Exchange Board Makes A Decision With Unintended Consequences

 

The Exchange Board appears to have made a decision this last week that will lead to unintended consequences which will threaten the viability of the exchange itself.  I’m not sure they know it.

Follow my logic here for a minute.

The board is required to determine a plan to move the exchange to self-sustainability.  At the last meeting, a recommendation came to the board to increase the premium tax placed on plans from 2% to 3% (either a 1% increase or a 50% increase, depending on your politics).  The recommendation was one of three options.

Instead, the board decided to remove any prioritization among options and let the legislature decide what to do about sustainability.  They moved that all three options move forward without prioritization.

That recommendation was affirmed in a report that came to the board on Friday.  While I had to step out, my understanding is that the board was likely to approve the report.  (I believe they had to submit the report by a Dec 1st deadline, though I’m not certain.)

In any case, the board appears to have decided to not take a position on prioritizing revenue options to the legislature.

So, what will that look like in the legislature?

Thanks to the passage of Tim Eyman’s I-1185, we know it will take the legislature a 2/3rds majority to increase taxes.  With a state Senate so evenly balanced, given the moderates willingness to bolt their Democratic caucus, a premium tax increase will require broad consensus among both parties.

Being politically realistic, that consensus has very little hope of becoming reality if health plans actively oppose a premium tax – or even just some of the plans.  Remember:  all plans in the state pay the premium tax, regardless of whether they are in the commercial space or not.  So, even if plans going on the exchange support the premium tax, I am not sure Medicaid or Medicare Advantage plans not otherwise on the exchange will see the same benefit.  They are even more likely to oppose a premium tax increase.

So, one would think that there had been considerable outreach to plans about the funding package.  Instead, one major plan representative told me recently:

“My phone’s not ringing.  No one from the exchange has called me to talk about any of this.”

Moreover, the legislature is not going to do the board’s work for it.  If the board can’t make the case for a premium tax increase – in the form of a prioritized recommendation – then the legislature is even less likely to pass such a resolution.

So, then what?

Another option to put the exchange on a sustainable path is to assess a series of fees on the transaction.  In other words, like the taxes and fees placed on your online purchase of an airline ticket, consumers purchasing coverage on the exchange will have additional fees added on top of their premium.

Well, if that happens, that brings up even more problems.

The subsidies that consumers will receive to buy insurance coverage is for premiums – not fees.  The formal name of the subsidy is a “premium assistance credit.”

So, if there are a series of transactional fees applied to the consumer on top of the premium – fees that aren’t covered by subsidies – the result will be a new out-of-pocket cost to consumer that isn’t otherwise covered by subsidies.

Assuming this is an additional $20 per month – about the amount the exchange thinks will be needed per premium to cover its anticipated $50m annual budget – you’re talking about pricing low income individuals right off the exchange.  If the question is to take a tax penalty of $95 or to take a $240 hit from fees, in the near term, this is likely to depress transactions on the exchange.  The fewer the number of exchange transactions, the less able the exchange is to spread out its operational costs, thus further increasing the cost per remaining transaction.

Mind you: the fact that this cost increase comes as an unsubsidized fee rather than a subsidized premium increase is due to an exchange planning issue, not a lack of funding.  The premium subsidies would cover those fees if they were assessed to the plans and then passed on to consumers in the form of higher premiums (and as such eligible for federal subsidies).

Now, I understand that some in the Insurance Commissioner’s office may believe that the premium support can be applied to transactional fees.  While that may be correct, if the board runs with this interpretation – one that appears contrary to the federal statute on its face – then it’s very possible such an interpretation could lead to a court challenge.  If that happens, everything gets put on hold – exactly what no one wants or can afford where time is of the essence.

In other words, the Exchange Board and staff, by not reaching out to plans with greater effort and working to develop a prioritized revenue package for the legislature, risk leading to policy outcomes that are contrary to their interests:  getting citizens insurance coverage at a reasonable price with a sustainable exchange business model.

There is still time for the exchange to develop a legislative proposal beyond the report considered last Friday.  The consequences are significant if they don’t.

If they don’t do it, who else will?