CHRP Program Funding
In August 2021, BOI’s contract actuary completed their first
actuarial analysis of Reinsurance program costs.
They used best available data to project enrollment, premium
costs, premium tax credits, and claims cost for PY 2023 to
estimate costs for 5, 10, 15 and 20% premium reductions.
BOI presented these scenarios to the bill patrons and money
committee members, who selected a Virginia program cost of
$68.63M (15% premium reduction target) that they believed the
GA would fund.
The waiver application was submitted based on this scenario.
7
Projected Reinsurance Program Funding
(2021 Estimate)
•
State share of the program costs will be paid from State General Funds.
•
Estimated state costs for PY 2023 range from $60.8M-$83.3M based on
scenarios of how membership, premium price, and medical costs are
impacted.
•
Because Reinsurance payments won’t be made until after the plan year is
over, appropriations occur in the following fiscal year.
8
Federal Tax Credit Enhancements
•
The federal American Rescue Plan Act (ARPA), passed
in March 2021 provided substantially larger advanced
premium tax credits (APTCs) to individuals purchasing
insurance in the ACA Marketplace.
•
Those under 400% of the FPL received enhanced payments
and those over 400% of FPL (formerly not eligible) received
payments to reduce their premium cost below 8.5% of their
income.
•
These enhanced payments were set to expire prior to
PY 2023, the first year of the proposed Virginia
Reinsurance program.
9
Federal Tax Credit Enhancements
•
Virginia was required to submit their waiver application
based on the law at the time.
•
Because of the high likelihood that these enhanced
PTCs might be continued through later federal
legislation, BOI’s contract actuary also provided an
estimate of the costs of the Reinsurance program if
these credits were continued.
•
These enhanced PTCs drastically reduced the
estimated state cost of the program to under $20M.
10
PY 2023 State Funding
•
To secure federal funding for PY 2023, the state share of
funding would need to be in the FY 2024 budget (biennium
second year).
•
During the 2022 GA session, money committee staff and
legislators were consulted about funding the (not yet
approved) Reinsurance program.
•
BOI staff advised of the uncertainty of the cost estimates and the
potential for reduced state costs if federal action extended the
ARPA PTCs.
•
At session end, neither the House nor Senate approved
budgets for FY 2023-FY2024 contained any Reinsurance
funding.
11
PY 2023 State Funding
•
On May 18, 2022, the Virginia 1332 Waiver application
was approved.
•
On June 22, 2022, 2022-2024 Biennial Budget passes
with $20 million in funding for Reinsurance.
•
August 2022 – Inflation Reduction Act signed into law,
continuing the ARPA PTC subsidies for three additional
years (2023-2025).
•
Once this occurred, BOI confirmed with federal regulators
that based on our alternate analysis, the $20 million would
constitute funding the “state share”
12
PY 2023 Reinsurance Program Impact
In August 2022, BOI presented the PY 2023 ACA individual
premiums.
Lower claims cost for insurers due to reinsurance reduced rates by
19.5%
Subsidized individuals on the Exchange see, on average,
minimal difference in out of pocket because their premium tax
credits (PTCs) are reduced in line with the reduction in premium
rates.
Unsubsidized individuals benefit from premium reduction
Uninsured individuals may be able to afford premiums
13
PY 2023 Reinsurance Cost Revision
In February 2023, BOI requested information from
Marketplace carriers on enrollment, claims, tax credits, and
plan metal levels to estimate costs associated with different
reinsurance payment parameters for PY 2024.
Marketplace enrollment figures for PY 2022 and early PY
2023 showed substantial unexpected growth versus the
estimates from 2021.
Estimated 2023 enrollment increased 17% over the original model.
Estimates of enrollees not receiving PTCs increased 49% over the
original model.
14
PY 2023 Reinsurance Cost Revision
The actuarial model produces a best estimate along with a
range of variations based on changes in the underlying
assumptions.
Non-PTC Enrollees have a substantial effect on the estimated
state cost of the program as the state receives no pass-through
funding based on these individuals.
The PY 2023 model produced in 2021 that included the
enhanced PTCs estimated that the state cost increases 24%
($4.8M) for a 10% increase in non-PTC enrollees
The current model estimates non-PTC enrollees to be 48% higher than
the 2021 model of PY 2023 based on trends.
15
PY 2023 Reinsurance Cost Revision
Based on the model updated with actual market experience, the
state share of the PY 2023 Reinsurance program is estimated
to be around $43 million.
True program costs will be based on actual claims for enrollees
whose claims exceed the attachment point.
We will not have final program cost numbers until early June 2024
when the final federal report on claims cost for PY 2023 is available.
16
Setting PY 2024 Parameters
•
CHRP parameters were set for PY 2023 at the points
indicated in slide 5 based on our waiver application.
•
For PY 2024, SCC must establish and publish payment
parameters by May 1, 2023
•
SCC to consider the following factors when setting
parameters
•
Premium rates
•
Individual market participation
•
Improved healthcare outcomes
•
Impact of high-risk individuals on rates
•
Funding availability
17
PY 2024 Reinsurance Cost
As a result of these changes in Virginia’s health insurance
landscape, state cost estimates for the PY 2024 Reinsurance
program are more in line with these higher revised PY 2023
estimates than the estimates created prior to program approval.
