States transition to state-based health insurance marketplaces for various reasons – the potential for more efficient operations, increased autonomy in managing their insurance market, and the opportunity to align with health reform objectives that best fit the specific needs of the state and its residents, to name a few. 

But let’s focus on a fourth incentive: financial. Over the years, states have been able to operate their exchanges at a lower cost than the federal government. But the true power of cost savings with a state-based exchange lies in its potential to recapture operating fees from the federal government and redirect them to the state. 

Reclaiming State Dollars from the Federal Government 

When a state operates its health insurance exchange on the Federally Facilitated Exchange (FFE), commonly known as, the federal government charges an assessment fee. This fee is set annually by the Centers for Medicare and Medicaid Services (CMS), the federal agency overseeing, and is used to operate and maintain 

The assessment fee is calculated as a percentage of the health insurance carriers’ gross premiums written for plans sold on the federal exchange. Carriers must pay this fee to the federal government quarterly, 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. 

One of the biggest financial differences between federal and state exchanges is that instead of this money going to the federal government, it instead goes to the state. This financial reclamation not only empowers states to manage their exchanges but also enables them to allocate these resources toward specific state priorities, reducing federal influence and fostering greater autonomy in decision-making processes. State-based exchanges have more control over their operations and can tailor their programs to meet the needs of their state’s population. 

When a state operates on the FFE, crucial decisions regarding open enrollment schedules, special enrollment periods, user fees, and other operational aspects are made in Washington, D.C. Transitioning to an SBE returns this decision-making authority to the states. This pivotal shift gives states the power to customize enrollment timelines, user fees, and other essential policies, reflecting a more localized and responsive approach to health care management. It empowers states to determine their own agenda and direct the flow of dollars in their state. 

Leveraging State Autonomy 

Many states have taken full advantage of this control over their SBE to help increase enrollment by their citizens and power their local economy. There are a number of ways this can be accomplished:  

  • States can opt to charge a lower assessment fee to carriers, which would decrease the passthrough costs to consumers, potentially lowering premiums.  
  • 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.  
  • States can allocate funds to a larger pool that funds a state subsidy program.  
  • Creating a state-based exchange generates local job opportunities. 
  • States can invest in robust marketing and outreach to reach underserved and underinsured communities. 
  • Higher enrollment can ultimately improve the individual market risk pool, improving costs across the board. 

Many states are taking steps to invest in their health insurance markets and increase enrollment. Keeping assessment fees into the state through a state-based exchange allows the state to better respond to the unique needs of their residents and redistributes health care market control away from the federal government and back into the hands of the state.