New Jersey: State-based exchange bills move forward, with ironic hand-wringing over the user fee

A week or so ago I reported that New Jersey is moving forward with fourteen bills related to protecting, repairing and improving the ACA at the state level...including several related to the state's transitioning to their own full state-based ACA exchange.

Today, Lilo Stainton of the New Jersey Spotlight reports that while things are proceeding smoothly for the most part, at least one of the bills is causing a few concerns:

But, while supporting the legislation in concept, insurance and business representatives have raised questions about some of the details, including language that would enable New Jersey to hike the tax on certain insurance plans to 5 percent — from the current 3.5 percent — which critics said would add to consumer costs. Some Republican lawmakers also have flagged this as a concern.

...Lawmakers amended the Senate version of the bill related to the fee on exchange plans, which is estimated would raise $55 million a year to support its operation, to cap this tax at 5 percent. But Sanders said that still would allow the state to impose a burden far beyond the 3.5 percent now charged to support the federal system. (The federal fee is slated to go down to 3 percent next year.)

Here's the actual wording of Senate Bill 49 (Assembly Bill 5499):

c. The commissioner may apply a monthly assessment to each health benefits plan offered by a carrier. The assessment shall be paid by the carrier and deposited into the fund and shall be used only for the purpose of supporting the exchange through initial start-up costs associated with establishment of the exchange, exchange operations, outreach, enrollment, and other means of supporting the exchange. The assessment may be applied at a rate of:

(1) .5 percent of the total monthly premium charged by a carrier for each health benefits plan during any period that the State is on a federally-facilitated exchange;

(2) 1 percent of the total monthly premium charged by a carrier for each health benefits plan during any period that the State is on a State-based exchange using the federal platform; or

(3) 3.5 percent of the total monthly premium charged by a carrier for each health benefits plan during any period that the State is on a State-based exchange. The commissioner shall have the discretion to adjust this rate to ensure that the State-based exchange is fully funded, but in no case shall the assessment be applied at a rate that exceeds 5 percent of the total monthly premium charged by a carrier.

You can mostly disregard the first two items above; those are simply to cover the transition period, since the establishment of the state-based exchange itself will happen on January 1, 2020 but the exchange won't be fully state-based until the 2021 Open Enrollment Period, which starts next November 1st. This means there will be at least 10 months where New Jersey's exchange is still hosted on HealthCare.Gov for off-season Special Enrollment Periods.

It's the third item which is causing some grumbling. Right now, carriers in states which don't operate their own ACA exchange have to pay 3.5% of their premiums to HealthCare.Gov to cover operational, marketing and other expenses. That's scheduled to drop to 3.0% next year. The NJ bill is designed to keep it at 3.5% but also gives the insurance commissioner wiggle room to bump it up as high as 5.0% just in case their operational costs end up being higher than expected.

I'm honestly not sure that this is necessary, especially seeing how the cost of launching and maintaining an ACA exchange has plummeted dramatically over the years. As noted in the NJ Spotlight article itself:

Nevada is now in the process of shifting from a federal to state system, scheduled to start this fall; lawmakers there anticipate it can be run for a fee of 1.5 percent on the plans sold, saving the state half of the $12 million the federal government now spends on the operation, according to Healthinsurance.org, an industry publication. New Mexico is planning a similar shift in 2021 and Oregon is also considering taking control of its system.

I honestly don't know exactly how much the startup or operational cost of NJ's exchange will be, but here's what they're spending right now:

  • 255,000 New Jersians selected ACA exchange plans during Open Enrollment this year.
  • The average unsubsidized premium in NJ is around $511/month, or $6,132/year.
  • Assume an average monthly effecutated enrollment of roughly 204,000 people (80% is the national monthly average)
  • That's a total of roughly $1,250,928,000 in premiums which will be paid by NJ exchange enrollees this year.
  • 3.5% of that is around $43.8 million

Assuming total enrollment is flat year over year, New Jersey officials seem to expect that they'll need around $44 million/year, give or take, but they're giving themselves wiggle room to bump that up to as high as $62 million; it's that additional $18 million or so which carriers and others are unhappy about. On the other hand...

d. Any unexpended balance in the fund at the end of a year shall be available for expenditure by the commissioner in the subsequent year. The commissioner shall consider any unexpended balance from a previous year when calculating the assessment pursuant to subsection c. of this section.

...it could also be reduced to less than 3.5% of premiums as well, assuming they overestimated the cost. While government programs are notorious for running over budget, the experience of other state-based exchanges has proven that it can save money when done properly. For instance, Washington State has similar exchange enrollment to New Jersey (around 221,000 this year), and while they charged 3.46% of premiums in 2018, that dropped to 2.63% this year and is scheduled to drop a bit more to 2.58% for 2020. My guess is that New Jersey is covering their butts just in case...plus, of course, actually developing the exchange itself will cost several tens of millions of dollars.

The irony here is that one of the main reasons for states to move off of HealthCare.Gov onto their own full exchange is precisely to reduce their expenses. I don't know if Nevada will be able to pull it off for just 1.5%, but they seem pretty confident about it (they only had 83,000 plan selections this year, for what it's worth, although some of the expenses are the same whether you enroll 1 person or 1 million). Keeping the cost under 3.5% (or even 3.0%) should be quite doable in New Jersey.