Sen. Collins Speaks About Legislation on State-Based Reinsurance Programs

WASHINGTON, Sept. 21 -- Sen. Susan M. Collins, R-Maine, issued the following statement, which was published in the Congressional Record on Sept. 19, on legislation (S. 1835) to provide support to States to establish invisible high risk pool or reinsurance programs:

Mr. President, the cost of health insurance has been a major problem with the Affordable Care Act and with many of the bills which have been advanced to repeal and replace this law.

I rise to introduce the Lower Premiums Through Reinsurance Act of 2017. This bill would provide States with the flexibility and support they need to create State-based reinsurance programs for their individual health insurance markets in order to lower premiums while ensuring continued coverage for people with preexisting conditions.

I am very pleased to be joined by my colleague and friend Senator Bill Nelson in introducing this bill. Senator Nelson is a former insurance commissioner who comes to this issue with a wealth of knowledge dating to his experience with Florida's innovative homeowners' reinsurance program, developed in the 1990s in the wake of Hurricane Andrew. For my own part, I spent 5 years in State government overseeing a department which included the Bureau of Insurance.

Over the past 2 weeks, the Senate HELP Committee, on which I am privileged to serve, completed a round of hearings under the able leadership of Chairman Lamar Alexander and Ranking Member Patty Murray. They looked at the steps we could take in the near term to stabilize the individual market and help to bring down rates. Reinsurance was frequently mentioned as an option Congress should consider and adopt. Insurance commissioners from Alaska, Pennsylvania, South Carolina, Tennessee, and Washington State all spoke positively of its benefits, as did the five Governors who testified before the committee--three Republicans and two Democrats. Although the witnesses presented different views on how a reinsurance mechanism might be structured, they were in broad agreement that reinsurance funding would help stabilize the markets and lower premiums.

The National Association of Insurance Commissioners has recommended that Congress provide reinsurance funding of $15 billion annually to help cover high-cost claims in the individual market. We realize, however, we are living in very tight budget times, and there is an understandable reluctance among many Members to provide that level of Federal funding. We believe the ACA's section 1332's flowthrough mechanism can effectively leverage that level of funding with a much smaller contribution of Federal dollars. Our bill, therefore, would appropriate $2.25 billion per year in 2018 and 2019, which should be sufficient to leverage $15 billion in total reinsurance funding annually, based on the ratios in Alaska's recently approved 1332 waiver.

As Alaska's insurance commissioner told the HELP Committee, next year her State will be able to fund its $55 million reinsurance program with just $6.6 million of its own money--15 percent of the total. The remaining $48.4 million will be provided in Federal flowthrough funding that matches the savings to the Federal Government resulting from the reinsurance program. Let me explain why there would be savings for the Federal Government.

If we are able to reduce the cost of premiums, then the Federal Government will be paying less by way of subsidies to individuals who qualify for those subsidies because they make 400 percent or less of the Federal poverty level.

The bill we are introducing today would allow States to quickly stand up their own reinsurance programs through the Affordable Care Act's section 1332 waiver process. Broadly speaking, the bill would create a menu of options States could use to design reinsurance programs, which in turn would be eligible for Federal seed money grants. States may also obviously add funds from other sources to the mix.

States that want to set up their own reinsurance pools quickly could do so under our bill by using one of three options designed for expedited review: first, by demonstrating that their program is an "invisible high-risk pool" along the lines of the Maine and Alaska models, which I will describe in more detail in a moment; second, by showing that their program fits within the parameters of ObamaCare's "transitional insurance program," which expired at the end of last year; and third, by submitting what I would call a "me too" application based on another State's program that has already received approval.

I wish to take a moment to explain why our legislation provides expedited review for different reinsurance pool designs. First, many of the witnesses who testified before the HELP Committee made the point that States would have difficulty quickly coming up with their own design. We acknowledge that, and that is why we provided expedited review for a pool based on the transitional ACA reinsurance program previously in effect and with which States are already familiar.

Second, we know from the experience of the States of Maine and Alaska how effective invisible reinsurance pools can be. Alaska's invisible pool reduced a projected 40-percent rate increase to just 7 percent this year and is expected to contribute to a 20-percent decline in premiums next year. Maine saw similar results in its program, the Maine Guaranteed Access Reinsurance Association.

