Exchange CEO complains of ‘cuts, cuts, cuts,’ but board refuses fee hikes

By Katie Kerwin McCrimmon

Colorado’s health exchange board refused to hike user fees by 21 percent Monday despite complaints from Connect for Health Colorado’s CEO that she’ll have to cut spending without more revenue.

The news comes as managers have slashed projected enrollments. The most optimistic projections once predicted that as many as 204,000 Coloradans would have signed up for private health insurance by the end of this month. Mid-level projections called for about 133,000 while about 90,000 people have actually signed up so far. New projections now call for as few as 152,000 people buying through Connect for Health both this year and next. (Click here to see month-by-month projections for 2014 and here to see new lower projections for 2014 and 2015.)

On top of tepid numbers so far, President Obama’s decision last week to allow people to keep plans that don’t meet the minimum benefits under the Affordable Care Act may force exchange managers to further cut projections. And despite repeated claims to lawmakers, auditors and the media that the exchange is financially sustainable, CEO and Executive Director Patty Fontneau on Monday raised concerns about how she’ll afford to keep the operation going without fee hikes.

“I’m not sure the board understands how dramatic our expense cuts are going to be to hit $26 million (in annual operating costs),” said Fontneau.

Connect for Health CEO Patty Fontneau has promised to run a "lean mean" operation. Then she sought a hike in user fees on Monday. The board refused, but more fees could be coming. Fontneau and her finance chief also want to charge every insurance customer in Colorado — even those who get insurance through their employers or outside the exchange —  $1 each per month. That would add about $10 million a year to the exchange's coffers.

Connect for Health CEO Patty Fontneau has promised to run a “lean mean” operation. Then she sought a hike in user fees on Monday. The board refused, but more fees could be coming. Fontneau and her finance chief also want to charge every insurance customer in Colorado — even those who get insurance through their employers or outside the exchange — $1 each per month. That would add about $10 million a year to the exchange’s coffers.

Since Colorado created its own exchange in 2011, managers repeatedly have vowed to be a “lean and mean” organization and bragged that user fees of 1.4 percent were among the lowest in the country. For nearly two years, Fontneau and her finance chief have consistently promised to operate the exchange on a budget of between $21 million and $26 million a year. But Connect for Health has been spending millions of dollars after getting $177 million in federal tax money to launch the exchange. By the beginning of next year, the exchange must be self-sustaining.

Uncertainty about the exchange’s financial future prompted lawmakers to support a comprehensive audit of Connect for Health. The audit bill, HB 14-1257, passed Colorado’s House with nearly unanimous support on Friday and now moves to the state Senate.

Fontneau and her chief financial officer had pushed to hike user fees to 1.7 percent, which they estimated would bring in about $2 million in extra cash next year. But they failed to convinced members of the finance committee or the full board to support them.

“It’s very hard to support anything but keeping it where it is,” said board member Eric Grossman. “Why do you need it?”

Dr. Mike Fallon, another board member, said that if Connect for Health is failing to “hit our numbers,” then managers should cut expenses.

Fontneau jumped in and claimed she’s meeting projections. Indeed, the lowest estimates had predicted about 70,000 sign-ups by the end of this month, and the exchange still has until the end of this month to sign up more people. In December, customers procrastinated until the last minute and exchange managers are hoping for a similar jump in sign-ups at the end of this month.

But Fallon scoffed at the idea that spending nearly $200 million from federal grants and state funds has been “fiscally conservative.” Colorado initially received approval for $186 million in federal grants, then lost about $9 million because of the federal cuts known as the sequester, bringing the total closer to $177 million.

Fontneau said other states that are running their own exchanges are spending closer to $50 million a year in operating costs, far higher than the $21 million to $26 million Colorado has promised it would spend.

“We started incredibly lean and now we’re being told to cut, cut, cut,” Fontneau said.

That comment generated a sharp response from Fallon, who cited numbers from the original grant request.

“Spending $187 million to launch this organization is not a conservative number,” Fallon said. “187 million is not lean, mean and ultra conservative.”

Fallon said if business owners didn’t get as many customers as they wanted, they wouldn’t simply hike prices. Instead, they would cut costs to try to lure more customers.

“You don’t just say, ‘Let’s raise the administrative fees because that covers our backside.’ I know that’s the easy way out. But it’s more fiscally responsible to say, ‘I’m going to downsize if need be.’ ”

Board member Ellen Daehnick also urged exchange managers to renegotiate some of their fixed costs. Connect for Health paid the bulk of its costs — about 70 percent — to set up a complex website that allows people to sign up for health insurance through an online portal. But the process has proved so complex that it’s hardly as simple as buying a plane ticket online. Most customers have wanted either in-person help or assistance from a phone agent or a broker rather than using the expensive computer system to sign up.

All but one board member joined Daehnick, Fallon and Grossman in rejecting the fee hike. Only Arnold Salazar, head of Colorado Health Partnerships, voted to increase fees.

On top of the fees that people who buy through the exchange will pay, Connect for Health will also get money from every person in Colorado who has health insurance, regardless of whether they get it through their employer or buy it on their own outside the exchange. The Connect for Health board is expected to vote this spring on a separate “broad market assessment.” Exchange managers want a tax of $1 per person per month on every insurance customer in the state. Funds from that tax would total about $10 million per year to help fund the exchange.

Connect for Health also expects to get about $8.5 million in a one-time payment in leftover funds from Cover Colorado, the high-risk pool that used to pay for insurance for people who had preexisting conditions and couldn’t buy insurance through private carriers.

As managers and board members try to anticipate future enrollments and costs, worries are increasing that Obama’s decision last week could undermine the health of Colorado’s exchange.

“We were absolutely hit by many plans offering early renewals to their customers,” Fontneau said. “We were anticipating picking up those individuals and families at the end of this year.”

Steve ErkenBrack, president of Rocky Mountain Health Plans and an exchange board member, said Obama’s ruling could drive healthy people away from the exchange, thus increasing costs for customers in the exchange. Ultimately, he fears some carriers could decide to exit the exchange market

“This is a major deal and could impact a lot of things from the carrier perspective,” ErkenBrack said.

The longer it takes to get healthier people into exchanges, the longer it will take for the exchange to become financially stable, ErkenBrack said.

Colorado Insurance Commissioner Marguerite Salazar could reject Obama’s ruling and force insurance carriers to sell only plans that comply with the Affordable Care Act. In fact, state law requires all health plans sold in Colorado as of 2014 to be compliant.

Salazar said she hasn’t decided what to do yet.

“We are taking our time. We don’t have to do anything immediately,” said Salazar, who is a non-voting member of the exchange board. (Her husband is Arnold Salazar.)

Initially her office estimated that 250,000 Coloradans had non-compliant health plans and received cancellation notices last fall from insurance companies. She later said that about 90 percent of those customers then got the chance to renew their plans. She said she does not know exactly how many chose to do so, but said one large insurance carrier told her about one-third decided to keep their plans.

“We’re not sure today how many people that was,” Salazar said. “We don’t think it’s a big number, but we’re looking at it closely. We have not made a decision.”

Coloradans have until March 31 to buy plans through Connect for Health. After that, those who don’t buy could face tax penalties. Open enrollment won’t begin again until Nov. 15 and coverage won’t start until 2015.


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