Pa.’s marketplace change, explained: Why a health insurance proposal easily won bipartisan support

It’s seemingly a legislative unicorn — a bipartisan solution that costs no extra state dollars and could save Pennsylvanians big bucks.

That’s how Democratic Gov. Tom Wolf and leadership from both parties have portrayed a bill signed into law Tuesday to create a state health insurance exchange, modeled after the federal exchange created by the Affordable Care Act, also known as Obamacare.

Currently, the federal government runs an online marketplace for individuals who do not have public or employer-provided health insurance so they can purchase a plan.

More than 400,000 Pennsylvanians purchase insurance through the federal ACA exchange.

Under legislation co-sponsored by House Majority Leader Bryan Cutler, R-Lancaster, and House Minority Leader Frank Dermody, D-Allegheny, Pennsylvania will set up its own online marketplace by 2021.

The bill received just a single dissenting vote as it passed through the Republican-controlled General Assembly.

Lawmakers say creating a state marketplace means health care premiums could fall by as much as 10 percent.

“I think it’s a great opportunity to look beyond identity politics, Republican versus Democrat, and focus on our constituents who are paying the premiums and increased costs,” Cutler said last week.

How does it work?

The ACA allows states to set up their own marketplaces. More than a dozen states have done so. 

According to Pennsylvania Insurance Commissioner Jessica Altman, the often-daunting cost of building the online infrastructure prevented more states from setting up their own marketplaces at first. 

But now — six years after the law went into effect — some private companies offer the technology ready to use. That means Pennsylvania doesn’t need to spend millions of dollars designing its own website, limiting upfront costs.

The ACA also allows for states to create their own reinsurance programs, described by the Washington Post as “insurance for insurers.” 

Programs can function like a deductible. Once a claim — often from a very sick individual, such as a cancer patient — reaches a set threshold, the government starts to pay the insurance company to cover part of the cost. 

Normally, the higher medical costs of those few would lead to increased premiums for everyone. But a reinsurance program means insurance companies don’t need to factor in the higher costs of a few, acutely sick patients into everyone’s premiums.

By switching to a state marketplace, Pennsylvania will have a source of funds to set up its own reinsurance program.

Insurance companies pay a fee on ACA premiums to maintain the federal marketplace, a cost typically passed off to the consumer. Come 2020, that fee will be 3 percent — totaling $88 million.

“When we run the exchange, the insurers will instead pay that fee to us,” Altman told the Capital-Star. 

The state estimates that it can run its own marketplace for just $30 million to $35 million annually. 

That leaves a difference of around $55 million that will be directed to state coffers, not the feds. It’s that chunk of change that will fund a reinsurance program to lower state premiums, Altman said.

But wait, there’s more!

The plan will also take advantage of a federal waiver to the ACA. The waiver, part of the original act and first open to applications in 2017, allowed states to develop local solutions for health care — as long as the quality still matches ACA requirements.

President Donald Trump’s administration released new standards last year that dropped the care requirements below Obamacare’s standards. But states haven’t been using the waiver to get around the act, according to the Washington Post.

The benefit of developing a state program? More federal funds.

States that develop their own health care practices are then eligible to receive millions of federal dollars — money that would have otherwise been spent by the federal government to subsidize individual care.

So far, eight states have applied and received these waivers. All but one was to set up a reinsurance program, according to a Congressional Research Service report from January.

A third-party analysis for the Wolf administration by Oliver Wyman, a consulting firm, estimated the initial $55 million investment in reinsurance could drive down premiums enough for the state to claim between $145 to $190 million each year in unused federal health care subsidies and tax credits.

Combined with the revenue from the marketplace fee, that’s between $198 and $258 million each year going to drive down premiums.

The state Insurance Department estimates premium costs could decline by between five to 10 percent statewide.

What’s next?

With the bill signed, the state now must jump through the administrative hoops to set up a program. 

The process will begin next year, and the state plans to have its exchange up and running by 2021.