Fee to fund exchange would hit all Coloradans with health insurance

By Katie Kerwin McCrimmon

A $13 million fee on all Coloradans with health insurance would pay half the operating costs at the state health exchange next year and in 2016 under the newest financial projections.

The proposed fee would affect at least 875,000 people and includes Coloradans who get their insurance through their employers or outside the exchange.

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Exchange managers announced earlier this week that they sold private health plans to 124,000 people through the end of March. People who buy through the exchange will get hit with two fees. They are currently paying a user fee of 1.4 percent and that fee is projected to rise as high as 3 percent by 2017. On top of the user fees, people who buy through the exchange will also pay the fee that exchange managers are calling a “general market health insurer assessment.”

Exchange managers unveiled the newest financial plan last week and the board has not yet approved it. Already, it is infuriating some exchange board members and lawmakers who oversee the exchange, known as Connect for Health Colorado.

“Not only is this not fair. It really is against the law. We have a law here in Colorado that says you can’t increase taxes without a vote of the people,” said Sen. Owen Hill, R-Colorado Springs, who sits on the exchange’s legislative oversight committee.

Hill is among lawmakers who have grilled exchange managers over their spending, including CEO Patty Fontneau, who requested a raise during the midst of a lackluster opening for the exchange last fall. All but one lawmaker in the House wanted to conduct a broad financial and performance audit of the exchange, but Democrats in the Senate killed that bill. (Click here to read Exchange pays outside lawyers up to $575 an hour and click here to read Republicans furious as Dems kill exchange audit bill.)

When asked about the proposed fee on all Coloradans, Hill said he’s been trying to get detailed financial information on the exchange and has gotten few answers.

“They’ve carved out this special protection for themselves by limiting themselves from an audit and limiting themselves from the oversight of elected representatives,” he said. “Obviously, I’ll keep fighting to get more transparency.”

Exchange managers face a legislative oversight hearing on Thursday. The newest financial models raised eyebrows among some Democrats on the oversight committee as well, but none wanted to comment until they study the numbers.

Exchange managers also could face trouble getting their own board to approve the fee.

“I’m personally against any increased assessment against anybody. It’s another tax. It’s another way of redistributing costs across the entire Colorado marketplace,” said Dr. Mike Fallon, an exchange board member who sits on the finance committee.

“I want to see a hard budget and see where we can cut expenses. I’m not convinced we need a broad market assessment until I see very specific numbers,” Fallon said.

Fallon joined all but one board member last month in rejecting a hike that managers wanted in the user fees from 1.4 percent to 1.7 percent. (Click here to read Exchange CEO complains of ‘cuts, cuts, cuts,’ but board refuses fee hikes.)

Board member Eric Grossman echoed Fallon’s concerns about fees and taxes.

“I have been the biggest proponent of it (Connect for Health) being fiscally accountable. To be a fiscal steward of taxpayer dollars, if we have lower revenues, we have to have lower expenses. That’s how you run a business,” Grossman said.

“I’m a firm believer that the exchange should stand on its own based on revenue generated through the business,” he said.

“Sustainability means matching expenses to revenues. That’s unwavering,” Grossman said.

Board member Richard Betts, who chairs the finance committee, said the fee on all people with health insurance may be reasonable because everyone saves money in the long run if more people get insurance. When uninsured people need care, they go to ERs and pay very little for the most expensive care. Hospitals then pass those costs along to taxpayers and people with insurance.

“Our goal is to have access and affordability and to do that by trying to spread the burden through all policies written in Colorado,” Betts said.

“The exchange should benefit everyone who has insurance,” Betts said.

He said, however, that he hasn’t made up his mind yet on the fee, which should come up for a vote in the finance committee in May and before the full board in June.

Fallon is taking a harder line on costs. He said exchange managers appear to have had an open checkbook for everything from technology spending to consulting costs.

“It all seems irresponsible to me,” Fallon said. “At the board level, we don’t get down to day-to-day decisions.”

But he said it’s odd that exchange managers want to hike fees now when they came close to their own mid-level enrollment projections of selling private insurance to about 136,000 people.

