Exchange to spend millions on high-paid employees

By Katie Kerwin McCrimmon

Colorado’s health exchange managers are planning to spend millions in the next fiscal year on highly paid employees even as managers struggle with how to pay for the exchange after the spigot of federal cash shuts off.

To fund the exchange, managers are charging a 1.4 percent user fee on customers and are considering charging a $13 million fee on all Coloradans who have health insurance — even those who don’t get it through the exchange. (Click here to read Fee to fund exchange would hit all Coloradans with health insurance.)

Starting in July, exchange managers are planning to spend about $7 million on salaries for 49 employees and their travel expenses, meetings and office space. On top of those costs, the exchange is locked into at least $8.4 million in technology costs, according to new budget documents presented to board finance committee members on Thursday.

The biggest expense for the exchange will be its Colorado Springs service center where about 200 people answered calls and tried to help consumers sign up for private health insurance. So far, the exchange has spent $17.7 million during this fiscal year on the service center. Budget planners haven’t revealed their projections for how much that center will cost next year.

A pie chart shows various costs for the exchange. Managers are trying to figure out their budget for next year when millions in federal grants will end.

A pie chart shows various costs for the exchange. Managers are trying to figure out their budget for next year when millions in federal grants will end.

Costs for people who run the exchange — whether they are consultants or full time workers — account for a high percentage of Connect for Health’s overall expenses.

Of the 49 people that Connect for Health envisions working full time in the fiscal year that starts on July 1, seven of them —or 14 percent — will be director level positions.

They include a new chief marketing officer. Myung Oak Kim, who was the exchange’s director of communications and outreach, got a 10 percent raise in April along with the new “chief” level title. She now earns $107,850 per year, up from $97,849. In March, the exchange hired a new communications director, Linda Kanamine, who gets paid $93,000 a year.

On top of those communications staffers, the exchange is spending $9,000 a month on consultants from Onsight Public Affairs, the same firm that has run Gov. John Hickenlooper’s political campaigns. Onsight has a contract with the exchange through the end of 2014.

Kanamine did not explain why Connect for Health needs communications consultants especially during the off-season when it is only enrolling a handful of customers and when Kim, the chief marketing officer, already has three full-time staffers and a part-time consultant working for her.

The other “chief” level employees include:

  • Patty Fontneau, the exchange’s CEO and executive director. She earns $190,549.92. Fontneau drew the ire of members of Congress and lawmakers when she requested a raise last fall amid a lackluster launch. Asked whether Fontneau has renewed her request for a raise, Kanamine did not provide an answer saying only, “we do not comment on personnel matters.”
  • Chief Technology Officer Proteus Duxbury. Annual salary: $165,000.
  • Chief Financial Officer Cammie Blais. Annual salary: $164,800.
  • Chief Operating Officer Lindy Hinman. Annual salary: $164,800.

Connect for Health has been using outside lawyers. (Click here to read Exchange pays outside lawyers up to $575 an hour. ) But the exchange is planning to hire a general counsel and a director for product implementation. These two additional director positions along with the five “chief” jobs bring the total director-level jobs to seven. A total of 42 people would work for the CEO, CFO, COO, CMO, CTO, general counsel and product implementation director.

CFO Cammie Blais said Connect for Health has far fewer employees than five other state-based exchanges. She declined to name those states, but said the average number is 92 employees and one has 190.

A staffing plan shows seven director level jobs and 42 other people who may work at the the exchange next year.

A staffing plan shows seven director level jobs and 42 other people who may work at the the exchange next year.

“Of these six, we are the leanest group,” she said.

In the comparison, Connect for Health did not include all its consultants or the scores of call center workers, including about 40 who will continue working even as calls to the center decrease during the off-season. So, it’s difficult to know whether Colorado is running a lean operation compared to other states.

Blais said Connect for Health is planning to use fewer consultants as it grows from a start-up operation to a mature nonprofit entity. Thus far, funded by $177 million in federal grants, the exchange has spent millions on consultants.

According to documents presented Thursday, consulting costs in the last fiscal year have included:

  • $1.8 million for technology consulting
  • $1.7 million for operations consulting
  • $128,000 for public affairs consulting
  • $116,000 for assistance network consulting
  • $12,000 for communications consulting

Connect for Health also spent $7.2 million on ads and street teams to promote the exchange.

Members of the exchange board pressed employees to show how they could drive costs down.

Exchange managers hired consultants to study whether they could renegotiate technology contracts or otherwise drive down costs.

Annual salary for CEO or top executive at state exchanges

California: $250,000

Colorado $190,550

Connecticut: $225,000

District of Columbia: $190,000

Hawaii: $175,000

Kentucky: $110,000

Maryland: $175,000

Massachusetts: $179,243 (bungled exchange – defaulting to federal)

Minnesota: $140,000

Oregon: $181,000 (bungled exchange – defaulting to federal)

Nevada: $117,000

New York: $160,000

Rhode Island: $183,000

Vermont: unavailable

Washington: $177,400

Fontneau, the CEO, said money spent on an outside attorney who specializes in procurement contracts helped the exchange negotiate good contracts in the first place.

At the most, she and Blais said they eventually could trim about 5 percent of costs by renegotiating contracts or switching vendors.

“We’re not going to be able to find a whole lot of fat and we don’t have a lot of flexibility,” Fontneau said.

Blais explained that when the exchange first negotiated technology costs, managers wanted predictable costs so they agreed to fixed expenditures. That means Connect for Health is locked into contracts.

That troubled board member Eric Grossman who compared the technology costs to building a house.

“It’s time for the contractors to leave. The house is built,” Grossman said. “Logically you’re in a less build, more run (phase). You have to help me understand if there’s more (technology) building to do.”

Otherwise, Grossman said, “Your actual costs should go down. You’re not a software company.”

Blais said she expects that to happen “eventually, once we get out of this fixed cycle.”

Along with technology costs, board members are scrutinizing personnel costs.

Board member Ellen Daehnick questioned whether it’s appropriate for a nonprofit to have five of about 49 employees be highly-paid “chiefs.”

“Ten percent of these positions have c-level titles,” Daehnick said.

Grossman, said it didn’t strike him as out of line for a relatively new entity.

“I think it’s actually pretty good for the ratio of the company,” Grossman said.

Finance Committee Chair Richard Betts said he’s eager to explore whether it’s better to have full-time employees or consultants. Initially, he said the board favored outsourcing for flexibility. As Connect for Health must become financially self-sustaining and live on its own cash, that policy may have to change.

Said Betts: “It’s a good question.”

The full board meets on Monday and Connect for Health managers plan to have them vote on a full budget and fees on June 9.

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