If government health insurance exchanges come to life, states will have to figure out how the entities will be funded.
Managers of the proposed federal exchange could have an edge, because the U.S. Department of Health Human Services (HHS) already has figured out a funding strategy.
HHS wants to make federal exchange services free for the states and have the federal exchange earn its keep by charging user fees.
Deborah Bachrach and Patricia Boozang, health policy analysts at Manatt, Phelps & Phillips L.L.P., Washington, discuss exchange funding in a health insurance exchange paper prepared for the National Academy of Social Insurance (NASI), Washington, and distributed by the Robert Wood Johnson Foundation, Princeton, N.J.
In the paper, the analysts look at how the “federally facilitated exchange” — the FFE — might work.
Drafters of the Patient Protection and Affordable Care Act of 2010 (PPACA) added health insurance exchange program requirements in an effort to give individuals and small groups a way to compare and buy high-quality major medical coverage using new federal tax subsidies.
The U.S. Supreme Court is considering the constitutionality of PPACA.
If the act survives, the exchanges are supposed to start distributing coverage Jan. 1, 2014.
A state could be home to one state-based exchange, or several . A state also could join a multi-state exchange consortium or let the federal government provide exchange services for its residents through the FFE.
The FFE could supply all exchange services for a state’s residents or some, or it could simply help a state-based exchange handle administrative services.
A state-based exchange could be an arm of state government or some kind of independent, nonprofit entity.
Bachrach and Boozang consider many aspects of FFE operations, including how an exchange would apply PPACA eligibility guidelines, how it would enroll consumers in health plans, how it would work with health plans, and how it would handle consumer assistance and financial management issues, such as what the exchange revenue pies might look like.
HHS officials suggested in draft regulations released in July that, if a state works with the FFE to provide exchange services, the state should handle at least some human-to-human consumer assistance functions and the FFE should handle more high-tech consumer assistance functions, such as websites, call centers and eligibility verification, the analysts write.
States and their exchanges should be good at handling outreach, education and in-person consumer assistance because they can use existing community-based resources — including their broker-agent distribution system to help with those functions, the analysts say.
States and state-based exchanges that decide to handle consumer assistance functions will have to consider matters such as figuring out what kinds of consumer ombudsman “Navigator” capacity and consumer assistance capacity might be needed to reach uninsured and underinsured state residents.
States also need to develop communication and referral rules and programs that their exchanges can use to reach out Naviggators, agents and brokers, the analysts say.
Any information technology systems an exchange adopts should support brokers and Navigators, the analysts say.
The analysts say some states, such as those participating in multi-state consortiums, might be in a good position to handle the high-tech consumer assistance functions as well as the human-to-human functions.
In the financial management section, the analysts note that, in 2014, the federal government will cover state-based exchange administrative costs.
In 2015, the state-based exchanges are supposed to use user fees, grants and other sources of revenue, such as website advertising revenue, to cover the cost of their own operations.
Medicaid is supposed to cover any exchange costs related to exchange activities related to Medicaid.
To cover costs related to commercial coverage, a state could have an exchange impose user fees on insurers that sell coverage through exchange or impose a fee on all individual and small group issuers in the state, the analysts say.
HHS officials said in November, in a response to questions, that the FEE will not charge states for any services the FFE provides, the analysts report.
HHS officials have said in a letter and in discussions at a meeting in September that the FFE likely will fund its costs with user fees, the analysts say.
PPACA itself gives the states the authority to charge exchange fees but does not explicitly provide the FFE with exchange user fee authority, but another federal law gives the FFE general user fee authority, the analysts say.
“Whether the authority to charge user fees on issuers flows from [PPACA] or from the federal government’s general user fee authority, the federally-facilitated exchange can and in fact must charge such fees in order to sustain the exchange,” the analysts say. “While the federally facilitated exchange has the authority to charge fees on issuers participating in the exchange, it would seem that only the state could decide to extend these fees to issuers outside the exchange.”