Exchange managers propose major fee hikes to cover $54 million annual operation

By Katie Kerwin McCrimmon

Colorado health exchange managers want board members to max out a broad market assessment on health insurance customers across Colorado through 2016 while also hiking fees on exchange customers from 1.4 percent to at least 3.5 percent — and possibly as high as 4.5 percent.

Connect for Health store front

“This is a really critical period. We need to become sustainable. We also need to make sure we have adequate sources of funding to keep the organization strong,” said Gary Drews, outgoing interim CEO for Connect for Health Colorado.

Before the exchange board meets again later this week to vote, Colorado’s legislative oversight committee will meet on Wednesday to review Connect for Health Colorado’s finances and sustainability plans.

Health insurance companies must file their 2016 rates with Colorado’s Division of Insurance by the end of May. The insurance industry’s lobbyists pressed Monday for a quick decision and warned board members not to hike user fees too high since all of those costs get passed along to customers.

“The challenge really is finding the right balance,” said Ben Price of the Colorado Association of Health Plans. “Fees do factor into the base. … Be diligent. Shoot for the right number and do it very, very quickly.”

Insurance broker Brad Niederman also spoke during public testimony and warned board members that if they hike rates higher than the 3.5 percent that the federal health exchange charges, more and more people will simply call for Colorado’s health exchange to be folded in the federal exchange.

“We want a state exchange. If we raise fees higher than the (federal) model, people will say, ‘Look, it’s costing more than the federal exchange.’ I don’t think we want to add fuel to that fire.”

Previous exchange managers had for years said that Connect for Health could operate on about $26 million a year. Drews now has outlined a much more frank budget, showing that Connect for Health will need to spend at least $50 million to $54 million a year to survive.

Even then, Colorado’s exchange will face an uphill battle to achieve sustainability. And the financial projections are based on aggressive targets for luring nearly 300,000 people a year by 2018 to buy private health insurance through the exchange. So far, about 150,000 have bought for this year.

“In the out years of ’17 and ‘18, we’re still burning cash under any scenario,” said board member Davis Fansler. “You’re talking about getting up to 295,000 (customers) in 2018. We’re still in a negative cash-flow situation. It would appear to me that we’re going to need to get fairly far north of that number to be sustainable.”

Drews conceded that several critical components need to be “firing on their full pistons” in order for the exchange to survive and thrive.

He also said that he found a “glaring” problem when he arrived last fall: Connect for Health didn’t have enough people to run its operations.

“We don’t have the depth in place to be able to invest in our future,” he said. “We’re holding the organization to an arbitrary set of expectations about what it costs (to run). We’ve got to get the people in place to invest in each of these cases.

“It’s eminently sustainable, but it’s going to take some creativity,” Drews said.

Even with the higher projected spending, exchange managers are planning to dramatically cut spending on marketing and on a statewide network of health coverage guides.

In part, that’s because costs for IT contracts and the call center have continued to swell.

The exchange’s IT expert Adele Work estimated that managers will need to spend an additional $8 million during the next fiscal year in new IT costs. That’s on top of fixed IT costs of $8 million a year. Meanwhile the Colorado Springs call center has blown its budget, costing about $21 million this year. Managers are trying to drive those costs down, closer to $18 million for next year.

Some members of the public and the board pressed for Colorado officials to do all they can to keep a state-based exchange in Colorado.

“We have our challenges,” said board member Steve ErkenBrack.

But “we can talk to each other and try to fix our problems.”

Dr. Mike Fallon worries that costs will continue to escalate every year. Drews mentioned that one state-based exchange is seeking revenue to cover $74 million in costs.

“This year we’re talking about $54 million. We’re already being told of states looking at $74 million,” Fallon said. “My concern is that we are spending money at an incredible clip and we’ve yet to prove our value proposition. We had a tough year this year and our consumer base will agree with that. I hope our board next year won’t be asked for another bump because it’s unsustainable on the level we’re at. To me, it’s a huge concern.”


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