How Reinsurance Saved Minnesota’s Individual Health Insurance Market
The program is a model for other states and Congress to help fix the ACA’s broken premium subsidy structure
The Minnesota Premium Security Plan (MPSP), known as the state’s reinsurance program, was a legislative solution first adopted in 2017 in response to new challenges faced by the individual health insurance market after implementation of the Affordable Care Act (ACA) in 2014. It ultimately proved successful at reducing costs for Minnesota’s individual insurance market, which saved the market as an affordable option for people who do not qualify for federal premium subsidies.
Peter Nelson served as Senior Advisor to the Administrator at the Centers for Medicare & Medicaid Services (CMS) from 2017 to 2021. In that role, he helped oversee the administration and implementation of reinsurance programs across 15 states. In the report he outlines the severe insurance market disruptions caused by the adoption of the ACA which created the need for reinsurance:
- From 2014 to 2017, average monthly individual health insurance premiums in Minnesota rocketed from $256 to $560—a 119 percent increase. This 119 percent increase was the largest in the nation and pushed premiums well above the national average in 2017.
- At these prices, the unsubsidized who earned too much to qualify for ACA premium subsidies could no longer afford individual health insurance and began to abandon the market in 2016. Unsubsidized enrollment dropped by 54,000 in 2016 and another 104,000 in 2017.
“Without the premium savings from reinsurance, the Minnesota individual market for the unsubsidized would have collapsed, leaving thousands of people without health insurance,” said Nelson. “As Democrats consider adopting new insurance policies like the MinnesotaCare public option, they would be wise to recognize this nation-leading policy and keep it in place.”
In addition to lowering premiums, reinsurance also lowered Minnesota’s uninsured rate. The uninsured rate for working-age adults in Minnesota sharply increased from 5.3 to 8.5 percent from 2015 to 2017 when individual market premiums spiked by 87 percent. The uninsured rate then dropped nearly as quickly as it rose after the implementation of the MPSP reinsurance program reduced premiums.
Key findings of the report include:
- Minnesota implemented a reinsurance program in 2018 to lower premiums in the individual health insurance market after premiums skyrocketed by 119 percent from 2014 to 2017.
- The reinsurance program successfully lowered premiums by up to 36 percent.
- A federal evaluation shows that reinsurance saved the market as an affordable coverage option for people who do not qualify for federal subsidies.
- This federal evaluation suggests that reinsurance adds incentives to control costs which the federal government does not acknowledge.
- These cost controls help mitigate the inflationary nature of the Affordable Care Act’s current approach to subsidizing premiums.
- Based on the success of reinsurance in Minnesota, other states and Congress should adopt reinsurance to lower premiums and improve the ACA’s premium subsidy structure.