Not just health insurance, but REinsurance

Looks like we're finally seeing the state budget process pick up this week. Among a list of items that the Joint Finance Committee will take up will be a modification to the state's reinsurance program, which is a subsidy to insurance companies to try to give Wisconsinites more choices on the Obamacare exchanges. The Legislative Fiscal Bureau broke down the program and the changes Governor Evers wants to put in.

The Office of the Commissioner of Insurance (OCI) administers the Wisconsin healthcare stability plan (WHSP), a state-operated reinsurance program that is intended to reduce premiums for health insurance policies sold in the individual market (for non-group insurance coverage, not sponsored by an employer). Reinsurance payments reimburse insurers for a portion of the total annual claims for individuals with high costs. Payments are made in accordance with parameters that are set each year based on the total reinsurance program spending target. Currently, the target is $230,000,000, an amount specified by statute.

Like most state reinsurance programs, WHSP pays a certain percentage (the "coinsurance rate") of the total cost of all covered services for an individual claimed in a year that exceed a minimum threshold (the "attachment point"), subject to a maximum threshold (the "reinsurance cap"). For instance, in 2019, the program had a coinsurance rate of 50%, an attachment point of $50,000, and a reinsurance cap of $250,000. If an insurer paid a total of $150,000 in medical claims in that year for a particular enrollee, the program would make a reinsurance payment to the insurer for that individual of $50,000, which is 50% of the difference between the total claim and the attachment point. The maximum reinsurance payment made on behalf of any individual in that year was $100,000, which is 50% of the difference between the maximum cap and the attachment point.

As you can see, the $230 million target/limit on payments to insurers means that the state wasn't able to pay the full 50% of costs in each of the last 2 years.

The Feds are currently taking up a sizable portion of this $230 million payment, as they give the state “pass-through” savings from the money that the Feds don’t have to pay in tax credits, which a large amount of Americans can receive for buying policies on the Obamacare exchanges.

The GPR share of the reinsurance payments has been lower since plan year 2021. For 2019 and 2020, about one-quarter of the total cost of reinsurance payments was supported from the GPR appropriation, while the state's share has ranged from 0% to 13% in the four years since then. This reduction can be largely attributed to a more generous premium tax credit formula enacted under the American Rescue Plan Act of 2021 and the Inflation Reduction Act of 2022 for plan years 2021 to 2025. If Congress does not extend the enhanced credits, the standard formula will be used again in 2026, which will also likely increase the state's cost of the reinsurance program. If, for instance, the state had to again contribute one-quarter of the $230.0 million payment total, the GPR cost would increase to $57.5 million, beginning in 2027-28, up from $30.9 million in 2025-26 and $6.7 million in 2026-27.

As shown in Table 3, reinsurance payments as a percentage of total insurance revenue reached a maximum in 2022, the year the target was increased to $230 million, but this percentage has declined since that time. With a fixed reinsurance target, and with growth in individual market enrollment or in premium collections, this percentage will naturally decline. In 2024, both enrollment and premium revenues increased by 25% from the prior year, which is a major reason for why the proportion of revenue that insurers collected from reinsurance payments declined. Although comparable data for the 2025 plan year will not be available until 2026, the reinsurance payments as a percentage of all insurer revenue will decrease further, given that enrollment in exchange plans increased by 18% over 2024 (based on the open enrollment periods).

Federal pass-through funding has gone up for reinsurance, since the Feds would have paid a lot more in tax credits in recent years due to 2 developments.

1. The higher income levels that were allowed to get credits for Obamacare in the last few years, and

2. More people getting insured from the Obamacare policies in general.

But as mentioned, the state couldn’t reinsure the full 50% associated with high-cost individuals in the last 2 years, as the total costs went over the $230 million limits in the last 2 years. So Governor Evers put in a budget provision to allow more payments (and a higher percentage of costs) to go to insurers.

In recognition of the growth in the individual market, Senate Bill 45/Assembly Bill 50 [the State Budget bill] would increase the reinsurance target from $230,000,000 to $250,000,000, beginning with plan year 2026, an increase of 8.7%. This would increase the share of total insurance revenue received from reinsurance payments, but would not restore the program to the same proportionate size as it was in 2022, the last time the target was increased (assuming that enrollment does not decrease substantially from current levels). To put this proposed increase into context, if the $250 million target had been in effect in 2024, reinsurance payments would have been 10.1% of total insurer revenues in that year, instead of 9.3%.

Interestingly, the LFB says that many Wisconsinites may not get any personal benefit from the reinsurance plan, because the lessening of premiums doesn’t end up reducing what the individuals end up paying in total, as they already get the difference back in higher tax credits from the Feds.

Although the reinsurance program reduces premiums, consumers who receive premium tax credits (PTCs) either do not realize any direct benefit from the reduced price, or realize a comparatively small reduction. This is because credits are calculated to equal to the difference between a percentage of the consumer's income (the "applicable percentage," which varying by income level) and the premium of the benchmark plan (second-lowest silver level plan). Thus, if the premium of the benchmark plan is reduced as the result of the reinsurance program, the amount of the premium tax credit is reduced, but the net cost to the consumer who purchases the benchmark plan will remain unchanged. To illustrate this, Table 5 shows the net premium owed by a consumer with a household income at 200% of the 2025 federal poverty level ($31,300 annually, or $2,608 per month, for a single-person household) under two scenarios. Under one scenario, the monthly premium is assumed to be $500, while in the other scenario, a reinsurance program reduces the premium for the same plan by 10%, to $450. This illustration uses the ACA's standard premium tax credit formula (with an applicable percentage of 6.5% of income), rather than the enhanced subsidies in effect for 2021 to 2025.

On the flip side of that, if Congress doesn’t continue the expanded tax credits for people going on Obamacare (and Big Beautiful Tax Scam 2.0 isn't continuing it), then any lower premiums resulting from reinsurance would help more Wisconsinites afford these insurance policies, since they wouldn't get as much from the tax credits to help them out.

So this reinsurance system is yet another example of where the Trump/GOPs can end up raising health care costs for the State of Wisconsin, as refusing to keep the expanded tax credits would mean the Feds will take up less of the cost reductions from reinsurance, and the state will pay more. And given that we don't know the outcome of the bill, it makes this reinsurance discussion all the more relevant for tomorrow's JFC session.