Reinsurance could be an answer to sky-high premiums. But there’s debate on who should take on the cost.

State lawmakers are moving forward with a measure aimed at lowering premiums for Virginians who purchase health insurance on the state exchange.

But there’s still no agreement on who should pay for the program, which would subsidize the costs of high-risk patients for  insurance companies.

Better known as reinsurance, it’s a concept that’s gaining traction in Virginia — largely based on the experiences of more than a dozen other states that have implemented similar programs. Under the model proposed by Del. Mark Sickles, D-Fairfax, Virginia would establish a designated reinsurance fund using state contributions and a significant federal match. 

When a patient’s medical claims cross a certain cost threshold, or “attachment point,” insurers could apply to the fund to offset a percentage of those expenses.

“It helps the insurance companies because you take all of those high-dollar patients and you’re able to subsidize them so no insurance company is at risk from someone with high medical bills,” said Don Harris, Sickles’ senior policy adviser. 

The goal is to lower prices for other consumers, who would otherwise be shouldering the cost of more expensive patients through their own premium rates. A state workgroup assembled to study marketplace stability in Virginia listed reinsurance as its top recommendation to bring down prices on the individual market. Other states, including neighboring Maryland, have lowered premium costs by up to 43.4 percent by implementing similar programs.

It’s earned the bill support from a wide range of interest groups, including the Medical Society of Virginia, the Virginia Hospital and Healthcare Association and consumer-oriented nonprofits such as the Virginia Poverty Law Center. But the measure’s future is still in flux thanks to an ongoing debate over how the program should be funded. 

The bulk of the money would come from through a federal 1332 waiver — awarded to states for implementing “innovative strategies” to make health care more affordable. Sara Cariano, a policy specialist for VPLC, said most Virginians who purchase insurance through the exchange receive federal tax credits to help cover their monthly costs. As a result, the federal government has a vested interest in any program that would lower those expenses.

“When a reinsurance program brings down a state’s premiums, the federal government sees significant savings,” she said. It would then reroute those savings back to Virginia to put into its reinsurance fund — usually at four to five times the amount contributed by the state.

But the state would still be responsible for covering reinsurance costs for the roughly 12 percent of people who purchase plans through the exchange and don’t qualify for a federal subsidy, said Doug Gray, executive director of the Virginia Association of Health Plans. According to Sickles, the state would need to contribute between $40 and $60 million to lower premiums by 15 to 20 percent. 

His original bill proposed raising that money by charging insurance companies a one percent assessment on net premiums for certain health care plans. Gray said carriers opposed the proposal, largely because the assessment cost would be passed along to consumers.

“If you’re going to try to reduce premiums 10 percent and then you put in a tax of one percent, they would only go down nine percent,” he said. 

Other legislators have also expressed concern over the assessment, which would only apply to fully insured large group plans — maintained by employers with more than 50 workers — and individual plans purchased on the state exchange (Sickles said small group plans were exempted to avoid passing fees onto small businesses at a time when many are struggling to stay afloat). 

“It’s only a minority of health plans out there that would be challenged with this tax,” Sen. George Barker, D-Fairfax, said during a committee hearing earlier this week. “And it would certainly be passed onto the people who have those health plans.”

In response, he proposed a substitute bill that would fund the state’s portion of the program with general fund revenues. The Senate Finance and Appropriations committee passed the measure on Wednesday with near-unanimous support — teeing up a behind-the-scenes debate.

Sickles said he plans to reject the Senate substitute when it comes up again in the House of Delegates, pushing the bill into a private negotiation process aimed at resolving the differences between the two measures. There are already efforts to push up the start date of the reinsurance program, which is currently slated to go into effect in 2023. But funding for the program still remains one of the biggest hurdles to its passage.

“I’d rather fund it, at least partially, with a low, broad-based fee,” Sickles said. “Maybe not the same fee I had, but some other fee and maybe some general fund dollars on top of that.”

Other interest groups are also supportive of the assessment, despite opposition from insurance companies themselves. Cariano said consumer advocates would rather see the reinsurance program financed through a dedicated stream — one that isn’t subject to the same yearly debate as general fund revenues. 

Hospitals have also pointed out that the state’s decision to expand Medicaid in 2018 was, and continues to be, funded through an assessment on health systems. The argument then was that hospitals would benefit from greater insurance coverage — leaving fewer Virginians without a way to pay their medical bills.

Julian Walker, the vice president of communications for VHHA, said insurance companies would benefit similarly from a reinsurance program. Twelve of the 15 states that have implemented similar funds pay for their share through some kind of fee on carriers.

“That distinction matters,” Walker wrote in a statement. “Without an assessment or another form of financing, taxpayer money will be spent to pay insurers to lower premium rates, leaving Virginians to bear the financial burden for managing insurance company risk for some of the same companies that made billions in profits during the COVID-19 pandemic.”

Part of the benefit for insurance companies comes down to cost. According to Sickles, Virginia has some of the highest monthly premiums in the country — an average of $644 per month. For older or sicker customers, monthly costs are sometimes double. And many of the patients who struggle most are those who aren’t eligible for federal subsidies but still don’t make enough to comfortably pay for their premiums. 

As a result, the state’s market stability workgroup found that participation in Virginia’s exchange has gone through a “precipitous decline” since 2016. But if the reinsurance program lowered premiums, that could attract new customers — in addition to stabilizing much of the risk for carriers.

“Reinsurance is really targeted at that demographic that’s struggling,” Cariano said. “It is really expensive to get insurance when you don’t get any help.”

“So, hopefully if we bring down premiums enough, people who have left the marketplace will come back,” she continued. “And the more people you get in, the more insurers profit.”