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Colorado’s reinsurance program has been lauded as a way to reduce health care costs. Here’s the fine print.

A reduction in the amount many Coloradans receive in tax credits could lead to a health insurance price increase for thousands -- that is unless they shop around for a better deal

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For months, Gov. Jared Polis and state health officials have been talking about how Colorado’s new reinsurance program is going to lower insurance prices across the state for people who purchase coverage on their own.

But, as open enrollment kicks off Friday, two new analyses show that tens of thousands of people could end up paying more for their coverage next year as a result of the reinsurance program unless they shop around for a new plan — and some might still pay more even if they do.

On average statewide, the increase would be fairly modest, about $22 per month. People living outside the Interstate 25 corridor will still likely see a drop in their health premium prices. But, for some families along the Front Range, the increase could be more than $100 a month, according to one report.

And the increases would affect only people or families with average to below-average incomes. People with high incomes are likely to see decreases in what they pay for health coverage.

“Folks may see a little dissonance between what they’ve seen in the press and what they’re seeing on their renewal notice,” said Kevin Patterson, the CEO of Connect for Health Colorado, the state’s insurance exchange.

The new figures create a pothole in Gov. Jared Polis’ much-touted road map on health care. Earlier this month, Polis credited the reinsurance program with creating a dramatic 20.2% drop in 2020 health insurance premium prices for people who buy coverage on their own without help from their jobs.

But those are the underlying prices, which some people pay in full and others don’t. 

The whiplash — how a program to cut prices might end up raising them for some — has to do with the mind-meltingly complicated way in which the federal government helps some people with their insurance premiums and how reinsurance affects that.

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

Premiums decreased, but so did subsidies

The state’s reinsurance program assists insurance companies in paying some of their most expensive claims. Because insurance companies now need to collect less money from their customers to cover the bills, they can lower rates for everybody.

And this actually happened in Colorado. For 2020, health insurance premiums will, on average, be 20.2% less for people who buy private coverage on their own in the so-called individual market. That’s hundreds to thousands of dollars a year less for individuals and families, and it’s the largest percentage decrease of any state this year.

But, for people on the lower end of the income spectrum, the federal government provides subsidies known as advance premium tax credits to help people pay their premiums. The cutoffs for subsidy eligibility are around $50,000 in annual income for an individual or $100,000 in annual income for a family of four.

The subsidy amounts people receive is pegged to the price of the second-cheapest plan in the mid-level silver tier of plans. When that plan decreases in price, so does the subsidy amount.

In Colorado, the drop in overall premium prices means that the subsidies people receive next year will decline, on average, by $150 per month. And, as a result, the monthly amount that people getting subsidies actually pay for their current coverage will go up by an average of $22 — a nearly 20% increase.

So, while people in the individual market who pay full price for their coverage are receiving notices that their rates are going down, people who get federal help with their premiums might be in for a shock.

State Rep. Julie McCluskie, a Dillon Democrat who sponsored the reinsurance bill at the Capitol this year, said the possibility that people who get subsidies could end up paying more was on the minds of lawmakers as they drafted the program. She said they tried to minimize that possibility. 

“It’s one of the unintended consequences,” she said, “that I think we really were trying to be thoughtful about.”

There is also a requirement in law for the state to evaluate the reinsurance program after two years. Michael Conway, the state’s insurance commissioner, said he might bump that study up into early next year to understand sooner all the ripples the reinsurance program has had on the market.

“We’re going to always fight to lower premiums,” Conway said, “and we just have to figure out a way to deal with the downstream impacts on the subsidized population.”

Gov. Jared Polis announces the creation of the Office for Saving People Money on Healthcare on Wednesday, Jan. 23, 2019. (Jesse Paul, The Colorado Sun)

You better shop around

For now, though, he and Patterson, the Connect for Health CEO, both emphasized the need for people to shop around for plans. Patterson said people across the state who “shop actively” — as opposed to just renewing their existing plans — will be able to save on average as much as 20% over what they are currently paying. They may have to switch insurance companies to get those savings, though.

“We want to make sure people are looking at their options, depending on how the math looks for the advance premium tax credit,” Patterson said. “They can still reduce their premiums significantly by shopping, rather than just renewing their plan.”

But that might not be true for every family.

Louise Norris, a Colorado health insurance agent who is also a nationally respected writer on health coverage issues, wrote an analysis for the website Healthinsurance.org looking at the situation of a hypothetical Denver family of four with a household income of $95,000 annually. With subsidies, that family might be paying $355 per month currently for a plan that, if they choose to renew it, would rise to $529 per month next year. Even if the family shopped around, the cheapest plan this family could buy would be $523 per month.

(Full disclosure: Norris’ husband, also a health insurance agent, helped The Sun set up its small-group plan for employees.)

A chart from an actuarial analysis by the consulting firm Wakely showing how decreasing subsidies will impact what people pay for insurance across Colorado. (Provided by Connect for Health Colorado)

Front Range impacted most

It’s unclear how many people might fall into that scenario — or how many might be in line for any increase.

Somewhere around 100,000 people in Colorado receive subsidies to help pay their premiums. But an actuarial report commissioned by Connect for Health Colorado shows that not all of those will end up paying more if they renew their current coverage.

Instead, the impact appears to be focused only on the Front Range. People who buy their own health coverage and live on the Eastern Plains, in the San Luis Valley, in the central mountains or on the Western Slope will, on average, see lower rates even with the reduction in subsidies, according to the report.

But people who live along the Interstate 25 corridor from Fort Collins to Pueblo are in line to see increases if they want to keep the coverage they already have. For instance, the average increases for people who get subsidies in Boulder and Fort Collins are $40 per month, a more than 30% jump over what they are currently paying. But the actuarial report also shows that most people along the Front Range will be able to save money if they look for a new plan.

Adela Flores-Brennan, the executive director of the Colorado Consumer Health Initiative, called the potential cost increases a difficult technical issue and said it is concerning that those with lower incomes might be affected most.

But she said the overall decline in premium prices is good news. Now, she said, the challenge for the state, consumer advocates and health insurance brokers is one of getting the word out.

“The big message, I think, is that people need to shop around,” she said.


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