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Would a health reinsurance program work in Colorado? Polis says program would curb health care costs

Gov. wants to create program, but others worry about funding
Posted at 7:19 PM, Jan 28, 2019
and last updated 2019-01-29 00:32:59-05

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DENVER — The rising cost of health care is impacting millions of Coloradans. Newly elected Governor Jared Polis says too many people are being left with impossible choices: get the care they need or go bankrupt.

Polis is selling a reinsurance program as one solution to lowering health insurance premiums. He has already asked lawmakers to invest $1 million in this year's budget with hopes of a rollout by 2020.

"Whether people are Independent or Republican or Democrat or Green or Liberation, they're all being ripped off on health care costs," said Polis after he signed an executive order to create an office dedicated to saving people money on health care. "Establishing a reinsurance plan in the state to bring down the high cost of insurance for people who buy their own insurance on the exchange."

What is reinsurance?

Reinsurance is basically insurance for insurance companies. It's a way to stabilize the private insurance market by having a state-run program cover the most expensive patients who drive up costs.

Democrats support the plan

Sen. Kerry Donovan, D-Vail, represents District 5, which covers Chaffee, Delta, Eagle, Gunnison, Hinsdale, Lake and Pitkin counties – some of the hardest hit by limited provider options and high health care costs.

Donovan is an advocate of a reinsurance program in Colorado. She believes reinsurance is a way to better deal with expensive patients, and reduce the impact on everyone else.

"In the individual market, you can have a very expensive individual that deserves to have that care, but as they're going through their medical treatments they may be pulling the trend line further up than we anticipated," she said. "That outlier expensive patients pull everyone else's cost up."

Donovan also points to early estimates showing a reinsurance program can put a huge dent in premiums for those hit hardest by rising insurance costs and who are buying insurance on their own through the state health exchange.

"Reinsurance could lower the cost by 20 to 30 percent in some areas," she said.

Republicans and others worry about funding

Where the politicians differ is in the details and the cost to the government.

"Reinsurance program for me is one step towards single payer," said Sen. Jim Smallwood, R-Parker.

Smallwood is opposed to a reinsurance program and worries about the impact of having the state involved in dealing with the highest cost claims.

"Obviously, having the government involved in a mechanism that kicks out health insurance companies and part of their role," he said.

How is reinsurance funded?

Reinsurance is a state-run fund that would help to cover high-cost claims to reduce insurance company expenses and drive down premiums. The state Division of Insurance estimated a small plan would cost the state $70 million in 2019. A larger plan came with a whopping $346 million price tag.

This isn't the first time lawmakers have looked at a reinsurance solution.

During the 2018 legislative session, the high cost to fund the program killed a similar bill. A report from the Colorado Health Institute found while it would have lowered premiums for at least 124,000 Coloradans, as many as 2 million Coloradans would pay fees to help finance the program.

Reinsurance would have been paid for under that plan by repurposing federal tax credits under the Affordable Care Act at no additional cost to the government, plus fees on a broad base of Colorado insurance policies.

Health care expert says other states have seen success

Adam Fox of the Colorado Consumer Health Initiative said despite the clear funding question he views reinsurance as a game changer.

"There's a question about how we fund the reinsurance program and where the money is coming from, and we need to have a good answer for that," he said. "The concept of reinsurance has been very beneficial in a few other states. I think it could have a very positive impact for Colorado."

According to the Urban Institute, Minnesota saw premiums fall by 15 percent after they launched a reinsurance program. Alaska also saw year-to-year decreases.

What's next?

Polis has hinted at figuring out a way to make a reinsurance plan work with a much lower price tag, but lawmakers are still hashing out a bill they plan to introduce in the house this legislative session.

"We're going to have to do all kinds of things to address the high cost of care," said Donovan.