Irony, thy name is Fees: OR, NV, NM & HI may be better off moving OFF of after all

As anyone who's been following the ACA exchange saga over the past few years knows, the original idea was that all 50 states (+DC) would establish their own, individual healthcare exchange, including their own website/technology platform for enrolling residents in private policies (QHPs), Medicaid (supplementing or replacing whatever existing Medicaid system they already had) and small business policies (the ACA's SHOP program). In addition, each state exchange would also have their own board of directors, marketing department, support call center, fee structure for covering the cost of operations and so on.

If things had worked out that way, there would have been 51 different websites where people would enroll in ACA policies, each one independently branded.

Of course, for a variety of reasons (primarily the CATO Institute's attempt to sabotage the entire law, leading to the infamous King v. Burwell court case), this didn't happen. In 2014, only 15 states, representing around 1/3 of the population established their own "full" exchanges in this fashion (CA, CO, CT, DC, HI, KY, MD, MA, MN, NV, NY, OR, RI, VT & WA). Another dozen or so states did establish, to various degrees, their own legal "exchanges" (ie, some set up boards of directors, marketing, etc), but 36 states still ended up having their technology platform handled by the federal exchange: HealthCare.Gov. Two of those states (Idaho and New Mexico) were originally planning to let handle their tech platform the first year, but were supposed to then split off on their own starting in 2015, while Arkansas originally intended on breaking out on their own in 2017.

If things had played out this way, starting next year you'd have 18 "SBMs" (State-Based Marketplaces) and only 33 states covered by the "FFM" (Federally-Facilitated Marketplace).

Needless to say, that didn't happen either. Instead, massive technology #FAILs at both Oregon and Nevada's exchanges were so severe, expensive and politically damaging, that both states decided to scrap their in-house tech platforms entirely and instead move home to the mother ship starting in 2015, allowing HealthCare.Gov to handle the tech side. Hawaii followed them for the current 2016 enrollment period. Meanwhile, while Idaho did fully break off onto their own full SBM, New Mexico eventually got cold feet and decided to stay put after all...putting them in the same category as Oregon, Nevada and Hawaii. I'm not sure what the latest is on Arkansas, but given their fully-GOP administration and legislature, I'm not expecting much to happen there. In addition, there's a lot of uncertainty about Kentucky's very successful exchange, kynect, now that incoming GOP Governor Bevin is running the joint; he's promised to shut their exchange down and move KY back to as well, for no particularly good reason.

However, for the moment let's look at the four existing "in-between" states: Oregon, Nevada, Hawaii and New Mexico.

The HHS Dept. has come up with a new category name for these four states: "State-Based Marketplace on the Federal Platform", or SBM-FP). Remember, they're all still legally set up as their own full exchanges, it's just that they're offloading the tech side to the feds. That means they still have their own operating expenses for things like paperwork/legal filings, board meetings, consumer outreach/marketing, some regulatory operations and so forth.

Now, here's where things get interesting. As I noted above, both the federal exchange (FFM), the state exchanges (SBMs) and the SBM-FPs all have their own fee structures in place to cover operational costs...including the technology platform. Here's how I noted it a couple of weeks ago; note the highlighted part:, just like the state-based exchanges, obviously has certain ongoing operational costs. Each exchange covers these costs differently; the Commonwealth Fund has posted a handy table (scroll down)explaining the fee amounts and who they're charged to in every exchange. For instance, the Connecticut exchange charges 1.35% of the premiums for every individual policy sold state-wide, regardless of whether it's sold on or offexchange, while California charges a flat $13.95 per month per policy...but only for the ones sold on the CA exchange. Other exchange fees vary. In the case of HealthCare.Gov, they charge a higher percentage than most of the state exchanges (3.5%), but only for on-exchange policies. The above seems to indicate that they don't plan on changing this for 2017 for most states.

HOWEVER, there's several exceptions: The "SMB-FP" states, otherwise known as "States which were running their own tech platform but screwed them up so badly that they had to scrap their system and move everything over to HealthCare.Gov" (Oregon, Nevada and, this year, Hawaii), as well as "States which were planning on moving ontotheir own platform the 2nd or 3rd year, but later changed their minds and decided to stay put at" (that is, New Mexico).

Those states still charge their own fees to carriers since, legally speaking, they're still a "state-based" exchange...but they then, in turn, have to pay for handling the IT side of things. Until now, I believe they've still had to pay the same 3.5% that every other state does. If I'm reading the above correctly, is saying that they plan on knocking this down to 3.0% for those states, presumably since the states are still doing a lot of the other stuff (marketing, call centers and so on) for their states instead of dumping that on the feds as well.

Well, it turns out that I was dead wrong about this last part. That is, yes, CMS does intend on charging a flat 3.0% fee to these states for using the federal exchange platform starting next year...but it turns out that, according to healthcare insurance exchange technology firm hCentive, all four states are apparently been getting a free ride until now:

Open enrollment for 2016 health coverage has begun, and people across New Mexico, Nevada, Oregon, Hawaii and other states are using to search for quality health coverage that they can afford. Already impacted by average rate increases of 11.4% in Nevada, 24% in Oregon, and 30% inHawaii, is proposing to add a new user fee of 3% on top of existing premiums for these states.

  • Vendors failed to deliver, and four affected states used for free.

User fees charged on top of health plan premiums were expected to allow state marketplaces to be financially sustainable without additional federal support. But the original technology vendors in states like Oregon, Nevada and Hawaii never delivered functional exchange technology – and hundreds of millions in federal taxpayer dollars later, those states moved from their failed technology to using the platform – free of charge.

