The Affordable Care Act (ACA) established the transitional reinsurance program as one of three premium stabilization programs designed to protect health insurance issuers from losses and consumers from high-cost premiums during the first three years that the health insurance exchanges are in operation. The reinsurance program’s goal is to help stabilize premiums by providing reinsurance payments to issuers that incur high claims costs for enrollees in non-grandfathered individual market plans.
The payments for 2014 were originally set to be 80 percent of covered claims above an attachment point of $45,000 and below a reinsurance cap of $250,000. The ACA allows the Department of Health and Human Services (HHS) to increase the coinsurance rate from 80 percent up to a maximum of 100 percent if reinsurance contributions for the year exceed the total requests for payments.
HHS recently announced that the reinsurance contributions for 2014 exceed the total requests for reinsurance payments and, as a result, the coinsurance rate is being raised to 100 percent. What this means is that issuers will be reimbursed 100 percent for eligible claim costs between the $45,000 attachment point and the $250,000 reinsurance cap.