The Affordable Care Act was designed in part to help bring stability to the individual health insurance market. But faced with a fluid federal regulatory environment, many states continue to encounter challenges, including large premium increases and declining insurer participation. One solution to continued market instability is a state-based reinsurance program similar to the federal program that reduced premiums by more than 10 percent per year from 2014 to 2016.

The Trump administration has strongly encouraged states to establish their own reinsurance programs. In 2017, the Department of Health and Human Services and the Department of the Treasury approved three 1332 “state innovation” waivers for reinsurance programs. These waivers offset state program financing with federal “pass-through” funding equal to the federal savings generated by reducing premiums. This means that to fund their reinsurance programs, states have to cover only the net cost after the federal pass-through funding (offset) is applied.