States strug­gle to find sources to fund Oba­macare ex­changes for 2015

Modern Healthcare - - NEWS - By Paul Demko

States across the coun­try are scram­bling to find a vi­able model to fund their Oba­macare in­sur­ance ex­changes in 2015, when the health­care re­form law weans state-run ex­changes from federal sup­port and re­quires them to be fi­nan­cially self-suf­fi­cient.

While many of the 14 states run­ning their own in­di­vid­ual-mar­ket ex­changes will have left­over federal dol­lars to use to ease the tran­si­tion to fi­nan­cial in­de­pen­dence, find­ing a po­lit­i­cally ac­cept­able fund­ing scheme is prov­ing a vex­ing prob­lem.

“The re­al­ity is that sus­tain­abil­ity is now rear­ing its ugly head,” said Dan Schuyler, di­rec­tor of ex­change tech­nol­ogy at the con­sult­ing firm Leav­itt Part­ners. “Twelve months ago it wasn’t an is­sue be­cause states were re­ally just scram­bling to build these ex­changes.”

States have re­ceived $4.7 bil­lion in ex­change fund­ing from the federal govern­ment, ac­cord­ing to the Kaiser Fam­ily Foun­da­tion, with 16 get­ting more than $100 mil­lion each. But new federal grant dol­lars dis­ap­pear af­ter this year.

Ef­forts to es­tab­lish fund­ing mech­a­nisms were made po­lit­i­cally harder by the tech­nol­ogy prob­lems many staterun ex­changes ex­pe­ri­enced. To save money, some crit­ics in states with trou­bled ex­changes have urged switch­ing to the federal ex­change. Two states with botched ex­changes, Ore­gon and Ne­vada, have de­cided to use the federal ex­change for 2015.

But even in states that ex­pe­ri­enced rel­a­tively smooth en­roll­ment, es­tab­lish­ing a sta­ble fund­ing source has proved dif­fi­cult. That’s in part be­cause the ef­fort is seen as a tax in­crease, which is al­ways an up­hill bat­tle. But it’s ex­ac­er­bated by the con­tin­u­ing un­pop­u­lar­ity of the Pa­tient Pro­tec­tion and Af­ford­able Care Act. In ad­di­tion, in­sur­ers warn that pil­ing on more fees will make plans less af­ford­able. Some states are seek­ing to spread the fi­nan­cial pain by im­pos­ing fees on all health-re­lated in­sur­ance prod­ucts, in­clud­ing den­tal and disability plans, or on plans both in and out of the ex­changes. Other states seek to gen­er­ate rev­enue by sell­ing suc­cess­ful ex­change tech­nol­ogy to other states. An­other pos­si­ble cost-sav­ing so­lu­tion be­ing dis­cussed is shar­ing some ex­change costs across state lines or even com­bin­ing ex­changes.

The 2015 budget for Min­nesota’s ex­change, MN­sure, is ex­pected to to­tal less than $40 mil­lion. Just $5 mil­lion of that amount will come from federal grants and $22.2 mil­lion will come from federal Med­i­caid dol­lars. The state’s share, $11.7 mil­lion, will come from rais­ing the pre­mium tax on plans sold through the ex­change from 1.5% to 3.5%, the max­i­mum al­lowed un­der state law. By con­trast, 98% of MN­sure’s $127 mil­lion budget for 2014 was funded by federal grants or Med­i­caid dol­lars.

MN­sure was ini­tially be­set by tech­no­log­i­cal prob­lems. But wor­ries have faded that pre­mium-based taxes would be far less than needed be­cause ex­change signups surged at the end of open en­roll­ment in March and April. State Rep. Joe Atkins (D-In­ver Grove Heights), who spear­headed the cre­ation of the state ex­change, ex­pressed opti- mism that there would be enough money to pay for op­er­a­tions in 2015. “Six months ago, I would have been much more con­cerned,” Atkins said. “I am many mul­ti­ple times more con­fi­dent now.”

But in­sur­ers are rais­ing con­cerns. Eileen Smith, a spokes­woman for the Min­nesota Coun­cil of Health Plans, said state and federal taxes in re­cent years have boosted pre­mi­ums by 10% to 12% in the state. “At a time when we’re try­ing to make health in­sur­ance more af­ford­able, it makes it less af­ford­able,” she said.

In April, Wash­ing­ton’s city coun­cil unan­i­mously passed a tax of up to 1% on all health-re­lated in­sur­ance pre­mi­ums paid by city res­i­dents, even those pur­chased out­side the district-run ex­change, and in­clud­ing an­cil­lary cov­er­age such as den­tal or vi­sion plans. The fee sparked con­tro­versy, in­clud­ing the threat of a law­suit by in­sur­ers that aren’t par­tic­i­pat­ing in the ex­change.

In Colorado, the state ex­change’s board of di­rec­tors re­cently ap­proved a $66 mil­lion budget for fis­cal 2015, in­clud­ing a $1.25 per mem­ber monthly fee on in­di­vid­ual and small-group health plans, re­gard­less of whether they were pur­chased through the state’s ex­change. That’s pro­jected to raise $13 mil­lion a year. In ad­di­tion, the state has im­posed a 1.4% fee on pre­mi­ums paid through the state’s ex­change.

That has sparked heated op­po­si­tion, in­clud­ing charges that the $1.25 fee is an il­le­gal tax hike be­cause it was not ap­proved by vot­ers. “We have a law here in Colorado that says you can’t in­crease taxes with­out a vote of the people,” state Sen. Owen Hill, (R-Colorado Springs), who sits on the ex­change’s leg­isla­tive over­sight com­mit­tee, told Colorado Health News.

The is­sue has even seeped into the state’s hotly con­tested U.S. Se­nate con­test. GOP chal­lenger Cory Gard­ner

“The re­al­ity is that sus­tain­abil­ity is now rear­ing its ugly head.” —Dan Schuyler Di­rec­tor of ex­change tech­nol­ogy Leav­itt Part­ners

has used the $1.25 fee to blud­geon Demo­cratic Sen. Mark Udall, a strong sup­porter of the federal health­care law.

Rhode Is­land, which has had a suc­cess­ful ex­change, has no plan in place to pay for ex­change op­er­a­tions once federal dol­lars run out. That’s not an im­me­di­ate prob­lem be­cause the state has spent only $54 mil­lion of its $140 mil­lion in federal grants. The dis­cus­sion about how to fund ex­change op­er­a­tions in fu­ture years is not ex­pected to take place un­til af­ter the fall elec­tions, said Chris­tine Hun­singer, a spokes­woman for Health Source RI. In the mean­time, the state is look­ing to make money to use for ex­change op­er­a­tions by sell­ing other states the soft­ware it has used suc­cess­fully for its small-busi­ness ex­change.

Leav­itt’s Schuyler said states need to come up with cre­ative so­lu­tions to make the ex­changes fi­nan­cially sus­tain­able. He thinks they should ex­plore shar­ing some costly func­tions across state lines, such as staffing call cen­ters. “That is one model that has a lot of vi­a­bil­ity,” he said.

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