18
PY 2024 Reinsurance State Cost
•
5% premium reduction - $36.5-64.9M
•
10% premium reduction - $39.7-75.5M
•
15% premium reduction - $45.4-89.3M
•
20% premium reduction - $43.4-98.8M
19
PY 2024 Reinsurance State Cost
•
Subsidized individuals see minimal difference in out of pocket
because their premium tax credits (PTCs) are reduced in line
with the reduction in premium rates.
•
Non-PTC individuals are expected to move onto the Exchange
from off-exchange plans or being uninsured because they
benefit the most from premium reduction.
•
Some individuals may be unaware of enhanced tax credits which are
available to individuals above 400%, unlike before.
•
Reductions in premium due to reinsurance may dilute the value of the
PTCs
20
Summary
•
Nature of the Reinsurance program requires cost estimates far
in advance of expenditures.
•
Estimates have ranges and are affected by changes to underlying
projections about enrollment, claims, and premiums.
•
Federal policy changes and drastic enrollment changes since
2021 have affected estimates of Reinsurance program costs for
plan years 2023 and 2024.
•
Extension of enhanced federal PTCs lowered estimated state program
costs
•
Increase in overall ACA enrollment and non-PTC enrollment increased
estimated state program costs
•
PY 2024 Reinsurance parameters must be published by May 1,
2023
21
Reinsurance is crucial in pooling costs of expensive claims, avoiding premium hikes. Virginia's State Innovation Waiver approved the Commonwealth Health Reinsurance Program that benefits from federal pass-through funding. Explore how reinsurance works and the payment parameters for PY 2023.
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Presentation Transcript
Funding the Commonwealth Health Reinsurance Program Bradley Marsh, BOI Health Insurance Policy Advisor Health Insurance Reform Commission April 18, 2023
Background Reinsurance is a mechanism for spreading the costs of expensive claims by pooling them together and paying for them through a separate financing system so that insurers do not have to price those costs into their standard premiums. 2
Background SCC was directed by VA Code 38.2-6606 to apply for a State Innovation Waiver under Section 1332 of the Affordable Care Act to permit and help fund the reinsurance program Waiver application was submitted on December 30, 2021 On May 18, 2022, federal reviewers issued a letter approving Virginia s State Innovation Waiver application to establish the Commonwealth Health Reinsurance Program (CHRP) for an initial period of up to five years, beginning Plan Year (PY) 2023. 3
How does Reinsurance Work? Reinsurance Cap Issuer is responsible for all claim costs over this amount Claims Eligible for Reinsurance Coinsurance Rate Issuer is paid a portion of claims cost within the Reinsurance band Attachment point Issuer is responsible for all claim costs up to this amount 4
PY 2023 CHRP Payment Parameters Reinsurance Cap Issuer is responsible for all claim costs over this amount $155,000 These amounts are total annual medical expenditures on any covered individual for 2023 Claims Eligible for Reinsurance Coinsurance Rate Issuer is paid a portion of claims cost within the Reinsurance band Coinsurance Rate = 70% Attachment point Issuer is responsible for all claim costs up to this amount $40,000 5
CHRP Program Funding Federal pass-through funding is provided for federal savings from reduced premium tax credits (PTCs) due to lower health insurance premiums. Premium tax credits are designed to bring an individual s premium costs down to a percentage of the individual s income. Lower top-line premium costs reduce the amount of federal PTCs needed. Waiver provides funding in the amount of projected savings. In this arrangement, Virginia s estimated State share of Reinsurance program funding is largely driven by individuals purchasing health insurance coverage without PTCs With no PTC savings to offset program cost, Virginia bears the full fiscal cost of these individuals. 6
PY 2023 CHRP Program Funding In August 2021, BOI s contract actuary completed their first actuarial analysis of Reinsurance program costs. They used best available data to project enrollment, premium costs, premium tax credits, and claims cost for PY 2023 to estimate costs for 5, 10, 15 and 20% premium reductions. BOI presented these scenarios to the bill patrons and money committee members, who selected a Virginia program cost of $68.63M (15% premium reduction target) that they believed the GA would fund. The waiver application was submitted based on this scenario. 7
Projected Reinsurance Program Funding (2021 Estimate) PY 2022 PY 2023 PY 2024 PY 2025 PY 2026 PY 2027 $0.00 $292.50 $308.50 $325.70 $343.80 $362.90 $0.00 $223.90 $244.50 $258.40 $273.10 $288.60 $0.00 $68.60 $64.00 Cost of Reinsurance Program (millions) Federal Pass Through Funding (millions) State Funding (millions) $67.30 $70.70 $74.30 State share of the program costs will be paid from State General Funds. Estimated state costs for PY 2023 range from $60.8M-$83.3M based on scenarios of how membership, premium price, and medical costs are impacted. Because Reinsurance payments won t be made until after the plan year is over, appropriations occur in the following fiscal year. 8
Federal Tax Credit Enhancements The federal American Rescue Plan Act (ARPA), passed in March 2021 provided substantially larger advanced premium tax credits (APTCs) to individuals purchasing insurance in the ACA Marketplace. Those under 400% of the FPL received enhanced payments and those over 400% of FPL (formerly not eligible) received payments to reduce their premium cost below 8.5% of their income. These enhanced payments were set to expire prior to PY 2023, the first year of the proposed Virginia Reinsurance program. 9
