Almost half of state health care exchanges face financial struggles
WASHINGTON — Nearly half of the 17 insurance marketplaces set up by the states and the District of Columbia under President Barack Obama’s health law are struggling financially, presenting state officials with an unexpected and serious challenge five years after the passage of the landmark Affordable Care Act.
Many of the online exchanges are wrestling with surging costs, especially for balky technology and expensive customer-call centers — and tepid enrollment numbers.
To ease the fiscal distress, officials are considering raising fees on insurers, sharing costs with other states and pressing state lawmakers for cash infusions.
Some are weighing turning over part or all of their troubled marketplaces to the federal exchange, HealthCare.gov, which is now working smoothly.
The latest challenges come at a critical time. With two enrollment periods completed, the law has sharply reduced the number of uninsured and is starting to force change in the nation’s sprawling health care system.
But the law remains highly controversial and faces another threat: The Supreme Court will decide by the end of June whether consumers in the 34 states using the federal exchange will be barred from receiving subsidies to buy insurance.
If the court strikes down subsidies in the federal exchange, the states that are struggling financially probably would abandon efforts to join the federal marketplace because their residents would no longer be able to get subsidies to help them buy insurance. If the court upholds subsidies for the federal exchange, some states may step up efforts to transfer operations to HealthCare.gov.
“Everyone is looking at all the options,” said Jim Wadleigh, executive director of Connecticut’s exchange, considered one of the most successful of the state marketplaces. While states are “trying to find ways to become self-sustaining,” he added, it is an open question whether they will succeed.
States have received nearly $5 billion in federal grants to establish the online marketplaces used by consumers to enroll in health plans under the health care act. The federal funding ended at the beginning of the year, and exchanges now are required to cover their operating costs.
Most exchanges are independent or quasi-independent entities. For most of them, the main source of income is fees imposed on insurers, which typically are passed on to consumers. Because those fees are based on how many people have signed up, strong enrollment is critical to an exchange’s fiscal success.
But for the recently completed open enrollment period, signups for the state marketplaces rose a disappointing 12 percent, to 2.8 million people. That compared with a 61 percent increase for the federal exchange, to 8.8 million people, according to Avalere Health, a consulting firm. States with the smallest enrollment growth are among those facing the most daunting financial problems.
Most exchanges have operating budgets of $28 million to $32 million. One of the biggest cost drivers is call centers, where operators answer questions and can sign people up. Enrollment can be a lengthy process — and in several states, contractors are paid by the minute. An even bigger cost involves IT work to correct defective software that might, for example, make mistakes in calculating subsidies.
“A lot of people are going to want to know: What happened to all those taxpayer dollars that went to these IT vendors?” said Sabrina Corlette, project director of Georgetown University’s Center for Health Insurance Reforms.
To shore up their finances, state exchanges are looking at an array of options, although they probably will hold off making major decisions until after the Supreme Court rules.
“They are literally looking at huge gaps and they are not sure how they are going to get through the year,” said Caroline Pearson, senior vice president of Avalere Health.