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The state is exploring whether a Montana-run reinsurance program would help lower the premiums people pay when buying their health insurance on the federal marketplace, in some cases by 10-20 percent.

Insurance companies buy reinsurance to offset risks from covering people with high-cost and sometimes pre-existing conditions, essentially protecting the companies from high claims for that group of people.

Reinsurance acts as an invisible backstop: People who buy health insurance on the exchange don't know it's there, but insurance companies can tap into the program to offset high claims.

Montana Gov. Steve Bullock and Department of Administration Director John Lewis are creating a 13-person working group to explore how a state-run reinsurance program might work in Montana. The group will use information from a recent study commissioned by the Montana Healthcare Foundation looking at what reinsurance could mean for the state.

The study shows reinsurance could lower premiums that have risen by double digits in recent years. Those rates could drop anywhere from 9.6 percent to nearly 30 percent on extreme ends of the spectrum, according to the study.

Reinsurance drives down insurance costs because companies are able to remove high-cost claims that are paid for through the program from the following year’s premium calculations.

The federal marketplace set up under the Affordable Care Act allows people who don't get insurance through their employer or programs such as Medicare and Medicaid to buy their health insurance coverage. 

In Montana, Blue Cross and Blue Shield of Montana, PacificSource and the Montanan Health Co-Op sell on the marketplace.

“With the uncertainty and instability coming out of Washington, D.C., we must do what we can in Montana to drive down costs and stabilize the marketplace — and the time to act is now,” Bullock said Wednesday.

Lewis, the Administration Department director, said having a stable marketplace is critical for the state.

“Recent federal action has destabilized the individual market, leaving Montanans who buy individual health coverage with increasing health insurance premiums,” Lewis said. “Reinsurance for Montana could be a game-changer in the battle against rising health care costs.”

Foundation Chief Executive Officer Aaron Wernham said the foundation's role is to help pay for good data the state can use to make decisions.

“By helping fund these studies, we can help the state figure out how to make that coverage more affordable for low- and middle-income people,” Wernham said. “We know income and lack of insurance are some of the main drivers of poor health outcomes."

The foundation commissioned Wakely Consulting Group to analyze different scenarios under which Montana would apply for what's called a 1332 state innovation waiver to peruse the reinsurance program.

Reinsurance typically works in one of two ways. In the first system, an insurance company can access the pool when a claim reaches a certain level, say $100,000. There would also be a cap on how much companies could access; in some states it’s $1.5 million. In the other system, there are certain claim types eligible for reinsurance.

The working group would draft legislation to bring to the 2019 Legislature, which meets January-April. The Legislature must pass a bill for the state to apply for the waiver.

John Doran, vice president of external affairs and chief of staff at Blue Cross and Blue Shield of Montana, said a reinsurance pool is the company’s top priority for the 2019 legislative session.

“It’s the missing ingredient in stabilizing the individual marketplace,” Doran said Wednesday.

Doran said while the marketplace has had instability since its start, three recent changes have increased the problem:

 the elimination of the individual mandate starting in 2019;

• the expansion of short-term policies that are less expensive but can provide less coverage; 

• the end of cost-sharing reduction payments; even though federal funding is gone insurance companies are still required to provide them.

Reinsurance would be paid for by a mix of state and federal funding, which would make up between 60-80 percent of the total pool.

The federal money would come from what the government is already spending on the exchange. Right now, the federal government provides premium credits that help about 85 percent of Montanans who pay for insurance on the exchange. Those tax credits are available to people based on the percentage of their income spent on an insurance plan.

If the cost of insurance was lower, fewer people would need the credits. Under the waiver, the state can ask for that federal savings to help fund its reinsurance program.

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While the report the foundation commissioned suggests a 1-2 percent tax on health insurance companies to come up with that money, Doran said Blue Cross and Blue Shield would prefer another route.

Blue Cross and Blue Shield pays a 2.75 premium tax already. PacificSource and Montana Health Co-Op do not pay the tax. That’s because of a difference in how state law interprets the way the companies operate.

Doran estimated if the other two companies paid the same tax Blue Cross and Blue Shield does, it would generate $12 million a year that could go toward a reinsurance pool.

The report does caution that even if premium prices drop, it may not be enough to keep people in the marketplace.

Twice in 2017, the state Legislature passed bills that would have put Montana down the path of exploring a reinsurance program. But both bills were vetoed by Bullock.

Bullock's administration said Wednesday there were concerns that legislation did not meet requirements called for under the waiver application. One of the bills vetoed was brought during a special session to address a state budget crisis. At the time, the governor's office said a session called to keep the state from running out of money wasn't the right venue for exploring broad-sweeping health care policy changes.

The auditor's office, which supported the vetoed legislation, on Wednesday said it was happy the state is examining reinsurance but questioned why previous bills were shot down.

Spokesman Kyle Schmauch said state Auditor Matt Rosendale has tried to push a reinsurance program since taking office and the state is now behind the ball.

"It is unfortunate that two state auditor bills to do just that were vetoed last year and Montana is now further behind than we should be, but we are optimistic that we can create a good system going forward," Schmauch said. He added that Rosendale will continue to pursue options and work with the Legislature and governor's office. "Several other states have already created successful reinsurance programs and it’s past time for Montana to do the same."

Schmauch said the auditor's office, which has a representative on the working group, has been preparing to administer a reinsurance program. The governor's office said the working group would explore where a program would be operated, with options including an independent board with members appointed from several agencies.

Alaska, Hawaii, Maine, Maryland, Minnesota, New Jersey, Oregon and Wisconsin have approved waivers, according to the Kaiser Family Foundation.

Reinsurance is different from the high-risk pool the state operated from 2010-2013. The pool struggled financially as medical costs for people it covered were much higher than projected. That pool provided insurance to people who could not get coverage elsewhere because of pre-existing conditions. This was before the Affordable Care Act made it illegal to deny insurance coverage to people with pre-exisitng conditons.

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