The Affordable Care Act (ACA) offers states the flexibility to choose between a State-Based Exchange (SBE), a Federally-Facilitated Exchange (FFE), or a State-Based Marketplace on the Federal Platform (SBE-FP). Of the three options, operating as an SBE offers states the most benefits. Let’s take a look at some of the positive financial aspects of SBEs.
One of the biggest financial differences between the FFE and an SBE is that instead of the assessment fees going to the federal government to support the operation of HealthCare.gov, they go directly to the state. State-based exchanges have more control over their operations and can tailor their programs to meet the needs of their state’s population. This can lead to greater efficiency and lower costs.
Switching to an SBE allows states to exercise greater control over their health care marketplace, leading to improved accessibility, affordability, and financial benefits. The cost of establishing an exchange has decreased significantly, while technology and performance have improved, making it easier than ever for states to operate their own exchanges. By carefully analyzing their circumstances and evaluating financial implications, states can develop comprehensive strategies to unlock these benefits.
States can then decide how to best use remaining assessment funds such as:
- Returning the funds to residents in the form of lower premiums
By establishing their own exchange, states can tailor programs to their specific needs, driving cost efficiencies and promoting competition among insurance providers. This leads to more affordable health care options for individuals and families. For example, those savings can be returned to consumers, create state-funded reinsurance to lower consumer premiums, or be invested in state-specific programs.
- Create state-funded reinsurance plans
At a high level, these programs provide payments to health insurers to help offset the costs of certain medical claims. These savings, in turn, are passed down to the consumer in the form of lower premiums than the insurers would be able to offer otherwise.
- Invest in other state-specific programs
SBE can collect fees from participating insurers, creating a greater opportunity to redirect funding that would have gone to the Federal Government had a state chosen to remain an FFM. These funds can be used to improve health care infrastructure, expand coverage options, and enhance the functioning of the SBE.
- Tailored Programs and Innovations
SBEs empower states to design and implement innovative programs addressing specific health care challenges. By taking a localized approach, states can better serve their residents while optimizing financial resources. For example, in 2020, New Jersey launched its own program called New Jersey Health Plan Savings (NJHPS). The subsidy is available to households with annual incomes up to 600% of the Federal Poverty Limit (FPL), but the amount is based on household income, family size, and the cost of the health insurance plan selected. Now, thanks, in part, to the state program, 9 out of 10 New Jersey residents have access to lower premiums.
- Data Transparency, Accountability, and Data Analysis:
SBEs foster transparency and establish oversight mechanisms, ensuring compliance with regulations and fair treatment for consumers. Enhanced data collection and analysis capabilities enable states to make data-driven decisions, improving health care delivery and policy formulation. By switching to a SBE, States will also have the data to enhance and create more targeted marketing efforts. The FFM does not provide any data for marketing. Having data about insured and uninsured citizens allows States to take advantage of the federally-funded tax credits available to the underserved (400% FPL) populations. Alternatively, or additionally, these savings can be used for a reinsurance pool, further lowering premiums.
Establishing an SBE also gives states the autonomy and flexibility to address their unique health care needs and plan for future market-based reforms. SBEs serve as foundations for creative and market-oriented health reforms. With additional regulatory and design flexibility, SBEs can effectively implement new programs and support mixed households and churn population, optimizing the consumer experience and preventing coverage gaps.
States like Idaho, Nevada, Minnesota, Pennsylvania, California, Washington, and New Jersey have witnessed firsthand the benefits of state autonomy and flexibility. In the current health care crisis environment, it’s crucial for states to take authority over their health insurance markets, planning for future reforms that enhance consumer choice and affordability.
These states are also able to operate their marketplaces at lower costs than other states — and the federal government. Today, federal platform fees (2.75% of premiums in 2023) are passed along to consumers in the form of higher health insurance premiums. These savings can be combined with federal passthrough dollars to fund a reinsurance pool to help lower premiums and/or invested in state-specific programming
By considering the financial advantages, tailoring health care programs, and taking control of their marketplace, states can create a more accessible and efficient health care landscape that meets the needs of their residents.