On August 5, 2020, the Centers for Medicare and Medicaid Services (CMS) and the Treasury Department approved New Hampshire’s waiver application to operate a state-based reinsurance program. New Hampshire is the fifteenth state to receive approval for a waiver under Section 1332 of the Affordable Care Act (ACA). This post also summarizes recent legislation enacted in Colorado and New Jersey to adopt state-level health insurance assessments. These assessments generally replace the ACA’s federal health insurance tax, which was repealed by Congress beginning in 2021. Each state will use the revenue generated by the new assessment to bolster affordability and expand access to coverage.
Approval Of New Hampshire’s 1332 Waiver
New Hampshire’s five-year reinsurance program will begin with the 2021 plan year. The state’s $46 million program is expected to reduce premiums by about 16 percent (relative to premium levels in the absence of the waiver) and increase enrollment in the unsubsidized part of the individual market by about 8 percent in 2021. The federal government will contribute nearly $33 million in pass-through funds while state funds will account for about $13 million. The state portion will be raised through an assessment on insurers that is tied to the prior year’s benchmark plan and will thus change every year. Based on the benchmark plan for 2020, the assessment would be $2.43 per member per month.
The reinsurance program was established by legislation signed by Republican Governor Chris Sununu in October 2019. The legislation directed the insurance department to work with the New Hampshire Health Plan (NHHP), an independent nonprofit, to develop a market stabilization program and apply for a waiver. New Hampshire’s waiver application explicitly mentioned Trump-era health policy changes—the elimination of the mandate penalty, lack of funding for cost-sharing reductions, and expanded access to short-term plans and association health plans—as “put[ting] a strain” on its individual market.
Like nearly all states with reinsurance programs, New Hampshire will use an overall attachment point model with parameters set annually by the insurance department (based on recommendations from the NHHP and the Commission on the Status of Health Coverage Markets for Individuals and Small Employers). Many states have flexibility to update their attachment point levels each year, but New Hampshire appears to allow these levels to be finalized after claims have come in.
For 2021, the program is tentatively expected to reimburse insurers for 74 percent of claims between $60,000 and $400,000. New Hampshire intends to announce projected parameters each year but will not finalize these parameters until after the total amount of funding is known and insurers have submitted all requests for claims reimbursement. This will give the NHHP the opportunity to adjust the attachment levels—primarily the coinsurance rate but potentially the cap as well—to match the amount of available funding. This avoids the need for additional state funds in the event of a shortfall. New Hampshire will calculate an initial, preliminary payment allocation for each issuer based on EDGE server data maintained by CMS.
New Hampshire’s waiver application was submitted on April 23 and deemed complete on May 13. Federal regulators received and considered two supportive comments on the state’s application. In an approval letter to Commissioner Christopher Nicolopoulos on August 5, the Departments laid out specific terms and conditions that must be accepted within 30 days. Once the waiver is accepted, the Departments will notify New Hampshire of its amount of pass-through funding for 2021.
New Hampshire is the fifteenth state to receive approval for a Section 1332 waiver and the fourteenth state to be approved for a state-based reinsurance program. The other states with approved waivers are Alaska, Colorado, Delaware, Hawaii, Maine, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Pennsylvania, Rhode Island, and Wisconsin; all states except Hawaii have a waiver to operate a reinsurance program. CMS released a recent report on the effect of 12 of these state-based reinsurance programs on premiums, insurer participation, and enrollment. The average premium reduction for 2020 across all states was 17.7 percent.
To my knowledge, Georgia is the only state with a Section 1332 waiver application that remains pending. Georgia submitted a request for a two-phase waiver in late December 2019, parts of which were ultimately put on hold. As discussed more here, state officials recently modified their waiver request, including asking for a delay in their reinsurance program until 2022 (rather than 2021). A new public comment period on the amended waiver closed in July. Georgia is presumably responding to this latest round of public comment and will then submit its revised application to CMS for review and approval.
States Adopt Own Versions Of The Health Insurance Tax
Section 9010 of the ACA imposed an annual health insurance tax on insurers that offer fully insured health coverage in the individual market, the group market, and public programs (such as Medicare and Medicaid). The tax was based on a fixed amount that is allocated among insurers in proportion to their market share, which was based on the amount of each insurer’s premiums during the prior year. (There had been litigation over how the health insurance tax applied to Medicaid managed care organizations, but the Fifth Circuit Court of Appeals reversed a lower court ruling, concluding that the government did not owe about $479 million to six states to account for the health insurance tax from 2014 to 2016.)
The health insurance tax was in effect from 2014 through 2016, suspended in 2017, resumed in 2018, suspended in 2019, and resumed in 2020. For 2020, it was expected to raise about $15.5 billion. Then, in a budget bill in late 2019, Congress permanently repealed the health insurance tax beginning with the 2021 plan year, resulting in a loss of $150.8 billion in projected federal revenue over 10 years.
Given frequent moratoriums in the health insurance tax, some states began collecting this revenue even before the federal tax was repealed. Maryland was the first state to assess insurers to fund its reinsurance program when Congress suspended the federal tax in 2019. Delaware later followed with a similar approach, and Colorado’s reinsurance program had this option.
But now that the federal tax has been permanently repealed, additional states have recognized its revenue-raising potential to fund state coverage initiatives. Because the current federal tax was built into premiums for 2020, a state assessment beginning in 2021 would raise revenue without raising premium levels relative to 2020. Advocates have thus urged state policymakers to capture this revenue and target it to expanded coverage initiatives. Although states cannot assess all the same entities as at the federal level, states can assess insurers that offer Medicaid managed care coverage and fully insured health coverage. One estimate suggests that states could collect more than 70 percent of the revenue that would have been raised under the federal health insurance tax.
Recognizing these benefits, two additional states—Colorado and New Jersey—have enacted legislation to impose state-level assessments, both of which will be used to help improve affordability in the individual market. Other states, such as New Mexico, actively considered but did not adopt a similar assessment, at least not for 2021.
Colorado’s law creates the Health Insurance Affordability Enterprise, which will assess insurers and hospitals. The assessment will be used in multiple ways: to fund Colorado’s reinsurance program, improve affordability for subsidy-eligible marketplace consumers, extend subsidies to low-income people who are not currently eligible for subsidies or public programs (such as those in the “family glitch” and undocumented individuals), fund outreach and enrollment, and cover the Enterprise’s administrative funds.
New Jersey’s new legislation will assess state-regulated private health insurers and direct those funds to increasing individual market affordability, reducing racial disparities in coverage, and increasing access to coverage for low-income uninsured people through subsidies, reinsurance, tax policies, outreach and enrollment efforts, buy-in programs, and other efforts.