Background: Washington State Health Insurance Pool. The Washington State Health Insurance Pool (WSHIP) is the high-risk pool for Washington. WSHIP is an independent, nonprofit entity created by legislation that provides coverage for individuals who are unable to obtain comprehensive health coverage or Medicare supplemental coverage. The program is funded through enrollee premiums and assessments placed on all regulated health plans, including Medicaid managed care plans and the state's self-insured Uniform Medical Plan.

Federal Reinsurance Program. The federal Affordable Care Act (ACA) created three premium stabilization programs to address adverse selection inside and outside of the Health Benefit Exchange (Exchange)—risk adjustment, reinsurance, and risk corridors. The Reinsurance Program, which expired in 2016, required most health plans, both inside and outside the Exchange, to contribute funds for disbursement to individual market plans with high-cost enrollees.

Reinsurance Waivers. Under section 1332 of the ACA, states may apply for innovation waivers to implement state-specific strategies that waive certain federal rules. Multiple states, including Alaska, Iowa, Minnesota, Oklahoma, and Oregon have submitted waivers to operate state-based reinsurance programs. Iowa and Oklahoma subsequently withdrew their waivers before final federal approval. Alaska, Minnesota, and Oregon have been approved by the Centers for Medicare and Medicaid (CMS) to begin operation of state reinsurance programs.

The two predominant types of reinsurance options are condition-based programs and claims-based programs. Conditions-based programs reimburse issuers for the claims of members who have certain conditions. Alaska adopted a condition-based reinsurance program in 2016, and it was approved by CMS in July 2017. Claims-based programs reimburse issuers for each member whose total claims hit a certain dollar amount. Minnesota and Oregon both adopted claims-based programs, and both received federal approval in 2017.

Market Stabilization Analysis. In 2017, the Insurance Commissioner (Commissioner) hired Wakely Consulting Group to undertake a market stabilization study to analyze policies to improve affordability and access to health care coverage. The Wakely report analyzed claims and condition based reinsurance programs, as well as several state-offered options. The report found that any of the reinsurance program options would reduce premiums and would be expected to reduce claims costs for issuers, but did not comment on the feasibility of funding mechanisms.

Summary of Bill: Program Creation. The Washington reinsurance program is established to stabilize the rates and premiums for individual health plans, and is to be operated by WSHIP. The WSHIP Board of Directors (Board) must prepare and adopt a reinsurance plan of operation and submit it to the Commissioner for approval. WSHIP and the Board is authorized to:

enter into contracts as necessary;
sue or be sued;
appoint committees from among its members to provide technical assistance;
hire consultants;
cause the program to be audited;
borrow and repay capital and reserves; and
perform other functions as necessary to operate the program.

Reporting. The Board must submit financial reports to the Commissioner including:

funds deposited in the reinsurance program account;
requests for reinsurance payments from eligible health carriers; and
administrative and operational expenses incurred.

Plan of Operation. The Board must submit a reinsurance plan to the Commissioner by May 1, 2018, to include:

procedures for accounting of assets;
times and places for meetings;
data and information requirements for submission of reinsurance payment requests;
procedures for collection of assessments;
procedures for keeping records; and
procedures for submitting data to create quarterly reports.

The plan must specify that the reinsurance program is to be operated separate from the health insurance pool.

Payments to Eligible Health Carriers. The Commissioner must annually determine the payment parameters for the program. The payment parameters for 2019 must be consistent with the parameters included in the state innovation waiver. For subsequent years, the parameters must be established by March 31.

The Commissioner must set the attachment point, the threshold amount for claims costs incurred by an eligible health carrier for an enrolled individual's covered benefits to become eligible for reinsurance payments, between $75,000 and the reinsurance cap. The Commissioner must set a coinsurance rate between 50 and 80 percent. The Commissioner must set a reinsurance cap, the threshold amount for claims costs incurred by an eligible health carrier for an enrolled individual's covered benefits over which the claims costs are no longer eligible for reinsurance payments, between $500,000 and $1 million.

