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Reinsurance is essentially insurance for insurance companies.

A reimbursement system that protects insurers from very high claims. It usually involves a third party paying part of an insurance company’s claims once they pass a certain amount.

Reinsurance is a way to stabilize an insurance market and make coverage more available and affordable.

♦ The Affordable Care Act included a provision for reinsurance. It was a temporary program that ended in 2016.

It provided payments to plans that enroll higher-cost individuals. It was an attempt to help stabilize markets.

It was supposed to help protect against premium increases in the individual market by offsetting the expenses of high-cost individuals.

♦ Money was collected and placed into a pool from which insurance companies could make claims against. As it turned out, not enough money was collect to satisfy all claims.

Republicans in congress meddled with this provision and the funds collected.

Most insurance companies received only 50% of what they expected, resulting in big losses.

♦ Fearing future losses with Marketplace plans and no guarantee of reimbursement payments a many insurance companies opted to exit the exchanges.

Those that stayed raised premiums to compensate.

July 2017, a bipartisan group of Republican and Democratic representatives released a proposal to stabilize the individual insurance markets.

The proposal was to create a federal reinsurance program and to mandate full funding of cost-sharing subsidies.

The plan would create a fund that states could use to provide extra funding to insurers to help them cover costs for their most expensive enrollees.

The Republican leadership did not want to take any action that might stabilize the markets and be seen as helping Obamacare.

The proposal died.

The American Rescue Plan (ARP) and the Inflation Reduction Act (IRA) have reduced the need for reinsurance programs, at least through the end of 2025.

More people with income above 400% of the poverty level can now qualify for premium subsidies. This provides a larger pool for insurance companies and spreads out the risk.

If Congress does not extend subsidies to household earning over 400% of the poverty level, then in 2026 reinsurance will become a bigger issue.