Maryland Reinsurance Efforts: A Case Study

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By Murray Ross, PhD, Director of the Kaiser Permanente Institute for Health Policy

We often refer to states as ‘laboratories of democracy,’ as key first responders whose actions can inform a whole nation. Currently, following the repeal of the tax penalty that enforced the individual mandate in the Affordable Care Act, states are taking up the policy question of how to best stabilize the individual marketplace. In Maryland, policymakers are working to balance multiple variables, including how to design a state reinsurance program that considers federal risk adjustment payments.

At Kaiser Permanente’s Institute for Health Policy we are following this conversation closely because we believe a stable marketplace that promotes innovation and healthy competition is essential for ensuring access to affordable, high-quality healthcare for everyone. We’re also interested in how policymakers are applying the research and lessons from the first years of the reformed individual marketplace, especially since some of the early elements have expired or lack political support.

In Maryland we are at an important inflection point. During this past year the state legislature, Governor Hogan, and the Maryland Health Benefits Exchange Board (MHBE) and staff began to develop a Section 1332 waiver to ensure affordable coverage on the individual market for all Marylanders. At Kaiser Permanente, we applauded this choice because a reinsurance program – if its design properly accounts for all the variables – will go a long way to stabilizing premiums in the individual market.

One area we would flag for policymakers is the so-called double-dipping or double payment problem identified by both Milliman and Wakely papers in 2017. The draft Maryland waiver has to grapple with this issue head-on; unless a specific adjustment is made, the proposed program would allow carriers that are already paid substantial amounts under the federal risk adjustment program to be paid again for higher risk membership under the reinsurance program. Avoiding this outcome is central to the success of a reformed health system. We want to encourage competition based on high-quality, cost-effective care for the most challenging cases, and not based on insurers avoiding financial risk. We should avoid (over)subsidizing high-cost, poorly-managed cases at the expense of clinically identical but well-managed cases that achieve both high quality and lower overall cost. The proposed Maryland structure runs the risk of more than fully compensating the first while effectively penalizing the second.

The practical effect is that a program with good intentions might end up hurting consumers and picking “winners” and “losers” in the marketplace. Instead of all Marylanders seeing premium relief of roughly 30% compared with what they would otherwise pay in 2019, the relief would be concentrated among a minority of individual market enrollees. The majority would see less relief, and some — including the 75,000 Marylanders who choose Kaiser Permanente — would be faced with no-win situations, forced to choose between receiving premium relief and leaving doctors with whom they have built trust and integrated highly coordinated model of care that aligns with their needs. 

We believe the real-time case study presented in Maryland is relevant to all states. Maryland certainly will not the be the last state forced to confront these challenging questions, making this juncture a key learning opportunity for all health policy professionals.

At Kaiser Permanente, we believe health care must be affordable for all – because thriving individuals, families, and communities require that. We urge policymakers to take the necessary steps to ensure that waivers are fair, benefit all taxpayers as equally as possible, and encourage competitive marketplaces. Let’s learn from our experiences in the early years of the ACA, recognize the political realities applicable at the federal and state level, and develop appropriate solutions.

Additional Reading:

American Academy of Actuaries in their May 2017 Issue Brief – “How Changes to Health Insurance Market Rules Would Affect Risk Adjustment

Milliman’s 2017 White Paper –  “Pairing Risk Adjustment to Support State 1332 Waiver Activities

Wakely 2017 paper for the Washington Office of the Commissioner – “Individual Health Insurance Market Stabilization Analyses”

Kaiser Permanente comment letter and supporting document to Maryland Health Benefit Exchange

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