by Brenée Goforth
Communications Associate, John Locke Foundation
Across America, millions of people have lost their jobs due to the COVID-19 outbreak. More than just their incomes, many of these people lost their employer sponsored health insurance (ESI). This week, JLF’s Jordan Roberts explained how North Carolina could improve the health insurance market by making a change. Roberts writes:
Section 1332 of the Affordable Care Act (ACA) is a provision that allows the states to waive federal regulations on the state individual health insurance markets and employ state innovations to provide health insurance to those who don’t have ESI..
Several states have successfully applied for a section 1332 waiver. Most states which have applied for a waiver set up a reinsurance program in the state. Table 1 shows the changes in premiums in the individual markets of each state.
You might be asking “what is reinsurance?” You can think of it like this:
It works a lot like personal health insurance. In individual health insurance, you pay a premium every month to have insurance. If your health expenses pass your deductible (the point where insurance starts covering your expenses), your health insurance starts to pay a portion of your claims. If you are healthy, you pay your premiums and don’t surpass your deductible. Because you haven’t met the deductible, the insurer doesn’t pay out. But if you get sick one year, you surpass your deductible, and the insurance company starts paying.
Reinsurance is insurance on your insurance (I know, as if it wasn’t complicated enough already).
Just like in personal insurance, companies pay a premium every month to have reinsurance. If their payouts pass their “attachment point” (exactly like your deductible – a cost threshold at which reinsurance start covering expenses) – reinsurance starts to pay a portion of the company’s payout to hospitals. Just like your health insurance protects you from paying large medical bills in full, reinsurance protects insurance companies from having to cover large payouts in full. If a company never reaches its attachment point, the reinsurer keeps all the premium money. But if the company’s expenses surpass its attachment point, the reinsurance company starts paying.
Roberts explains how this could reduce premiums – aiding those who do not have ESI in the affordability of health insurance:
North Carolina could achieve these premiums reductions for its individual market with a sound reinsurance program. The reinsurance fund would pay claims over a certain amount. With reinsurance to cover these high-cost claims, insurance companies could reduce premiums across the board. Newly affordable health insurance plans could help those who are currently uninsured and draw individuals who had previously left the marketplace because of costs. Higher enrollment in the individual market could bring in lower-risk people with less need for insurance, which would further reduce premiums.