Avalere: State-run reinsurance reduces premiums by 20%

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Avalere found that reinsurance saves states from skyrocketing premiums. (Pixabay)

In a recent look at reinsurance programs across the country, Avalere found that reinsurance reduces individual market premiums by 19.9%, on average, in the first year.

According to the data collected from states with reinsurance programs, the combination of state and federal funds being paid to insurance companies to offset losses can help avoid statewide premium increases, while also reducing the number of uninsured.

Chris Sloan, associate principal at Avalere, says that state-based reinsurance programs are a good financial deal for states—if they can get the funding. Currently, seven states have created reinsurance programs using Section 1332 of the Affordable Care Act (ACA)—or pass-through funding—including Arkansas, Minnesota, Oregon, Maine, Maryland, New Jersey and Wisconsin.

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Looking at the data from these seven states, Avalere found that premium reductions ranged between 6% and 43.4% overall. In addition, these programs led to federal savings of about $1 billion on advanced premium tax credits (APTCs).

RELATED: New legislators and governors may expand reinsurance programs

The state with the biggest drop in premiums in the first year was Maryland in 2019, with a 43.4% dip in premiums. The next highest drop was in Arkansas, where reinsurance pushed premiums down 34.7%.

However, states have to bear a lot of the costs for such a program, averaging around 31.9%, which equals about $72.7 million a year in funding. For example, on the high end, Minnesota carries 51.7% of the funding for its reinsurance program, costing the state $140 million annually.

Similarly, in a study released in the end of 2018 by the Georgetown University Health Policy Institute's Center on Health Insurance Reforms, analysts found that Alaska, Minnesota and Oregon avoided massive increases in premiums between 2017 and 2018 due to state reinsurance.

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