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According to recent news reports, nearly half of the 17 Exchanges run by states and the District of Columbia under the Affordable Care Act (ACA) are struggling financially:
Many of the online exchanges are wrestling with surging costs, especially for balky technology and expensive customer call centers — and tepid enrollment numbers. To ease the fiscal distress, officials are considering raising fees on insurers, sharing costs with other states and pressing state lawmakers for cash infusions. Some are weighing turning over part or all of their troubled marketplaces to the federal exchange, HealthCare.gov, which now works smoothly.
Of course, many states can’t solve their financial troubles easily. As independent entities, their income depends on fees imposed on insurers, which is then often passed on to the consumer signing up for health care. However, those fees are entirely contingent on how many people enroll in that particular Exchange; low enrollment invariably means higher costs.
Low enrollment is where the trouble thickens. The recently completed open enrollment period only rose 12 percent to 2.8 million sign-ups for state Exchanges, according to The Washington Post. Comparatively, the federal Exchange saw an increase of 61 percent to 8.8 million people.
According to the Post, state Exchanges have operating budgets between “$28 million and $32 million”. Most of the money tends to go to call centers, “Enrollment can be a lengthy process — and in several states, contractors are paid by the minute. An even bigger cost involves IT work to correct defective software that might, for example, make mistakes in calculating subsidies.”
However, The Fiscal Times contends that, “Some states may be misusing Obamacare grants in order to keep their state insurance exchanges operating—potentially flouting a provision in the law requiring them to cover the costs of the exchanges themselves starting this year.”
In fact, the ACA provided about $4.8 billion in grants to help states build and promote their Exchanges. As the article explains, before this year, states could use the grant money on overhead costs. However, a new provision that went into effect in January 2015 says that states can’t use the grants on maintenance and staffing costs; grant money must be spent on design, development and implementation costs.
The Fiscal Times spotlights California as a prime example of why state Exchanges are in troubled waters:
One of the worst examples comes from California, where the state’s exchange has been touted the most successful in the country for enrolling thousands of people. Covered California has already used up about $1.1 billion in federal funding to get its exchange up and running and is now expected to run a nearly $80 million deficit by the end of the year, according to the Orange County Register. The state has already set aside about $200 million to cover that, but the long-term sustainability of the program is very much in question.
In addition, state Exchanges like Hawaii might have to switch to the federal Exchange, Healthcare.gov, because of on-going financial solvency issues. “This is a contingency that is being imposed on any state-based exchange that doesn’t have a funded sustainability plan in play,” said Jeff Kissel, CEO of the Hawaii Health Connector.
According to the Post, states with the lowest enrollment are facing the biggest financial problems:
Turning operations over to the federal Exchange seems to be a popular alternative, but it doesn’t come without a cost: $10 million per Exchange, to be exact.
Although there are many options for state Exchanges to consider, it is likely that they will hold off on any final decisions until after the Supreme Court decides King v. Burwell. In this case, the Chief Justices will make a ruling in June that could either send a lifeline to ACA or remove a fundamental pillar of the law by under-cutting its ability to extend health insurance coverage to millions of Americans through its subsidy program.
The appellants in the King v. Burwell case say that IRS rule conflicts with the statutory language set forth in the ACA, which limits subsidy payments to individuals or families that enroll in the state-based Exchanges only. If the Court relies on a literal interpretation of the ACA’s language, millions of Americans who live in more than half of the states where the federal Exchange operates will not receive subsidies, thus undoing a fundamental pillar of the law. (Read more about the court case here.)
On November 7th, 2014, the U.S. Supreme Court agreed to hear King v. Burwell. The case will argue whether or not subsidies in the marketplace should be limited to states with state-run Exchanges. According to the New York Times, “If the challengers are right, millions of people receiving subsidies (through the federal Exchange) would become ineligible for them, destabilizing and perhaps dooming the law.” Arguments are due to begin in December, and a ruling will be issue by next June.
The key question in the case deals with the conflicting IRS ruling stating that “subsidies are allowed whether the exchange is run by a state or by the federal government.” Those challenging the law in this case say that this rule conflicts with the statutory language set forth in the Affordable Care Act (ACA).
Two lower courts, the U.S. Court of Appeals for the District of Columbia in Halbig v. Burwell and the U.S. Court of Appeals for the Fourth Circuit in King v. Burwell, have already issued conflicting opinions regarding the IRS’ authority to administer subsidies in federally facilitated Exchanges. In addition, two other cases are being litigated in the lower courts on the same issue. In Pruitt v. Burwell, a district court in Oklahoma ruled against the IRS in September, and a decision in a fourth court case, Indiana v. IRS, is expected shortly. Of course, the Supreme Court ruling could render the lower court decisions moot.
With Congress in its summer recess, now is a good time to reflect on the top ACA issues worth monitoring as 2015 quickly approaches. Here are a handful of key issues to watch:
Dueling Court Cases on Federal Subsidies
One issue grabbing national headlines is the dueling decisions coming out of the U.S. Court of Appeals for the District of Columbia (Halbig v. Burwell) and the U.S. Court of Appeals for the Fourth Circuit (King v. Burwell) on missing language in the ACA that would have authorized the federal government to provide premium subsidies to individuals who sign up for health plans through the federal Exchanges. The legal issue in these court cases is whether the ACA premium tax credit (aka subsidy) is available to those individuals who enroll in qualified health plans (QHP) through state operated Exchanges or if it is available only to those to enroll in a QHP through a federally funded Exchange.
