April 16, 2015 -- State health insurance marketplaces seeking financial stability after their federal support expired on Jan. 1 turned to the companies selling polices on their websites to fill in the gap. But the revenue from fees on insurers may not be enough.
While the Affordable Care Act requires that the marketplaces, also known as exchanges, be financially viable, their revenue from year to year is unpredictable because of swings in enrollment numbers. And the cost of running the marketplace is little affected by the enrollment variances.
The fee revenue from insurers, on the other hand, rises and falls with the number of signups. That means marketplace directors must set fees based on enrollment projections that may or not be realized, according to Jennifer Tolbert, director of state health reform for the Kaiser Family Foundation.
One solution, said Tolbert, may be to impose a broader assessment on insurers—whether or not they have policies listed on the marketplace.
"In some cases this is a little bit better because it's a broader assessment and not so driven by enrollment in the marketplace," Tolbert said.
When that approach was tried in the District of Columbia, insurers sued.
The district and 13 states are running their own marketplaces, where residents can purchase health insurance. New Mexico, Nevada, and Oregon run outreach and customer service for their marketplaces, but asked the federal government to manage the information technology supporting the website.
The board that oversees DC Health Link, the district's marketplace, approved in May 2014 a broad-based assessment on all firms selling insurance in the district, even those not listed on the marketplace. It includes several other forms of insurance outside health care.
In July 2014, the American Council of Life Insurers (ACLI) filed suit in the U.S. District Court for the District of Columbia, claiming that the broader assessment was illegal. The court dismissed the complaint in November but ACLI filed an appeal one month later.
"Because these products are prohibited from even being sold on the exchange, the assessments amount to a user fee on non-users," said Gary Hughes, executive vice president and general counsel, for ACLI in a Dec. 2014 news release announcing the appeal. "In addition, the cost of the assessments will likely and unfairly impact the affordability of these products for consumers in the District of Columbia."
The marketplace board has said in statements that "insurers selling supplemental coverage directly benefit from an expanded number of district residents who now have comprehensive health insurance." The thinking is that people with health insurance are more likely to purchase supplemental insurance.
"Our position is that this is an issue of basic fairness," said Mila Kofman, executive director of the DC Health Benefit Exchange Authority. "Insurers who benefit and profit—not the taxpayers—should pay."
Marketplaces elsewhere are sticking with fees on listed insurers.
For each enrollee on the Covered California marketplace, insurers pay $13.95. The marketplace has budgeted for $197.4 million in fee revenue for fiscal year 2014-2015.
The "per-member per-month charge. . .will serve as the sole revenue source once the federal funding is completed," said James Scullary, spokesman for Covered California.
Washington Healthplanfinder, the state marketplace for Washington state residents, has three sources of revenue: an existing 2 percent tax on insurers for plans sold on the website, payments from the state's Medicaid program for helping the agency enroll beneficiaries, and an as-needed fee for insurers on the marketplace if the 2 percent tax doesn't meet projections.
Noting that fees on insurers may be passed onto consumers, Washington marketplace spokesman Michael Marchand said, "We realize even a fluctuation of a few dollars here and there can create difficulties for consumers based on what they see as affordable particularly given the income levels and people we're working with."
In Nevada, it takes $6.2 million to run the state's health marketplace, which relies on user fees on insurers. Bruce Gilbert, executive director for the Silver State Health Insurance Exchange, said he doesn't anticipate that changing.
But Nevada was among the handful of states to set up an exchange that relies on the federal exchange, healthcare.gov, for much of its back-end operation, and was recently told by the Centers for Medicare and Medicaid Services that it will have to start paying for the support in 2017. Marketplace officials are in ongoing talks with CMS over the cost.
"We recognize it will have an impact on our operation and viability but until we know how much of an impact it's difficult to get concerned," Gilbert said.
Clare Krusing, director of communications for America's Health Insurance Plans said the state marketplaces need to be financially stable so there aren't fluctuations in premiums each year.
"There needs to be consistency for consumers," Krusing said. "There needs to be transparent information about exchange operations for insurers and for the public to understand the expenses for operating it. It's doing what is necessary to make sure that the exchange functions well for consumers and to make sure that the assessments are fair and reasonable."
