Alaska is the largest state in the nation yet it has one of the smallest populations. Because of how rural and spread out it is, health-care providers are hard to find, expensive air ambulances are commonly used for transporting people in emergencies, and many patients have to travel 2,000 miles away for specialists in Seattle.
"It's not a good recipe for affordable health care," says Tim Jost, emeritus professor of health policy at Washington and Lee University.
Indeed it isn't. The state has the nation's highest premiums, at an average monthly cost of $904, for people who use the health exchange marketplace set up by the Affordable Care Act (ACA), otherwise known as "Obamacare."
At a time when the national average premium for this year was expected to rise 25 percent, Alaska was staring down a 42 percent increase. State leaders knew they had to intervene quickly. They came up with a plan that reduced the rise in premiums to just 7 percent, and it's now being touted as a model for other states.
Instead of continuing to send all of its tax revenue from insurance plans to the general fund, Alaska diverted $55 million into a reinsurance fund that pays for high-cost claims from the sickest patients with Premera, the state’s only insurer on the marketplace. The changed convinced Premera to lower its premiums by $56 million, saving money for consumers and the federal government, which subsidizes most marketplace premiums.
But it's just a two-year deal. Going forward, the state wants the federal government's help.
In December, Alaska asked the Centers for Medicaid & Medicare Services (CMS) to fund the reinsurance program for the next five years. In a letter to governors last month, Health and Human Services Secretary Tom Price referred to Alaska's proposal as "an opportunity for states to lower premiums for consumers, improve market stability, and increase consumer choice."
Lori Wing-Heier, Alaska’s insurance commissioner, expects the Trump administration to approve the waiver and fund around 85 percent of their request.
“It won’t be dollar-for-dollar, but it’s a significant portion of what we need to fund it,” she says.
The idea is already catching on in other states and will likely attract more attention if the feds agree to offer financial aid.
Minnesota released a draft of its reinsurance waiver application on Friday and will let the public comment on it for 30 days. In Oklahoma, where premiums increased 76 percent this year, a bill that would also create a reinsurance program similar to Alaska's is making its way through the legislature. The state is waiting on an actuarial assessment that will determine how much it would actually cost and how much it would save.
Pending positive results on those two fronts, Oklahoma will send its reinsurance waiver to CMS as soon as possible. Mike Rhoades, the state's deputy insurance commissioner, says that federal officials have expressed openness to expediting the application process.
“We’re not as far along as Alaska, but we’re ahead of the curve,” he says.
Before every state insurance commissioner drafts plans for a reinsurance program, there are some things to consider. Since Alaska has such high premiums, other states might not see as big of a return, and the feds might not be as willing to fund it. In addition, some health-care experts say such a solution may be premature.
“We had a pricing problem at the beginning of the ACA, so some insurers felt they had to play catch-up last year," says Sarah Lueck, health policy analyst at the Center for Budget and Policy Priorities. But, she says, "there’s reason to think that marketplaces are actually going to become more stable.”
Not all reinsurance programs are ideal for insurers. Some reimburse insurers for expensive claims as opposed to paying upfront. To maximize insurers' incentives for dropping premiums, Wing-Heier encourages states considering the reinsurance option to do what Alaska did and pay the claims from the beginning.
But amid all of these discussions on marketplace stabilization, there’s an elephant in the room: whether or not Congress will replace the ACA and what they'll replace it with. Many Republicans on Capitol Hill want to get rid of the subsidies that fund care for about 80 percent of people on the marketplace. Without those subsidies, it's safe to assume that many would stop using the marketplace, rendering reinsurance programs useless.
As Congress remains knee-deep in their deliberations, health policy experts recommend states take as many actions as they can to lower premiums.
“Do everything you can to get people to enroll in the marketplaces. Expand Medicaid if you haven’t already because the states that did typically have lower premiums," says Jost. "And yes, look at what Alaska did, and think about your own reinsurance program."