Reinsurance Programs May Make Insurance Less Affordable for Middle Class

David Anderson, doctoral candidate

Credit: Duke University

A new study suggests reinsurance programs aimed at making health care insurance more affordable may be unknowingly doing the opposite for the middle class.¹

“This study provides the first causal estimates of the effects of a post–American Rescue Plan Act Section 1332 reinsurance waiver’s effects on premiums, subsidized coverage affordability, and subsidized enrollment, focusing on the state of Georgia,” wrote investigators led by David Anderson, a doctoral candidate at the Duke University Department of Population Health Science.² “We found that, as intended, Georgia’s reinsurance waiver reduced premiums in sample counties, by roughly 20 percent.”

Reinsurance programs are intended to reduce how patients pay for their health insurance every month and increase enrollment in the Affordable Care Act’s health insurance marketplaces.¹ In 2024, > 21 million people receive health coverage through this marketplace.

When the Affordable Care Act marketplace was created, insurance costs increased for many new enrollees. Due to this, states used the Section 1332 waiver process to form state-funded reinsurance programs to make prices more reasonable. States hoped this would incentivize insurers to reduce premiums, which worked.

As of now, 16 states have used the Section 1332 waiver, including Alaska, Colorado, Delaware, Georgia, Hawaii, Maine, Maryland, Minnesota, Montana, New Hampshire, New Jersey, North Dakota, Oregon, Pennsylvania, Rhode Island, and Wisconsin. The states believed creating reinsurance programs would have no impact on subsidized enrollees, but they were wrong.

“Unfortunately, our analysis suggests the story is more complicated than that,” said investigator Coleman Drake, PhD, from Pitt Public Health, in a press release.² “We hope these results cause state and federal policymakers to reevaluate how marketplace reinsurance programs are affecting the rapidly growing population receiving subsidized marketplace coverage.”

Investigators noted government subsidies are just as important as the costs of premiums for most enrollees in the Affordable Care Act marketplaces.¹ Therefore, their study examined subsidized enrollees in counties along Georgia’s borders from 2019 – 2023, particularly focusing on 2022, the year Georgia started their reinsurance program.

Investigators used a matched border county approach to assess the effects of Georgia’s reinsurance program after the marketplace’s changes. They paired participants in Georgia with participants in a border state: Alabama, Florida, North Carolina, South Carolina, and Tennessee. The team leveraged data from HealthCare.gov’s Qualified Health Plan Landscape File, the CMS Open Enrollment Period Public Use Files, and the Census Bureau County adjacency file.

Investigators saw lower-income marketplace enrollees had no changes in their minimum cost of marketplace coverage—but not for enrollees in the middle class with incomes from 251% to 400% of the federal poverty level.

Insurance premiums rose because when the premiums decreased, the subsidies also decreased. However, premiums for lower-cost plans in Georgia did not reduce enough to make up for the decrease in subsidies. Thus, enrollees had to pay a greater net cost.

As a result, health insurance enrollment decreased by approximately one-third for the middle class.

“People are less likely to buy insurance when it costs more, and being uninsured has been linked to an increase in mortality,” Drake said.² “These vulnerabilities weigh heavily on our minds when we see results like this.”

However, unsubsidized enrollees benefit from the reinsurance, but this population is small, only making up 10% of the individual market nationwide.¹ This is down from about 50% since the beginning of the Affordable Care Act.

For the middle class, the minimum cost to obtain coverage increased roughly 30% from the previous year. For instance, an individual making a yearly salary of $35,000 would have to pay an additional $40 a month to get insurance.

Investigators found reinsurance cut the average minimum bronze plan’s premium by 19.1% (69.30% from a mean of $353.50 in 2021. Additionally, reinsurance decreased the average monthly premium of the lowest premium silver plan by 20.8 percent ($96.90 from a mean of $465.70).

The data revealed reinsurance decreased enrollment by 21.7% for enrollees with incomes of 201 – 250% of poverty (P < .10), 35.5% for enrollees with incomes of 251 – 300% of poverty (P < .05), and 31.4% for enrollees with incomes of 301 – 400% of poverty (P < .05). They did not find significant enrollment changes for enrollees with incomes < 201% of poverty or for subsidized enrollment who were 100 – 400% of poverty.

Investigators highlighted 4 limitations, including only assessing the effects of Georgia’s reinsurance program instead of reinsurance programs worldwide, the match border county research design preventing from generalizing the results to the whole state, being unable to include individuals enrolled > 400% of the poverty due to lack of data, and the Open Enrollment Period Public Use Files not including income-enrollment cells with < 11 enrollees.

The investigators pointed out the findings do not mean the programs should be eliminated but instead create new insurance plans, considering premiums paid after subsidies.

“There's a lot of variability in Section 1332 reinsurance programs,” Anderson said in a press release.² “For instance, Colorado uses its waiver to provide subsidies to enrollees who are not eligible for federal premium assistance. And in other states, it’s plausible they could lower the minimum cost of coverage by introducing ‘copper’ plans that have lower premiums and share the cost across more enrollees.”

^References

1. ^{Anderson DM, Golberstein E, Drake C. Georgia's Reinsurance Waiver Associated With Decreased Premium Affordability And Enrollment. Health Aff (Millwood). 2024;43(3):398-407. doi:10.1377/hlthaff.2023.00971}
2. ^{Programs Intended To Reduce Health Insurance Premiums May Make Coverage Less Affordable For The Middle Class. EurekAlert! March 4, 2024. https://www.eurekalert.org/news-releases/1036084}