State Questions Feds’ Lower Subsidy for NJ’s Healthcare Reinsurance Program

Lilo H. Stainton | January 9, 2019 | Health Care
Federal provision for covering costliest medical claims is well short of what New Jersey officials had expected. DOBI Commissioner Marlene Caride asks for explanation

Marlene Caride, Commissioner of the Department of Banking and Insurance
Federal officials have agreed to provide an estimated $180 million this year to support New Jersey’s new healthcare reinsurance program. The program is set up to help offset the costliest medical claims, starting with those generated in 2019.

But that’s $38 million less than state insurance officials anticipated for 2019, based on their own calculations, and Department of Banking and Insurance Commissioner Marlene Caride wants to better understand the discrepancy.

The state is expected to cover any remaining cost for the initiative, which experts calculated would cost nearly $324 million in 2019, its first year, but had planned to contribute less than $106 million; under the federal calculation, the state would have to come up with closer to $144 million. All the figures are projections based on future claims.

In a letter sent Tuesday, Caride asked federal officials for more detail on the methodology used by the Centers for Medicare and Medicaid Services and the U.S. Treasury to calculate their potential share of the state’s reinsurance program costs. She also urged them to be more open about the process in general.

“To our surprise, it appears that Treasury used a significantly different process, including different data sources, than the State’s actuaries in estimating the (federal) pass-through funding,” she wrote. “We urge Treasury to provide increased transparency and timely information relating to the pass-through estimates to states.”

Spreading the risk

Signed into law by Gov. Phil Murphy in June, the state’s reinsurance program is designed to offset the cost of the more extreme medical claims to help insurance companies plan and spread risk, which in turn should stabilize the individual insurance market. That market covered nearly 330,000 New Jersey residents last year, with most plans sold through the federal Affordable Care Act marketplace system, enabling consumers to obtain public subsidies to help pay the premium costs.

“While the State’s reinsurance program has already benefitted the residents of New Jersey through lower premiums, providing certainty regarding the funding is critical and necessary to states utilizing the program and can only be achieved through increased transparency,” Caride said. Premium costs declined by an average of 9 percent in New Jersey for 2019 plans sold through the individual market, compared to 2018 prices.

Regardless of the outcome with federal officials, insurance experts stress that it is too soon to worry about any potential shortfall in funding; the entire reinsurance budget is based on estimates related to potential claims for the coming year. And the state isn’t scheduled to reimburse these costs until the fall of 2020, officials said.

“Everyone involved is estimating at this point. It’s a little too early to panic on this,” said Ward Sanders, president and CEO of the New Jersey Association of Health Plans, which represents the state’s insurance companies. “It’s all going to depend on expenditures for this calendar year, and we’ve just started it,” he said.

New Jersey is among a handful of states that recently created healthcare reinsurance programs, one of several options available through the ACA’s innovation waiver process. And it is not alone in receiving lower estimated federal support than expected for 2019.

New Jersey not the only state to get less

CMS documents show that Minnesota, now in its second year with the program, should anticipate receiving nearly $46 million less than it got in 2018, a drop of 35 percent, and Oregon could see $12.6 million, or 23 percent, less than it got last year; Wisconsin, launching its program this year, is also slated for less federal funding than it had contemplated, experts said.

Federal officials suggest their contribution, known as pass-through funding, is dependent on how much they can save on the public premium subsidies for consumers in each state, a figure that is dependent on a number of factors, including the price of specific plans on the ACA marketplace and the total value of the premiums collected.

But in her letter, Caride questioned federal officials on which statistics they used as a baseline and urged them to explain the methodologies involved in reaching their calculations. “If the State Innovation Waiver process is to accomplish the goals of allowing states to pursue innovative strategies, it is imperative that the process be as transparent and predictable as possible,” she wrote.

The state anticipates funding its share of the program with money collected through New Jersey’s individual insurance mandate, which requires residents — except those who obtain economic hardship waivers — to obtain health insurance or pay a fee on their income tax. Other money will come from the general fund.

(New Jersey was the second state to adopt such a mandate, after Massachusetts, in an effort to encourage healthy individuals to participate in the insurance market, further spreading the coverage risk. A similar federal mandate associated with the ACA ended last year as a result of changes President Donald Trump made to the federal tax code.)

A backstop for insurers

The reinsurance program, designed to continue for five years, is set up to reimburse insurance carriers for up to 60 percent of the cost of claims that fall between $40,000 and $215,000. With this backstop, the state’s actuaries predicted insurance plans could trim costs for certain benchmark plans by nearly $100 a month, helping to attract thousands of new customers to the market.

More than 255,000 individuals have signed up for coverage through the market’s individual exchange, according to federal data released last week, versus nearly 275,000 the previous year. While lower numbers were expected, given less federal investment in outreach, these figures do not include individuals who obtain coverage directly from insurance carriers; they also don’t account for changes that occur during the year, as some who signed up may not follow through with payments or other information needed to secure their coverage.

Whatever happens with the reinsurance program funding, experts said the question should be of little worry to policyholders. “This is a behind-the-scenes kind of issue that doesn’t impact coverage for 2019,” Sanders, with AHP, added. “Consumers should not be concerned.”