Assessing the Impact of Individual Market Reforms in Minnesota

Starting in 2026, Minnesota's health insurance marketplace could be disrupted by the sunset of enhanced federal premium tax credits available through the Inflation Reduction Act (IRA) of 2022 and the expiration of state funding for its reinsurance program (Keith, 2022; “Premium Security Plan Account: Governor's Revised Recommendations,” undated; Pub. L. 117-2, 2021). With reduced premium tax credits, fewer people might enroll in marketplace plans, potentially leading to higher premiums and market instability. The expiration of reinsurance, which partially offsets insurers’ claims costs for people with high expenditures, could exacerbate these issues. In this study, we estimate the effects of implementing state-funded subsidies to strengthen Minnesota's health insurance marketplace given these anticipated changes. The policy reforms that we consider were developed by the Minnesota Council of Health Plans and shared with us for this project. These policy reforms share similar goals with legislation proposed by Minnesota policymakers in 2023, such as Minnesota House File 96, a bill authorizing study of a public option that also proposed to temporarily enhance marketplace subsidies.

Our analysis accounts for unique features of Minnesota's health insurance market, including the fact that Minnesota is currently one of only two states that offer a Basic Health Program (BHP), a Medicaid-like plan available for people with incomes below 200 percent of the federal poverty level (FPL) who do not qualify for Medicaid (Centers for Medicare & Medicaid Services, undated). Because the state's BHP, called MinnesotaCare, draws enrollees who would otherwise be eligible for marketplace coverage, it shrinks the pool of marketplace enrollees, which could contribute to volatility in individual market premiums. This issue is further complicated by a Trump administration–era decision to halt federal payment of cost-sharing reductions (CSRs), which reduce deductibles, copays, and other forms of cost sharing for marketplace enrollees with incomes under 250 percent of the FPL (U.S. Department of Health and Human Services, 2017). Because insurers are required to provide CSRs regardless of federal funding, most states have directed insurers to load these costs onto silver-tier marketplace plans, including the benchmark plan used to calculate federal premium tax credits (Corlette, Lucia, and Kona, 2013). This practice, called silver loading, has the effect of increasing the premium tax credit amount, which benefits consumers. However, consumers in Minnesota do not benefit as much from CSR silver loading as consumers in other states, because most people who would otherwise be eligible for CSRs are insured through MinnesotaCare. Furthermore, the federal government funds BHPs at a rate of 95 percent of what they would have otherwise paid in advance premium tax credits (APTCs) (Centers for Medicare & Medicaid Services, undated). One of our scenarios considers moving MinnesotaCare enrollees to an actuarially equivalent marketplace plan, enabling them to take full advantage of the premium tax credit boost provided by CSR silver loading and receive the full federal APTC provision.

Policy Scenarios Considered

The policy scenarios that we analyze are enhancing state-funded CSRs, enhancing state-funded APTCs, and moving MinnesotaCare enrollees into an actuarially equivalent marketplace plan. Under the Affordable Care Act, APTCs were available for people with incomes between 100 percent and 400 percent of the FPL with no alternative source of affordable coverage (Pub. L. 111–148, 2010). The American Rescue Plan Act of 2021 and the IRA enhanced these premium tax credits by reducing the applicable percentage contributions and by extending the premium tax credits to people with incomes more than 400 percent of the FPL if they would have to pay more than 8.5 percent of their income to enroll in a benchmark plan (Pub. L. 117-2, 2021; Pub. L. 117-169, 2022).

