Minnesota Lawmakers Hope ‘Reinsurance’ Will Help Fix Health Insurance Market
Jan. 20--Melody Camp describes her son Bryant as a "normal kid," but the 16-year-old Woodbury student also has "a lot of things going on" -- things that can get very expensive.
"You're probably looking at thousands, thousands and thousands of dollars just for his care," said Camp. Bryant is on the autism spectrum and needs painstaking work from multiple specialists to learn basic living tasks like brushing his teeth or taking a shower on his own.
Finding how to pay for expensive medical care like Bryant's therapy, or chemotherapy, or heart medication, isn't just a struggle for the Camps as they max out their credit cards just to afford a small amount of the care they think Bryant needs.
It's a problem facing the entire state of Minnesota (and the rest of the country):
* The 298,000 Minnesotans buying individual insurance in 2015 had average medical bills of around $5,300 for the year.
* But just over 6,000 of those people had more than $50,000 in medical bills in 2015.
* Combined, these 6,000 people accounted for more than $600 million in total 2015 medical bills -- 40 percent of the entire $1.6 billion market from just 2 percent of its members.
* Insurance is about spreading the risk around. That means the other 292,000 members of the market have to pay higher premiums to cover the cost of those 6,000 people -- much, much higher premiums.
* Premiums in Minnesota's individual market rose by more than 50 percent this year, and can reach more than $2,000 per month for some Minnesota families.
"The question is, how do we share that?" said Jim Schowalter, president of the Minnesota Council of Health Plans, at a recent legislative hearing. "How do we find a way to broadly share the cost of care?"
This isn't an impossible task -- though it won't be a cheap task, either.
There are a number of tools Minnesota leaders could use to protect the market from the necessary but expensive costs of caring for people such as Bryant.
But the focus right now is on one particular proposal: "reinsurance." Here is how this idea would work, what effect it would have on Minnesotans' premiums, and the odds that Minnesota's divided government will pass it this year:
HOW REINSURANCE WORKS
Reinsurance, at its most basic, is insurance for insurance companies. Just like normal insurance distributes risk from individuals to a broader pool of people, reinsurance distributes risk away from a given insurance company.
More specifically, the kind of plan Minnesota is considering would shift the costs of some expensive patients away from the individual market.
"It's a mechanism to stabilize the market, (and) ultimately keep premiums down for consumers," said Mike Rothman, Minnesota's commerce commissioner.
Either way, insurers on the individual market would see millions of dollars in costs removed from their books -- and, theoretically, they would lower their prices to compensate.
Perhaps even more importantly than saving insurers and consumers money could be the impact it has on the marketplace as a whole. If premiums get too high, it can cause a "death spiral," where healthy people skip out on insurance altogether and leave only the sick people behind. To avoid getting stuck with these losses, insurers pull out of the market altogether.
Rothman and Schowalter have both warned that Minnesota could see just this sort of market collapse in 2018 if nothing's done to stabilize the marketplace. Reinsurance could be one such stabilization tool.
But time is running out. In just a few months, insurers will file their proposed 2018 rates. They say they need to know if Minnesota will have a reinsurance plan by March for it to affect their decisions.
WHAT IMPACT WOULD REINSURANCE HAVE?
When the federal government tried a reinsurance program in recent years, it had a significant impact: Nationwide premiums were lowered by as much as 15 percent at the program's peak.
That's why state Sen. Michelle Benson, R-Ham Lake, and state Rep. Joe Hoppe, R-Chaska, are trying to mimic that federal program in their proposals for a Minnesota reinsurance program.
The Minnesota Department of Commerce estimated that Benson's proposal would reduce Minnesota premiums next year by 10 percent to 12 percent.
A differently designed reinsurance program, just implemented by Alaska, may have had even more dramatic results.
Before that program was set up, Alaska was projected to have 40 percent rate increases. Instead, Alaska's premiums went up by just 7.3 percent.
But how effective reinsurance is at lowering rates depends on how it's designed.
The nonpartisan Medicare Payment Advisory Commission criticized another federal reinsurance program for Medicare Part D as "less successful at cost containment" because it was too generous. That program paid 80 percent of seniors' prescription drugs over an annual threshold -- thus leaving little incentive for insurers to save costs by steering their customers to generic drugs, for example.
DIFFERENT APPROACHES
The system used by the federal government and Benson and Hoppe is based around the idea of a cost window.