The Maine program, which was in operation from 2012 until the end of 2013, covered approximately 3,600 insured individuals, at a cost of approximately $12,500 per person, per year, and reduced rates in the individual market by about 20 percent on average.

It is important for us to keep in mind that the individual market is where people who do not have employer-sponsored insurance have to go to buy their insurance. If they make 400 percent or less of the Federal poverty level, they get premium tax credits--subsidies, in other words--from the Federal Government to assist them with the cost. But if they make a dollar over 400 percent of the Federal poverty level, they lose that assistance altogether.

Another problem that is in the ACA is those cliffs, which make no sense whatsoever and really penalize individuals who may work in the trades, such as electricians and plumbers, who don't know for certain what their income is going to be and can face an unexpected bill where they have to pay back the entire subsidy. But there are others who make above 400 percent who knew it and didn't qualify for the subsidy, but they still have to purchase in the individual market. I think that should be revisited, but that is a speech for another day.

My point is that they would benefit greatly from a 20-percent reduction in the premiums they pay. That was our experience in Maine. On average there was a 20-percent reduction in premiums when the reinsurance pool was in effect. The reinsurance pool even generated a surplus of $5 billion during its 18 months of operation.

The Maine pool was successful for several reasons. First, risks were ceded up front so insurers could not wait until a policyholder developed an unexpected serious health condition to decide who was going to be in the high-risk pool and who was not. The rules also required policies for individuals who suffered from certain high-risk conditions to be automatically ceded to the pool on enrollment.

I note that when an insurer made the decision to cede to the pool the risk for a particular policyholder, or if it was an automatic ceding, 90 percent of the premiums from that policyholder went to the reinsurance pool to help finance it.

Second--and this is important--the program was invisible to both individuals who were insured through it and to healthcare providers. Individuals were covered seamlessly and enjoyed the same benefits as nonpool enrollees. Likewise, healthcare providers did not know whose policy had been ceded to the pool.

Third--and also very important--Maine's program operated with the full set of consumer protection guardrails set by the ACA, including guaranteed issue, guaranteed renewability, and prohibitions against taking preexisting conditions or health status into account in issuing policies or setting rates.

Fourth, the Maine program was designed to provide true reinsurance. Insurers paid the first $7,500 in costs, plus 10 percent of the next $25,000. After that threshold, the pool picked up the rest of the costs.

Finally, Maine's program was backed by a stable funding source. In addition to receiving 90 percent of the premiums for ceded policies, it also received funding that was assessed at a rate of $4 per person, per month, on all healthcare policies.

While Alaska's reinsurance program differs from Maine's in some respects, the success of both models shows the promise and proves the promise of invisible reinsurance pools, and that is why our bill includes invisible reinsurance pools as an option for expedited review and approval.

Open enrollment in the ACA exchanges begins November 1, just about 6 weeks from now. In just days, CMS is expected to finalize the premiums insurers will charge in the ACA exchanges next year. While I personally remain ever hopeful that a bipartisan agreement on a targeted, consensus approach to stabilizing the markets and reducing premiums can still be reached, clearly, we have very little time. Beyond providing cost-sharing reduction funding, there is no step that would be more powerful in stabilizing markets and reducing premiums than providing reinsurance.

This Chamber is deeply divided on what to do on healthcare policy, but surely we ought to be able to come together and build on the good work that the leaders of the HELP Committee have done--work that more than 60 Senators have witnessed and participated in by attending coffees that Senator Lamar Alexander and Senator Patty Murray have sponsored with our witnesses and by participating in the HELP Committee hearings. They have worked hard to produce a bill that would really make a difference.

The bill Senator Nelson and I are introducing today helps to fill out the reinsurance provisions that I know from attending each of those hearings have been widely supported by virtually every witness who testified before us. It would enable States to stand up their own reinsurance program simply and quickly, and it would reduce the costs of the Federal Government if we used the section 1332 flow-through mechanism far below what would otherwise be required. Most important of all, it is something that we could do right off, along with the cost- saving reductions, which help low-income people with their copays and their deductibles--their out-of-pocket costs. Those two steps are actions that we could take right now to help moderate premium increases that would otherwise occur and that would be of real benefit to anyone who is in the individual market.