A primary concern is that a significant number of people in about two-thirds of the states (who did not set up a state-run Exchange) rely on the subsidy to purchase a plan in the federal Exchange. Specifically, the ACA’s employer mandate penalty of $3000 is based upon an employer having an employee seek coverage through an Exchange and receive the federal premium subsidy. In general, the employer mandate requires that “applicable large employers” offer their full-time employees minimum essential coverage or potentially pay a tax penalty. However, according to the statutory text of the ACA, the penalties under the employer mandate are triggered only if an employee receives a subsidy to purchase coverage through an Exchange established by the states. Both cases are being appealed to higher courts and will likely be consolidated into one case to be heard by the U.S. Supreme Court in the not so distant future.
In an interesting development, a video surfaced last week featuring one of the ACA’s chief architects (John Gruber) saying that health insurance subsidies should only be available in those states who opt to build and implement state-based Exchanges to gain participation. The idea was to create an incentive to have states actively involved in the hosting of an Exchange, rather than relying on the federal government to operate the Exchanges in each state. Whether this video will be used as evidence to uphold the argument that subsidies can only be offered by state-based Exchanges remains to be seen.
Lack of Back End Software for Federal Exchange
Of course, one of the big news stories in 2013 and early 2014 was the substandard launch of the federal Exchange, which led to many Americans having to wait to be enrolled in an ACA-compliant health plan. Although some technical snafus have been addressed, there are many that still remain. For example, a top White House official recently told Congress that the automated system that is supposed to send premium payments to insurance companies is still under development, and they did not have a completion date for it yet. The lack of an electronic verification process is only one part of the “backend” software that is still problematic five years after PPACA was passed.
Future of Navigators in Comparison with the Value of Brokers
Several recent studies have touted the benefits of using third parties, such as Brokers, to help consumers find coverage under the ACA. Some of these studies have focused on the usefulness of using Brokers/Agents over the benefits of using Navigators. A recent Urban Institute study found that health insurance Brokers were the most helpful in providing health insurance Exchange information when compared to other types of resources, including Navigators and website content. However, there are other published studies showcasing how Navigators have been useful to consumers. That being said, Brokers have assumed an integral role supporting millions of Americans in securing and maintaining coverage for many decades, and continue to be knowledgeable resources, as they are licensed in the states they operate in, whereas Navigators are not required to meet the same licensing standards as Brokers/Agents. It will be interesting to see what the future holds for Navigators, who are not as experienced and who are, in the end, dependent upon federal grants to provide their services.
Provider Access Issues & Emergency Room Over-Usage
A number of public policymakers have raised concerns recently about the fact that there are shortages of key physicians and other providers and as a result is causing a increase in non-emergent patient visits to expensive ER departments. A recent story in the New York Times highlighted similar concerns, saying the ACA cannot change the fact that visiting an emergency room may be easier than seeing a primary care physician in some instances or locations. Other stories and studies highlight how the ACA and health care reform initiatives can affect access to providers in many different ways, such as changing reimbursement levels, improving the availability of certain types of specialists, or re-educating the patient to move from visiting the ER department to either making an appointment ahead-of-time or visiting a less expensive Urgent Care center for care.
Premium Rate Increases
Another critical issue to monitor are premium increases that might be occurring in spite of the initial promises that the ACA would lower health care costs. Health plans have begun publishing proposed rates for 2015, resulting in a recent flurry of news articles and reports addressing the impact of the ACA on insurance premiums.
The Wall Street Journal published a front page report discussing the ACA’s impact on premium increases earlier this summer, saying, “Hundreds of thousands of consumers nationwide, who bought insurance plans under the Affordable Care Act, will face a choice this fall: swallow higher premiums to stay in their plans or save money by switching.”
The Journal goes on to say that a new picture is emerging in 10 states where 2015 premium insurance rates for individual plans have been filed, “In all but one (state), the largest health insurer is proposing to increase premiums between 8.5% to 22.8% next year.” Ironically, smaller health plans are reducing their 2015 rates in the same market in an attempt to gain market share.
The significance of this trend is underscored in a statement released earlier this summer by Karen Ignagni, president & CEO of America’s Health Insurance Plans (AHIP), in which she expressed concerns about keeping health insurance affordable for patients. “Affordability remains a top priority for consumers when it comes to their health care,” she said.
Bonus: Be Sure To Watch The Political Races
With the ACA’s continued challenges, the ups and downs of the U.S. economy, key world events in the Middle East, and other confounding variables, one has to wonder what will happen during the mid-year elections this fall. As reported by CNN and other news outlets, the ACA became an key issue in Obama’s 2012 re-election victory as well as Democrats picking up seats in the Senate and House in that election.
As November 3, 2015 approaches, many different messages could be sent back to the White House and Congress. If Republicans take over the Senate and retain control of the House, how will this impact the ACA over the next several years? If the congressional houses remain split, we may have less going on by either political party. How will the state-level elections impact the ACA and state-run Exchanges? Only time will tell.