Reinsurance waivers offer few benefits in individual health market
For decades, Texas has been home to the nation’s largest population of individuals without health insurance. While health advocates and lawmakers have made several attempts to address the state’s large uninsured population, a comprehensive solution remains elusive.
The number of uninsured Texans remains at nearly 5 million, representing more than 16% of the total population — the largest percentage of any state and more than double the national average.
In 2020, Texas 2036 developed an online data analysis tool that allowed Texans to explore the costs and benefits of more than 500 possible policy scenarios available to Texas legislators during the 87th Legislature to address the high uninsured rate in Texas.
Among the proposed solutions we considered to improve affordability in a state’s individual health insurance markets was a reinsurance waiver. Fourteen other states, including Georgia, Colorado, and Pennsylvania, have implemented such a waiver.
The core idea behind reinsurance waivers is that states can “pull out” some high-cost health care claims from the common health insurance pool, and pay for them separately (reinsure them). By doing so, proponents believe that this will lower premium costs for everyone else.
Reinsurance waivers “offer surprisingly little value” to individual enrollees
But the Affordable Care Act’s Individual Market doesn’t work like a normal market, and common intuition about pricing dynamics is frequently wrong, because of the ACA’s unique price-linked subsidy structure.
When we evaluated what impact a reinsurance waiver would have on affordability in the Texas market in 2020, we concluded that it would increase the net premium amount most enrollees are paying, while reducing net premium amounts for only a very small number of enrollees. In addition, the state’s cost to do this would be prohibitively expensive.
A recent academic study of Georgia’s reinsurance waiver confirmed a key finding from our study: Individual Market reinsurance pools offer surprisingly little value to state residents. Perhaps in part due to our forward-looking analysis, Texas has wisely chosen not to implement a reinsurance waiver for its individual marketplace.
Since that time, changes at the federal level to how subsidies are administered have only amplified this dynamic, increasing the number of enrollees whose net premiums would be increased by a reinsurance waiver, while decreasing the number of enrollees whose premiums would be decreased.
While reinsurance might not be an option for the individual marketplace, it should still be considered for the state’s employer insurance market, as we explored in our groundbreaking “Who are the uninsured” report, released late last year. The key difference between the individual market and the employer market is that the employer market does not have price-linked subsidies, allowing reinsurance pools to function as proponents intend.
By not implementing a reinsurance waiver for the individual market, Texas kept net premiums more affordable for Texans, and that has played a role in the rapidly growing enrollment in Texas’ individual marketplace.