Last year, health care premiums in Oklahoma for policies offered on Healthcare.gov by the state’s lone remaining nongroup insurer soared by more than 70 percent, the highest increase that year. In response, the state is now poised to use the Affordable Care Act to develop a reinsurance program that is expected to decrease premiums by more than 30 percent in the first year while restraining future premium growth, bringing more lives into the market, and shielding insurers from higher medical expenses. Indeed, Oklahoma’s ambitious reinsurance proposal is the state’s first real effort at engaging meaningfully with the Affordable Care Act. Here’s how it will work. 

Federal law gives states flexibility in implementing the Affordable Care Act

In all the clamor around the ACA, one provision has gone relatively unnoticed, in part because it only recently took effect. Section 1332 of the health law allows states to apply for waivers to use federal money dispensed into their state through the law to implement creatively the primary goals of the ACA. Under a Section 1332 waiver, coverage has to be at least as comprehensive and affordable while covering at least the same number of people as would be covered without a waiver, and the proposal’s costs can’t increase the federal deficit. In 2016, the Oklahoma Legislature passed a law to require exploring such a waiver, and legislation passed earlier this spring further cemented those efforts.

A handful of states are in the process of developing or submitting waivers to the federal agency that oversees them. Oklahoma’s 1332 waiver, which proposes a large reinsurance program to keep down the cost of premiums, is one of the most ambitious.

Reinsurance reduces the effects of high health care costs – and premiums

The primary driver of health insurance premium increases is higher than expected health costs, which leads insurers to raise premiums to cover the cost of care. Reinsurance prevents big premium increases by paying part of insurers’ claims once they pass a certain dollar threshold, or covering health care costs for some very expensive conditions.

Most Oklahomans who get their health insurance from Healthcare.gov use a federally-funded premium subsidy to buy their coverage. Because the subsidy is tied to the cost of their premium, reducing premiums means that subsidies will be smaller, too. In Oklahoma’s reinsurance program, the vast majority of the reinsurance funds would be drawn from federal dollars not spent on subsidies. In addition, a small fee – roughly $2.00 per member per month at last estimate – assessed on most health insurance premiums statewide will make up the state share. The state estimates that pre-subsidy premiums in Oklahoma will be more than 30 percent lower in 2018 than they would be without reinsurance, as shown in the accompanying graph.

Reinsurance will increase health care coverage and may expand choice

As a result of lower premiums, Oklahoma enrollment on Healthcare.gov is predicted to grow by more than 20,000, mostly due to an influx of higher-income individuals and families who earn too much to qualify for a premium subsidy (earning at or above nearly $50,000 for an individual or $100,000 for a family of four). These new enrollees are expected to be relatively healthy, which will also serve to bring costs down for enrollees. Households purchasing coverage with a subsidy probably won’t notice any difference, as the subsidies insulate them from both premium increases and decreases. Families who don’t get their coverage through Healthcare.gov may see a premium increase of less than 1 percent, caused by the fee funding the state share of the program’s costs.

The reinsurance program may also help entice more Oklahoma insurers to sell health coverage on Healthcare.gov because insurers should be protected from the kind of losses that have previously pushed them out of the marketplace. Indeed, the sheer scope of Oklahoma’s program may be a powerful signal to insurers that the state is serious about keeping costs down. At more than $300 million for roughly 170,000 covered lives, Oklahoma’s reinsurance program is substantially larger than the states its proposal is modeled after. By comparison, Alaska’s $55 million reinsurance program is expected to cover 20,000 people, while Minnesota expects to spend $271 million on reinsurance for just shy of 300,000 people.

This is in part because reinsurance will kick in much earlier in Oklahoma’s program, and last longer. Oklahoma’s reinsurance program would begin reimbursing insurers for 80 percent of claims after just $15,000 of medical expenses. In Minnesota, by contrast, reinsurance fund payouts would be triggered when an individual incurred $50,000 in medical expenses. 

Oklahoma’s reinsurance proposal is operating under a tight time frame

Oklahoma submitted its waiver to the federal government on August 16th. When Open Enrollment begins on November 1, rates should be adjusted downward accordingly, and the reinsurance itself will take effect on January 1, 2018. The waiver task force has been in close contact with federal agency charged with evaluating the waiver throughout the development process and expect implementation will be smooth. However, if for some reason the reinsurance program doesn’t begin this year, Oklahoma’s Healthcare.gov enrollees still shouldn’t see much change in their premiums, even if they’re enrolling without subsidies. According to preliminary filings, Blue Cross Blue Shield of Oklahoma is only requesting an 8 percent rate increase this year, a far cry from last year’s eye-watering rate hikes. 

“After years of steadfast refusal to consider taking advantage of the health care law’s potential in Oklahoma, the reinsurance waiver is Oklahoma’s first real effort to work with the ACA to improve access to care in Oklahoma.”

Oklahoma is finally engaging with the Affordable Care Act

After years of steadfast refusal to consider taking advantage of the health care law’s potential in Oklahoma, the reinsurance waiver is Oklahoma’s first real effort to work with the ACA to improve access to care in Oklahoma. Furthermore, the waiver task force is planning a number of further waivers over the next few years. Details on these aren’t yet clear, and some suggestions may not be the most effective or efficient ways to increase access to care or bring down costs. But they are meaningful efforts to work within the Affordable Care Act to improve access to care, and the proposed reinsurance program appears to be a strong first step in that direction.