An Affordable Care Act provision intended to protect health insurers from excessive medical costs received a boost from the CMS late Wednesday, a move that will directly help the finances of insurers that have enrolled sicker members.
Reinsurance payments to health insurers that offer ACA-compliant individual plans inside and outside the exchanges will rise for the 2014 benefit year, according to a CMS memo. Reinsurance, along with risk corridors and risk adjustment, are the ACA's “market stabilization” provisions.
Under the reinsurance program, which expires in 2016, all health insurers and self-funded plans contribute funds to a pool. If a person buys an individual ACA-compliant plan and the person's actual costs exceed $45,000 but are less than $250,000, the federal government pays a sizable portion of those costs back to the insurer. The impetus was to encourage health insurers to participate in the new markets even though the ACA requires them to accept all consumers—no matter how sick they are—and to allow the companies to set affordable premium rates.
Previously, the CMS was going to pay 80% of those costs between $45,000 and $250,000. But the agency said Wednesday that it is increasing that payment to 100%, meaning insurers will be fully covered for any of those high-cost claims from 2014, the first year ACA plans went into effect.
The CMS said it raised the payment level because the reinsurance funds received from insurance companies “exceeded the requests for reinsurance payments.” HHS has collected $8.7 billion in reinsurance fees thus far, with another $1 billion on the way. The program is revenue-neutral for the government since money is only switching hands among companies.
Many health insurers have already recorded expected payments from the temporary program. For example, Anthem booked a $753 million reinsurance payment for 2014. Humana's 2014 reinsurance receivable totaled $586 million. Aetna projected $338 million under reinsurance for the first year. Financial analysts have said those three companies assumed a 100% reinsurance payment rate in their accounting.
On June 30, the feds will send out reports to health insurers detailing their reinsurance payouts from 2014. Insurers will receive reinsurance payments starting sometime this August.