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Plan to Fix Massachusetts Exchange to Cost $121 Million

By John Reichard, CQ HealthBeat Editor

May 9, 2014 -- Although the federal insurance exchange serves as a backup for states whose own marketplaces prove unreliable, the transition can be rocky both in terms of the cost to taxpayers and their menu of plan options.

A case in point is Massachusetts.

Officials recently approved a two-track plan to fix the state's dysfunctional marketplace at a cost of $121 million. The state is changing contractors to fix the Connector website and is at the same time preparing to send residents to the federal marketplace this fall.

Sometime this summer, perhaps in mid-July, it will decide whether to rely on its Connector online marketplace or switch to Officials say they only would rely on the federal site in 2015 and switch back to the Connector in 2016.

Similarly, Maryland officials are expected to need another $40 million to $50 million to repair their exchange.

House Republicans estimated at a recent hearing that the federal government overall has spent $4.7 billion to set up state exchanges.

But spending money on faulty websites isn't the only headache. At a board meeting of the Massachusetts Connector last week, officials noted that "there are significant challenges" associated with switching to It will mean more work and more financial risk for insurance carriers, who have varying levels of infrastructure developed to participate in the federal marketplace, they said.

And in some cases they may not have enough time to get ready.

Health plans in the state issued a warning to the Connector board about the impact of the dual-track approach.

"We cannot overstate the complexity and technical issues that come with having to develop two separate systems," said a letter to the board May 7 from Eric Linzer, senior vice president of the Massachusetts Association of Health Plans.

"The combination of the technical requirements, compressed time frame and significant additional costs of having to build two systems may result in some health plans being unable to participate," he said. "This outcome will take options away from consumers" and may mean higher premiums, he said.

It's unclear whether the federal government will foot the costs of the repairs, or when they will make a decision on the matter. The federal spigot for state exchange operations remains open until the fall under a grant program established by the health law (PL 111-148, PL 111-152). But political considerations are paramount at the White House, with congressional elections drawing closer and Republicans portraying outlays for the state marketplaces a big waste of money.

Maryland officials recently voiced confidence federal officials wouldn't try to block the funds. With a federal funding stream in place, Massachusetts could ultimately get its money too.

It's not a certainty, however.

A Centers for Medicare and Medicaid Services official said that "if a state requests to re-scope their existing grant, they must document in writing their proposed revised scope of project, identifying what activities they are terminating, what activities they are continuing and or adding, and any impact on the budget. This is something we would need to approve."

The funding controversy may primarily be a Beltway battle, but more critical to the future of the marketplaces is the cost of the coverage they will provide.

An analysis released last week by the Avalere Health consulting firm is forecasting double-digit rate hikes in many markets. The firm's president, Dan Mendelson, said in an interview that assessment is based on the combination of underlying medical cost growth, the costs of fees insurers must pay under the health law next year, and the costs of delaying some provisions of the health law.

Some insurers have signaled they will keep increases in the single digits. Mendelson didn't dispute that and said "it's going to vary by market." He said "there will be noise around the average," and that insurers that underpriced this year will charge more and those that overcharged will trim premiums. But it's likely that the average increase will be in the low double digits, he predicted.

For employers accustomed to seeing yearly insurance increases that size, that doesn't seem like such a big deal, Mendelson said. But uninsured people getting coverage for the first time in exchanges aren't used to that kind of increase — and federal officials haven't prepared them for it, he added.

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