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Reinsurance Program Promotes Market Stability And Lower Premiums For Consumers

posted by AHIP

on February 23, 2016

The Affordable Care Act (ACA) established a transitional reinsurance program, which is designed to protect consumers and promote stability in the individual health insurance market. By offsetting some of the cost of individuals with high medical expenses, the temporary program worked to mitigate disruption to consumers in the early years of health reform implementation (2014-2016).  Similar risk-sharing programs have been successfully implemented in other health care programs—including private plans that serve Medicare beneficiaries, like the popular Medicare Part D program.

  • Health plans finance the reinsurance program through annual assessments. The ACA reinsurance program does not rely on general revenues or taxpayer dollars to fund its operations. Health plans contribute a set amount of money for each year the program is in operation based on insurance coverage in the individual and group marketplaces. The amount of assessments to be collected and used to pay reinsurance payments, as directed by the statute and implementing regulations, was $10 billion in 2014, $6 billion in 2015, and $4 billion in 2016. In addition, insurers are responsible for funding the program’s administrative costs though user fee assessments totaling an estimated $77 million from 2014-2016.
  • The program is a temporary initiative (2014-2016) to promote market stability during the initial years of ACA implementation.  The transitional reinsurance program ends in 2016.The program works in conjunction with the permanent risk-adjustment program and temporary risk corridors program to promote a level playing field and affordable coverage for those with chronic medical conditions.
  • The reinsurance program is working as intended. According to official estimates from the U.S. Department of Health and Human Services, the reinsurance program reduced premiums in the individual market by 10 percent to 15 percent as compared to what they would have been without the reinsurance program. Similarly, leading actuarial firms credited the reinsurance program with reducing premiums by between 6 percent and 12 in 2014.

For more information on the reinsurance program, click here.