	Introduction

Section 1341 of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) establishes a transitional reinsurance program that is designed to provide payment to non-grandfathered, non-group market health plans (also known as individual market health plans) that enrolled high-risk enrollees for 2014 through 2016. Under the program, the Secretary of the Department of Health and Human Services (HHS) collected reinsurance contributions from health insurers and from third-party administrators on behalf of group health plans. The Secretary then used those contributions to make reinsurance payments to health insurers who enrolled high-cost enrollees (statutes required the HHS Secretary to determine how high-risk enrollees are identified, and the Secretary in turn defined high-risk enrollees as high-cost enrollees) in their non-group market plans both inside and outside of the exchanges (also known as marketplaces , where individuals can shop for and purchase private health insurance coverage). This report provides an overview of the ACA's transitional reinsurance program. The first section of the report provides background information on reinsurance and the ACA risk mitigation programs. The second section describes the components of the transitional reinsurance program, as well as implementation of the program. The third section discusses questions, including those raised by a 2016 Government Accountability Office (GAO) report, regarding the scope of HHS's authority to administer the transitional reinsurance program. Finally, the report includes a table in the Appendix that summarizes key aspects of the transitional reinsurance program. Reinsurance, thus, is an extension of insurance and further acts as a risk-transfer and risk-spreading mechanism. That is, the availability of reinsurance may be one of many factors an insurer considers in assessing potential exposure to loss in a certain market. To mitigate the financial risk that insurers face and to stabilize the price of health insurance in the non-group and small-group markets, the ACA establishes three risk mitigation programs: the transitional reinsurance program, the permanent risk adjustment program, and the temporary risk corridors program. Prior to ACA implementation, little information was available regarding health care usage and demand for the previously uninsured, as well as any pent-up demand due to the lack of health insurance coverage. Accordingly, to limit their risk exposure in offering plans on the non-group market, insurers would likely raise premiums to the extent possible to protect themselves against the potentially high cost associated with delayed care. However, some of the new ACA market reforms limit the degree to which insurers may vary premiums. The transitional reinsurance program is designed to mitigate the financial risk associated with individuals who had delayed needed health care while they were uninsured. The ACA establishes the transitional reinsurance program to be redistributive in nature in which the HHS Secretary collects reinsurance contributions from health insurers and from third-party administrators on behalf of group health plans; the HHS Secretary then uses those contributions to make reinsurance payments only to health insurers offering plans in the non-group market both inside and outside of the exchanges. Under the program, only non-group market health plans with high-cost enrollees are eligible for reinsurance payments; the program covers a portion of the claims costs for these enrollees based on payment parameters (see " Payment Parameters " section of this report) set by the HHS Secretary. The availability of reinsurance allows insurers to reduce their risk exposure and may impact whether or not to enter a market, what types of products to offer, and what premiums to set.
Section 1341 of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) establishes a transitional reinsurance program that is designed to provide payment to non-grandfathered, non-group market health plans (also known as individual market health plans) that enroll high-risk enrollees for 2014 through 2016. Under the program, the Secretary of the Department of Health and Human Services (HHS) collects reinsurance contributions from health insurers and from third-party administrators on behalf of group health plans. The Secretary then uses those contributions to make reinsurance payments to health insurers who enroll high-cost enrollees (statutes required the HHS Secretary to determine how high-risk enrollees are identified, and the Secretary in turn defined high-risk enrollees as high-cost enrollees) in their non-group market plans both inside and outside of the exchanges (also known as the marketplaces). Contributions are distributive in that they are collected from most non-group and group health insurers, but payments are made only to eligible non-group market health plans.
Reinsurance is an extension of insurance and further acts as a risk-transfer and risk-spreading mechanism. The availability of reinsurance allows insurers to reduce their risk exposure and can affect the availability and affordability of health insurance coverage. That is, the availability of reinsurance may be one of many factors an insurer considers in assessing potential exposure to loss in a certain market. This may affect whether or not to enter a market, what types of products to offer, and how premiums are set.
To mitigate the financial risk and uncertainty insurers may face in the early years of ACA implementation as a result of the ACA's private health insurance market reforms, the ACA establishes three risk mitigation programs: the transitional reinsurance program, the permanent risk adjustment program, and the temporary risk corridors program.
Prior to ACA implementation, little information was available regarding health care usage and demand for the previously uninsured, as well as any pent-up demand due to the lack of health insurance coverage. Accordingly, to limit their risk exposure in offering plans on the non-group market, insurers would likely raise premiums to the extent possible to protect themselves against the potentially high cost associated with delayed care. However, some of the new ACA market reforms limit the degree to which insurers may vary premiums. The transitional reinsurance program was designed to mitigate the financial risk associated with individuals who had delayed needed health care while they were uninsured.
Under the program, the HHS Secretary collects reinsurance contributions from most non-group and group health plans and then uses those contributions to make reinsurance payments only to non-group market health plans with high-cost enrollees. The program covers a portion of the claims costs for these enrollees based on payment parameters set by the HHS Secretary.
This report provides an overview of one of the three risk mitigation programs, the transitional reinsurance program. The program's aim is to offset the expenditures associated with high-cost individuals. The first section of the report provides background information on reinsurance and the ACA risk mitigation programs. The second section describes the components of the transitional reinsurance program, as well as implementation of and experience with the program. The third section discusses questions regarding the scope of HHS's authority to administer the transitional reinsurance program, including those raised by a 2016 Government Accountability Office report. Finally, the report includes a table in the Appendix that summarizes key aspects of the transitional reinsurance program.