Virginia's Obamacare premiums to spike with reinsurance program end

Obamacare health insurance costs in Virginia are set to spike next year because the General Assembly budget impasse means a financial deal that cut premiums has now lapsed, a State Corporation Commission analysis shows.

The analysis projects individual coverage would rise by 28.5% in 2024, after the reinsurance program the state financed — in tandem with a much larger federal sum — cut this year's premium rates an average of 17.2% from 2022's average premium rates.

The reinsurance program essentially is a backstop that covers the cost of health insurers' biggest claims. That reinsurance had enabled the insurers to cut their premium rates to reflect the benefit of the backstop.

According to the analysis, the main reason for the expected spike is the end of the reinsurance program, which this year reimburses health insurers for part of the cost reimbursing health insurers in the Affordable Care Act's individual market for claims between $40,000 and a $155,000 cap, so that the insurers are out of pocket for 70% of the cost.

"Reinsurance is a great program," which has had a big impact in keeping coverage costs down, said Doug Gray, executive director of the Virginia Association of Health Plans.

"The people who will be hit hardest by this are the ones who pay for all their coverage out of pocket," he said. "People whose coverage is subsidized won't feel it as much as entrepreneurs, (people in) professions, small business owners," whose income is above the trigger for Obamacare subsidies, he said.

The lack of reinsurance will drive up the costs insurers need to cover through the premiums they charge by 26.4%, the SCC analysis found.

The budget impasse is over Gov. Glenn Youngkin's push for $1 billion in tax relief. The version of the budget that the Republican-led House of Delegates passed included Youngkin's tax cuts, while the version the Democratic-led state Senate passed did not, preferring to redirect the money to further increases in K-12 school supports and behavioral health, above the increases Youngkin proposed.

Since then, House Appropriations Committee chair Barry Knight, R-Virginia Beach, has proposed a compromise that would convert most of Youngkin's ongoing tax relief into one-time payments. He is asking Senate negotiators to turn some of their proposed spending increases into one-time expenditures. Senate budget negotiators have said they'll make a counterproposal.

Tied up in that big dispute is the need for the money committees to say how large a reduction in premiums the state wants to target with the reinsurance.

A bigger reduction target requires a commitment of more state money — but draws down federal funds much faster.

While analysis by the actuarial firm Oliver Wyland stated a 5% target would cost the state $41 million and draw down about $110 million of federal money, a 20% target would cost the state $56.5 million and draw down $498 million in federal money.

In addition to the impact of the reinsurance program's lapse, relatively modest rises in hospital costs and somewhat larger ones for prescription drug costs also contribute to the SCC forecast of an average 28.5% increase in premiums.

In contrast, Obamacare insurance for small groups, which did not participate in the reinsurance program, are set to rise 5.1%, in part because of increases in benefits which are set to raise insurers' costs 1.4%.

The reinsurance program for 2023 will likely require $331.9 million from the federal government by the end of this year, while Virginia's contribution could be $43.4 million. The final figure depends on how often the reinsurance program kicks in to cover part of a claim.

But since the General Assembly budget impasse didn't make clear what target the state is aiming for, SCC insurance regulators had to assume there'd be no reinsurance, the analysis stated.

According to state regulation, health insurance rates are supposed to generate enough premium income to cover at least 80% of claims, which is why insurers' savings in claims costs from reinsurance are reflected in the premiums they charge.

Proposed increases

The analysis included rate filings for popular plans from several companies.

HealthKeepers Inc., the state's largest health insurer, for instance, filed for SCC approval of a 16.9% increase for its Anthem HealthKeepers Silver X plan in Richmond. A 40-year-old would pay $477.48 a month for this coverage next year.

Cigna Health Insurance, asked for a 24.1% increase on its Connect Bronze 6500 plan. A 40-year-old in Richmond would pay $373.80 a month for this coverage next year.

Aetna Health proposed a 28.3% increase for its 2024 Va Silver $ plan in Richmond, where a 40-year-old would pay $424.70 a month

Sentara Health Plan proposed a 20.9% increase for its Sentara Direct Silver 6600 in Hampton Roads, where a 40-year-old would pay $472.78 a month next year.

The SCC analysis said the individual market is healthy.

More insurers are offering coverage in more places, with at least two companies in every part of the state, the analysis stated.

Insurers are projecting a 10% increase in the number of people enrolling for coverage, thanks to American Rescue Plan subsidies, the analysis stated

But it is concerned about the small group market, where enrollment is projected to increase by 2% next year — but would still be 11% below where it was five years ago.