Wednesday, May 23, 2018

In New Jersey, ACA reinsurance or....?

Here in Jersey, progressives are urging Governor Murphy to sign two bills designed to fend off Republican sabotage of the ACA. The first would establish a state individual mandate to replace the effectively repealed federal mandate. The second would seek federal funding for a reinsurance program for the individual market for health insurance, designed to reduce premiums by 10-20%.

If the two bills are enacted and the ensuing waiver application seeking federal funding for reinsurance is approved, the two measures should reduce premiums by 20-30%, compared to where they'd be if no action is taken. For more detail, see this writeup.

Governor Murphy is likely to sign the mandate bill, but there are indications that he may seek changes to the reinsurance bill. The problem is cost.

Rough projections are that revenue from the mandate would cover a third to half of the reinsurance program's costs, while the federal government picks up half or a bit more than half. The state could be on the hook for an additional $30-40 million per year. New Jersey is in dire financial shape;  Murphy has a lot of spending priorities, and a looming fight on his hand to raise new revenue.

State Senator Joseph Vitale is confident that if the program proves to need more funding by FY 2021, when the first bill to insurers comes due, a revenue source can be developed -- probably via an assessment on insurers. Murphy might seek to get that in writing, in the bill -- as it was in an early version.  He would do so by issuing a conditional veto, after which the legislature would have to vote on an amended bill by June 7.

I found myself mulling this evening: If the bid to stand up a reinsurance program fails, how else might the mandate revenue, projected at about $90-100 million per year, be deployed to boost healthcare access in the state? One answer might be simply to return the mandate revenue to those hurt most directly by rising premiums: enrollees in the individual market who don't qualify for federal subsidies (subsidized enrollees pay a fixed percentage of income for a benchmark plan and so are not directly affected by premium hikes). These are mostly people above the income eligibility threshold, 400% of the Federal Poverty Level (FPL). They also include people who are ineligible for subsidies because of an offer of insurance from an employer.

Here's a rough calculation. New Jersey currently has about 150,000 unsubsidized enrollees in ACA-compliant plans. $90 million in revenue, distributed as a flat rebate to all individual market enrollees who don't get federal subsidies, would come to about $600 per person per year, $50 per month.  The average premium for a benchmark silver plan in New Jersey in 2018 (varying greatly by age) was $413 per month. Thus this direct subsidy would cover about 1/8 of the premium on average. Since premiums vary by age and region, a more complex allocation could also be developed.

That may not sound like much of a break. But a large percentage of unsubsidized individual enrollees -- perhaps half -- are self-employed and so take the self-employed health insurance tax deduction, worth say 15-37% of the premium, depending on income bracket. In fact another alternative might be to provide a state health insurance tax deduction to individual market enrollees who don't qualify for federal subsidies.

The weakness here is that the reinsurance program leverages federal funding; altogether, almost three times as much money as the mandate alone is expected to yield would be plowed into reducing premiums under such a program (or perhaps 2.5 times as much if the plan is less ambitious). The more premiums come down (or the more increases are reduced), the more people enroll, the better the risk pool -- it's a virtuous cycle, and one that benefits the federal government as well as those who are ineligible for federal ACA tax credits (that's why the feds are willing to partly fund reinsurance programs).

So here's hoping Murphy leverages the federal funding on offer. But there are alternatives if he balks.

1 comment:

  1. Let me ask the following:

    What is the total taxable income of New Jerseyans>

    What per cent of that is $40 million?

    How many Jerseyans in government,universities,schools, and corps, have an income over $80,000 plus a Cadillac health plan at no cost to them?

    Finally, I am baffled by "an assessment on insurers". Isn't the reinsurance supposed to cut the costs of insurers>