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Reform Update: States scramble to find future funding for exchanges


By Paul Demko
Posted: May 16, 2014 - 3:30 pm ET
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States have received at least $4.7 billion to establish and operate exchanges since passage of the Patient Protection and Affordable Care Act. Only Florida and Alaska have received no grant dollars, while California has taken in more than $1 billion, according to a database maintained by the Kaiser Family Foundation.

But those grant dollars will not continue to flow past this year. Starting in 2015, state exchanges are supposed to be financially sustainable. That's causing consternation among state officials about whether they will have adequate resources to pay for operations once the federal dollars run out. The concerns are most acute in the 14 states that have opted to run their own online marketplaces (other states have partnership exchanges or SHOP exchanges), especially given the technological problems that many continue to encounter.

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Oregon has opted to abandon its troubled exchange and adopt the federal HealthCare.gov website for the 2015 open enrollment period. Hawaii, Maryland, Massachusetts and Nevada are all scrambling to determine exactly how they will proceed for the sign-up period that begins Nov. 15.

But even for states that had successful open enrollment periods this year, significant questions remain about the financial viability of the online marketplaces once the federal dollars disappear. California expects to spend $488 million on exchange operations during the fiscal year that closes at the end of June. That's $88 million more than originally anticipated, a 22% increase.

As of April, Covered California still had $363 million in federal grant dollars, and its budget for the 2014-15 fiscal year is expected to shrink to $378 million. To pay for exchange operations in the long run, California has authorized an assessment of $13.95 per member a month for plans purchased on the exchanges.

Last week, the board of directors for Minnesota's exchange, which has struggled with technical problems, approved a 3.5% tax on premiums for 2015 plans purchased through the exchange. That's up from 1.5% this year and is the maximum allowed under the state law authorizing the exchange.

Earlier this month, Washington's city council unanimously passed a tax of up to 1% on all health insurance premiums paid by city residents. The fee sparked controversy, including opposition from the trade industry group America's Health Insurance Plans, because it applies even to insurers that aren't selling products on the exchange.

In Colorado, the exchange's budget is expected to drop from $70 million this year down to $26 million by 2017. But that's still more than the $21.4 million that's expected to be generated by a 3% fee on premiums payments on plans purchased through the exchange.

Timothy Jost, a healthcare expert at Washington and Lee University School of Law, points out that insurers pay commissions to brokers of as much as 10% for business that they bring in. So he doesn't think that assessments in the range of 3.5% are unreasonable. He also points out that administrative overhead for health plans and the state-based exchanges should decline significantly in future years as technological problems get fixed and burdensome manual processes are eliminated.

“Plans ought to be saving money on marketing; they ought to be saving money on underwriting,” said Jost, a supporter of the federal healthcare law. “It just seems to me that it's a business model that should work for the long term.”

Republicans introduce bill requiring states to pay back funds used for bungled exchanges

States that utilized federal dollars to create dysfunctional exchanges would be required to pay that money back under legislation introduced this week by Sens. Orrin Hatch (R-Utah) and John Barrasso (R-W.V.). The bill (PDF) would require states that ultimately abandon their exchanges, such as Oregon, to refund all of the federal dollars spent on the ill-fated project. The proposal is unlikely to go anywhere in the Democratic-controlled Senate.

California exchange opens enrollment window for COBRA participants

Covered California has launched a two-month window in which individuals currently enrolled in COBRA plans can sign up for coverage through the exchange. The move mimics a federal decision to allow such individuals to sign up for plans through healthcare.gov until July 1. COBRA plans are available to individuals who lose their jobs but want to continue accessing coverage. However, under those circumstances they are on the hook for the entire cost of the insurance plan. The state and federal exchanges may offer more affordable coverage options.

Follow Paul Demko on Twitter: @MHpdemko


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