As numerous carriers struggled with high health care costs caused by insuring older and sicker individuals under the ACA, some states experimented with their own reinsurance programs. (Photo: Shutterstock)

An old insurance industry practice has reduced Affordable Care Act (ACA) individual market premiums by an average of nearly 20 percent in seven states, a new analysis has found.

Reinsurance, a practice where insurance carriers reduce risk by purchasing policies from other insurers to limit their losses, has been used by a number of states to to bolster their ACA markets by creating state reinsurance programs to help insurance companies that have struggled with fluctuations in health care costs. Avalere, a health care consulting company, looked at the data to determine how effective they've been.

Reinsurance and the ACA

Although the concept doesn't grab a lot of headlines, reinsurance has been promoted by many experts as a way to control costs and keep private insurers from exiting the ACA marketplace. The ACA came with a temporary reinsurance program for its first few years—and despite some serious glitches in the funding of that early effort, many agreed that the reinsurance concept was an overall positive for the financial health of the marketplace.