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The website for Connect for Health Colorado, the state's health insurance exchange, shown in October 2018. (Eric Lubbers, The Colorado Sun)

Colorado officials announced Wednesday that the state’s reinsurance program — responsible for what is projected to be a dramatic decline in health insurance prices for some people in 2020 — has received federal approval and, thus, will go into effect.

This is not a small deal.

“It’s the biggest tangible step we’ve seen in reducing costs in the private market,” said Joe Hanel, a spokesman for the nonpartisan Colorado Health Institute.

But it is also not exactly a final deal.

That’s because the Trump Administration — the same one that is expected to sign off on the program — is also backing a lawsuit to strike down the entire Affordable Care Act, the health law that makes a lot of the funding for the reinsurance program possible. Confusing? Yes.

“There’s definitely some cognitive dissonance there,” Hanel said.

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But what it means is that Colorado’s reinsurance bump could be short-lived, though supporters of the program aren’t freaking out just yet.

“Things are always evolving,” said state Rep. Julie McCluskie, a Dillon Democrat who sponsored the reinsurance bill at the Capitol this year. “You kind of have to take it day by day.”

While hugely consequential, reinsurance is also hugely complicated, so let’s dive into the details.

Update on July 31, 2019

Polis calls reinsurance approval “really good news for Colorado”

Holding in his hand the letter informing him that the federal government has officially signed off on the state’s program to lower health premium costs for some, Gov. Jared Polis on Wednesday shouted, “The waiver for reinsurance has been approved! Rates in Colorado will go down!” to the cheers of dozens of people who gathered in the Capitol’s west foyer to hear the announcement.

“Today’s news is really good news for Colorado, really good news for working families,” Polis said.

Polis said the reinsurance program will lower health insurance premiums for a family of four in the Denver metro area by about $3,000 a year and by about $9,000 a year for families on the Western Slope. The savings, though, don’t apply to people who get their health insurance through their employers. Only people who shop for insurance on their own are eligible for the savings.

“I really do have to pinch myself,” Lt. Gov. Dianne Primavera, who is also the head of the state’s Office of Saving People Money on Healthcare, said at the announcement. “… It means real savings for families.”

A hospital representative also praised the approval. Hospitals will chip in about $40 million toward the state’s overall $87 million share for the program. The federal government will put in about $163 million — hence the need for federal approval.

“We really see that contribution as us doing our part to help save Coloradans money on health care,” said Katherine Mulready, the chief strategy officer for the Colorado Hospital Association.

What is reinsurance?

Reinsurance is basically protection for insurance companies. Every year in Colorado, companies pay out thousands of claims, but only a handful of those really threaten to break the bank. To make sure they have enough money to cover those high-priced claims, companies distribute the anticipated cost of them across everybody’s plans, making prices higher for everyone.

With reinsurance, the state will have a pool of money it will use to help insurance companies cover those really big claims, allowing the companies to lower their prices for everybody.

MORE: Three reasons why Colorado lawmakers spend so much time tinkering with health insurance for a small percentage of people

How much money will people save?

When the state Division of Insurance announced the details of insurers’ proposed 2020 rates earlier this month, it noted that insurers had been asked to submit two sets of numbers: rates without a reinsurance program and rates with a reinsurance program in place.

The proposed rates sans reinsurance are basically flat year-over-year — no more or less expensive than they are now, on average statewide. But the proposed rates with the reinsurance program baked in are about 18% cheaper than this year’s prices — and even lower in some places.

To put that in better perspective, consider just one example. In Summit County with the reinsurance program in place, the insurer Bright Health is proposing to charge a 50-year-old who doesn’t smoke about $470 a month for a lowest-level bronze plan, a 34% decline over this year’s rates. That means reinsurance will save our hypothetical 50-year-old about $240 a month.

Overall, Bright’s rates for plans in Summit County will decline by an average of 36%. Without reinsurance, the premium prices would still be lower than this year’s but only by about an average of 8%.

But there’s a catch to these savings. They’re only for people who shop for plans on their own — people who buy coverage in what is known as the individual market. About 8% of Coloradans do, or about 400,000 people.

What happened Wednesday?

Gov. Jared Polis announced at a mid-day news conference that the federal government has signed off on Colorado’s reinsurance proposal, meaning it can go into effect.

The Grand Junction Daily Sentinel was the first to report Tuesday on the news. State Sen. Kerry Donovan, a Vail Democrat who was another sponsor of the reinsurance bill, confirmed the expected approval in an interview with The Colorado Sun on Tuesday.

“This has been a years-in-the-making goal,” she said. “So to have it be this close is very exciting.”

Colorado state Sen. Kerry Donovan, D-Vail, speaks on Feb. 1, 2019, at a town hall meeting in Frisco about the high cost of health care in Colorado’s mountain communities. (John Ingold, The Colorado Sun)

The approval is a big deal because the program needs federal dollars to function — specifically, it needs to be allowed to recapture some of the money the federal government would have paid out in subsidies to people here to help them afford their insurance premiums. With premiums falling, the federal government won’t have to pay out as much in subsidies, and that savings becomes much of the fuel that the reinsurance program runs on. (The state estimates that the federal government will contribute about $163 million to the program in 2020; another $87 million will come from the state through a fee on hospitals and other means.)

But this reliance on the federal government also creates a problem.

Read more health stories from The Colorado Sun

How does the ongoing lawsuit against the Affordable Care Act affect this?

Earlier this month, a panel of judges at the New Orleans-based 5th U.S. Circuit Court of Appeals heard a lawsuit brought by the state of Texas and others — with the Trump Administration’s backing — arguing that the whole Affordable Care Act should be thrown out. The argument requires its own explainer (like this one), but the upshot from the hearing was that it didn’t go well for defenders of the health care law. A challenge to the law also known as Obamacare appears headed for the U.S. Supreme Court.

If that lawsuit ultimately succeeds, then Colorado’s reinsurance program in its current form is basically doomed. The subsidies that provide money for the program — and the entire section of federal law that the program lives under — would be gone. Lawmakers would need to do some significant tinkering just to preserve any vestige of it.

Michael Conway (Courtesy of the Colorado Division of Insurance)

“That would be a very, very bad day,” Colorado Insurance Commissioner Michael Conway said of a possible ACA strike-down.

Hanel said there’s almost certainly no way the lawsuit could be decided by the Supreme Court before 2020, meaning Colorado will get at least one year of premium relief from reinsurance. And, once that happens, Hanel said it becomes tougher for lawmakers to do nothing to preserve the programs — Colorado’s will become the eighth reinsurance program in the country, with requests from two other states pending — if a court strikes the law down.

“For some folks, we’re talking about thousands of dollars a year it will save them,” he said. “Once the reinsurance plan goes into effect, it’s going to be the biggest example of a government action related to the Affordable Care Act that’s helping them out a lot.”

But, still, he said reinsurance could also get lost in the turmoil of a suddenly vanished ACA. The law touches everything from the protections for pre-existing conditions to the calorie counts that appear on menus. In Colorado, roughly half a million people have received coverage through the ACA’s Medicaid expansion.

“We would probably have bigger fish to fry than the reinsurance program,” Hanel said. “So much of the structure of health care and how we pay for health care would be overturned.”

This article was updated at 12:50 p.m. on Aug. 7, 2019, to reflect that the 36% decline in Bright Health’s premium prices in Summit County for 2020 as a result of the reinsurance program is an average across all of Bright’s proposed plans.

John Ingold is a co-founder of The Colorado Sun and a reporter currently specializing in health care coverage. Born and raised in Colorado Springs, John spent 18 years working at The Denver Post. Prior to that, he held internships at...