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Life Health > Health Insurance

PPACA 2016: How will exchanges pay their way?

By Allison Bell

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The managers of the Patient Protection and Affordable Care Act (PPACA) public exchange programs are facing a tough new challenge: Figuring out how the exchange programs will earn their keep.

PPACA calls for the U.S. Department of Health and Human Services (HHS) to provide generous startup funding for the state-based exchanges, but only for one year.

In theory, most of the state-based exchanges are supposed to be self-sustaining starting as early Jan. 1, 2015, but many still have some HHS grant money or other grant money left over.

See also: HHS Sees Full Speed Ahead for State Exchanges

All of the exchanges that will be in operation Jan. 1 are supposed to be able to operate without federal taxpayer support by Jan. 1, 2016. 

Here’s a look at exchange financial sustainability options.

Uncle Sam

1. It’s possible that the federal government could help support the exchange system

PPACA provides only temporary federal funding for public exchange system operations and Republicans who say they oppose PPACA will control both the House and the Senate in 2015.

But Republicans have supported the exchange system concept in the past, and it’s possible that they could scrape up future exchange system funding if voters and insurers seem to like the exchange system. 

See also: Health Carriers, Producers Expect Another Year In Eye Of Hurricane

Market

2. The plan sellers could pay user fees

Many state-based exchanges already impose fees on the insurers that sell qualified health plans (QHPs) through their systems, and HHS imposes a user fee on the insurers that sell QHPs through HealthCare.gov.

This year, for exchange, HHS charges QHP issuers a user fee equal to 3.5 percent of the premiums. The fee will stay the same in 2015.

See also: Sebelius defends fed exchange user fee

Hand paying cash

3. All health insurers in a market could pay fees

One problem with charging exchange issuers a high user fee is that the fee could make the cost of coverage sold through an exchange much higher than the cost of the coverage sold outside the exchange.

When exchange system advocates were promoting the exchange concept, one argument was that distributing coverage through an “Amazon.com for health insurance” would be cheaper than the traditional system.

The board of BeWellNM, New Mexico’s health insurance exchange, for example, has talked about funding its exchange with an assessment on all insurers that sell major medical policies, on or off the exchange, and all dental coverage sold through the exchange.

Supporters of that approach say it broadens the potential source of funding for the exchange, decreases the effects on exchange users, and eliminates the possibility that exchange user fees themselves could drive consumers away from the exchange system.

In the District of Columbia, the D.C. Health Benefit Exchange Authority is trying to further expand the base of support for its locally run DC Health Link exchange, by imposing an assessment on insurers that sell all types of health-licensed products in that market, including many products that cannot be sold through the exchange.

The American Council of Life Insurers (ACLI) is fighting that approach in the federal courts, arguing that approach is unfair to insurers shut out of the exchange system.

U.S. map

4. States could use their own tax revenue

Many states have been generous supporters of their exchange programs, and they could continue to support their exchange programs with their tax revenue. Vermont, for example, has been talking about creating a new tax to fund a shift to a single-payer health care system. 

Couple using a computer

5. They might be able to sell ads

Today, the public exchange programs are major buyers of advertising, but they attract many users themselves. In the past, some exchanges have talked about generating revenue by selling advertising.

See also: New Hampshire uncertain about PPACA outreach money

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