What did Sen. JD Vance mean by ‘Reinsurance?’

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At the vice presidential debate, when asked to elaborate on his earlier suggestion to change the way people with chronic conditions get covered, JD Vance responded:

“…the reinsurance regulations is what I was talking about. Look, Donald Trump has said that if we allow states to experiment a little bit on how to cover both the chronically ill, but the non-chronically ill. It’s not just a plan. He actually implemented some of these regulations when he was President of the United States.”

Reinsurance is like insurance for insurers. It directs money to insurers that enroll exceptionally high-cost people, helping offset the cost of covering sick patients. Reinsurance can be purchased privately by an insurer, funded by other insurers, or paid for by taxpayers. The ACA included a federal reinsurance program for its first three years to stabilize the new Marketplaces.

In 2016 and 2017, rapidly rising ACA premiums primarily affected middle- and higher-income people who earned too much for ACA subsidies, but often not enough to afford full-priced insurance coverage. Meanwhile lower-income individuals were largely shielded from these increases by federal premium subsidies.

Also in 2017, ACA Section 1332 took effect, allowing states to seek federal waivers for state-specific Marketplace changes. Several states across the political spectrum used these waivers to create reinsurance programs.

Vance’s debate comment likely refers to state reinsurance waivers, largely approved by the Trump Administration. These waivers aimed to lower unsubsidized premiums by offsetting insurer costs for very sick enrollees. States proposed that by lowering premiums (before subsidies), the reinsurance programs would reduce federal spending on subsidies. States therefore requested the projected federal savings be redirected to fund state reinsurance programs.

These state reinsurance waivers reduced premium payments for higher-income unsubsidized people, but not for lower-income subsidized enrollees. Additionally, the premium reductions for unsubsidized people were not always sufficient to make coverage affordable. On net, ACA signups somewhat decreased during the Trump administration.

By the time Biden took office, states had less incentive to seek waivers as markets had stabilized and premiums were no longer sharply rising. Moreover, enhanced subsidies from the American Rescue Plan and Inflation Reduction Act extended support to middle-income people – capping their out-of-pocket premiums for a benchmark plan at 8.5% of income – and lowered premium contributions for lower-income enrollees, driving record high ACA signups.

The Inflation Reduction Act subsidies expire next year. Without Congress acting to renew them, nearly 20 million subsidized Marketplace enrollees will face increases in their premium payments, averaging 93% in states that use Healthcare.gov. Those earning above four times the poverty level will lose subsidy eligibility entirely. If these enhanced subsidies expire, there may be renewed talk of reinsurance.