Almost half of Obamacare exchanges face financial struggles in the future
By Lena H. Sun and Niraj Chokshi
May 1 at 7:07 AM - The Washington Post
Nearly half of the 17 insurance marketplaces set up by the states and the
District under President Obamafs 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 now works
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 nationfs 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 might be less likely to turn over all operations to
the federal marketplace, because they will want to make sure their residents do
not lose subsidies to help them buy insurance. If the court upholds subsidies
for the federal exchange, some states might step up efforts to transfer
operations to HealthCare.gov.
gEveryone is looking at all the options,h said Jim Wadleigh, executive
director of Connecticutfs exchange, considered one of the most successful of the
state marketplaces. While states are gtrying to find ways to become
self-sustaining,h 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
ACA. 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, 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 (a
larger enrollee pool means lower individual costs), strong enrollment is
critical to an exchangefs fiscal success.
But for the recently completed open enrollment period, sign-ups 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 greatest
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.
gA lot of people are going to want to know: What happened to all those
taxpayer dollars that went to these IT vendors?h said Sabrina Corlette, project
director of Georgetown Universityfs 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 on making major decisions until
after the Supreme Court rules.
gThey are literally looking at huge gaps, and they are not sure how they are
going to get through the year,h said Caroline F. Pearson, a senior vice
president at Avalere Health.
In Minnesota and Vermont, officials are so fed up with costly technical
problems in their exchanges that they are considering handing over some or all
of their functions to the state or federal governments. Lawmakers in Oregon
abolished the state exchange in March, long after it was essentially turned into
a gateway to HealthCare.gov.
[These
4 states ditched their faulty enrollment Web sites]
In Rhode Island, the legislature is considering a fee on health plans that
would go up or down according to the exchangefs operating costs.
In Hawaii, which has one of the most problem-plagued marketplaces, the
exchange needs $28 million to fund operations until 2022, when it is
projected to become self-sustaining, officials say. Without the money, gitfs
going to be very difficult to keep the doors open,h said Jeff M. Kissel,
executive director of Hawaii Health Connector.
As a backup plan, officials are talking to the Obama administration about a
possible federal takeover of the marketplace, said an administration official
who spoke on the condition of anonymity because the talks are ongoing.
Some states are exploring novel ways to raise funds. The Connecticut exchange
is offering to help other marketplaces — for a price. It plans, for example, to
renegotiate its call-center contract and share its strategy with other states
that use the same contractor, Wadleigh said.
Some state lawmakers express frustration that exchange officials either do
not know whether their marketplaces will eventually be self-sufficient or are
reluctant to say.
gBasically, the exchange is teetering, and the question is, eCan this be
shored up?f h said Republican Sen. Ellen Roberts, who chairs the committee
that oversees Coloradofs exchange board. The cost of running the exchangefs call
center is expected to reach $21.3 million for this year. The previous
estimate was $13.6 million.
When the ACA was enacted, Democratic governors pressed to create their own
exchanges to signal their support for the law and to assert their own authority.
Republican governors refused to set up exchanges as ga sort of badge of honor in
opposing Obamacare,h said Larry Levitt, a senior vice president at the Henry J.
Kaiser Family Foundation. But now, decisions probably will be made on more
pragmatic grounds. gIt will come down to more of a dollar-and-cents decision,h
he said.
Some critics say the statesf problems show that supporters of the law
underestimated the practical difficulties of setting up the exchanges. The
states are facing gexecution problems more than political resistance problems,h
said Thomas P. Miller, a health-care policy expert at the American Enterprise
Institute.
In Vermont, where the systemfs cost is projected to balloon to almost
$200 million by the end of the year, officials are eyeing a move to the
federal marketplace if things donft improve. Officials from Vermont, Rhode
Island and Connecticut met recently to explore banding together in some sort of
regional effort.
In Maryland, where the exchangefs technology problems were so daunting that
officials turned to Connecticut for help, officials expect to have enough
revenue to cover operations for the fiscal year that begins July 1. If not,
the exchange would need to ask the governor for more funds.
Much will depend on how much the call center costs, said Andy Ratner, a
spokesman for the marketplace.
[Maryland
officials were warned for a year of problems with its exchange]
In Colorado, Connecticut, Kentucky, Maryland and the District, fees to
support the exchange are imposed on plans sold on and off the marketplaces. In
the District, about $25 million of the exchangefs $28 million budget
comes from user fees assessed on insurance products not offered on the exchange.
The exchange budget would increase to $32.5 million in the budget year
beginning in September under the mayorfs proposed plan. Debra Curtis, deputy
director of the exchange, said the marketplace estimates it will raise about
$28 million from the assessments and guse existing federal grants for
ongoing implementation.h
Even if some state exchanges wind up handing the reins to HealthCare.gov,
doing so is not free. Each exchange would have to be made compatible with the
federal marketplace at a cost of about $10 million per exchange, Wadleigh
said.
Aaron Davis and Alice Crites contributed to this report.