We estimate results for 2025, when the federal enhancements to APTCs remain in place and reinsurance is funded, and for 2026, after the expiration of reinsurance funding and federally enhanced APTCs. We do not account for a recent policy change in Minnesota that would enable undocumented immigrants to enroll in MinnesotaCare starting in 2025. The five scenarios that we modeled are as follows:

• For 2025
  • Current law: features federally enhanced APTCs and reinsurance
  • Enhanced CSR subsidies: adds state-funded enhanced CSRs for people with incomes between 200 percent and 250 percent of the FPL (the only CSR-eligible population on the marketplace, given the MinnesotaCare BHP)
• For 2026
  • Current law: eliminates federally enhanced subsidies and reinsurance
  • Enhanced CSR and APTC subsidies:
    • adds state-funded enhanced CSRs for people with incomes between 200 percent and 250 percent of the FPL
    • adds state-funded APTC enhancements to increase subsidy generosity and extend APTCs to people with incomes above 400 percent of the FPL
  • Enhanced CSR and APTC subsidies, and the MinnesotaCare BHP is replaced by an actuarially equivalent qualified health plan (QHP): includes features of the prior scenario plus
    • bolsters state-funded CSR enhancements to ensure that APTC-eligible people with incomes under 250 percent of the FPL are eligible for a plan with a 94-percent actuarial value
    • adds state-funded premium tax credits to ensure that APTC-eligible people with incomes under 200 percent of the FPL have the same premiums as they would have been charged on the MinnesotaCare BHP.

Approach

We used the COMPARE microsimulation model to estimate the effects of the proposed policies on health insurance enrollment, premiums, and state spending. COMPARE is an analytic tool developed by the RAND Corporation to estimate how individuals, families, and businesses will respond to health insurance policy changes. Individuals in the model make choices by weighing the costs and benefits of available health insurance options and choosing the option that yields the highest value to them. Policy changes, such as increased premium tax credits, can affect their decisions. Premiums in the model also respond to enrollment decisions by reflecting the age, health status, and demographic composition of the enrolled population. We adapted the model to reflect Minnesota's specific policy landscape, including MinnesotaCare and the reinsurance program, and to ensure that we accurately estimated outcomes given current law.

Key Findings

Enrollment

Figure 1 shows the primary enrollment effects that we estimate from the proposed changes.

• Under current law, individual market enrollment is substantially lower and uninsurance is higher in 2026 relative to 2025. This change reflects the expiration of reinsurance funding and IRA premium tax credit enhancements that will take place in 2026.
• Enhancing subsidies increases individual market enrollment and reduces uninsurance in both 2025 and 2026; effects are larger in 2026 because the state-financed subsidy enhancements that we modeled for 2026 are more comprehensive relative to current law than they are in 2025.
• Moving the MinnesotaCare population to the marketplace reduces uninsurance relative to the enhanced CSR and premium subsidy scenario in 2026. This change reflects an increase in the value of the APTC when the MinnesotaCare BHP is replaced with a QHP because of silver loading, thereby increasing enrollees’ buying power for plans on other metal tiers. Additionally, because provider payment rates are higher in marketplace plans than in the MinnesotaCare BHP, we assume that people have a slight preference for the actuarially equivalent marketplace plan relative to the current MinnesotaCare program and are therefore more likely to enroll in it.

Enrolled in individual market	Enrolled BHP	Uninsured
In 2025, under current Law:	226,000	111,000	277,000
In 2025, under state-enhanced CSRs:	232,000	111,000	272,000
In 2026, under current Law:	133,000	109,000	364,000
In 2026, under state-enhanced CSRs and APTCs:	206,000	109,000	295,000
In 2026, under state-enhanced CSRs and APTCs, no BHP:	349,000	0	263,000

NOTE: The 2025 scenarios include state funding for reinsurance and federally enhanced APTCs, which both expire in 2026.

Premiums

Figure 2 shows the estimated statewide average annual marketplace premiums for a single 40-year-old nonsmoker in the five modeled scenarios. We focus on an average bronze plan compared with the benchmark silver plan on the marketplace.

