Where a 200% increase in Exchange fees comes from

Featured: Washington State Health Benefits Exchange

 

Yesterday’s issue of 5 Things We’re Watching in Washington state health care generated a number of emails, primarily from legislators and providers but also from carriers and agency folks, too.

We ran the headline that “Exchange fees could increase 200%.”  We estimated that the increase to the carrier assessment could be as much as $9 pmpm.

Yet, the Exchange staff just last week proposed an increase of between $1-$3 pmpm to carriers.  That’s a number included in materials for this week’s Exchange Board meeting, as well.

So, who is right?

First, let’s define the scope of what we’re talking about.  Because of significant shortfalls in total enrollment, the Exchange has fewer enrollees than otherwise projected.  This has led to a revenue shortfall of about $26m for its two year budget.

The detail of this shortfall was presented in the February meeting.

2015 Exchange shortfall

For each increase of $1 in the carrier assessment, under the current pool of enrollment, the Exchange estimates it will collect $2.9m in revenue.

The Exchange presented no other viable revenue options at the Feb. 26th meeting nor have they released any follow up discussions on the matter.  In other words, as it stands, the only existing option on the table for raising money to cover the budget shortfall is a change to carrier assessments.

Of course, the legislature could always give the Exchange general funds to cover their shortfall.  However, the optics there aren’t politically great.  It would mean providing general funds to fund an agency which facilitates health plan enrollment instead of funding education or other priorities.  The policy cynic (or political opponent) might argue that the state shouldn’t be subsidizing health plans, an argument made since the beginning of the ACA deliberations in 2009.

If the Exchange levies an additional $1-$3 carrier assessment, that will generate an additional $2.9-$8.7m in revenue.

It should be noted that the baseline assessment is $4.19.  That makes the additional $1-$3 an increase of about 24%-72%.

But it would still leave a shortfall in the overall budget of between $17.3m and $23.1m.  How else does the Exchange intend to come up with those funds?

Here is the transcript from the audio of the Exchange board last month.  This portion is from staff explaining the fiscal situation the Exchange faces.

“For every dollar of an assessment increase on a per member/per month it will generate roughly 2.9 million dollars. That may not cover the entire shortfall but it means a lot. And other revenue sources which still haven’t been articulated will require some type of legislative change in our statute or legislation.”

At the moment, the only option within the Exchange’s control is an increase in the carrier assessment.  The legislature providing additional funds, or a change to existing statute, are hopes that come with political challenges that are outside the Exchange’s hands.

Until the Exchange brainstorms additional strategies for revenue–other than hopeful eyes on the legislature–the reality is that the full weight is still poised to drop on carriers. Carriers are hopeful that all they will see is a $1-3 increase. And while staff has stated that they will make the $1-3 increase recommendation to the Board, they do not know yet if this figure won’t have to be higher.

To cover the full $26m shortfall at the Exchange through carrier assessments, you’d need an additional carrier assessment of about $8.97, or an increase of 214%.  I’ve seen private correspondence from other stakeholders putting the number at $9.90.  This is on top of the $4.19 already assessed.

So, we rounded down to 200% in our headline and rounded up to $9 pmpm in our post.

Impact of the legislature

Here’s the other reality:  the legislature is unlikely to complete its work in a way that is timely for the Exchange.

In other words, carriers must file their 2016 products for the Exchange with the Office of the Insurance Commissioner (OIC) by April 24th.  The actuarial analysis must be completed about 2 weeks prior, and that analysis must include the rate for the carrier assessment.

The last day of the regular legislative session is April 26th.  Many Olympia observers believe the legislature will go into a special session beyond that, as late as June 30th.

In any case, it’s unlikely the Exchange will be able to know with certainty if the legislature will provide it additional resources before the point at which they must decide on carrier assessments to meet the OIC filing deadline.

In that scenario, we think it’s reasonable that the Exchange may consider a full $9 pmpm increase, or the very least an amount closer to $9 than the proposed $1-3.  In fact, as we noted, we’re hearing about contingency planning from various stakeholder entities that includes just that–a significant increase in the carrier assessment by the Exchange.

So, we’ll see what happens. But, the policy and politics around 2016 rates will be built upon the decisions of the Exchange in the next few weeks.  And, needless to say, there is a governor running for re-election in 2016 – and health policy will be a part of that.

Bottom line

Few stakeholders, including members of the Exchange, think an additional $9 is reasonable.  But is it possible?  Sure.

Will $1-$3 cover the Exchange shortfall?  Not a chance. The Exchange has confirmed that this is unlikely unless the legislature comes up with extra dollars.

Are there other revenue options being discussed? None that we have heard from our sources inside and outside of the Exchange.

So, the number may end up somewhere in between.  But, it’s a pretty precarious place for all involved – including enrollees – to be dancing between a 25% increase of $1 and a 200% increase of $9 per month.