State-federal exchange fees add up to 6%

State-run hub is less costly; Arkansas coffers get excess

Thursday, December 6, 2012

— Consumers purchasing health coverage on the state’s insurance exchange in January 2014 will likely pay a 6 percent tax or “premium fee,” according to Arkansas exchange officials, generating tens of millions of dollars more than needed to fund the exchange and fattening state coffers by up to $25 million.

The fee will be assessed on insurance carriers, but those costs will almost certainly be passed along to consumers, although most will be shielded by provisions in the Patient Protection and Affordable Care Act that protect them from higher premiums.

The added costs will mostly fall on more affluent consumers who seek policies on the exchange, as well as federal taxpayers who will pick up the tab for the higher costs.

“It is a balance between a positive effect on general revenue and the impact on consumers’ pocketbooks,” said Cynthia Crone, the exchange’s planning director.

The exchange is designed to protect most consumers from rising premium costs. Federally subsidized consumers won’t spend more than 9.5 percent of their family income.

Most families and individuals making up to 400 percent of the federal poverty level may get some form of federal subsidy if they do not have affordable employer-based coverage (defined as the employee’s portion of the premium not exceeding 9.5 percent of an individual’s income). A family of four earning up to $92,000 a year would qualify for federal aid.

Those subsidies don’t protect everyone. Someone who has individual em- ployer-based insurance that meets the affordability guidelines but whose premium for family coverage exceeds the 9.5 percent of family income won’t qualify for exchange subsidies, said Crone.

The state already assesses a 2.5 percent fee on most types of insurance premiums. That same fee will also be applied to health coverage bought on the exchange, a marketplace for insurance created by the Patient Protection and Affordable Care Act and designed to provide health-insurance options to 500,000 uninsured Arkansans.

Last week, the federal government announced that states like Arkansas that chose a federal-state partnership model will have an additional 3.5 percent federal premium fee on policies bought on the exchange.

Roughly half the money collected from the federal fee will be given to the state to pay for exchange promotion, regulation and evaluation costs.

If the state had opted to run its own exchange, the 2.5 percent state fee would have been more than enough to cover the exchange’s operating expenses, said Crone. The 2.5 percent premium fee assessed on the anticipated 211,000 new policies would raise about $25 million dollars.

The exchange is only estimated to cost between $15 million and $18 million in its first year, she said.

But the federal government — through its 3.5 percent premium fee — will cover the state’s share of exchange costs. So the net effect on general revenue will be about $25 million, she said.

The exact size of the payoff for the state isn’t yet clear. One factor is how quickly eligible consumers buy insurance on the exchange. It’s ambitious to think that all 211,000 eligible Arkansans will actually enroll in the first year, Crone said. Two years might be a more reasonable enrollment goal. If fewer people enroll than expected, the state will get less money.

Insurance Commissioner Jay Bradford said “it’s a valid point” that a federal partnership is a more expensive option for companies and some consumers, but he said a state-run exchange remained unlikely — at least in the short term.

“I do feel that a partnership is more palatable [among lawmakers],” Bradford said. The Legislature killed the state-run exchange option in the 2011 session. Last month, the federal government extended the deadline to Dec. 14 for states to decide if they want to run the exchange themselves, let Washington control it or opt for a statefederal partnership.

Gov. Mike Beebe, who supports a state-run exchange, said that he would be open to switching back to that model if lawmakers supported it. But the governor and lawmakers haven’t discussed the issue as of Tuesday, said Beebe’s spokesman Matt DeCample and incoming Senate President Pro Tempore Michael Lamoureux, R-Russellville.

To switch to a state-run exchange now would present enormous logistical challenges and time constraints. The health-care law requires enrollment to begin by October 2013.

One of the appeals of the partnership exchange for Beebe is that it allows the state to keep as much of the state premium fees as possible, DeCample said. Last year, the fees raised $156,495,607.

The higher fees associated with the partnership plan is a “positive” for state revenue, but its cost to consumers is “another argument that you need to get all the information you can and weigh the positives and negatives,” De-Cample said.

Lamoureux said he thought consumers deserved better.

“I thought the point of all this was to help consumers. I haven’t heard any options that are good for consumers,” Lamoureux said.

Claire McAndrew, senior health-policy analyst for Families USA., a Washington, D.C.-based consumer advocacy group, said that the benefits of an exchange far outweigh the associated fees.

The regulated marketplace will lower prices for most consumers and provide federal subsidies to make coverage affordable to hundreds of thousands of people who couldn’t otherwise afford it. The federal protections limiting consumer exposure to higher premiums will also minimize the effect of the fees, she said.

“As long as exchanges are financed in a responsible way, and calculated in a way that they need to be, the impact of [fee] assessment on consumers is very small,” McAndrew said.

Ann Strong, the healthpolicy director for Arkansas Advocates for Children and Families, said the federal cost protections for subsidized policyholders mean “the vast majority of families will not have to pay any additional amount.”

Front Section, Pages 1 on 12/06/2012