A health carrier becomes eligible for a reinsurance payment when the claims costs for an eligible individual's covered benefits in a benefit year exceed the attachment point, when the health carrier has implemented care management practices for enrollees, and the health carrier makes the request for reinsurance payment. The amount of the payment equals the product of the coinsurance rate and the carrier's claims costs for the individual that exceed the attachment point.

Claims submitted by health carriers for purposes of the reinsurance program are confidential and not subject to public review.

Reinsurance payments to eligible health carriers cannot exceed $200 million for any applicable benefit year.

Program Assessments. On or before September 1 for each calendar year, the Board must determine the covered lives assessment necessary to generate $200 million per year in the upcoming benefit year. The aggregate amount to be raised in any year may be reduced by any surpluses in the program account. Each health carrier and third party administrator's assessment is determined by multiplying the total eligible claims by a fraction. The numerator of the fraction equals the carrier or administrator's total number of covered lives. The denominator equals the total number of covered lives in the state. If an assessment against a carrier or administrator is prohibited by court order, the assessment must be assessed against all other carriers and administrators.

Assessments must be paid within 90 days of the carrier or administrator being notified. The Board may abate or defer assessments based on a determination that the assessment would endanger the ability of the carrier or administrator to fulfill its contractual obligations.

Assessments must be deposited in the reinsurance program account.

Third Party Administrator Registration. Third party administrators must register annually with the Commissioner beginning on or before January 1, 2019.

Washington Reinsurance Program Account. The Washington reinsurance program account is created to collect assessments and any federal funds received to support the program. The account must be used to operate the reinsurance program. Appropriations are not required to make expenditures from the account.

State Innovation Waiver. The Commissioner must apply to the Secretary of Health and Human Services for a state innovation waiver to implement the reinsurance program by April 1, 2018. The Commissioner must make a draft application available for tribal consultation and public review by March 1, 2018. The Commissioner must notify the chairs and ranking members of the House of Representatives and the Senate health care and fiscal committees of any federal actions regarding the waiver request.

Rate Filings. Carriers must calculate the premium amount that would have been charged for the benefit year if the Washington reinsurance program had not been established, and submit this information to the Commissioner as part of rate filing.

Contingent on Federal Waiver. WSHIP and the Board may not operate the reinsurance program if the state innovation waiver is not approved.

Rulemaking. The Commissioner may adopt rules necessary to implement the reinsurance program.

Alternative Financing. The Commissioner must consult with the Office of Financial Management, Department of Revenue, Health Care Authority, and Health Benefit Exchange to study alternative financing mechanisms for calendar years 2021 through 2023.

Civil and Criminal Liability. The program, health carriers and third party administrators assessed by the program, officers and employees of the program, and the Commissioner and the Commissioner's representatives and employees are not civilly or criminally liable for any actions taken or not taken in the performance of their powers and duties under the program.

Staff Summary of Public Testimony: PRO: This reinsurance plan could help stabilize the state’s individual insurance market. While it might not guarantee the solution, it would be an important piece to the puzzle. The provider and hospital communities' support for this bill would be contingent on there being no provider tax. There are still concerns that there would be counties with no insurance options, even with the reinsurance bill. This program manages risk behind the scenes, so nothing with plan offering or plan design changes for the consumer.

OTHER: A state based reinsurance program is an important tool to stabilize the individual market. It will help pay for high cost claims in a predictable manner. Reinsurance is proven to lower premiums, which can also increase enrollment. Carriers have experience with reinsurance programs and this program will utilize federal pass through funds to help offset the costs of administering it. There are some concerns around requiring issuers to bear the burden of paying for the program, when pharmaceuticals, providers and other factors are also cost drivers in the insurance market. This assessment will escalate prices disproportionately. The assessment should be broadened to cover a larger base of entities paying into the fund.

CON: Small businesses, individuals, and association health plans, already pay a large share of the assessments for WSHIP, and this is another narrow tax on these entities to cover a different population. There is no guarantee that each county will have coverage or that health insurance rates will go down. The only guarantee is that this program will add higher costs to policy holders. This is just a mechanism for the carriers to shift their risk.