Why do ICHRAs save employers money on health insurance? (part two)

Have you ever wondered why some states experience bigger ICHRA cost savings than others? More often than not, it correlates with a 1332 Reinsurance Waiver.

🤓 What's a 1332 Waiver?

Public policy instruments created by Section 1332 of the Affordable Care Act that allow states to pursue "Innovation Waivers." In 2021, Colorado became the first to pursue a 1332 Waiver and set an explicit goal of decreasing the cost of health insurance for their residents.

➡ The 1332 Waivers put state-wide reinsurance programs in place.

How it works: The program allows insurance carriers to shift high-cost claims to government-administered programs. In other words, Uncle Sam subsidizes healthcare spending for the highest-cost individuals who buy a plan through the ACA markets.

This isn't altruistic. The outcome of the reinsurance program is that health insurance premiums for the remainder of the population decrease.

This, in turn, lowers the amount of money that Uncle Sam spends on "ObamaCare subsidies." How? More than 90% of people today who buy an individual plan receive tax credits that lower the cost of their monthly premiums. Lower premiums = less money the government must pay out via tax credits.

➡ Lower monthly premium prices = strong ICHRA markets

By the end of 2023, 16 other states had followed Colorado's example and submitted 1332 Reinsurance Waivers of their own. In nearly every case, introducing a state reinsurance program reduced premium prices. It's not perfect.

And that's a key factor influencing why you see consistent ICHRA cost savings in key geographies.