• Premiums are substantially higher under current law in 2026 than in 2025, reflecting the elimination of reinsurance.
• The subsidy enhancements modeled for 2025 increase premiums relative to those under current law because the affected population—people with incomes between 200 percent and 250 percent of the FPL—tends to be slightly more expensive than the overall individual market population. However, this effect is small—about $100 annually, or less than 3 percent of premiums.
• We find that the 2026 subsidy enhancements, which are more comprehensive than the 2025 enhancements, tend to bring in a relatively healthy population compared with current-law 2026 enrollees, decreasing premiums relative to those under current law in 2026. In our model, these marginal enrollees tend to have low anticipated health care expenditures and thus might prefer not to enroll in insurance unless their out-of-pocket premium costs are very low.
• Premiums decrease even further in the 2026 scenario that adds the MinnesotaCare population to the marketplace. However, without reinsurance funding, premiums do not return to 2025 levels in any of the 2026 scenarios.
• The difference between the benchmark silver premium and the bronze premium is largest in the 2026 scenario that replaces the MinnesotaCare BHP with a QHP because of increased silver loading. Because APTCs are pegged to the benchmark premium, the larger difference between the bronze and the benchmark premium implies that APTCs will cover a greater share of the bronze premium, lowering out-of-pocket premiums for subsidized enrollees relative to other scenarios. By a similar logic, increased silver loading means that APTCs will cover a larger share of the unloaded gold and platinum premiums on the marketplace, although those results are not shown in Figure 2.

Average annual premium for Bronze	Average annual premium for Benchmark Silver
In 2025, under current Law:	$4,500	$5,200
In 2025, under state-enhanced CSRs:	$4,600	$5,200
In 2026, under current Law:	$7,000	$8,000
In 2026, under state-enhanced CSRs and APTCs:	$6,400	$7,200
In 2026, under state-enhanced CSRs and APTCs, no BHP:	$5,600	$6,900

NOTE: The 2025 scenarios include state funding for reinsurance and federally enhanced APTCs, which both expire in 2026.

State Spending

Figure 3 shows estimated spending by the Minnesota state government on the individual market and MinnesotaCare populations across the scenarios.

• Current law state spending on this population is higher in 2025 than in 2026, reflecting the elimination of state funds for reinsurance in 2026.
• State spending increases in the scenarios that add state-financed subsidies; this effect is largest in 2026, when the subsidies are relatively more generous.
• The scenario that includes both state-financed subsidies and moving the MinnesotaCare population into an actuarially equivalent marketplace plan increases state spending relative to the scenario that includes subsidies alone. This change is driven by the fact that more people become insured in this scenario.

In 2025, under current law:

$257.9 million

In 2025, under state-enhanced CSRs:

$319.5 million

In 2026, under current law:

$83.3 million

In 2026, under state-enhanced CSRs:

$539.0 million

In 2026, under state-enhanced CSRs and APTCs, no BHP:

$578.2 million

NOTE: The 2025 scenarios include state funding for reinsurance and federally enhanced APTCs, which both expire in 2026.

Conclusion

Without additional policy action, our estimates indicate that total insurance coverage and individual market enrollment in Minnesota will decline substantially in 2026 because of the elimination of IRA premium tax credit enhancements and the expiration of reinsurance funding. Our analysis considers several policy options that the state could implement to counteract this change in enrollment. We find that using state funds to enhance marketplace subsidies could substantially (but not completely) reverse the drop in insurance coverage. Moving the MinnesotaCare population into an actuarially equivalent marketplace plan could bring insurance enrollment in the state to a new high, because of increased APTCs relative to unloaded individual market premiums and because of an assumption that consumers’ access to care would increase if health care providers were paid marketplace rates.

Each of these options to expand coverage would increase state spending relative to current law. The enhanced CSR and APTC subsidies that we modeled would increase insurance coverage by 69,000 individuals in 2026 and increase state spending by $456 million relative to current law—a net cost of $7,600 per newly insured individual, of which the state would pay $6,600. Enhancing subsidies and moving the MinnesotaCare population to an actuarially equivalent marketplace plan would increase coverage by 101,000 individuals relative to current law and increase state spending by $495 million, for a net cost of $7,400 per newly insured individual, of which the state would pay $4,900.