Virginia reinsurance program wins federal approval

Virginia is the latest state to receive approval for a reinsurance program that will reimburse some insurers for high-cost losses.

With the federal regulators’ decision on Virginia on Wednesday, 16 states were approved for reinsurance programs.

Virginia expects the program to reduce premiums by an average of 15.6% statewide in 2023. The number of market participants in the individual market is also predicted to grow by 2.9% next year.

The government’s reinsurance program will reimburse individual market insurers for claims between $40,000 and $155,000 at a 70 percent coinsurance rate.

Since the federal government will pay fewer dollars next year in tax credits for Virginia members, the state will receive the difference to fund the reinsurance program. The program cannot increase the federal deficit, so Virginia’s funding may be cut in the future to maintain budget neutrality.

The Virginia Individual Market served over 291,500 people in 2019, according to the latest data from the Kaiser Family Foundation. Anthem covers 43% of the state’s individual market, while Cigna covers 31% and Kaiser 12%.

The Affordable Care Act established a transitional reinsurance program to stabilize individual market premiums from 2014 to 2016. Lawyers and insurers have pushed for a national reinsurance program in the past, but according to a 2019 study.

In the absence of a national program, states can apply to federal officials for reinsurance programs through what are known as 1332 waivers.

There is currently less momentum for reinsurance in the individual market, according to Justin Giovannelli, associate professor and project director at Georgetown University’s Center for Health Insurance Reform. Individual insurance markets are more stable than they were a couple of years ago, and the expanded premium assistance temporarily made possible by the American Rescue Plan has also lowered premiums directly.

But the extended premium subsidies expire after the 2022 target year, which could draw attention to reinsurance, Giovannelli said. States where premium subsidies are more politically contentious may be more interested in reinsurance.

“If you’re in this state, reinsurance can certainly take place,” he said.

Virginia refusal valid until 2027 and may be extended.

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