On July 11, the federal government announced approval of Alaska’s waiver request under Section 1332 of the Patient Protection and Affordable Care Act for funding in support of the Alaska Reinsurance Program (ARP). The ARP is credited for holding premium increases in the state to 7.3% in 2017, and preventing the withdrawal of the state’s lone individual market insurer. By approving the waiver, the federal government has agreed to commit an estimated $48 million to the ARP in 2018, and $323 million in total through 2022.
Alaska is the first state to receive a Section 1332 waiver to support a state reinsurance program. The federal government has released a checklist to aid in application for such waivers. Minnesota filed a similar waiver on May 30 and several other states have secured legislative authority to pursue reinsurance-based waivers as well.
The Alaska Insurance Market: The Alaska health insurance market has long faced challenges due to the state’s vast but sparsely populated geography and a concentrated provider market. Over time, Alaska has faced deterioration in its individual market. By the run-up to plan year 2017, all but one of the state’s insurers had left the individual market. And the lone remaining insurer, Premera Blue Cross, predicted premium increases of 42%.
In response, Alaska passed HB 374 in July 2016 to create the ARP, and appropriated $55 million in state funding for its operations in 2017. Alaska credits the reinsurance program for reducing Premera’s rate increase to 7.3%. That bill also authorized state officials to pursue a Section 1332 waiver seeking federal funding for the ARP.
The Alaska Reinsurance Program: Alaska has projected that the ARP’s reinsurance mechanism will continue to stabilize premiums in the individual market and maintain enrollment by financing the highest-cost enrollees while allowing them to have the same plan choices at the same rates as all other enrollees—the so-called invisible risk pool approach.
From a 2017 baseline average rate of $947 per month per member (PMPM), Alaska’s calculations indicate the ARP will hold the average monthly premium in 2018 to $953, significantly lower than the projected $1,191 without a waiver. These effects are projected to increase through 2026 (the last year of projection), when premiums are predicted to be 18% below baseline. This decrease in premiums is expected to bolster individual enrollment by an additional 1,641 enrollees in 2018. This new enrollment is concentrated among individuals ineligible for premium subsidies, and those who will disproportionately select bronze-level insurance plans. As a result of the ARP, the average individual-borne premium amount and average out-of-pocket contribution of individual insureds in Alaska will actually increase slightly.
The ARP is a condition-based reinsurance program. Alaska identified 33 high-cost conditions through a study of 2015’s individual market claims. Any individual market enrollee diagnosed with one of the conditions in a given plan year is included in the reinsurance pool for the entirety of that plan year.
Insurers administer benefits and pay claims for individuals in the pool. But liability for all claims in a plan year, retroactive to January 1 regardless of diagnosis date, is ceded to the ARP. So, too, are individual’s premium payments and attributable pharmacy rebates. The ARP makes quarterly disbursements to insurers to reimburse for claims paid, subject to retroactive adjustment for third-party liability, overpayment recoveries or risk adjustment reconciliation (if a second insurer joins the market).
The ARP’s liability for payment is capped at the program’s total funding. The state has appropriated to the pool an additional $55 million per fiscal year through 2023, but projects it will only spend $11 million of that, after federal funding is exhausted.1
Alaska’s Waiver Request: Alaska’s Section 1332 waiver request sought federal pass-through funding for the ARP based on the Centers for Medicare and Medicaid Services (CMS) guidance noting that the ARP, if successful, would reduce federal premium tax credits and suggesting that those savings should be passed through to the state through a 1332 waiver.
Section 1332 permits the federal government to pass through to states savings from federal premium tax credits, cost-sharing reductions or small business credits forgone as a result of a state’s waiver. The ARP lowers federal costs because federal tax credits are a “defined benefit” that covers enrollee costs above a specified percentage of the enrollee’s income; the tax credit is calculated as the difference between the enrollee’s contribution and the cost of a benchmark plan. In its waiver application, Alaska projected that federal savings from the ARP’s effects would be $51 million in 2018, roughly 80% of the $60 million ARP program (as adjusted for inflation on an annual basis).
In order to meet statutory criteria requiring a waiver of at least one Affordable Care Act (ACA) provision, Alaska proposed to waive the single risk pool requirement to the extent necessary to account for the ARP in rate-setting. This waiver was suggested by CMS after concerns that an earlier Alaska proposal to waive the ACA provision governing cooperative and community health insurers was not sufficient.
Setting a Precedent: The Trump Administration has reinforced CMS guidance in support of reinsurance waivers, and several states are poised to follow Alaska’s lead. In a March 2017 letter to governors, Secretary Price encouraged governors to consider Section 1332 as a vehicle for operating state high-risk pools or reinsurance programs, citing Alaska as an example. CMS has since released a checklist detailing specific steps states must take to apply for a Section 1332 waiver, with specific instructions for high-risk pool or state-operated reinsurance programs.