Under this system, insurers and patients pay all medical costs for a given patient up to a certain dollar figure each year ($70,000 in Benson's plan). After that point, the reinsurance program pays a percentage of the patient's total costs (50 percent in this case) until a cutoff point ($250,000 for Benson). Any costs above that cutoff point are paid by the insurers.
The idea is to absorb a lot of high-cost patients' bills -- but to leave insurers on the hook, too, to encourage cost-saving.
This isn't the only way to structure reinsurance. Alaska's reinsurance program doesn't use a cost window. Instead, it has the state absorb the cost of care for people with certain pre-existing conditions. It saw dramatic decreases in proposed premiums, but it might be more complicated and expensive to administer.
Gov. Mark Dayton will propose his own solutions to stabilize the 2018 marketplace in his State of the State address Monday. Rothman said the governor is considering a reinsurance plan, but wouldn't say which model Dayton might back.
"We're taking a look at both of those models, as well as maybe hybrid approaches," Rothman said.
HOW TO PAY FOR IT
Absorbing the costs of these high-cost patients isn't cheap.
To achieve the 10 to 12 percent premium reduction estimated for Benson's plan, the state would have to spend an estimated $150 million, a preliminary estimate released by the state's Management and Budget Office says.
That could go higher or lower, depending on where a final law sets the cost window and the state's share.
Alaska is spending an estimated $55 million this year to cover just 500 people with high-cost conditions.
So where would Minnesota get this money?
One way to do that is for the state to simply pay those costs from taxes -- either from the state's general fund, or from the separate Health Care Access Fund, which has more than $600 million.
As another option, the state could also spread the cost over the much broader insurance market -- making health insurance on the individual market much cheaper in exchange for making everyone else's insurance slightly pricier.
"We are open to negotiations on a funding source," said Benson, who initially proposed reinsurance funded by an assessment on the insurance market before changing it to tax money.
CONCERNS AND OBSTACLES
Minnesota would be just the second state to adopt a reinsurance program if it sets one up this year, after Alaska.
If it successfully lowers premiums, though, this could have an unintended consequence: reducing the amount of federal subsidies flowing to Minnesota's individual market under the Affordable Care Act.
Those subsidies increase when premiums rise -- so lowering premiums would lower the subsidies to Minnesotans.
"We are supplanting state dollars for dollars that will ultimately flow from the federal government," said Sen. Tony Lourey, DFL-Kerrick, in a floor debate earlier this month. "It is close to a dollar-for-dollar tradeoff."
Minnesota could dodge this if the federal government agrees not to penalize Minnesota's subsidies for a successful reinsurance program. All the plans Minnesota leaders are proposing would make just such a request, but it could take months to get an answer.
That would give lawmakers a choice as they race to craft a reinsurance proposal by March: do they forge ahead with reinsurance knowing that a future federal decision could undo much of its benefit? Or do they put a clause into the law letting reinsurance happen only if the feds grant Minnesota its waiver?
The federal government could alter a Minnesota reinsurance program in another way: if Congress passes its own program to stabilize the 2018 market. That would leave Minnesota with a duplicative program.
Dayton has urged Congress to adopt a national reinsurance program, but is more cautious about committing Minnesota money to set up its own plan.
WILL IT PASS?
Though all sides in Minnesota's divided government say they want to stabilize the 2018 market and are open to reinsurance as the solution, enough differences remain that could keep it from becoming law.
Relatively minor differences have held up another health insurance relief package that all sides say is a top priority for weeks.
Reinsurance could also get blocked if lawmakers go in a different direction entirely. There are a number of other approaches that could also stabilize Minnesota's insurance market, such as a program called "risk adjustment" that moves money from insurers with healthier customers to insurers with sicker customers.
Many Democrats also like another proposed solution: creating a "public option" for Minnesotans by letting more people into the state-run MinnesotaCare program. That's fiercely opposed by both Republicans and insurance companies.
Leaders on both sides say they're open to giving ground.
"I'll negotiate with legislative leaders on both sides of the aisle, both bodies, a reform bill including reinsurance for 2018 and beyond," Dayton said earlier this month.
Though Benson has pushed reinsurance, she said she's open to other ideas.
"It's not so much about reinsurance, it's about a market-stabilization tool," Benson said. "If we can put in $150 million in another way and it has a bigger impact on premiums, I am happy to do that."
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