November 22, 2011

Health exchange board ponders how to pay for key element of reform act

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By Glynis Kazanjian
Glynis@MarylandReporter.com

The state’s Health Benefit Exchange Board has five weeks to deliver recommendations to the legislature outlining how a federally mandated health insurance exchange program will be implemented and paid for. The report is due in late December to give the General Assembly time to pass legislation affecting the exchange, which is supposed to be up and running by January 2014.

The Exchange Board met last week in Baltimore but has yet to determine the cost to operate the exchange.

“We don’t know yet,” said Rebecca Pearce, the Exchange Board’s executive director. “Some of it will depend on the policies and the number of people in the exchange.” The Board is working with Wakely Consultanting Group to help with the budget framework.

Exchange programs in other states cost between $30 and $40 million annually, according to Pearce. The Massachusetts model showed information technology accounting for 60% to 70% of their program’s costs.

“We’re identifying good and reasonable sources of funding based on who’s benefitting from the Exchange,” said Health Secretary Joshua Sharfstein, the Exchange Board chairman. “To me the question is who really benefits. It’s not really unfair to ask [those benefiting from the exchange] to be engaged in the financing.”

The exchange was established through the Maryland Health Benefit Exchange Act of 2011 last April as part of a federal mandate created by the Affordable Care Act of 2010. The exchange would serve as a statewide broker for health insurance plans for small businesses and individuals.

A major policy hurdle the Exchange Board faces is the effect on the small group health insurance market when the exchange is introduced here. There are less than 10 small group and about 50 individual health insurance carriers in the state, according to industry officials.

Goal is to make premiums affordable

The goal is to be able to incentivize health insurance carriers enough so that affordable premiums will be available to a high population of uninsured Marylanders. Currently the state estimates there are 750,000 uninsured residents.

“We want to make sure we can fully assess the impacts of making too many changes to the markets at once,” said Pearce. “There was a fear heard during the advisory committee meetings that carriers won’t participate if the policy decisions are too onerous.”

Pearce said the Board wants the ability to modify the model over time.

The Board also has to decide the structure of the exchange. Some of the major components being considered include:

  • Merging the small group market with the individual market within the exchange. This would require insurance carriers to offer both plan types;
  • How to effectively market hard-to-reach population segments, including racial groups and groups with language barriers;
  • Offering an alternative basic health plan through the Affordable Care Act that would be managed by the state Medicaid system. This strategy could lower the number of high risk participants in the exchange pool while increasing low risk enrollees, resulting in lower premiums;
  • Increasing the number of employees in the small group market from 50 to 100, in order to increase the number of enrollees, which would result in lower premium fees;
  • Participating in “Selective Contracting,” a strategy allowing only certain health insurance carriers to participate in the exchange. Opponents say this would negatively impact the small group market outside of the exchange.

Cigarette tax hike, other taxes are options for funding

Some members of the Exchange Board and Health Care Commission have suggested increasing the state cigarette tax $1-per-pack to pay for the Exchange. Other funding ideas include taxing the health insurance carrier industry; a broad assessment on the health industry, specifically hospitals; redirecting current revenue; and, multiple funding streams including taxing businesses operating in the exchange.

Next year, the U.S. Supreme Court will hear two key arguments from lawsuits brought by 26 states opposing health care reform. The high court will determine whether the law’s individual mandate to purchase health insurance is unlawful, and if that finding would make the rest of the law unenforceable.

When asked if the state would stay on course with the exchange if the court found the health care act unconstitutional, Lt. Gov. Anthony Brown, co-chair of the Maryland Health Care Reform Coordinating Council, said in a statement:

“I am confident that the Supreme Court will find the Affordable Care Act to be constitutional, but given the range of possible rulings it does not make sense to speculate. The Affordable Care Act is the law of the land and we will continue moving forward to ensure Maryland’s exchange is up and running by 2014 as required.”

To date, the federal government has awarded Maryland $34 million to get the exchange going. Beginning in 2015, federal funds will dry up and the state will have to sustain the program on its own.

The exchange board will meet three more times before it submits its report, which is due to the governor and legislature by Dec. 23.