Federal Tax Credit Enhancements Virginia was required to submit their waiver application based on the law at the time. Because of the high likelihood that these enhanced PTCs might be continued through later federal legislation, BOI s contract actuary also provided an estimate of the costs of the Reinsurance program if these credits were continued. These enhanced PTCs drastically reduced the estimated state cost of the program to under $20M. 10
PY 2023 State Funding To secure federal funding for PY 2023, the state share of funding would need to be in the FY 2024 budget (biennium second year). During the 2022 GA session, money committee staff and legislators were consulted about funding the (not yet approved) Reinsurance program. BOI staff advised of the uncertainty of the cost estimates and the potential for reduced state costs if federal action extended the ARPA PTCs. At session end, neither the House nor Senate approved budgets for FY 2023-FY2024 contained any Reinsurance funding. 11
PY 2023 State Funding On May 18, 2022, the Virginia 1332 Waiver application was approved. On June 22, 2022, 2022-2024 Biennial Budget passes with $20 million in funding for Reinsurance. August 2022 Inflation Reduction Act signed into law, continuing the ARPA PTC subsidies for three additional years (2023-2025). Once this occurred, BOI confirmed with federal regulators that based on our alternate analysis, the $20 million would constitute funding the state share 12
PY 2023 Reinsurance Program Impact In August 2022, BOI presented the PY 2023 ACA individual premiums. Lower claims cost for insurers due to reinsurance reduced rates by 19.5% Subsidized individuals on the Exchange see, on average, minimal difference in out of pocket because their premium tax credits (PTCs) are reduced in line with the reduction in premium rates. Unsubsidized individuals benefit from premium reduction Uninsured individuals may be able to afford premiums 13
PY 2023 Reinsurance Cost Revision In February 2023, BOI requested information from Marketplace carriers on enrollment, claims, tax credits, and plan metal levels to estimate costs associated with different reinsurance payment parameters for PY 2024. Marketplace enrollment figures for PY 2022 and early PY 2023 showed substantial unexpected growth versus the estimates from 2021. Estimated 2023 enrollment increased 17% over the original model. Estimates of enrollees not receiving PTCs increased 49% over the original model. 14
PY 2023 Reinsurance Cost Revision The actuarial model produces a best estimate along with a range of variations based on changes in the underlying assumptions. Non-PTC Enrollees have a substantial effect on the estimated state cost of the program as the state receives no pass-through funding based on these individuals. The PY 2023 model produced in 2021 that included the enhanced PTCs estimated that the state cost increases 24% ($4.8M) for a 10% increase in non-PTC enrollees The current model estimates non-PTC enrollees to be 48% higher than the 2021 model of PY 2023 based on trends. 15
PY 2023 Reinsurance Cost Revision Based on the model updated with actual market experience, the state share of the PY 2023 Reinsurance program is estimated to be around $43 million. True program costs will be based on actual claims for enrollees whose claims exceed the attachment point. We will not have final program cost numbers until early June 2024 when the final federal report on claims cost for PY 2023 is available. 16
Setting PY 2024 Parameters CHRP parameters were set for PY 2023 at the points indicated in slide 5 based on our waiver application. For PY 2024, SCC must establish and publish payment parameters by May 1, 2023 SCC to consider the following factors when setting parameters Premium rates Individual market participation Improved healthcare outcomes Impact of high-risk individuals on rates Funding availability 17
PY 2024 Reinsurance Cost As a result of these changes in Virginia s health insurance landscape, state cost estimates for the PY 2024 Reinsurance program are more in line with these higher revised PY 2023 estimates than the estimates created prior to program approval. 18
PY 2024 Reinsurance State Cost 5% premium reduction - $36.5-64.9M 10% premium reduction - $39.7-75.5M 15% premium reduction - $45.4-89.3M 20% premium reduction - $43.4-98.8M 19
PY 2024 Reinsurance State Cost Subsidized individuals see minimal difference in out of pocket because their premium tax credits (PTCs) are reduced in line with the reduction in premium rates. Non-PTC individuals are expected to move onto the Exchange from off-exchange plans or being uninsured because they benefit the most from premium reduction. Some individuals may be unaware of enhanced tax credits which are available to individuals above 400%, unlike before. Reductions in premium due to reinsurance may dilute the value of the PTCs 20
Summary Nature of the Reinsurance program requires cost estimates far in advance of expenditures. Estimates have ranges and are affected by changes to underlying projections about enrollment, claims, and premiums. Federal policy changes and drastic enrollment changes since 2021 have affected estimates of Reinsurance program costs for plan years 2023 and 2024. Extension of enhanced federal PTCs lowered estimated state program costs Increase in overall ACA enrollment and non-PTC enrollment increased estimated state program costs PY 2024 Reinsurance parameters must be published by May 1, 2023 21
