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Report: About Half of Affordable Care Act’s Exchanges Face Financial Struggles in the Future
Nearly half of the 17 insurance marketplaces set up by the states and the District of Columbia under the Patient Protection and Affordable Care Act (PPACA) are struggling financially, presenting state officials with an unexpected challenge 5 years after passage of the Act, according to a report in the Washington Post.
Many of the online exchanges are trying to cope with surging costs, especially for balky technology and expensive customer call centers, and tepid enrollment numbers, the article says. 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 PPACA 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 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.
States have received nearly $5 billion in federal grants to establish the online marketplaces used by consumers to enroll in health plans under the PPACA, the Post says. 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 exchange’s fiscal success.
But for the recently completed open enrollment period, sign-ups for the state marketplaces rose a disappointing 12% to 2.8 million people. That was in comparison with a 61% 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.
When the PPACA was enacted, Democratic governors pressed to create their own exchanges to signal their support for the law and to assert their own authority, according to the Post. Republican governors refused to set up exchanges as “a sort of badge of honor in opposing Obamacare,” 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. “It will come down to more of a dollar-and-cents decision,” he said.
Some critics say the states’ problems show that supporters of the law underestimated the practical difficulties of setting up the exchanges. The states are facing “execution problems more than political resistance problems,” said Thomas P. Miller, a health-care policy expert at the American Enterprise Institute.
In Vermont, where the system’s 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 don’t improve. Officials from Vermont, Rhode Island, and Connecticut met recently to explore banding together in some sort of regional effort.
In Maryland, where the exchange’s 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.
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, according to Jim Wadleigh, executive director of Connecticut’s exchange.
Source: Washington Post; May 1, 2015.