Nearly Half of State-Operated Exchanges Face Financial Challenges

Nearly 50% of the state-operated exchanges under the Affordable Care Act are struggling financially, leading some officials to consider partially or fully switching to using the federal exchange, among other potential fixes, the Washington Post reports.

Background

Sixteen states and Washington, D.C., have set up their own exchanges under the ACA (Sun/Chokshi, Washington Post, 5/1). They have received about $4.2 billion in exchange grants from the federal government, according to Kaiser Family Foundation data.

State-operated ACA exchanges were given until Jan. 1, 2015, to become self-sustaining (Chokshi, "GovBeat," Washington Post, 5/1). Federal funding for such exchanges ended at the beginning of the year, leaving states with a requirement to cover their operating costs, according to the Post (Washington Post, 5/1).

Meanwhile, an HHS Office of Inspector General report released last week found that some state-operated exchanges might be illegally using federal funds allowed for design, development and implementation of the exchanges  to cover operational expenses (California Healthline, 4/30).

Potential Solutions

Faced with increasing costs -- particularly for IT work needed to correct faulty software and costly call centers -- state officials are considering several potential solutions to exchange funding problems, including:

• Increasing fees on insurers, as Rhode Island is considering;
• Sharing costs between states, as Connecticut, Rhode Island and Vermont are considering;
• Transitioning all or part of exchange operations to the federal exchange, as Minnesota and Vermont are considering; and
• Urging state lawmakers or governors to provide more funding, as Hawaii is doing and Maryland might consider, depending on call center costs.

Meanwhile, Connecticut is offering to assist states with their exchanges for a fee.

According to the Post, the main source of revenue for most exchanges is fees to insurers, which are often passed onto exchange customers. As a result, states that had relatively few residents enroll in exchange plans are more likely to be facing financial struggles.

Many state-operated exchanges are "looking at huge gaps, and they are not sure how they are going to get through the year," according to Avalere Health Senior Vice President Caroline Pearson.

Holding off Until After King Ruling

States likely will hold off on making major exchange funding decisions to see whether the Supreme Court strikes down the ACA's subsidies to help U.S. residents purchase federal exchange coverage in King v. Burwell, the Post reports (Washington Post, 5/1).

At issue in the case is that while the ACA says subsidies are available to help certain U.S. residents purchase coverage offered "through an exchange established by the State," a May 2012 IRS rule allows the subsidies to be used in an exchange administered either by a state or the federal government. The high court heard oral arguments in the case in March and will release a decision by the end of June (California Healthline, 4/22).

According to the Post, a ruling striking down the federal exchange subsidies would make states with exchange financing issues less likely to transfer all operations to the federal exchange out of concern that their residents could lose access to subsidies. Meanwhile, a ruling upholding the subsidies would increase the chance that states transfer their exchange operations (Washington Post, 5/1).