One of the benefits frequently covered when discussing the operation of a state-based exchange (SBE) is cost savings. Let’s break down exactly what that means.
Operating on HealthCare.gov
An assessment fee is charged when a state operates its health insurance exchange on the Federally Facilitated Exchange (FFE), which is commonly known as HealthCare.gov. The fee is set annually by the Centers for Medicare and Medicaid Services (CMS), which is the federal agency that oversees healthcare.gov, and is used to operate and maintain HealthCare.gov.
The assessment fee is calculated as a percentage of the health insurance carriers’ gross premiums written for plans sold on the Exchange. Carriers are required to pay this fee to the federal government on a quarterly basis, and the amount they pay is based on their gross premiums written for the previous quarter. The fee amount varies from year to year, depending on the projected costs of running the Marketplace and other ACA programs. For example, in 2023, the fee is set at 2.75 percent of gross premium.
Here’s a real-life example. In 2023, in the state of Texas, average monthly premiums came in just under $580, and enrollment was more than 2.3 million people (about twice the population of New Hampshire). That means by the end of the year, insurers will have paid more than $443 million to the federal government. While the assessment fee is not directly charged to consumers, it can indirectly affect their premiums. Health insurance carriers pass on the cost of the fee to consumers by increasing their premiums. This means that consumers may end up paying more for their health insurance. In 2023, FFE state premiums exceeded state-based exchange premiums by more than $100 per month.
Invest Assessment Fees Back into Your State
One of the biggest financial differences between the FFE and an SBE is that instead of the assessment fee going to the federal government, it goes 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.
Let’s look at Pennsylvania as another real-life example. In 2019, Pennsylvania’s assessment fees totaled $98 million. When the state was mapping out their plan, it was estimated that to run their own exchange, the state would pay between $30 – $35 million. That means, if Pennsylvania continued to charge the same assessment fee, Pennsylvania would be looking at returning more than $60 million to state programs. In fact, a large portion of those savings were used to set up and run a reinsurance program to reduce the cost of coverage for residents who weren’t eligible for premium subsidies.
In a press release from 2021, Pennie noted:
Transitioning to a state-based marketplace and launching a reinsurance program allowed Pennsylvania to reclaim ownership of our individual health insurance market to the benefit of Commonwealth residents. Based on the choices customers made during open enrollment, the average plan cost through Pennie is 4 percent lower than last year and eligible Pennsylvanians are receiving $515 on average in financial assistance every month.
Pennie was able to achieve cost savings for consumers through its “negotiated rates with insurance companies and efficient operational model.” The exchange reported saving more than $33 million for consumers in Pennsylvania during its first year of operation.
What Your State Could Do with Millions of Saved Dollars
Many states have used the savings realized through operating a state-based exchange to lower the cost of premiums for consumers, to increase enrollment. There are a few ways this can be accomplished:
- States can opt to charge a lower assessment fee to carriers, which would decrease the passthrough costs to consumers.
- Reinsurance programs can be set up to protect insurers from high claims. Reinsurance pools are a way to stabilize a state’s insurance market and make coverage more available and affordable.
- Savings can be contributed to a larger pool that funds a state subsidy program.
- The state can also help small businesses subsidize employee coverage.
- States can invest in robust marketing and outreach to increase enrollment and improve the individual market risk pool.
Many states are taking steps to invest in their health insurance markets and increase enrollment. Bringing assessment fees into the state through a state-based exchange allows the state to better respond to the needs of their unique markets and residents.