  • This new set of fees is likely just the beginning of new federal technology fees for states using – placing affordable plan premiums continually at risk. user fees will need to be increased further because for the last three years, the federal government has been undercharging or not charging states at all for the costs of Federal policy and a recent Supreme Court ruling confirm that Congress directed to be financially self-sustaining, just like state marketplaces. But the federal government has never made self-sustaining and in 2014, 2015, and 2016 has taken funding from other programs to recover its over $600 million deficit incurred from running at a loss. The only direction user fees and plan premiums can go is up.

I figured that these states were charging their own fees and then passing a chunk of those along to the feds at the same 3.5% rate that every other state using was doing. If that was the case...and everyone was happy with the arrangement...then there would be no real reason to change anything; after all the fuss and bother, it would make perfect sense for these four states to say "to hell with it" and leave well enough alone.

Instead, it turns out that they've been using the tech platform for free until now, and have therefore only had to pay for the other oddball expenses noted above...but starting next year, is going to charge them 3.0% (half a point less than the other states, since the "incidentals" are handled by the states directly).

This is a very different situation. Tacking on an additional 3% to every policy sold via isn't gonna go over well in those states...which, as you might expect, has already led to this story:

As Feds levy fees, Oregon could again run its own health exchange

Faced with a new user fee from the federal government, Oregon may switch back to running its own health insurance marketplace — but not build it from scratch like the disastrous first time around.

The U.S. Department of Health & Human Services has proposed a 1.5 percent user fee for next year, ramping up to 3 percent after that, said Patrick Allen, director of the Department of Consumer and Business Services.

The fee is charged on premiums for state-based marketplaces that use the federal platform, including Oregon and Nevada.

At 3 percent, it would basically double the fees for Oregon carriers, who have already been losing money selling individual plans on the exchange. That's because the state currently charges carriers $9.66 per-member-per-month, which works out to 2.9 percent of premiums paid on medical plans.

The state originally tried to create its own health care marketplace, which was supposed to go live in October 2013. But Cover Oregon suffered from so many technical issues that it was scrapped. The Oregon Department of Justice and Cover Oregon contractor OracleAmerica have been sparring in court over who’s to blame for the $305 million debacle.

Oregon instead became a “supported state-based exchange,” using the federal government’s technology but overseeing communication, information and outreach functions.

The level of irony here is amazing, given what an utter clusterfark the original CoverOregon mess was: $300 million flushed right down the drain on a system (built by private computer powerhouse Oracle, I should note) which never ended up actually enrolling a single person, leading to an Onbelievably Ogly lawsuit/counter-suit between Oregon and Oracle.

And yet, as I noted myself immediately after the King v. Burwell decision in June (emphasis added):

It's even conceivable--unlikely, but conceivable--that a few years from now, after 1) The ACA has become even morefirmly entrenched nationally; 2) the software/technology for running a state exchange has become even more streamlined, simplified, faster, easier to use, cheaper, etc etc; and 3) (hopefully) some changed attitudes/changed administration officials (ahem), a few states on now may even decide to go ahead and move onto their own "full" exchange/website after all...completely of their own volition.

I realize that sounds pretty crazy now (since there'd be no financial incentive to do so), but anything's possible...and with King out of the way, at least that's a viable option now.

Well, it turns out that there is a financial incentive to do so after all...and the software has become more streamlined/easier to use/etc. in just months, not years.

In other words...

“Unlike three or five years ago, now there’s a relatively mature vendor market,” Allen said. “There’s software that’s up and running and being used, so we’re not talking about building something from scratch. We would purchase it as an off-the-shelf system. We don’t want a system that requires significant rewriting with code.”

More to come...

UPDATE: Well whaddya know...Nevada is already talking about possibly splitting back off again as well! (shout-out to Louise Norris for the link):

As a state that initially decided to form its own exchange, Nevada still has some leeway in how it uses its federal funds from the ACA.

Part of that leeway includes the option to step away from the ongoing hybrid arrangement that has the federal government handling the enrollment side of the program and creating a dedicated system for Nevada yet again. Gilbert estimates that the state has about $15 million to $17 million it can use to find another contractor should it decide to do so.

"We retain a fair amount of grant authority … that we can utilize to explore other technology solutions," Gilbert said. "(Hiring a new contractor) is within the realm of possibility of what we can do."

Doing so, however, likely won't happen barring a significant change in the status quo between the state and the federal government. Since switching to the hybrid system, the federal government has been handling enrollment at no cost to Nevada. The federal government has made it clear to the state, however, that it plans to start charging for the service soon.

The question now is how much the price will be, which is still being negotiated. Because hybrid exchanges such as Nevada were not part of the original plan for the Affordable Care Act's implementation, such costs were never planned for.

Depending on what range the costs fall under, Nevada will have to weigh the pros and cons of staying as a hybrid exchange. The debacle involving Xerox, for example, or Oregon's even more disastrous attempt at a state exchange serve as exhibits A and B for what could go wrong when setting up one's own system.

Although using the federal system has led to much needed stability in the enrollment process, however, it also comes with its share of downsides. One is loss of control over key data about enrollees and other metrics that are crucial in figuring out trends and what can be improved about the system.

"After the Xerox box got unhooked and we switched to the federal hub … we have to beat on Washington every day to get data," Gilbert said. "Nobody ever anticipated a hybrid system like ours so we're in the process of working on policies to allow us to get more of that data from them."