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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)

Update on Dec. 4, 2019:

Since publication, The Sun has done extensive additional reporting that necessitates an update to this story.

As part of reporting this story, The Sun asked Richard Rush, who has worked as an actuary for local insurance companies and who now works as a private consultant, to review the insurers’ filings. After publication, Rush raised a new question of whether insurers had adjusted the numbers in this story to account for “cost sharing,” the health insurance industry term for things like deductibles and other out-of-pocket costs paid by consumers.

At the time of publication, Colorado Insurance Commissioner Michael Conway did not dispute the figures used in this story. After The Sun asked Conway about cost sharing adjustments, though, he reexamined the figures and said that The Sun had looked at the wrong numbers. He pointed The Sun to other numbers in the filings that he now says reflect insurers’ true reinsurance projections.

Those new figures showed no shortfall in funding for the program — except the number in one carrier’s filing also appeared to be in error. Following additional reporting, The Sun has confirmed with state insurance regulators that they believe the true sum of insurers’ reinsurance projections to be about $249 million for 2020, in line with the state’s estimate of the program’s cost.

Rush, however, said there may be a different problem: The insurers’ numbers expect fewer people to sign up for coverage next year than the state’s do, meaning the program costs more on a per-member basis under the insurers’ projections. Applying that per-member amount to the state’s enrollment projection results in a program that would be underfunded by almost $16 million, he said.

Meanwhile, the governor’s office has budgeted $120 million to pay for the state’s share of the reinsurance program in its first year — more than $30 million above what the state initially said it would need. And Polis has requested an additional $60 million to fund the reinsurance program in its second year.

Conway said the extra funding does not indicate that the state has changed its estimate of how much the reinsurance program will cost. Instead, he said the budget moves are precautionary to make extra sure that the state will have enough money for the program.

Some lawmakers, though, have expressed concerns about the added budgetary impact of the program. Read more about that issue here.

Colorado’s much-lauded reinsurance program — credited with dramatically reducing health insurance prices next year for people who purchase coverage on their own — could cost as much as $50 million more than the state estimated if early projections from insurers prove correct.

That’s potentially a big actuarial miss for one of the signature legislative accomplishments passed this year by Capitol Democrats and Gov. Jared Polis. The insurers’ tally is about 20% more than the state’s estimate for the program’s cost.

But state coffers wouldn’t have to make up the difference if it comes true. Instead, the burden would fall on insurance companies, raising an early question about how durable the price drops from reinsurance will be.

So far, state officials aren’t worried.

Michael Conway (Courtesy of the Colorado Division of Insurance)

“It’s not shocking to me at all that the carriers would have a different estimate,” said Michael Conway, Colorado’s insurance commissioner.

But let’s back up a bit.

Colorado this year became the eighth state to implement a health reinsurance program, which helps insurers cover high-cost claims so that they can reduce insurance prices for everyone. The program will only cover people who buy insurance themselves without help from an employer, so the savings will also only affect those in the so-called individual market. With the reinsurance program in place, state officials said they expect individual-market premiums will be 18% less on average statewide in 2020 compared with 2019.

Because the programs need federal dollars to work as they are currently structured, Colorado had to submit an application to the feds in May for approval.

In that application, state officials estimated the total for the reinsurance program at $250 million for 2020. According to the state’s estimates, the federal government would chip in $163 million of that, leaving the state to cover $87 million, which it plans to do through a variety of taxes and fees.

But, when insurers in June submitted their proposed 2020 rates for review — the ones that dropped 18% on average — they also each included an estimate of how much money they expect to receive from the reinsurance program in the coming year.

It was a key component in their rate calculations. The more they get from reinsurance, the lower their final premiums could be. All of it was summed up in a simple estimated balance sheet in a document called a unified rate review template that each insurer filed with state regulators as part of its proposed rates.

Curious to see how the numbers matched up, The Colorado Sun added together the reinsurance projections for the nine companies in the individual market. The sum came to more than $300 million.

Anthem, which has a huge presence across the Western Slope, where reinsurance is expected to have the most impact, accounted for roughly half of the total. But Kaiser Permanente, Cigna, Bright Health and Friday Health Plans all expected to receive at least $20 million from the program next year, along with a few other companies projecting smaller amounts.

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

There’s a bunch of caveats to these numbers that have so far kept state regulators and insurance executives from hitting the panic button, though.

First, the proposed rates still haven’t been formally approved by the state Division of Insurance, meaning they could change. But a spokesman for the division says the state won’t ask companies to recalculate their reinsurance estimates.

Second, the federal government, while having given approval to the reinsurance program generally, still hasn’t said how much money it will provide Colorado to support the program. That number won’t come until the spring or summer of next year, and it could end up being more than $163 million. (It could also be less.)

It is also notoriously difficult for insurers to predict what’s going to happen in the individual market. Unlike with employer coverage, where people tend to stay in the same insurance pool for years at a time, a carrier’s individual-market pool can change year to year as people float in and out of the market or shop for better deals.

And that volatility, in turn, can make it especially difficult to forecast how many high-cost claims insurers will receive in the individual market in a given year.

Colorado’s reinsurance program doesn’t start helping carriers cover the bills until a person’s annual claims hit $30,000. And it stops helping cover claims when they hit $400,000. So, to get their reinsurance estimates right, insurers have to predict how many members they will have with claims over $30,000 and they also have to estimate how many members will exceed $400,000 in claims — and by how much.

Insurers in Colorado are waiting to see how the numbers shake out. But Amanda Massey, the executive director of the Colorado Association of Health Plans, an advocacy group for insurers, said it is crucial for the state to make good with the program.

“If they don’t fully fund the reinsurance pool,” she said, “there will be instability in the market, and there could be a return to significant rate swings in 2021 and beyond.”

That’s because of how the law that created the reinsurance program deals with cost overruns. It doesn’t leave taxpayers on the hook.

Instead, it gives the commissioner of insurance the authority to change the payment parameters to fit the available dollars. And it also allows insurers to raise their rates for the following year to compensate for what they expected to get from the program but didn’t.

Conway, the insurance commissioner, said Colorado came up with its estimate for the reinsurance program from an analysis by an outside actuarial firm, which looked at years of data to arrive at the number. The firm, Texas-based Lewis and Ellis, also ran through several worse-case scenarios, none of which showed the program costing more than $253 million, with the state share never exceeding $101 million.

As a result, Conway said he doesn’t think there’s much chance the program’s costs will far exceed the state’s estimate. And if it does, he said, insurers are equipped to handle unexpected ups and downs.

“That’s part of the risk-taking factor of being an insurance company,” he said.

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...