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Published June 13, 2024

UMN researchers estimate cost of national reinsurance program

The program may stabilize health insurance premiums in unpredictable individual insurance market.

By analyzing data from two national surveys, researchers at the University of Minnesota have estimated the cost of a national reinsurance program, which could help stabilize health insurance premiums in the unpredictable individual insurance market.

The report released last month in the Journal of Health Care Organization, Provision, and Financing, found it would cost the federal government about $30 billion to establish a national reinsurance program, if approved, from 2020 to 2022.

“There’s been a lot of turbulence in the health care insurance marketplace for years now,” said Coleman Drake, a researcher on the study and a visiting assistant professor of public health at the University of Pittsburgh.

Reinsurance is a payment made to individual marketplace insurers which helps negate the effects of providing coverage for costly clients, like those with preexisting conditions or high prescription drug costs. The funds help neutralize insurers’ risks when covering costly patients and can encourage new insurers to enter the marketplace.

Drake said reinsurance does not affect the group marketplace or people who get their health care through employment. Though reinsurance is commonly thought to benefit the lowest income recipients, it instead helps those who make a livable wage but must purchase their own health care.

Minnesota was among the first three states to implement statewide reinsurance in January of 2018, alongside Alaska and Oregon. Lynn Blewett, lead researcher on the project, said Minnesota’s reinsurance program effectively reduced premiums by 20 percent.

Between 4 and 6 percent of Minnesotans have individual health care insurance, Blewett said.

“I know $10 billion a year sounds like a big number, but, in terms of these national health care numbers, that’s not an astronomical amount,” said Drake. “This gives us more certainty about what a national reinsurance program would cost.”

But some argue the government’s efforts are better spent trying to tackle the root of unstable health care premiums, namely the rising cost of health care.

Though reinsurance has helped lower premiums for some, it has not proven beneficial across the board. Throughout the examined two years, it cost the state of Minnesota $542 million annually, according to Jennifer Schultz, a professor of economics at the University of Minnesota-Duluth and a member of the Minnesota House. 

Schultz said the future of the reinsurance program in Minnesota is in question in the Minnesota Legislature as the state weighs if it can afford to continue the program after its expiration next January.

“It would be a better use of money to tackle health care costs rather than dumping money into a temporary solution, which is regulating the cost of reinsurance,” Schultz said.

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