“I find it interesting. Now that we’re almost hitting our numbers and doing pretty well on enrollments, they want to increase fees. If we were self-sustaining at 150,000 (enrollments) and we now have 120,000, why do we have to raise fees?” Fallon said.

Connect for Health Chief Financial Officer Cammie Blais said she had to adjust the financial models because some of the people who signed up for health insurance have not paid for it. In addition, others are canceling their insurance for a variety of reasons. Blais is now forecasting a loss of as many as 20 percent of this year’s enrollees.

Furthermore, Blais said the average premium per member is lower than expected. That means user fees based on those premiums are producing lower than anticipated revenues.

Blais said she’s not supporting one funding source over another. She’s simply trying to make sure Connect for Health is bringing in enough money to cover costs.

“My responsibility was to come up with something that would be a balanced approach,” Blais said. “The idea is not to be too dependent on anything and not to undermine the stability as we build a customer base.”

Blais said many of Connect for Health’s costs are fixed, like technology contracts that she can’t cut.

She said there are other variables that the exchange can’t control. For instance, President Obama decided to allow people to keep canceled plans that did not comply with basic requirements under the Affordable Care Act. That meant fewer people than expected bought through the exchange this year. Obama has said people can keep those plans longer than this year, but it’s unclear whether Gov. John Hickenlooper and Insurance Commissioner Marguerite Salazar will allow people to keep those plans since Colorado outlawed non-compliant plans.

“In spite of your best or worst projections, some things are still out of your control,” Blais said, citing the renewals of canceled plans. “We also don’t control the average premium.”

She said the exchange has always sought a diverse revenue stream in its early years, but some of the ideas about where money would come from have not materialized. In the earliest days, managers thought they might sell or re-license some of the expensive technology that Colorado used for its online portal. But that hasn’t happened.

Board members also did not want exchange managers to focus on selling ancillary products like vision insurance last year when they faced a massive challenge of creating and opening the exchange by October. The board is now allowing some sales of ancillary products, but those revenues are not expected to amount to much.

The legislation that allows the fee on all Coloradans with health insurance does not require it. It allows the board to charge a fee up to $1.80 per member per month on all insurance carriers in both the group and individual markets. (Click here to see House Bill 13-1245.)

For months, Blais had been forecasting charges of about $1 per member per month on 875,000 people, which would have brought in $10.5 million. (Click here to see that earlier financial model.) Now that board members have refused to hike user fees, Blais has increased projections for the fee. She’s now figuring that it will have to be at least $1.25 per member per month. That would generate $13.1 million.

Blais said exchange managers are not pushing for one revenue stream vs. another.

“We don’t have a stand on it. We want to have balanced revenue. There are people who believe it’s better to have a broader assessment. There are benefits to the market as a whole,” she said.

Colorado had a similar broad fee on people who had health insurance that used to fund Cover Colorado. The now defunct health insurance program used to cover people with high-cost health problems who couldn’t get care through commercial insurance carriers. Now that insurance companies can no longer exclude people for pre-existing conditions, all of those people can buy insurance through the exchange.

The exchange is scooping up some of the reserves left from Cover Colorado. Last year, the exchange got $15 million from Cover Colorado and the state’s unclaimed property fund. This year, Blais estimates Connect for Health will get about $8.5 million.

Blais said the Cover Colorado assessment used to help a much smaller pool of people — about 15,000 who couldn’t get insurance elsewhere.

“The legislature made the determination that it was worth it to have an option for people,” Blais said.

Now that insurance companies can no longer deny people coverage, Connect for Health is ensuring coverage for people who need it the most, Blais said.

“The idea would be that we would do this for a very short time until we learn about this new world,” she said. “We have always wanted to stay as lean as possible.”

The SB 200 that created the health exchange, Senate Bill 11-200, said it had to be financially self-sustaining by January 2015 and barred exchange managers from using general fund dollars to prop up the exchange. The measure that allows the fee on everyone passed last year. House Bill 13-1245 allows the exchange board to charge insurance companies the fees, which carriers then pass along to customers.

Exchange managers have received $177 million in federal funds to set up the exchange, but the spigot on those tax dollars dries up at the end of this year.

Editor’s note: An earlier version of this story referred to the insurance company assessment as a tax. Under Colorado law, the assessment is identified as a fee.

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