State health insurance exchanges face financial uncertainty

November 24, 2014 | By Brian Eastwood

The second year of open enrollment through health insurance exchanges has been mostly positive, but the states that run their own exchanges still face a financial test, the Associated Press reported.

Through a series of grants, the Department of Health and Human Services (HHS) initially funded state health information exchange efforts. HHS provided more than $4 billion, according to Healthcare Payer News. Under the Affordable Care Act, though, state exchanges must be self-sustaining starting in January.

Most states obtain financing by assessing fees on monthly premiums. The highest fees match the 3.5 percent user fee Healthcare.gov chargers insurers to sell plans on the federal exchange. Four states, plus the District of Columbia, also assess fees to plans sold off the exchange. This means that costs are shifting to payers as state health insurance marketplaces prepare for self-sufficiency, FierceHealthPayer previously reported.

In many states, though, fees simply aren't enough. Colorado has cut overall spending on its insurance exchange by 18 percent, the AP said, while the District of Columbia implemented a 1 percent tax on all health insurance policies--a measure that now faces a lawsuit. New Mexico, Rhode Island and Vermont all rely on temporary state or federal funding and face an uncertain future, Healthcare Payer News noted.

The financial uncertainty provoked lawmakers in Maryland and Rhode Island to propose a switch to the federal marketplace, the AP said. Oregon made the switch to Healthcare.gov after determining that moving to the federal exchange would be more than $70 million cheaper than fixing the embattled Cover Oregon site.

Ultimately, the success of state health insurance exchanges depends on their ability to increase enrollment, as the Commonwealth Fund noted in a recent report. But that uncertainty, coupled with rising fees and disparate fee structures among individual states, suggests that exchanges continue to take insurers on a roller-coaster ride.

Learn more:
- read the Associated Press article
- read the Healthcare Payer News article
- check out the Commonwealth Fund report