Health insurance premium costs for individuals and small businesses will go up significantly under the federal reform law. Some costs will be partially offset with lower out-of-pocket costs and expanded coverage, and some enrollees will qualify for subsidies, but most current enrollees will see a significant increase. At the state level, there will be a major new cost, the state Health Benefits Exchange. How much should it cost and who will pay for it are big questions.
Health Plan Premiums To Go Up
At a recent conference Jeff Roe, a senior executive with Premera Blue Cross, raised the tough question of whether the federal health care reform law “even represents progress.” His answer? “At best it’s a lateral move at this point,” particularly in states like Washington which are already progressive. Clearly it will increase coverage, and in combination with existing market forces it is accelerating many innovations, but it also represents a substantial increase in costs and dramatic increase in stifling regulation.
The cost of individual plan premiums for example are expected to increase over 50% — and more than that, if as a result, current enrollees choose to pay the inadequate penalties instead of continuing coverage. New taxes, benefits, health plan cost sharing requirements, expanded coverage implications, and other costs complete the picture.
State Exchange Projected To Cost Over $50 Million Per Year
One major contributor to the significant cost increases will be the cost of the state Health Benefits Exchange (HBE). The exchange is the state centerpiece of federal health care reform where small businesses and individuals will be able to buy insurance and determine if they qualify for subsidies. State residents will also still be able to buy insurance outside the HBE.
Federal funding will pay for almost the entire HBE budget during its first year of operation in 2014. But beginning in 2015 the state is responsible for all operating costs (subsidies will continue to be funded by the feds) .
Chief Financial Officer Bob Nakahara already is recommending a staff of about 100 employees and an annual budget of over $50 million per year. This is above and beyond the $200 million the state has already received in grants.
So much for Obama’s goal of reducing administrative costs! According to Nakahara’s enrollment projections, if HBE enrollees alone have to pay the overhead, it will force at least a 4 percent increase in their health insurance costs.
Is It Worth It?
The HBE staff is trying to sell the point that the benefits from the HBE will extend not just to the health plans within the HBE but also to the state. Hence everyone should be required to pay. One recommendation is a tax on all health care providers like hospitals.
The “public value” question begs other important questions. There may be some public value, but this could be more than offset by the proverbial danger of continuing guaranteed funding for a government program (or private monopoly) before it has established its value. One example is worker retraining programs that were poster children for public value for almost 20 years until a seminal study demonstrated how marginal the value was (since improved). Another more relevant example is the recent state Health Insurance Partnership, a precursor to the HBE, which was to help insure small businesses but found few takers (program now dead). Empty promises don’t cut it.
The “public value” argument also begs the question of whether the HBE will even enhance health care reform. Many believe that the state HBE legislation that passed this year, which added requirements and regulatory authority that exceed federal requirements, will reduce both innovation and competition. Nonetheless, the HBE board remains silent on these issues.
Currently, too much of the “public value” attributed to the HBE is simply benefits of federal health care reform in general. The federal law expands Medicaid and broadens subsidized coverage. The HBE may or may not provide efficient assistance in that effort, but in any case health plans within the HBE will be the direct beneficiaries. To the degree the HBE board looks beyond the HBE insurance plans for funding, it enters the proverbial slippery slope, complicated by redundancy, cost shift, and accountability issues.
The good news is that last Thursday HBE CEO Richard Onizuka made it clear that under the state legislation, the HBE can tax insurance plans that are sold inside the exchange, but cannot tax anyone outside the exchange without new authority from the state Legislature. So the Legislature will debate these issues.
The Exchange Should Pay For Itself
State exchanges hold great promise. A solid model will provide more useful consumer information, enhance product competition, and simplify the purchasing of health care. In fact, by 2014 there should be two to six private exchanges in Washington state, in addition to the state HBE.
The proposed $50 million state HBE may be a good model, but if so it should prove itself in the marketplace. Let the people and not government subsidization decide which model offers the most value. Federal risk allocation safeguards that are part of the federal reforms will help prevent any gaming.
What we do know is that at many decision points the state HBE has elected to include services that go beyond federal or state requirements. A streamlined HBE was not considered.
The HBE Board is struggling with all of this. Last Thursday the HBE board members on the Operations Committee were troubled by the apparent redundancy in the HBE individual plan premium aggregation service now that the feds have announced they will send advance premium tax credits directly to the carriers. They were also troubled to hear that even after the HBE call center is operational, the state will continue a separate Medicaid call center with some Medicaid calls going to one center and some to the other. Carriers are troubled by other requirements that will further increase their administrative costs.
Let the HBE pay for itself and demonstrate the value of its proposed model — or improve the model. Let the plans inside the HBE who will benefit from the subsidies and services pay the cost. However, given that the state is already diverting the existing insurance premium tax away from health care, stop this unnecessary additional health insurance cost, and give all plans a proportionate break. Further, if in fact one can identify specific costs within the HBE that directly support a broader audience and are not covered by Medicaid, use the premium tax again.
Finally, with federal funding covering HBE operations for the first year and enrollment beginning in 2013, there should be no need for additional startup funding. But if there is, instead of a new tax, consider what the state did with a similar program, the Washington Materials Management & Financing Authority. The state provided one-time funding for the first year. The program still developed one of the most expensive recycling programs in the nation, but at least it had to remain within reason or face competition.
The bottom line is simple –design a state HBE that welcomes competition and is forced to provide great service and efficiency. The right staff leadership team appears to be in place. Now it’s just a matter of getting the funding incentives right.
Washington State Wire welcomes op-ed submissions with other points of view.
To see more political cartoons by A.F.Branco go to http://www.conservativedailynews.com/category/political-cartoons/