Section 1332 Waivers-Reinsurance

Section 1332 of the Affordable Care Act (ACA) allows states to apply for a State Innovation Waiver to pursue innovative strategies for achieving high quality, affordable health insurance and to to alter key ACA requirements in the individual and small group insurance markets in furtherance thereof. A January 7, 2020 Kaiser Family Foundation article reported on approved waivers (Alaska, Colorado, Delaware, Hawaii, Maine, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Rhode Island, Wisconsin), pending waivers (Georgia), waivers deemed incomplete (Idaho, Massachusetts, Ohio, Vermont), and withdrawn waivers (California, Iowa, Oklahoma).[1]

Most states have used 1332 waivers to help finance reduced reinsurance premiums in their individual health insurance markets. “While reinsurance programs can be designed in different ways, many states have modeled their programs on the temporary federal program set up under the ACA, which ran from 2014 through 2016. It provided reinsurance payments to individual-market plans when their annual cost for an enrollee exceeded a specified amount, called the “attachment point.” Those payments covered a portion of plan costs (known as the “coinsurance rate”) between the attachment point and a limit called the “reinsurance cap,” above which the insurer stopped being eligible for reinsurance payments. … In the individual insurance market, reinsurance programs reduce overall premium costs compared to what they would be without reinsurance. Therefore, consumers who pay the full sticker price of their coverage — that is, people not eligible for ACA subsidies — will see lower premiums if their state implements a reinsurance program.”[2]

On July 24, 2020, Pennsylvania became the thirteenth state to be approved for a state-based reinsurance program. “Pennsylvania received federal approval for a five-year reinsurance program beginning with the 2021 plan year. The state’s $139.3 million reinsurance program is expected to reduce premiums by about 4.6 percent (relative to what premiums would have been in the absence of the waiver) and increase enrollment in the individual market by about 0.5 percent in 2021. The federal government will contribute $95.1 million while state funds would account for about $44.2 million. Implementation of the reinsurance program will coincide with a transition away from the federal marketplace to the new state-based marketplace, the Pennsylvania Health Insurance Exchange (Exchange). Both the reinsurance program and the Exchange were created in the same piece of 2019 legislation, which requires the Exchange to assess and collect fees—up to 3.5 percent of total monthly premiums—to support the reinsurance program. Each year, the Exchange will collect the user fee from insurers, deduct its operating expenses, and transfer the remaining funds to a reinsurance fund. In making reinsurance payments to insurers, Pennsylvania intends to first exhaust federal pass-through funding and then user fee revenue.”[3]


[2] Center on Budget and Policy Priorities, Reinsurance Basics: Considerations as States look to Reduce Private Market Premiums, April 3, 2019.

[3] Health Affairs, “ACA Round-Up: Pennsylvania Waiver Approved, DE Guidance, and More”, July 29, 2020.