CMS Announces Reinsurance Funding For NJ, WI

by Katie Keith, Health Affairs Blog, Dec 28, 2018

In December 2018, the Centers for Medicare and Medicaid Services (CMS) posted two additional letters notifying officials in New Jersey and Wisconsin of the amount of federal pass-through funding they will be receiving pursuant to approved waivers under Section 1332 of the Affordable Care Act (ACA). Combined, these two states will be receiving about $308 million in federal pass-through funding for state-based reinsurance programs.

CMS had previously posted letters for the other six states with Section 1332 waivers: Alaska, Hawaii, Maine, Maryland, Minnesota, and Oregon. In total, the estimated 2019 pass-through funding for all eight states is about $942 million—almost $1 billion. Nearly 40 percent of this total funding will go to Maryland, which has the largest state-based reinsurance program.

Brief Background

Section 1332 allows states, with federal approval, to waive certain requirements of the ACA so long as the state’s proposal meets specific procedural and substantive requirements. To help fund these efforts, Section 1332 allows the federal government to “pass through” the money that it would have spent on premium tax credits, cost-sharing reductions, and small employer tax credits to the state. 

Of the eight states with an approved Section 1332 waiver, all but Hawaii established a state-based reinsurance program. Reinsurance programs help insulate insurers from heavy losses if they end up enrolling a higher-risk population with higher claims. Insurers can thus lower their premiums, instead of raising rates for everyone out of fear they will end up with heavy losses. Lower premiums result in lower federal outlays for premium tax credits and likely contribute to increased enrollment, which, in turn, can help further reduce premiums.

For state-based reinsurance programs, states receive pass-through funding based on the amount of premium tax credits that the federal government would have otherwise provided to eligible individuals absent the waiver. Alaska, Hawaii, Minnesota, and Oregon had waivers in effect in 2018 (meaning those states are entering their second or third year under the waiver). Although the estimates are preliminary, Alaska is expected to receive more pass-through funding in 2019 (relative to 2018) while Hawaii, Minnesota, and Oregon will see their pass-through funding drop (relative to 2018). Previous posts have discussed why federal pass-through funding may vary on an annual basis, but a drop in pass-through funding suggests that the reinsurance program has been successful at limiting premium increases.

CMS and the Treasury Department calculate the amount of pass-through funding for each state on an annual basis using data supplied by the state. In early December, the Office of Tax Analysis (OTA) within the Treasury Department released a brief summary of its method for calculating the amount of pass-through funding for state-based reinsurance waivers. The methodology was developed in collaboration with the Office of the Actuary within CMS. The summary is quite technical and includes the four steps used to estimate premium tax credits savings to the federal government.  

To populate the methodology, states must submit data on rates, what rates would have been in the absence of the waiver, total premiums, and advanced premium tax credits, among other information. CMS notifies states of annual estimated pass-through funding based on that data. Actual pass-through payments—which represent the true final amount of funding—occur in the spring of each year.

Pass-Through Funding For 2019 In New Jersey And Wisconsin

In 2018, CMS and the Treasury Department approved four new Section 1332 waivers for state-based reinsurance programs in Maine, Maryland, New Jersey, and Wisconsin. In total, these states will receive about $746 million in federal pass-through funding for 2019, about half of which will go to Maryland.

New Jersey will receive an estimated $180 million in pass-through funding for 2019. This is lower than the $218 million that the state had estimated in its waiver application for 2019. Regular readers will recall that New Jersey’s reinsurance program is unique: a portion of the state’s funding for the reinsurance program will be generated by revenues collected under the state’s new individual penalty. Wisconsin will receive an estimated $127.7 million in pass-through funding for 2019. This is similarly below the estimated pass-through funding of $166 million in the state’s waiver application.

As discussed previously, Maine and Maryland are expected to receive about $65 million and $373 million, respectively, in pass-through funding for 2019. In contrast with New Jersey and Wisconsin, these two states are expected to receive more than the estimates in their waiver applications. It is not immediately apparent what is causing the discrepancies between the application estimates and the pass-through awards.

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2015: Analysis: Hawaii First State to Seek Obamacare Waiver