Virginia’s reinsurance program earns federal approval

Virginia is the latest state to earn approval for a reinsurance program, which will reimburse certain insurers for high-cost claims.

With the decision on Virginia by federal regulators Wednesday, 16 states have been approved for reinsurance programs.

Virginia expects the program to decrease premiums by an average of 15.6% across the state in 2023. Individual market enrollment is projected to be 2.9% higher next year as well.

The state’s reinsurance program will reimburse individual market insurers for claims of between $40,000 and $155,000, with a 70% coinsurance rate.

Since the federal government will pay fewer dollars toward premium tax credits for Virginia enrollees next year, the state will receive the difference to help fund the reinsurance program. The program isn’t allowed to increase the federal deficit, so Virginia’s funding could be reduced in the future to maintain budget neutrality.

Virginia’s individual market served more than 291,500 people in 2019, according to the latest data from the Kaiser Family Foundation. Anthem covers 43% of people in the state’s individual market, while Cigna covers 31% and Kaiser 12%.

The Affordable Care Act established a transitional reinsurance program to stabilize individual market premiums from 2014 through 2016. Advocates and insurers have pushed for a national reinsurance program in the past, but that could come at a price tag of more than $30 billion, according to a 2019 study.

In the absence of a national program, states can apply to federal officials for reinsurance programs through so-called 1332 waivers.

There’s less momentum for reinsurance in the individual market these days, said Justin Giovannelli, an associate research professor and project director at the Center on Health Insurance Reforms at Georgetown University. The individual insurance markets are more stable than they were a couple years ago, and enhanced premium assistance temporarily made possible through the American Rescue Plan has also directly lowered premiums.

But the enhanced premium subsidies are scheduled to expire after the 2022 plan year, which could give reinsurance another moment in the spotlight, Giovannelli said. States where premium subsidies are more politically controversial may have more interest in reinsurance.

“If you’re that state, reinsurance certainly might have a place,” he said.

Virginia’s waiver runs through 2027 and can be extended.