People who buy their own health insurance will get a break – perhaps even pay less – for coverage next year, as the result of approval Thursday from Washington for a New Jersey plan expected to cut premiums by 15 percent.
The state will use the penalties people pay for going without insurance to reimburse insurers for high-cost claims, under a plan approved by the federal Department of Health and Human Services Thursday.
New Jersey was the first state this spring to impose its own individual mandate – requiring people to have health coverage or pay a penalty – after Congress did away with the penalties that were a key part of the Affordable Care Act.
Under a law signed by Gov. Phil Murphy in May, those fees are to be used to stabilize insurance premiums by compensating insurers when their customers rack up big costs for procedures and medications. This “reinsurance” plan needed approval from the federal government.
That approval came Thursday, in a letter from Seema Verma, administrator of the Centers for Medicare and Medicaid Services. “Implementation of this reinsurance pool will lower individual market premiums in the state,” she wrote.
State Sen. Joseph Vitale, who sponsored the law, cheered the federal decision. “In spite of the president’s attempt to destroy access to health care, New Jersey now leads the nation in preserving the Affordable Care Act while reducing premiums,” he said.
Creating the reinsurance pool “will mitigate or eliminate any increase” in premiums in the individual insurance market next year, said Vitale, a Woodbridge Democrat and chairman of the senate Health Committee. “Who’s ever seen health insurance rates go down?”
Although the impact will vary, depending on the type of insurance policy, “I think we might even see declines” in the price of coverage compared to this year, said Katherine Hempstead, a senior policy advisor at the Robert Wood Johnson Foundation in Princeton.
Insurers already had proposed premium hikes in New Jersey averaging 6 percent – a smaller rate of increase than in most other states. That was before accounting for the reinsurance program, which the state Department of Banking and Insurance said was projected to achieve a 15 percent reduction in what premium rates would have been without the reinsurance program.
Open enrollment begins Nov. 1., allowing the insurers time to adjust their rates. The federal government will also contribute to the cost of the program, because it will save money on subsidies for low-income customers.
In 2015, 189,000 New Jersey residents paid the federal penalty for being uninsured, sending more than $93 million to the Internal Revenue Service. The state penalty next year will match what the federal penalty would have been: $695 or 2.5 percent of income, whichever is higher.
“New Jersey now has done every single thing it can possibly do to make the individual market work for consumers, despite all the obstacles from the federal government,” said Hempstead.
Besides establishing an individual mandate, the state does not permit short-term insurance plans to be sold, which can draw away healthy customers and destabilize the insurance market. Murphy also has committed the state to promoting the Affordable Care Act and assisting people to enroll.
“This move will mitigate Republicans’ destructive actions and save New Jerseyans good money,” U.S. Rep. Bill Pascrell Jr., a Paterson Democrat, said.
“We are working to ensure that all New Jersey families have access to affordable quality coverage,” Murphy said in a statement. “This program is a significant step.”
According to data from Gallup and Sharecare, the number of uninsured Americans rose by 1.3 percentage points in 2017.